AskDong

My investment update missed the big rally from yesterday, and big decline today. Given that yesterday and today are a wash, my results are actually quite current. May was an uneven month. The market neither rallied or tanked. Though the Nasdaq and the Dow diverged. The Nasdaq outperformed the Dow.

Below is my historical performance. I’ve added the the performance of my complete portfolio to the chart.

Brokerage Accounts: Accounts in which I pick individual stocks and some mutual funds. My IRA account(s) are amongst these accounts.
Asset Account: Accounts in which I managed on basic asset allocation principles. These accounts accounts consist of my 401k and Vanguard accounts.
All Classes: Total from all accounts

I’m a little late on my investment update as I’ve been trying to get it out around the 1st of the month. The month of April pretty much continued how it started. The market rallied while I lagged relative to market. My lagging is not very surprising given that I have quite few put options on the NASDAQ and the DOW. Those haven’t worked out very well recently, but I guess that’s what hedges are for.

I am finally up for the year. Almost all of that can be attributed to the calls on AAPL that continue to race onward an upward. Last month AAPL shot past $150. The stock is up above $180 now….

Now that I have a few months of data for my historical performance chart, it’s actually beginning to look like something.

I have a couple stocks in my portfolio brightly colored red. Yet, every time I see them I have stop myself from buying more. The two common cliches that prevent me from doing so are. 1) Don’t Catch A Falling Knife 2) Don’t Average Down. I’ve managed to resist the temptation, and in the past this resistance to my own nature has served me well with two other stocks I used to own, WM and AHM. I took my 20% loss on Washington Mutual and avoided losing another 60%. I took my 50% loss on AHM (American Home Mortgage) and avoided losing everything as the company declared bankruptcy within a few weeks of when I sold out my last shares.

While fortunate in those transactions, my losses also highlight the biggest trap of investing/trading - Falling in love with your stocks. I fell in love with AHM and WM when I should have sold much earlier. I only take solace in that in the end I realized the relationship could not work because the love was not returned. As with relationships, it’s better to cut your losses than try to make an untenable relationship work.

So what do I own today that I need to think seriously about selling? Mylan Pharmaceuticals (MYL) and United Health (UNH). MYL is a company I’ve owned at some point another in some account or another for over 12 years. It’s loved me in the past, but it no longer loves me today. Fundamentally, I should own neither MYL or UNH. I don’t know the first thing about the pharmaceutical or health care industry. I’m not much of a consumer or connoisseur of either.

I feel like that guy at the craps table who’s betting on the No Pass Line. For those who’ve never played craps, simplistcally there are two ways to bet, pass or no pass. Most players bet on the Pass Line.  A few bet on the the No Pass Line.  The latter are usually grumpy old men with grimaces on their faces.  They frown when the crowd cheers. It’s generally speaking not fun being that guy. When I do play craps which I tend to do at Bachelor Parties, I want to be with the crowd not against the crowd - It’s a lot more fun to cheer when everyone else is cheering.
Currently because I have fairly substantial put option positions on both the Dow and the Nasdaq as hedges and I feel like that grumpy crumudgeon at the craps table. When the market rallies, I feel nothing but contempt for it. I’m not even short overall. I would say I’m effectively long with 20% of my portfolio. However, I would say the puts I purchased represent the largest stock market “bets” that I’ve made. Those positions are ones that I know I need to close out at some point. Everything else I own, I’ve purchased for the long haul. I may tweak here and there, and sell if there’s real cause for concern as I did with Washington Mutual (WM) and American Home Mortgage (AHM).

So when the market rallied yesterday, I was a bit depressed as I have been with every rally.  I don’t enjoy rooting against the crowd or watching my positions.  In the end I just don’t really like being an active investor just like I don’t like playing the no pass line.

As avid readers of AskDong know, I’m a great fan of Dodge & Cox. The single largest investment I have is Dodge & Cox International.  I was excited to learn that Dodge & Cox recently reopened it’s flagship Dodge & Cox Stock Fund to new investors.  The fund company has stated it’s reason to reopen it’s fund to better balance withdrawals.  A pparently alot of people are making withdrawals.  Given the age of the fund, I imagine it’s probable that many shareholder are well into their retirement.

What they didn’t mention however is that the fund has been lagging the S&P 500 for the last few year. This rather mediocre performance is probably leading to withdrawals as well. Many investors are apt to chase recent returns. I’m not this type of investor. When it comes to mutual funds, I’m primarily an index fund investor (Vanguard specifically). However, I certainly don’t buy the efficient market hypothesis, hook line and sinker. I think the market can be beat and that’s why I do more individual stock picking than I should.  I also believe there are well run mutual funds that can consistently beat the market over a long time horizon.

Knowing which funds are market beaters is really the question.  I know enough to know that don’t know enough to know.  However, everything I’ve read about Dodge & Cox, leads me to think that they don’t doa bad job.  I like their approach. They have a team of managers rather than single manager.  I think a team can both lead to more ideas and better vetting of ideas.