Holyagnostic

Growing Money (part three)

If one constructs a lazy portfolio and re-balances occasionally the rates of return over time will be substantial. Here is Holy's variation on the theme.

Holy uses both a shotgun and rifle in the design of his lazy investing in stocks. In addition, he keeps 15% in short term bonds and cash as a buffer. Now that he is retired this latter segment becomes an income supplement as well. It allows plenty of liquidity to ride through the kind of roller coaster ride that the market can be. There is no need to sell equities as the markets tank.

The shotgun segments of the construction include two index funds. The first is Vanguard's Total Stock Market Index. It tracks the market value of 1000's of US companies. This fund constitutes 50 percent of Holy's investable assets. The second fund is Vanguard's Total International Stock Market Index with a target percentage of 10 percent. It reflects the market value of 1000's of companies outside of the United States.

The rifle part of Holy's lazy portfolio consists of specific sectors of the market. Real estate (10%), energy (5%), gold (both bullion {2.5%} and miners [2.5%]), and technology (5%) are the focus.

With two sessions remaining in October 2010, both the blue-chip Dow Jones Industrial Average and the S&P 500 were poised for their largest monthly percentage gain in a quarter century. The first six weeks of 2012 has seen 7%+ upward movement.

If one got out in July of 2010 or July 2011, as my two digital minister friends, was there a point where they reentered? Holy doesn't know. He IS glad that he had substantial assets in the markets.

At the end of February, the trailing total rates of return for Holy's lazy portfolio have been:

3yrs--15.1% per year

5yrs--12.5% per year

Over the past few years the 3yr ROR has been as high as 20.8% per year and as low as 4.6%. The 5yr ROR has been as high as 18.7% and as low as 6.5%.

Historically, the asset allocation has returned 9.6% over decades and decades. Holy's goal is an average of 11%.

This performance was done without any need to make emotional decisions in timing the market. Both ministers thought timing was right for them. It probably has not worked out all that well.

If you did your homework from part two, you probably ran across this quote from Ted Aronson— a $20 billion professional manager who puts his family money in a Lazy Portfolio of 11 index funds — he said that if you have a well-diversified portfolio cashing out would be costly in the long run: “For good reasons and bad, I’d hold tight. The good include my faith in capitalism and its ability to weather a storm, even one of biblical proportions. The bad reason is, I have no faith in my ability to time this sort of thing. Even if I got out in time, I probably wouldn’t be able to correctly time getting back in!”

Growing Money (part two)

There are many ways to grow money. Timing the market is one of them. But that strategy's champions have batting averages that are so low that timing doesn't make the cut on Holyagnostic's team.

His "more excellent way" is by no means anything more than A way to make a money garden grow. It is not THE way. His way has some powerful research and statistical evidence to demonstrate its effectiveness, but Holy reveals here for the very first time the primary reason for his choice of this method. Holyagnostic is lazy.

When Holy started reading Scott Burns in the Dallas Morning News and saw the phrase Couch Potato Portfolio, it was a Damascus Road experience. It was a way to use only two Vanguard mutual funds with an occasional re-balance of the percentages in each to consistently outperform over 80% of the thousands of managed funds in the universe. Burns added a third fund and called it the Tequila Portfolio.

Evolution of the concept can be found in a proliferation of what MarketWatch.com calls Lazy Portfolio's.

Google and digest all of that and Holyagnostic will reveal his variation of the theme in the next post.

Growing Money

For twenty five years Holyagnostic was professionally in the money growing business. He began with Presbyterian Ministers' Fund, a company that at the time was the oldest life insurance company in America (1711). Benjamin Franklin did their printing. Many of the signers of the Declaration of Independence were clients. The Harvest Fund was their one and only mutual fund. The company worked exclusively with ministers and only hired reps who were ministers as well.

After seven years, Holy formed his own company, Minister's Financial Services, in order to expand the investment options for his ministerial clients.

