Low Maintenance Portfolio, Ivy-like (1)

Back couple years ago, I worked with a guy whose name is COB. Other than our day time job of playing around with derivatives, we had bunch of discussion on how to handle our 401K investment. We are not trying to time the market or anything like trading, but rather, we want to find a more systematic way to maximize our return and avoid major drag down. Since life is already very heavy to us, we cannot really afford a lot of time and effort of watching the market, reading the news, drawing the charts, blahblah. We came up with some idea of so called “Low Maintenance Portfolio”. Our requirements can be summarized below:

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• Contains only Short Term bonds and Equity, which are suitable and available for all 401K plans, other retirement plans, and all full scope investment portfolios;
• Bonds are considered “out” mode. If there is any doubt, we will get out of risky asset classes and park in short-term bonds. Since we are not really investing in bonds, but rather take it as safe haven to avoid drag-down or high risk, long term bond or high yields are not that attractive to us;
• Equity allocation will need s little bit further work to determine category, such as market cap, international or domestic, and industry;
• Monthly allocation, usually at month end;
• We started using GS estimation of GDP as our trigger for in or out decision. Later I expand the criteria to moving average.

How are we doing? I successfully escaped in late September 2008 (which is actually the trigger of this study), exit again in July 2010 and July 2011. Yes I have 4 years of double digit gains in my 401K, the 4 unforgettable years. Clearly this way works. What we need to do is just to refine a little bit.

Couple months ago, I read a book, “The Ivy Portfolio”.

It discussed a lot on how those Endowments Funds of Yale and Harvard are structured and maintained. Those Ivy schools’ Endowments are famous for professional management. People are claiming of “Equity-like return with Bond-like volatility”. Yes, this is what I am looking for.

-- To Be Continued

Jackson Hole 2011

Couple months ago, I out together a chart on the roadmap (of how the US is dropping into and staying a hole)

http://readingtowin.blogspot.com/2011/03/whats-next.html

Now QE2 ended. Now the market is talking about QE3. Will history repeat? In my Behavior Finance class, I learned it's human to make mistakes; it's human to repeat the mistakes; it's human that nothing changed in the past couple million years.


Here is my updated chart. US market is not closed yet. SPX is currently defensing 1210.
add: I feel I need to add today's market action into my chart.
Dow recorded largest drop since Dec 2008.
SPX: largest drop since feb 2009.
We now back to nov 2010.

God bless America!