By: Alfred L. Angelici
By: Alfred L. Angelici
By: Alfred L. Angelici
Angelici
Investment Philosophy:
— Benjamin Graham
“The Intelligent Investor”
2010 Market Analysis: Alternative Retirement Plan:
After receiving multiple inquiries about restarting this In a past publication I attempted to inspire
newsletter, I have realized that there is indeed a demand for you to understand that while building wealth is
investment information that is unbiased by marketplace. fades important, knowing what to do with after it is
built is even more important. Else, why build
This newsletter was and is meant to teach people how to it? The main idea here was to have you see
invest wisely and defensively and to be able to intelligently there is an alternative to spending your wealth
create a plan that will help the reader evaluate and obtain away in retirement.
his/her financial retirement goals.
What most people do during their life-time is
In this newsletter, I create and track the performance of a save a little and spends most of what they
“hypothetical” Fund-of-Funds portfolio from available Fidelity earn during their working years. They only
retail mutual funds with the goal of outperforming comparably amass a limited retirement nest egg which
weighted Fidelity and Vanguard (timeline) fund-of-funds retail they then need to spend down in order to
products. I also display the standard market Index results as a meet daily financial needs during their
secondary guide for the reader to appraise their overall annual retirement years.
results.
I argue here today that there is indeed a
NOTE: In this Defensive investment style, I do not seek to best better way. What is this alternative? Namely
the major market indices, though during particular economic to amass a “Financial Engine” that will be big
situations that is a realistic possibility. enough for you to put work to earn you a
perpetual income in your retirement years.
The reason for this strategy is plain to see, for a Defensive
Investor seeks only to generate a “fair” return while keeping risk Today most of you, like me, work to earn
at a minimum. The Defensive Investor measures risk as “loss money instead of having money work for us.
of invested money”; not (price) volatility as Wall Street views
risk. So how does on calculate how much one
must amass during one’s working life to
The Defensive Investor seeks at all times to avoid buying provide a perpetual living wage?
into over-priced, over-hyped regions of the global marketplace.
Unlike lemmings, s/he does not follow the crowd over the cliff to Answer: if we want to earn $100,000/yr in
financial destruction. The Defensive Investor is a “contrarian”. perpetuity we require a financial engine of
$2,000,000 earning a minimum of 5%
The second component of this method is to utilize a “tactical annually. (Derived from formula below…)
asset allocation” strategy. This simply means that each year
the Defensive Investor scans the macroeconomic environment Desired Annual Income = SAVINGS
to assess what the market may hold for the coming year, and Rate of Return (3% -5%) base required
then formulates an asset allocation plan to capture the greatest
value. So now the question is: How much does
one have to save monthly, and for how long,
The environment provides sufficient information through to build a $2,000,000 financial engine? The
everyday news and government reports available in the answer to this is found by simply using a
newspaper, TV, and Internet to allow her/him to make educated “Future Value” formula calculator.
estimates of the overall direction of the US & global economies
for the next 12 months (barring unforeseen wars, and "Black For a $2,000,000 financial engine, it would
Swan" calamities). require saving about $1,380 per month and
earning 8% annually for 30 years. I fully
That in a nutshell is this methodology and is all I'm trying to realize this is likely beyond the means of most
share / teach you so you can avoid the pain of market crashes Americans but the concept is still true, simple,
like the one just experienced in October 2008. and powerful. Lesson: Save as much as you
can, as long as you can. As I’ve never heard
any retiree complain that s/he had too much
(Continued on next page)
money! Also take note that Time is the
biggest key to success in building wealth.
(End)
Risk & Volatility (Reprint)
2010 Market Analysis Contd: By: tchotki – Marketocracy 100 member; forum posting
Now, looking ahead at 2010 we see the following: new Why is risk management critical? First let’s
unemployment continues to decrease; the global stock market define risk as being exposed to uncertainty of
had wonderful 2009 returns; Christmas sales indicate the meeting a goal. This permits risk a slightly
consumers are willing to spend again; inflation is still under broader definition than failure to meet a goal.
control; Asian economies are on the rebound, China is
experiencing 8% GDP growth, the U.S. dollar is depreciating Imagine you had a friend whose father died
due to excessive expansion (printing) of the money supply, and five months and two weeks ago. His father was
gold and oil/gas has doubled in the past year. very wealthy and the estate owes significant
taxes. Taxes are due in two weeks. The estate is
With the S&P500 up nearly 25% YTD, what areas of the cash poor and a planned sale of a nearby home
market should the defensive investor focus on in 2010 to recently fell through. The home is appraised at
minimize his/her risk while maximizing the return potential? $100,000 and you happen to have knowledge of
construction methods and you know the
Overall and 2010, I expect the global economies to continue replacement cost is also about $100,000. He tells
to expand especially in Asia. And from the U.S. perspective I you he is dropping the price to $80,000 just to
anticipate the U.S. dollar to continue to depreciate and global raise the needed cash.
commodities to continue to reflect this through appreciating
values. I further expect commodity prices to continue to You offer him cash on the spot. It is July 1,
appreciate due to strengthening global demand and politics. 2001 and you and he walk down to the attorney's
office and close on the property the same day.
