Gambling with market timing

There's definitely a thrill when cherry picking stocks near their lows and watching them climb back out of their holes. I got lucky on a number of stocks recently like CSE, NTGR, AMD, PAR, CCRT, AAPL.

Still, I definitely have some losers this year as well, such as VDSI, DBTK, OMTR, OXPS. These are Motley Fool stock picks, so I'm willing to hold at least another 12-18 months for signs that the companies will be able to turn around. I've continued to buy down on these so my price point is lower than what you see above, but have reached my limit and will not buy anymore.

Looks like May could be another downer month, so I'm adding cash into my Zecco account for more bottom fishing. StockTradingToGo and askStockGuru are recent technical analysis sites I've been reading. You'll be able to track my trades at ZeccoShare, Cake Financial, and Icarra.

Net worth update: April 30, 2008

Savings / Checking : $ 68,000     Last Month : $ 78,000
Illiquid assets    : $      0     Last Month : $      0
Taxable Investments: $252,000     Last Month : $226,000
Retirement Accounts: $219,000     Last Month : $218,000
Credit card debts  : $ -5,000     Last Month : $-11,000
Combined Net Worth : $534,000     Last Month : $511,000

Well it was a pretty good month. That big jump in our taxable investments was me adding another $10,000 in funds into Zecco combined with some great comebacks on a few of our stocks, and my wife's scheduled ESPP purchase. That ESPP money is basically in limbo until the purchase occurs. I suppose that could be listed in Illiquid assets, but I'm not going to check her paystub right? Hmmm... You can track my stock purchases on two portfolio sites I use: Cake Financial and Icarra.

Our rent is increasing by 8%. Our apartment in San Francisco is not eligible for rent control since it was built after 1979. That means a little less savings each month, but I think I can get around that by contributing to pre-tax 401k rather than after-tax Roth(k). I'll have to think about that. I'm currently contributing 10% to pre-tax, and 5% after-tax. By going to a full 15% pre-tax, I think I could regain the rent increase. Still, more to calculate.

The housing market is still looking pretty poor. Patrick.net is pretty much all doom and gloom. There's a web site trying to petition against the housing bailout at AngryRenter.com. It will be interesting to see whether that's successful or not.

Market timing and portfolio diversity

I gave some anecdotal evidence earlier about market timing. Well, here's some actual empirical evidence in a study by a Michigan University Professor Dr. H. Nejat Seyhun.

95% of the market gains between 1963 and 1993 stemmed from the best 1.2% of the trading days

The index gained at an average annual rate of 11.83%, for a cumulative return on $1.00 of $23.30 over 31 years. If the best 90 trading days, or 1.2% of the 7,802 trading days, are set aside, the annual return tumbles to 3.28% and the cumulative gain falls to $1.10

In the 1926-1993 period, missing the best 5.9% of the months (a total of 48 months) would have created exposure to 83% of the risk of continuous stock market investing, but the average annual return would have been 19% less than the return on Treasury bills.

In the 1963-1993 span, missing the best 0.8% of the days (a total of 60 days in all) created an exposure to 94% of the risk of continuous stock market investing. In this situation, the average annual return would have been 11% less than that of Treasury bills.

Of course, I'm curious to see a similar study include 1993 - 2008, and see whether it still makes sense to always stay in the market. The dot-com boom & bust is my main scrutiny here.

Yahoo Finance Chart of Dow, Nasdaq, S&P 500 from 1/4/1993 - 4/1/2008

That chart shows that had you put money in the market in January 1993, and forgot about it until now, you would still be sitting on a 200% - 300% gain. The tech-heavy NASDAQ hasn't yet climbed back to its 2000 peak, but both the DOW and S&P500 have already surpassed their dot-com highs while pulling back a little during the beginning of 2008. Makes sense to diversify after looking at that, unless you're trying to time the market and strike it rich/bankrupt really fast.