The last seven of the twenty five years were spent as a National Manager of an estate planning company and Financial Consultant with Merrill Lynch Private Client Group.

The one constant throughout the career was that most of the folk for whom it was Holy's job to grow money were ministers. And he was very comfortable in that world. Being a preacher's kid and spending twelve years getting the finest education that Texas Baptists could provide while pastoring or serving in other church staff positions created a confluence of experience that enhanced his ability to work in an ecclesiastical world in a secular capacity.

With that kind of background and training Holy's ears perked up when reading a minister's blog in July of 2010 that contained the announcement that the Rev. was getting completely out of the stock market. One year later another minister blogger reported that he was doing exactly the same thing.

Holy has tremendous respect for both of these pastors. They have both taken on Baptist establishments, one with what we used to call the Foreign Mission Board and the other with what was known as the Baptist General Convention of Texas. They both confronted and challenged intrenched bureaucracies without losing integrity or making fools of themselves. Their endeavors, examples, and styles have made them heroes in Holy's eyes.

But investment gurus they are not. Holy expressed his disagreement in the comment section of their blogs. One has cut off comments which removed Holy's response and the other deleted his post Hopefully, neither removals were done in response to Holy, but the action took from the net Holy's brilliant :) rebuttal of their investment decisions.

Let's analyze the decisions and recreate Holy's advice.

Both decisions were made on the basis of fear. In investing, that emotion is as poisonous as its polar opposite, greed. At the beginning of July in 2010 the market had been in correction mode for a bit. That is the professional's euphemism for the fact that the market was down. The first investor didn't want to lose anymore. He was going to bonds instead of stocks. The second investor in July 2011 had some profit, but was reading headlines that sounded ominous. He too was afraid of loss, but was not specific where he was going to park his stock exit money.

Both decisions are an attempt to time the market. The most exceptional professionals cannot do this well. While there is a bell that rings on the New York Stock exchange at the beginning and close of each day's trading, there is no such signal at the top and bottom of the market's cycles. And one has to make two correct decisions--when to get out (the one already made by our minister investors) and when to get back into the fray. Then they must continue to make their moves again and again and again...

After a year we now have performance numbers that enable us to evaluate whether the decision to exit at the end of June 2010 was a good one. Almost to the day he posted his blog, the market (as measured by the Wilshire 5000 index) was reaching its LOW for the year and over the next 12 months would blast upward by 26.6%. The only way we can completely gauge his timing prowess is to know if he got back in at some point during that year, but the fact that he has already blown the first decision, does not bode well for his abilities to make the second decision with any success.

Our second minister wrote of his exit around July 6 and the market is up 2.3% since, an annual pace of 68%. The numbers do not look good for him either. But it is early. He too will have to make the 2nd timing decision in the future.

As the Apostle Paul liked to say, "There is a more excellent way."

To be continued...

CAPITALISM FOR THE RAPTURE

With the rapture headed our way tomorrow, Holy is wishing that he had opened a new business. For a non-refundable fee (does $1000 sound like a nice round number?), Holy will agree to pick up your pets and arrange for their care during the great tribulation.

The Peanut Man Chapter Nine

Xavier Banbridge, who got his nickname, The Peanut Man, from selling bags of peanuts on the streets of downtown Birmingham was now a wealthy man. He was treating Holyagnostic to a meal at the Summit Club overlooking the city where he and his wheelchair had become a local tradition.

"It changed my life," were his words to Holy as he pushed a baseball scorecard from the year 1957 across the linen tablecloth to Holy.

Holyagnostic examined the pencil marks that described all of the transactions on the field from that day that was now decades in the past.

"Turn it over", said Xavier.

Holy flipped the card over and there in one of the blank sections on the front were a series of numbers:

1000
2000
4000
8000
16000
32000
64000
128000
256000
512000
1024000

"If one had $1000 and could double it only 10 times, he could become a millionaire," Daddy B. had told him.

