planning & strategy

• spending plan
• investment policy statement

management & evaluation

• weekly reading – John Hussman
• indicators check
• asset position review

indicators
Market Guage http://tal.marketgauge.com/dvmgpro/gauges/TodaysGauges.asp
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/spearn.htm
http://my.zacks.com/newsroom/commentary/index.php?id=3259&PHPSESSID=9470f4cdd438ae214d8ddfbc11578ec4
http://www.iht.com/articles/2006/07/23/bloomberg/bxinvest.php

Turn the P/E ratio upside down, putting the earnings on top and the share price on the bottom, and you get something called the earnings yield. That makes it easier to compare with the interest yield one can get from bonds, which compete with stocks for investors’ favor.
… Investing: A simple plan, but hard to follow

1. S&P earning yield: 5.69 (P/E 17.59)
   http://tal.marketgauge.com/dvMGPro/gauges/TodaysGauges.asp
2. 10-year US Government Y-bond yield to maturity: 5.18% 7/10/06
   4.30% 12/31/05
3. estimated 10-year AAA corporate bond yield [10-year US Government Y-bond yield to maturity + 0.30%]: 5.18 + 0.30 = 5.48
4. difference [estimated 10-year AAA corporate bond yield] – [S&P earning yield]: 5.48 – 6.7 = -1.22
5. current Gold price per troy ounce (KITCO): $649.90 Aug 4, 2006
6. one-year change in Gold price (KITCO): +211.20 +48.29% Aug 4, 2006

O’Higgins’ rules

• STOCKS are the asset class of choice if the S&P earnings yield EXCEEDS the calculated yield
  Dow stocks – 5 cheapest high yield
  beatingthedow.com – lists 10 “dogs of the Dow” with information for selecting 5
• T-BILLS due to mature a year from now – if the one-year change in the price of gold is POSITIVE (higher than the price a year ago)
• T-BONDS if the one-year change in the price of gold is NEGATIVE (lower than the year-ago price)
  highest yielding U.S. Government zero coupon bonds available to mature in twenty years or more

learn something new

• Beating the Dow with Bonds – Micahel O’Higgins
  simple risk-averse strategy that has three different investments (stocks, US government bonds, T-bills), indicators and decision points along with an excellent track record

other links

Daily Speculations – The Web Site of Victor Niederhoffer & Laurel Kenner http://www.dailyspeculations.com/fed%20model/fedmodelanalysis.htm

Market Guage – daily indicators
http://tal.marketgauge.com/dvmgpro/gauges/TodaysGauges.asp

S&P 500 historica date – earnings yield
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/spearn.htm

Fight the Fed Model: The Relationship Between Stock Market Yields, Bond Market Yields, and Future Returns – linked from Niederhoffer
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=381480

Jim’s Finance and Investments Blog
http://financeandinvestments.blogspot.com

The continuing saga – the search for a few good investment strategies that I can use together with a few relatively simple rules to preserve my money and provide a reasonable income with low risk through most economic conditions. I know I have about as much chance of achieving this degree of financial independence as finding the Holy Grail, but that is what I’m doing.

I like guidelines and “if-then-else” rules. If I can work this out, then I understand what I’m doing. Most of these strategies listed below are for buying and selling stock, which is ok for a portion of my portfolio, but a relatively small portion. I am very wary about the state of the economy and the stock market in particular, so my strategy matrix has to cover a broad range of financial realities.

• Dogs of the Dow – Michael O’Higgins, and variations on this theme – Small Dogs, Foolish Four
  Assumes that some assets are allocated to stocks. By definition these are all large cap stocks, but there are several different asset classes represented
  
  
• Beating the Dow with Bonds – Michael O’Higgins
  Sometimes assets will be allocated to bonds according to the formula provided
  
  

The Small Dog stocks are doing really well, which is good. But GM is in serious trouble, as are all the automakers. I recalculated the indicators based on current data. Still in STOCKS. I’m not sure this is a good place to be. Thinking about what might happen – like a sudden decline in stock values, there isn’t anything in this indicator that would get you out of stock before a big loss.

Exit Strategy based on 200-day Moving Average for the S&P 500
http://finance.yahoo.com/q/bc?s=%5EGSPC

• Long stocks if the current value is above the 200-day moving average
• Short stocks or cash if below the 200-day moving average

Learn more…
Modern Portfolio Theory MPT
Efficient Market Hypothesis EMH
Survey of Stock Investment Strategies

Finding good sources of educational information is one of the primary goals of financial independence. Who gives the straight scoop without biasing the information for their personal or corporate gain?

The Invstment FAQ by Christopher Lott has been an online community since 1992. Yes, I know there was no worldwide web then, but there was a thriving usenet group. It was so popular that they received lots of press because they regularly caused internet traffic jams.

The site tours are provided for beginners, intermediate investors and traders (expert investors) – something for everyone.

I found The Investment FAQ while searching for information about bonds, and specifically, Dogs of the Dow. I found what I was looking for – easy to understand but good depth to the articles. I was a little surprised to see how old some of the articles were, but some things change very slowly. I checked the what’s new list and there have been recent additions and updates, so that was reasuring.

There isn’t much on things like diversification or modern portfolio theory, but there are so many other subjects that are well covered, that this is good resource to keep in mind.

Other articles of interest include

• When to Buy/Sell Stocks
• Bonds – Relationship of Price and Interest Rate

The Investment FAQ provides a good description including the basic math associates with Bonds – Relationship of Price and Interest Rate. This is one of a series of quiet good articles about bonds of all kinds. Some of the articles are old but the site is maintained and articles are replaced or updated regualrly.

List of links to bond related sites The Investment FAQ: Bonds

Learn more…
Buying Bonds – Selling Bonds – Trading Bonds
http://www.treasuries.com/how.htm

present value of money
discount rate
internal rate of return (IRR)
yield to maturity (YTM)