Being human, we probably can't forget about our money, and emotions can easily drive us to panic sell and get out of the market during declines. For the Nasdaq in hindsight it was a good thing to do at the peak. But again, that would have meant you could time the market. The overused phrase from Warren Buffett "Be fearful when others are greedy, and greedy when others are fearful" are words I've taken to heart. I've even put them into practice during the recent market declines.

Icarra.com portfolio tracking

Thanks to the first commenter on my blog, I was referred to icarra.com, a free portfolio tracking site. It's my first hour using it, but here's my Scottrade IRA account. I'm a Motley Fool subscriber, so pretty much my whole IRA contains picks from them. But back to Icarra.



Icarra gives me a portfolio breakdown by sector, so I can see where I might be overweight. I share my portfolio by NAV, which means now my whole IRA looks like a single Mutual Fund for the public to track as well. I don't know the mathematics behind NAV calculation, but Icarra makes it easy.

I imported my Scottrade transactions via .qif (Quicken). However it's a beta feature for Icarra currently, so all my Sell transactions had double-negatives, which treated them as positive cash and positive share additions. So I had to remove all the '-' symbols in the Sell transactions that were imported.

Icarra doesn't understand my Call/Put options, but that's small $ so I didn't worry about too much. Overall, the web site is a bit plain, but gives me a good tracking method for my portfolio. I might start using this over Cake in order to watch my taxable investment accounts as well, and comparing them with the S&P 500.

Apparently, Icarra also doesn't show the current day's performance until later in the night? The markets are closed after a huge rally today (4/1/2008), but I can't get it to show me performance statistics past 3/31/2008.

Net worth update: March 31, 2008

Savings / Checking : $ 78,000
Illiquid assets    : $      0
Taxable Investments: $226,000
Retirement Accounts: $218,000
Credit card debts  : $-11,000

Looks like our Net Worth is right around $511,000! The credit card debt is due to a big vacation we're taking in April so expect a reduction in our savings / checking next month. I'm estimating another $2500 extra for vacation spending while we're on the trip.

My Cake Portfolio is only a fraction of my investments and retirement accounts. They don't yet support direct mutual fund accounts. I also haven't included my Scottrade IRA account yet either. When I feel more comfortable publishing that, I will.

I'm tempted to put more of our Savings into stocks in anticipation of the next bull market wave, but I'm still hesitant as the current situation still looks bleak. We're looking into buying a house/condo/townhome within the next 12-18 months, so we probably will keep our cash in cash, and try to save as much as we can.

I'm hoping housing prices continue to trend downward over the next year, and perhaps lenders will be okay with a 10% down payment without a second mortgage. Who knows? I'm even thinking of buying a firearm and stocking up on durable goods and rations. Hahaha.

Lump sum vs dollar cost averaging

Since I chose to roll over my IRA into a stock trading account in January, I opted to buy a little at a time. This fortunately saved me from a massive drop during January and February. I suppose it simply depends on the timing.

Mymoneyblog.com had some interesting viewpoints on this. I had around $150,000 rolled into my IRA account. Here's my exception to the rule.

Beginning January 03, 2008, the S&P 500 ended at 1447.16. That's when I started purchasing stock in small bites. Throughout January, as the S&P 500 slid down to 1350 on January 22, I continued to add to my positions, averaging my initial costs down. So my IRA has a +4.44% gain year-to-date while the S&P 500 is currently sitting at -10.03% year-to-date. My previous blog entry was higher, but it got hit hard on Friday.

I'm curious though, if there is any software that can track my stock purchases versus an equal dollar cost of the S&P 500 for each of my stock transactions. Because as it stands, I believe most tracking software compares your portfolio against the S&P 500 as a single transaction from the start date of comparison, though there may have been multiple periods between where you may have purchased stock. That way I'd be more fair, because there are certainly some dips in the S&P 500 down to the 1273 and 1276 on separate days this year that would have come out to be gains as well.