Think about it. Ten doubles.

"How many doubles do you have left?" the Peanut Man asked Holyagnostic.

To be continued...

The Peanut Man Chapter Seven

"Did you know that Willie Mays played for the Birmingham Black Barons?"

Since they were talking about percentages,Holy thought the question came out of left field. Well in Willie's case, it was out of center field. The sun was sitting on the edge of the Atlanta's western horizon and looked like a cartoon character sneaking a peak at us over a backyard wall.

"Willie used to stay in my grandfather's spare bedroom when the Baron's were in town."

The Peanut Man had a smile in his eyes as well as on his lips. Holy could tell that the memories in his mind were strong and pleasant.

"I was still just a kid, but so was Willie. He was only sixteen when Piper Davis the player/manager of the Barons signed him to play in Birmingham. Willie would play catch with me in the back yard."

"You played catch with Willie Mays?" Holyagnostic's voice was filled with awe and hero worship.

"Is there's an echo out here?" Xavier laughed as he said it. "Yes, and it was a conversation that Willie had with Daddy B. that gave me my first lesson in the significance of percentages."

The Peanut Man looked off in the distance. Then he closed his eyes for just a moment before he began to recreate for Holy an afternoon from long ago.

"The Birmingham Black Barons were near the end of the season that was Willie's second with the team. It looked like they would play in the Negro League World Series against their old nemesis, the Kansas City Monarchs. But they needed to keep winning to make it happen. On this particular Sunday afternoon the Barons were awful. 12 to zip was the final score. Willie hadn't helped the cause. He had gone 0 for 5 with three strike outs. He managed to get on base once because of an error, but proceeded to get picked off of first on the very next pitch."

"'Say Hey!' Willie said to me as he came into the house after the game. He seemed chipper and happy. He whistled his way down the hall, still dressed in his uniform, and we could hear him singing over the sound of the water running in the shower."

"Daddy B and I looked at each other. Willie's disposition was in complete contrast to what we had seen happen in the game earlier in the day. Daddy B. was already formulating the questions that he wanted to ask even before Willie joined us for the evening meal."

"Willie, with the kind of game you had at the plate today, how can you stay so upbeat?"

"Mays laughed in a way that made the room feel like it had more light. 'Pops, I may be young, but I have been playing baseball since I was eight. I learned early on to pay very close attention to my batting average. This year, after today's game, I am hitting .382. It is a comforting number this late in the season. The peaks and valleys have been lost by the shear volume of the times at bat.'"

"He let that information sink in before he continued. 'Nearly forty percent of the time I will get a hit. It's true that over sixty percent of the time I won't ,but a day like today means only one thing. There is some pitcher out there tonight, who doesn't even know it yet, that is going to paaaay tomorrow.' He extended the word and gave emphasis and certainty to the damage that his experience with his abilities and numbers would do to the guy who dared take the mound to face him the next day."

"Daddy B. took me to the game. Willie knew where we sat and after Willie got his fourth hit, he looked up in the stands where we were and pointed. His gesture said, 'Told you so.'"

The Peanut Man pushed his wheel chair away from the table. It was the signal that Holy's first lesson was nearly over.

"Most people know how to add and subtract, but it has amazed me as I have accumulated wealth, that very few are able to work with percentages. Rates of return, profit margins, and so many other pieces of information that are indispensable in business are found by knowing how to work with the ratios that reveal percentages. Learn that secret and you will be singing in the shower even after bad days at bat."

To be continued...

The Peanut Man Chapter Six

Editor's Note: Back by popular demand, here is a little bit more of the PM to whet your appetite. If you are new to the story, the early chapters are available in the archives. Click on the "Peanut Man" category and the rest of the PM chapters will be at your fingertips.

