Wednesday, February 28, 2007

The New Presidential Dollar Coins Are Hard To Find

As I have posted previously, I collect pre-1982 pennies and all nickels because their intrinsic values (i.e. melt values) exceeds their respective face values. As of today, February 28, 2007, a pre-1982 penny has an intrinsic value of about 1.8254 cents (i.e., 182.54% of its face value) and a nickel has an intrinsic value of about 7.80 cents (i.e., about 156.01% of its face value). (See I wouldn't call myself a serious collector, although I do save these coins when I receive them in change.

I enjoy collecting coins because coins are piece of American history. From a certain point of view they are small and readily accessible pieces of art. As such, I was really looking forward to the unveiling of the new Presidential dollar coins which were released on February 15, 2007. The first Presidential dollar coin contains a picture of the first president of the United States, George Washington.

Unfortunately, the new dollar coins are hard to find. The U.S. Mint is supposedly making 300 million of them, but I have yet to see one of them. I have been to three bank branches over the past three weeks, but each one has been out of the new coins. I was informed today that the branch I most recently visited had received a big box of the coins but that they were quickly snapped up by customers. I assume that this means that some people are hoarding a lot of these coins. I generally don't have a problem with people hoarding coins, as I do the same. However, I really wish banks would set limits on how many of these coins they sell to individual customers, as it doesn't seem right that someone can purchase hundreds of dollars of the new coins and then turn around and sell them on eBay or in a coin shop at a premium price.

Thursday, February 15, 2007

The Motley Fool Has Lost A Lot Of Credibility Over the Past Few Years

During the mid- to late 1990s I was a relative novice when it came to stock market investing. I read several books in the late 1990s to increase my investing knowledge base and frequented the Motley Fool website. The Motley Fool was a great resource at the time. The founders of the website would post various stock market-related articles daily and really seemed to be champions of the small investors.

The Motley Fool used to track several different portfolios on the website and would provide daily updates to inform readers as to how well their holdings did on a particular day. The portfolios were interesting because the Motley Fool would notify everyone before they purchased a stock and all purchases were made with real money. The portfolios were loaded with tech stocks and performed phenominally well throughout the 1990s. As I recall they started tracking the first of the portfolios in 1994 and continued tracking the portfolios until the 2001 or 2002 when the portfolios took major hits during the terrible bear market.

The Motley Fool writers often railed against the mutual fund industry for charging exorbitant fees relative to the returns they provided. They were also strong advocates of index funds and often explained why it was almost impossible to beat the various indices over time with an actively managed mutual fund.

Unfortunately, times have changed for the Motley Fool. For the past three or four years the Motley Fool seems to be more concerned with making money off advertsiing and selling its own products than educating investors. For example, the website's current view of mutual funds is radically different than it was in the 1990s - the Motley Fool now advocates investing in the actively managed mutual funds it once shunned and sells a product entitled "Champion Funds" for $149 that recommends various actively-mutual funds to be purchased.

The Motley Fool also has a nasty (and annoying) habit of recycling old articles. I check stock and mutual fund quotes on Yahoo! Finance every day. Yahoo! Finance lists the five or so most recent relevant articles for each of the stocks and mutual funds I check. To ensure that its website is in the top five, the Motley Fool often takes an article that first appeared on its website months ago and updates maybe one paragraph and links it to Yahoo! Finance as a new article. They frequently do this for articles relating to dividends.

It's really a shame that the Motely Fool website has gone downhill. Don't get me wrong - there's still a lot of good information on that website. However, one needs to take what is written over there with a grain of salt because it seems as though making money off of the website is now priority #1 for the Motley Fool.

Sunday, February 11, 2007

January 2007 Returns For My Model Long-Term Portfolio

January 2007 was decent month for my Hypothetical Model Portfolio, despite trailing the broader market returns. As of the market close on January 31, 2007, the Hypothetical Model Portfolio* increased in value by $1769.52, or about 1.22% during the month of January. The Hypothetical Model Portfolio has now gained a total of $22,246 since it was created in January 2006 with $100,000 and an additional $25,000 was added at the beginning of 2007.

Midcaps led the way during January, with the Vanguard Mid Cap Index Fund (VIMSX) rising about 3.65%. It would be nice if midcaps have a strong year in 2007, as they trailed the S&P 500 by about two percentage points during 2006. The next strongest performers in the portfolio were small caps and tech stocks. The Vanguard Small Cap Index (NAESX) rose about 2.40%, the Vanguard Small Cap Value Index (VISVX) rose about 2.01%, and the Nasdaq 100 ETF (QQQQ) rose about 2.11%.

The weakest returns were turned in by the Templeton Russia closed-end fund (TRF) and the iShares Emerging Markets ETF (EEM). TRF plummeted about 15.12% and EEM rose a paltry 0.11%. The Russia stock market was steady during January and the value of the Russian and Eastern European stocks held by TRF was also steady. However, as I have discussed previously, closed-end funds typically trade at a variable premium or discount to their underlying Net Asset Value ("NAV"). According to ETF Connect, TRF traded at a 38.07% premium to its NAV at the end of December 2006 and at a 17.63% premium on January 31, 2007. TRF has traded at an average premium of around 10-15% since its inception in 1995 so TRF's premium compression is probably about over for now. If Russian and Eastern European stocks perform well this year TRF should provide another solid year of returns.