Don't time the market with your retirement

At the end of December 2007, I completed the paperwork to roll over my former employer's 401k into a Scottrade IRA. The transfer completed in the first week of January and I started gradually buying up stock. The markets tanked in January, and my portfolio simply kept bleeding away as I continued to catch the falling knives.

A friend decided to move a chunk of his 401k into a cash fund, because he didn't want to lose money. In doing this, I felt he was trying to time the market. I referred him to various articles explaining the reasoning of staying in the market versus cash. But it was already done, and there was a 60-day waiting period before he could move the cash back into a mutual fund.

While I consider myself a long-term-buy-and-hold investor, I've also been fairly risky with my investments. I know I have a 30+ year time horizon for my retirement portfolio to grow, so I'm pretty heavily overweight on growth stocks and am prepared to ride the roller-coaster of volatility. My friend on the other hand probably had less tolerance for market volatility. His answer to me was "Nobody ever complained about not losing money."

So while my stocks jittered and juked up and down in January and February, my friend maintained a stabler portfolio. In the beginning of March I reminded him that his 60-day waiting period is probably over, and that he should be moving his cash back in. He missed the big rally that started on March 18. My IRA clawed its way out of -10% all the way up to +8% today, all in the span of 5 trading days.

His remark strikes me still, because while surely he didn't lose money, he lost the opportunity to make money. This is where risk aversion can have a detrimental effect on retirement returns. For my time horizon of 30+ years I am eager to see how my growth weighted stocks will perform. Hopefully, they're not all subprime, right?

Zecco review March 2008

Zecco.com is having sporadic issues today. I intermittently get Service Unavailable errors. I did put in a couple orders, which you can follow on my Cake Financial portfolio.

I recently rolled over my Scottrade account to Zecco. My Sharebuilder account is in progress, as I didn't have the required $50 in cash to process the account transfer fee. Scottrade didn't charge me anything to transfer to Zecco. It's a little dumb, since Sharebuilder sells off all partial shares before transferring, and now my cash balance is almost $200, which would have covered the account transfer fee.

The main reason I was drawn to Zecco is of course the $0 commissions for up to 10 stock trades a month. After that, it's $4.50/trade which is still a damn good deal. However, their website has a lot to be desired. Their ACH checking account transfer page is lame -- doesn't match their site aesthetics at all. This probably has to do with their interface to Penson Financial -- the securities firm behind Zecco.

In this volatile market, Zecco allows me to buy "nibble" positions -- small trades at $100 or $200 at a time, without having to worry about the commission cost, which would definitely add up over time.

For an ACH transfer from my checking account, $5,000 got posted to Zecco within 2 business days. For an ACH transfer of $10,000 and above however, I have to wait 5-7 business days.

Zecco does allow dividend reinvestment, but you must submit the request in writing to their customer service explicitly stating which ticket symbol you wish to reinvest. Zecco does not do partial shares, so you'll have a cash remainder after.

For each trade I've made, however, Penson Financial sends me paper mail of the transaction. I'm not sure how to turn that off. I'll be contacting customer service. Customer service normally takes around 2 days to respond to e-mail. When I called them, the wait time was around 10 minutes.

For the stocks that transferred from Scottrade, Zecco shows them as having a $0 basis, which of course is wrong. I didn't really expect that to transfer, but somehow Cake Financial downloaded the transactions from Zecco and still maintained the original basis. Neat.

I still use my Scottrade account for the Realtime ticker applet, as Zecco charges a fee for that functionality. I would recommend Zecco to any buy-and-hold investor who wants to slowly get into stocks. While Sharebuilder offers the same "nibble" methodology, Zecco is completely free for 10 trades/month if your account is worth $2500 or more.

Mint.com and our net worth: $370,000

After looking for online tools for managing my finances, I found mint.com and loaded a bunch of my accounts. I was surprised that they even support Dodge & Cox, our largest taxable investment account, as well as our local credit union. Apparently they use Yodlee as their backend to access your accounts. I'm still leery about providing the username/password information though.

