AA Changes - 2

My first AA change was a minor change which resulted in an 1% increase to my Commodities exposure. My second change that I performed in the last week of Jan'07 was one with more impact on my AA. I think I violated some of the principles of AA in doing this change. First the details of the change.

I exchanged 1/3rd of my REIT's(VGSIX) allocation into Domestic Large Value(VIVAX). I have to accept the fact that this is dirty market timing. The exchange resulted in my moving away for my AA targets but the fundamentals behind REITs looked really poor. Also the following factors convinced me that REITs were due for a correction:

1. REIT yields compared to Treasuries. Right now REITs are yielding less than treasuries, which means that all the returns from thsi asset class have to come from price, P/E increases. This after REITs returned 35% in 2006 and 22% annualized over the last 5yrs, which leads me to believe that a price or P/E expansion is really difficult.
2. Also there is a lot of activity in the REIT market. Private Equity groups and other REITs are looking into a $40billion buyout/takeover. There is still a lot of money looking to invest in REITs when at the same time the individual home sales are crashing and bubble blogs are getting record number of hits.

AA Changes - 1

I sold MSFT in the 1st week of Jan'07. I bought MSFT in Aug'06 after they announced disapponting quaterly results and the stock has a 5% drop in the price after the earnings announcement. I reasoned that the price drop was an overkill and bought the stock for a tiny % of my portfolio.(This is my speculative money!) By Jan'07 the stock had nicely recovered and the general stock market was doing great. The Dow Jones Index was hitting record highs every other day and MSFT had returned close to 20% for me. Also I wanted to diversify away from MSFT to commodities. So I decided to sell MSFT and along with some cash invested the money in DBC (Deutsche Bank Liquid Commodity index).

I wanted to increase my Commoidities allocation and was looking at various options. My first option was PCRIX(PIMCO CommodityRealRet Strategy), but Ameritrade had increased the price for Mutual Fund trades to $49, which would have made my Expense ratio for getting into the fund prohibitively high. I started looking for alternatives and boiled them down to DBC & DJP.

I will add more details here on the decision between DBC & DJP but for now a simple explanation lies in the link I added about alternatives to PCRIX.

Asset Allocation, Part 1

I will start the process of documenting my asset allocation plan with my AA at the beginning of 2007. I have made some changes to it since then and I will try to explain my thought process behind the changes and the things that are on my mind right now. First the AA at the start of 2007:

#	Asset Class	Current	Target
1	US Total Market	18%	15%
2	US Small Value	11%	12%
3	Intl Larget Market	15%	15%
4	Intl Value (Hedged)	13%	12%
5	Emerging Market	10%	12%
6	Total US Bond	4%	4%
7	TIPS	5%	5%
8	Short Term Bond	5%	5%
9	REITS	10%	10%
10	Alternative	10%	10%

At the start of 2007, my alternative asset class was invested in the following:
BRK-B : 6%; Commodities - 3%; MSFT - 1%;

Milton Friedman

Yesterday, Jan 29th was Milton Friedman day. I think California and Illinios called it that but in general that was the day to honor a great economist. PBS had a new show on him called the Power of Choice. It was a 90min show, and was a basic overview of Friedman's life and contributions. Interestingly Gary Becker was on the show and had lots of great commentary on Friedman.

Becker I think is one of the sharpest economists around - and writes a great blog.

Snowboard Racing

I started racing this season. I think I stagnated in my boarding last season and I think racing would help me get more focused.I have been improving over the last few weeks and the results from all the races till now are below:

Wk1 - 54.28s
Wk2 - cancelled for lack of snow
Wk3 - 51.05s
Wk4 - 48.74s & 45.32s & unoffical 3rd time of 42.6s

The first few weeks because of the lack of snow in the northeast, we race the course only once. Normally you get 2 races and you race side by side with another racer. My 3rd unofficial time was the first time I raced with a snowboarder and I think having a pace setter helped me a lot. Hopefully I will improve more but now it will get tougher to do so.

The course is more suited to skiers and the Nastar offical pace setter comes in around 26sec.

Why not mee?

The blog address is a tribute to the 2004 Boston RedSox. Curt Schilling, a premier pitcher the RedSox signed at the start of the season got t-shirts made for spring training which said "Why not us?" The Redsox came back from a 0-3 deficit against the Yankees in the ALCS and went on to win the World Series. I saw Game5 of this ALCS at Fenway and it was a 14 inning thrill ride.