The Peanut Man answered in the affirmative when Holyagnostic probed about wanting to know how his economic circumstances had so dramatically changed. Lights were beginning to twinkle in the Western neighborhoods of Atlanta that lay beyond the balcony railing and the solid red stream of taillights identified the ribbon of concrete that was Interstate 20 leading out of the city. Holy always wondered why WSB bothered with spending all that money on traffic reports. All they needed was someone to say, "Gridlock!"

"You've gotta know percentages."

Xavier Bainbridge's comment drew Holy's eyes and attention back to the balcony. Not Too Swift was bringing us another glass clinking with ice. We were far enough above the sounds of the city that the fizz of the recently poured Dr. Pepper announced X's companion's presence.

"That was the first lesson that Daddy B. taught me. You gotta know percentages."

"Daddy B. was your father?"

"No, he was my grandfather. He marched across the Edmond Pettus bridge with Martin and was father to my sisters and me after our father was killed in the accident."

"Accident?"

"Train accident. Happened right there in Titusville where we lived. Killed my father and put me into this wheelchair."

Xavier took a long pull off the Dr. Pepper and looked out toward the sun that was now painting a masterpiece, hung just for us. Golds and reds contrasted with the crystal blue of the September sky. Grey shadows provided depth to the bright colors. Holy envied the fact that X could marvel at the artwork every day from his perch in the Atlanta skyline.

"Sun was brighter than that and it was right in our eyes. We were running an errand for Mom. We had turned a corner and that light blotted out the world just as we got to the tracks. The train was on us before we knew it was there. Hit on my father's side of the car and spun us down the tracks like some children's toy top."

He paused, shook his head thinking of those moments that changed his life forever and then with a sigh came back to the sunset splashed balcony with Holy, the peanuts, and the Dr. Pepper.

"But Daddy B told me about the power of percentages way before that."

To Be continued...

The Peanut Man Chapter Five

The elevator in the Carlyle Residency's building was lined with wood, leather, and mirrors. Holy resisted playing his usual elevator tricks. His favorite was to turn to his fellow trapped travelers shortly after the doors closed and say, "I guess you are all wondering why I called this meeting." On other rides to the top floors of a building he would act like he was catching gnats in the air with his hands and then popping the captured prey in his mouth like he was enjoying a snack.

Holy was alone when the doors opened on the 47th floor. In order to reach the penthouse floor he had to turn to his left and get permission by using the intercom next to the elevator that went only to the top floor. The private elevator ride took twenty seconds. The doors glided open and Xavier Bainbridge, The Peanut Man, was smiling at Holy while he pushed himself toward him in his wheel chair.

"I'm wanting to buy some peanuts," Holy said, smiling back.

"You came to the right guy," laughed Bainbridge in the deep tones Holy remembered from the streets of downtown Birmingham. The voice dripped with the humidity of a July Alabama afternoon.

The decor was bachelor modern. Clean crisp lines, black leather, art providing the splashes of color summed up Holy's quick look around the space. But almost every angle was designed to draw ones eyes toward the expansive views of Atlanta seen through floor to ceiling windows that stretched twenty feet high.

It took nearly an hour for X to show Holy around. The end of the tour was on the balcony that faced the western skyline. Already the clouds were beginning to gather themselves on the horizon into what was going to be a spectacular cirrus shaped sunset. We sat in rocking patio chairs drinking Dr. Pepper and eating, appropriately enough, peanuts.

"Not Too Swift always stops at the Peanut Depot when he is on an errand in the Ham to make sure we have a fresh supply of their product. I suppose after all those years of selling them on the streets of Birmingham, I should be tired of them. But to me they taste as good as they first time I ate them."

"I guess in a way it's those peanuts that bring me here, X. It is really none of my business, but when I heard of your dramatic change of circumstances, I wanted to know how it happened. From Peanuts to the Penthouse sounds like the name of a book of fiction. But you have lived it. Will you tell me about it? "

"Of course I will," he answered.

To be continued...