TRF paid a distribution of $566.33 on January 16, 2007. This distribution was declared at the end of December 2006 and I listed this as a "pending distribution" in the portfolio chart for December. As I mentioned in my earlier post regarding my 2007 portfolio rebalancing, this distribution was reinvested in the Vanguard mutual funds in the portfolio because these funds do not charge a transaction fee. On January 17, 2007, the following purchases were made with this distribution:
  • Vanguard Index 500 mutual fund (symbol: VFINX): 1.262 shares at $131.81/share, a total investment of $166.33
  • Vanguard Midcap Index mutual fund (symbol: VIMSX): 4.970 shares at $20.12/share, a total investment of $100.00
  • Vanguard Developed Markets Index mutual fund (symbol: VDMIX): 7.930 shares at $12.61/share, a total investment of $100.00
  • Vanguard Small Cap Index mutual fund (symbol: NAESX): 3.045 shares at $32.84/share, a total investment of $100.00
  • Vanguard Small Cap Value Index mutual fund (symbol: VISVX): 5.862 shares at $17.06/share, a total investment of $100.00

*The Hypothetical Model Portfolio was created with an investment of $100,000 in securities as of the closing values on December 30, 2005 and an additional $25,000 was invested n securities as of the closing values on December 29, 2006. The reason why the total cost in the chart is greater than $125,000 is because the total cost accounts for the value of distributions reinvested into the mutual funds in the portfolio.

December 2006 Returns

Sunday, February 04, 2007

Updated Model Long-Term Portfolio For 2007

As I mentioned in my post discussing the December 2006 returns for my Hypothetical Model Portfolio, I have added another $25,000 to this portfolio. This money is allocated according to the original portfolio allocation discussed in my January 2006 post regarding the creation of this portfolio. In short, this money is being added to rebalance the portfolio. My rules of rebalancing are that I will not sell any of the holdings, although I am allowed to purchase additional shares. Although this is a purely hypothetical portfolio, I have attempted to make this as realistic as possible and do account for trading commissions that would normally be incurred. In my portfolio, commissions would be incurred when purchasing any of the ETFs or the closed end fund. There are no commissions, on the other hand, for purchasing additional shares of any of the Vanguard index-tracking mutual funds.

As discussed in my last post, the portfolio included $739.97 in CASH (from dividends and capital gains distributions). Accordingly, a total of $25,739.97 is being re-invested at this time. I am not reinvesting the $566.33 in pending distributions for the Templeton Russia Fund (symbol: TRF) because it had not yet been distributed as of the start of 2007. The purchases of the securities in the portfolio were made as of their respective closing prices on December 29, 2006, the last trading day of 2006.

The portfolio includes a total of ten securities and I have purchased shares of nine of the securities in this rebalancing. TRF is the only security for which I did not add additional shares. TRF substantially outperformed the portfolio last year and is actually still overweighted in the portfolio despite the additional of new money.

The following purchases are made with the $25,739,97 I had to invest:
  • Vanguard Index 500 mutual fund (symbol: VFINX): 48.151 shares at $130.59/share, a total investment of $6288.04
  • Vanguard Midcap Index mutual fund (symbol: VIMSX): 242.719 shares at $19.78/share, a total investment of $4800.99
  • Vanguard Developed Markets Index mutual fund (symbol: VDMIX): 188.190 shares at $12.58/share, a total investment of $2367.43
  • Vanguard Small Cap Index mutual fund (symbol: NAESX): 105.816 shares at $32.62/share, a total investment of $3451.71
  • Vanguard Small Cap Value Index mutual fund (symbol: VISVX): 177.484 shares at $17.05/share, a total investment of $3026.11
  • iShares Emerging Market Index ETF (symbol: EEM): 11 shares at $114.17/share + $5 commission (through Ameritrade Izone), a total investment of $1260.87
  • Nasdaq 100 ETF (symbol: QQQQ): 56 shares at $43.16/share + $5 commission, a total investment of $2421.96
  • iShares Dow Jones U.S. Select Dividend Index ETF (symbol: DVY): 20 shares at $70.74/share + $5 commission, a total investment of $1419.80
  • SPDR Financial components ETF (symbol: XLF): 19 shares at $36.74/share + $5 commission, a total investment of $703.06
As discussed in my January 2006 post introducing the Model Long-Term Portfolio, my desired model portfolio allocation is as set forth below (After rebalancing, the portfolio percentages are closer to the desired model portfolio allocation than they were at the end of December 2006. However, it was not possible the exactly match the model portfolio allocation because of TRF's substantial outperformance in 2006. ):

22.000% VFINX
15.700% VIMSX
12.950% VDMIX
12.075% VISVX
12.075% NAESX
8.050% EEM
6.250% QQQQ
4.900% DVY
3.500% TRF
2.500% XLF

The model portfolio after rebalancing is shown in the chart below (click on the image for a larger view)**:

* I have decided that because I am going to add an additional $25,000 at the end of each year to this portfolio, I will reinvest the dividends and distributions from the ETFs and the closed end fund immediately after they are distributed. I will only reinvest this money into the Vanguard index-tracking mutual funds because Vanguard does not charge commissions. The minimum investment for the Vanguard mutual funds is $100, so I will wait until at least $100 has accumulated before reinvesting the dividends and capital gains distributions.

**The total cost of all of the securities in the model portfolio is greater than the total of $125,000 that I initially added (i.e., $100,000 in 2006 and $25,000 in 2007) because $2,168.33 in dividends and capital gains distributions were reinvested. When purchasing new shares with such dividends and capital gains distributions, I added the amount purchased into the "cost" column of the chart shown above. The reason why I did this is because this is how one would need to account for such purchases on a taxable basis, so it makes sense to account for them the same way in this model portfolio.

***The Model Portfolio returned 20.50% in 2006. The way I calculated this was by dividing the $20,476 portfolio gain by $100,000, the total amount initially invested. However, because I added $25,000 in new money to the portfolio, the overall return decreased to 16.38% ($20,476 divided by $125,000) in the chart shown above.