After loading up all our credit cards, savings, checking, and investment accounts our total net worth is around $370,000. We don't have a house, so no difficult calculations on principal and current value. We do plan on buying a home, but that's another story.

Mint.com is does the job of aggregating finances together on a single site. It does not keep track of individual investment positions, just the total value of your investment accounts. It takes recent purchases and finds possible alternatives, like our Wells Fargo checking account could be making more money if it were instead an Etrade Max Checking account. Or our credit card could be getting a lower interest rate.

We can set up budgets for particular spending categories like Entertainment, Grocery, Gas, Restaurants, and Shopping to begin with and starts with a default budget based on the past transaction history. We can set up E-mail or SMS alerts based on certain criteria such as large purchases, low bank balances, if there are any Fees charged on your accounts.

Update 3/26/2008:
I haven't added everything in Mint.com so our current net worth is probably a lowball figure. Current estimates bring it to around $450,000. Current 401k plans and Employee Stock Purchase Plans add at least another $80,000 to the $370,000 quoted in the title.

What would I do differently?

When my parents introduced me to mutual funds with a Roth IRA, I thought the idea of dividend reinvesting was so novel! I did nothing and yet my fund kept growing and growing with more and more shares. I continued this practice, except in a normal taxable account. This is one thing I wish I did differently.

I keep having to pay taxes each year on my mutual funds that I have outside of a 401k or IRA account. In the future I plan to segregate all dividend-paying stocks and mutual funds into my 401k or IRA accounts, and hold stocks in both retirement and taxable accounts. Of course, I wasn't as patient an investor nor as wise as I am today, so if I had been in more stocks back in 1999, I probably would have gotten trashed during the dotcom bust and left the stock market forever discouraged.

I probably should have bought a home back in 2003, when the interest rates were among the lowest ever, and a townhome in Santa Clara still cost $400,000. I would have gotten a 30 year fixed mortgage, and I would be diligently paying it down to this day. With my rent now at $2500/month, I think I'd be paying the same for my mortgage today. It's difficult to say how that would have affected my thinking, as I have switched jobs twice in the past 5 years, to higher position and salary. Perhaps I might have been more conservative and less likely to look for jobs while I had a mortgage.

Also, there are now very inexpensive online brokerages that let you nibble on small stock purchases with low commissions like Sharebuilder, Tradeking, Zecco. These brokerages offer much lower commissions than Datek (now Ameritrade), E*Trade, Ameritrade back in the early 2000 years. I have Scottrade and Zecco accounts, as well as direct accounts with several mutual funds.

I use the Scottrade account for their free real-time java applet, and Zecco for their free 10 trades / month. Since I'm investing for the long term, I want to just buy and hold for at least a year. Sometimes I sell losing stock at the end of the year for capital loss deductions on my tax return, and then buy it after 31 days to prevent a wash sale.

Portfolio tracking

Cake Financial is a site I stumbled upon recently. It loads the transaction history from various online brokerages (you give them your brokerage login/password) and plots your aggregate performance. I'm not entirely sure whether it keeps track of your sold position performance -- I hope it does.

You can also follow other people on the site, and compare performance with one another. You can get notifications when people you're following make trades -- which stock they traded. Actual stock prices aren't listed in the notifications nor do you see actual dollar amounts within other people's portfolios. If you look at my Cake banner on the right, you'll just see my allocation percentages.

I've used Microsoft Money and Yahoo Finance to keep track of my investments, but was never satisfied. Cake Financial doesn't leave me satisfied either -- there are still a lot of bugs they need to fix. Like my Zecco trades always seem to be listed from the future settlement date, and each time Cake refreshes account data, it thinks I've gone ahead and traded the stock repeatedly.

Cake doesn't know how to handle short positions, nor options at this time. Perhaps at a later date...

What software or websites do you use to track your portfolio?