The Peanut Man Chapter Four

"Mr. Bainbridge," Holyagnostic said almost breathlessly. He at last was in contact with The Peanut Man, if only by way of a voice through the ether.

"Please,call me X", The Peanut Man said authoritatively. "If you will be free tomorrow, I will send a car for you about 10 and we can spend a little time together in Atlanta. Is that convenient?"

Holy quickly calculated the shuffling that would be necessary in his Monday schedule, and said, "I'll be ready at 10. Do you need my address or directions?"

The Peanut Man laughed, "My security is pretty good at what they do, Holy. We KNOW where you live." And he laughed again, "10 o'clock then. I'll see you tomorrow."

After their goodbyes, Holy clicked the DVR play button and Jason Whitten moved from his frozen image on the screen to a collision with Washington Redskin burgundy beyond the first down marker. It was all Holy could do to keep his mind on what was left of the game. The Cowboys moved on in for a score and another big early season win, 38-28.

Holy got up early and had finished the flurry of rearrangement of appointments and duties to clear him for the trip to Atlanta. At precisely 10 am a gleaming white Maybach Landaulet. appeared like a silent ghost.

Chauffeur, N. T. Swift came to Holy's door, escorted him to the Maybach and got him settled into the white leather surroundings. On the two and one half hour ride Holy would learn that N. T. had finished 968 out of 1006 at the Naval Academy and that his midshipman buddies had nick named him "Not Too" It had stuck.

They were past Anniston and almost to the state line of Georgia when Holy said, "A bright fall day like this and I want to sing "September Morn." N. T. flicked a finger hit a touch pad, and Neil Diamond's voice surrounded Holy like the "Jazz Singer" was sitting in a jump seat in front of him.

Now, what for Holy will always be the Charlie Brown airport, was on the left. He could remember touch and goes in his plane. The Maybach moved past Six Flags, the western Atlanta projects, and finally they glided to a stop at The Carlyle Residences, a 48-story crescent-shaped building on Peachtree. Holy looked up as he got out of the car and wondered if The Peanut Man was watching from the pinnacle of the building.

To be continued...

The Peanut Man Chapter Three

For those of you who have just discovered Holyagnostic, you may have missed the first two installments of the Peanut Man. For you, and for those with short term memory loss, you can find the first chapters here and here.

As Holyagnostic walked out of the Health Department waiting room and into the muggy air of a Birmingham summer, he flipped open his cell phone and punched in the numbers that Annie Tupelo had given him for the Peanut Man's sister, Valentine.

Two buzzes and then a deep voice, "Bainbridge Mortuary. You stab 'um, we slab 'um."

Holy paused. Somebody in the household was a jokester. "Uh...I'm trying to reach Valentine Bainbridge, please."

"Wait a minute," Deep Voice replied.

After a yell that had to be heard over the XBox game noise playing in the background, someone picked up an extension phone. Holy could hear a door closing and the game sounds were gone.

"Hello"

"Hi, my name is Holy. Is this Valentine?"

She answered in the affirmative and Holy began to explain his quest for the Peanut Man and how he had found her. She listened with an occasional grunt to let me know she was there. Her attitude changed when Holy said, "Can you tell me how to reach Xavier in Atlanta?"

"THAT may be a problem," she said.

The conversation continued pleasantly, but Val let Holy know that the Peanut Man was extremely protective of his privacy. She took Holy's contact information, said that she would pass it on to him, and when he had Holy checked out, he would let Holy know.

"Don't call me, I'll call you," thought Holy. This was going to lead to a dead end street.

Weeks went by. Holy was patient.

The Cowboys were playing the late game on a Sunday Night in September and were leading the Redskins 31-28 late in the fourth quarter when Holy's phone rang. Holy paused the DVR and froze the football as it was about to land in Jason Whitten's hands.

"Holy, this is X Bainbridge. Understand that you have been wanting to talk to me."

It was the Peanut Man.

To be continued...