In light of increased global risks (Note: the easy money was
taken off the table and 2009) I will set this year’s portfolio asset One block away, an identical house build at
allocation to 60% stocks and 40% bonds and cash. I will hedge the exact same time also has a "For Sale" sign
to fund against U.S. currency loss by investing in international out and closes for $100,000 on the same day.
funds held primarily in foreign currencies. I will further hedge
the fund against significant commodity increases by holding in One block in the other direction is another
minority positions (weighting) a couple commodity-based funds. identical house, also built at the same time also
with a "For Sale," sign out front. The owner
On the next page is a layout of a hypothetical fund using the raises the price to $110,000 to have a good
defensive investor strategy and investing $100,000. Over the negotiating position and plans on selling for
course of the year this fund’s performance will be tracked and $100,000. The first person to see it is so
compared against its benchmarks and the major market enthralled; he doesn’t bother to have it appraised,
indices. and hands over the $110,000 and settles on it the
(End) same day.
10% Cash Cash Reserves MMF (FDRXX) $1.00 10005.29 $10,005.29 10%
(A) Investments results based on a hypothetical $100,000 portfolio invested at end of trade day, December 31, 2009.
(B) Your results may differ depending on how closely you follow or differ from either of these models and the exact
date you initially invested in each fund.
“Take your life into your own hands, and what happens? A terrible thing: no one to blame.”
- Erica Jong
2005 YTD Fund Returns for Core and Other Recommended Funds
(December 31, 2009)
Stocks:
Large Cap
International Capital Appreciation (FECAX)
China Region Fund (FHKCX)
Select Natural Resources (FNARX)
Fidelity Canada Fund (FICDX)
… “International Capital Appreciation” is our CORE Large Cap international growth investment. In general,
international funds continue to outperform US (domestic) funds since 2004; especially due to the run-away
printing and spending of the U.S. currency. With The Fed’s extreme preference for excessive “liquidity”,
international continues to outperform.
...”China Region Fund” is an international investment holding what is arguably the biggest growth region in the
world today. China’s GDP growth rate averaged ~ 8% in 2009. And while the fund returns here were significant
in 2009 (~ 64%), I believe we can expect above average market returns again for here 2010.
...”Select Natural Resources” is purely a commodities hedge for the DI portfolio. A hedge against significant
increases in oil, gas, paper, precious metals (e.g. gold & silver), industrial metals (e.g. copper, iron), etc.
...”Fidelity Canada Fund” is another hedge investment in both currency and commodities and offers nearly all the
benefits of investing in South American / Latin America without the political risks. This is protection from a
depreciating U.S. dollar decrease, and global commodity price increases.
Mid-Cap
None Selected for the 2010 DI portfolio.
Small Cap
International Small-Cap Opportunity (FSCOX)
... "International Small Cap Opportunity" fund is the CORE small cap investment for the model portfolio. The
fund provides a currency hedge against a declining U.S. dollar and exposure to emerging young companies in
major world markets.
Bonds:
Inflation-Protected Bond (FINPX)
Capital & Income (FAGIX)
Strategic Income Fund (FSICX)
...”Inflation-Protected bond” fund is a CORE investment holding that offers a hedge against inflation should it
raise its ugly head again in the near-term. Inflation-indexed bonds provide balance and safety in a rising interest
rate environment.
…”Capital & Income” fund is an investment that is meant to take advantage of an improving global economy. For
as the economy improves it should also improve the credit worthiness of the companies owing these “junk
bonds”. Any marked improvement in the debtor company’s ability to pay on its loans should improve their value.
High yield bonds tend to act more like stocks than bonds; at least until their credit ratings return to “commercial”
grade.
..."Strategic Income Fund" is an investment in a broadly-diversified bond fund with an expectation for above
average returns based on its spectrum of global investments and credit ratings.
Cash / Money Market
Cash Reserves MMF (FDRXX)
Summary:
As Defensive Investors, it is always important to err on the side of caution and maintain a low risk
exposure to potential and real economic and financial threats. I believe that while the current, global economic
outlook for 2010 is positive, there exist clear signals to remain vigilant & prudent in order to protect in one’s
hard gained wealth.
Happy Investing!
- Benjamin Graham