2million - My Journey to Financial Freedom

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Wednesday, April 19, 2006

Taking Assessment of My Portfolio Returns, Part 7: Lessons Learned

To recap, here is a summary of my total net worth and eash asset class returns for 2005:





Retirement Accounts

$ 62,360

$ 8,331


Net Cash Accounts

$ 77

$ 778


Investment Accounts

$ 26,262

$ (685)


Company Ownership

$ 31,022

$ (8,892)


Investment Property

$ 38,560

$ 2,562


Total Return

$ 158,281

$ 2,094


Note: These returns are after factoring out my 2005 savings.

While this has been a somewhat painful process to go through, I think this has shown me some things are going well and others have room for improvement. I have recognized that learning and improving my individual stock investment strategy is going to take time and patience.

Lessons Learned:
-I need to develop a strategy that prevents my portfolio from being too overweight in my employer's stock performance. Since I still participate in my employer's ESPP, if I continue to "do nothing" my exposure to the company's stock performance will outweigh the rest of my portfolio.
-I am not a great individual stock investor, yet.
-I need to limit the portion of net worth that I utilize in my individual stock investment strategy until I can successfully demonstrate consistent performance.

Action Plan
-I need to reduce ownership in IBM. I have been saying I will do this for many months, but have been waiting for the stock price to rebound a bit. My plan will be to sell off at least 25% of my IBM holdings in the next 2-3 months. I will also begin to make firm commitments to liquidate further ESPP purchases on at least an annual basis to maintain the percentage of my portfolio in IBM stock.
-I am selling my holdings in my Bellsouth DRIP. With the recent announcement of a planned merger with AT&T and subsequent increase in stock price, I feel comfortable liquidating my long term holdings of this company.
-Proceeds from the liquidation of these IBM and Bellsouth holdings will be used to start positions in a few ETFs in my Sharebuilder account (namely to increase my smallcap and international exposure).
-I am not going to make any other great changes to my individual stock investment strategy, rather I will invest a smaller portion of my new savings in individual stocks and divert the remaining portion to a few mutual funds or ETFs to help round out my investment portfolio.

In the near future plan to take a look at my stock asset allocation and take a look at how it breaks down. I already know I need more smallcap and international exposure, but I am not sure how much I need.


  • 2million,

    I think you are on the right track with the idea of getting more small cap and international exposure. I took up that strategy about 5 years ago and it has worked out well for me. At the end of last year I started moving some of my small and mid cap assests into large cap. I am reconsidering that decision after read the cover story of last week's Businessweek http://www.businessweek.com/magazine/content/06_16/b3980001.htm.

    I have done well using T Rowe Price Mutual funds for International investments (both stocks and bonds). I have also done well with ETFs. Two I currently hold are EWY (South Korea) and TRF (Russia).

    By Anonymous Anonymous, at 4:50 PM  

  • How did you collect >1000% on your cash? An unreported trip to Vegas?

    By Blogger debtor, at 8:39 PM  

  • see the detailed breakdown - its net cash so it factors in the 0% balance transfers I took advantage of.

    By Blogger 2million, at 9:18 PM  

  • 2million,

    Great blog. I loved your balance transfer strategy. I am yet to take advantage of that.

    I agree with you about getting more small cap and international exposure. There are some good ETFs in these sectors. I own EFA. It has been doing pretty well. I have seen it grow by almost 24%.

    Keep blogging.

    By Anonymous Anonymous, at 9:40 PM  

  • hello sir,

    I really like your blog. please visit my new blog on "Successful investing".



    By Blogger Unknown, at 11:35 AM  

  • I am an IBMer too and have been buying ESPP since 1996. One lesson I learned is that I have to constantly unload to be able to make money. Since 99 I have been unloading stocks whenever I see a hike... But a lot of my co-workers didn't sell. They buy but they are so reluctantly to sell.
    I think as stock investors,most of us spend too much time alalyzing a stock so we can make the best buy, but we often forget the exit strategy : when to sell? It's as equally important as buying... My yearly unloading exit strategy has worked out for me.. So you may want to wait until the next hike and sell your long term holdings and go from there.

    By Anonymous Anonymous, at 12:23 PM  

  • I'm a subscriber to a buy-and-hold strategy, but I agree that you need to know when to bail, too. If I'd paid more attention, I would have ditched the Sears stock in my son's portfolio before it tanked and was bought out. But the rest of it has done fairly well.

    By Anonymous Anonymous, at 1:37 AM  

  • Have you read Unconventional Success, by David Swensen (fund manager at Yale)? He makes a convincing case that individual investors should focus on low-cost index funds (e.g., Vanguard) and not risk/waste their money on actively managed funds or, worse, trying to succeed at market timing and security selection.

    By Anonymous Anonymous, at 8:19 AM  

  • By Anonymous Anonymous, at 3:59 PM  

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