More Personal Portfolio Review


Our last message looked at my personal stagflation portfolio which has the following  asset diversification.

Cash
USD                                                                      14%
GBP                                                                        4%
Norwegian kroner                                                 1%
Swedish kroner                                                      1%

Shares
Bank of Florida Shares                                        0 .5%
Jyske Bank, Shares                                              0.5%
Turkey Equity Fund                                             0 .5%
European Equity Fund                                        1.0%

Bonds
Swedish Bond Fund                                                 2%
European Bond Fond                                            4.5%
JI Danish Bond Fund                                                7%
ELF Aquitain  EUR 4.500% 23.03.2009              1.5%
Caisse D’Amort Dette  EUR 12.07.2009                 1.5%
Rabobank NL    CAD 4.250% 2009                          1%

Emerging Bonds
Hungary Governm.    HUF 6.250%12.08.2009           1%
Hungary Governm.    HUF 6.750%12.02.2013           1%
Emerging Market Bond fund                                     2.5%
European Investment BK TRY Bond                         1.5%
Brazil    BRL                  12.500% 05.01.2016               1%
China    EUR                                                                      1%

US Real Estate
Agricultural Land                                                         12%
Residential Property                                                    10%
Commercial Property                                                   21%

Ecuador Real Estate
Ecuador Andean Residential                                       2%
Ecuador Coastal                                                             5%
Ecuador Agricultural                                                     2%

This portfolio dropped 11.1% from December 2007 to December 2008.  Compared to the markets this was not all that bad.

Last month it rose 4.31% so is now down 7.11% from its all time high in 2007.

Yet for me, the portfolio did not really move at all.

To understand why the ups and downs were meaningless, we first need to understand this portfolio’s currency diversification plus…

We need to review perhaps the three most important messages about multi currency investing you will ever read… “Live Beneath Your Means” – “Turn Your Passion into Profit” and “Be True to Yourself”.

I am sure you have heard these before and will hear them again… but let me explain why they are so vital to smart investing. These are the three foundations that everything else in my portfolio revolves around.

In 2006 and 2007 we tracked five portfolios that rose dramatically. The emerging market portfolio was up 114% in 2006 and up 122% in 2007.  The green portfolio up 266%.

We all learned a lot from that performance… but these were portfolios we studied… not the portfolios I invested in.

Do you think I was tempted?   You bet.  My portfolio was bumping along at a rise of about 15% per year.  Why not jump in … pump up the leverage and invest in these shares that were rising eight times faster?

The three  reasons above were why I did not invest in these portfolios.

First, I am not a big fan of investing in shares. I do not feel competent…nor do I have the time to dig deeply into a company… a management team… an industry etc.  So I usually hold mutual funds based on an idea…such as European shares are undervalue (hence the European equity fund in my portfolio).   I only hold tow shares, both  based on someone I know.   I know investing. I know the management of Jyske Bank and Bank of Florida and I believe in what they are doing. Yet that is it for shares… for me.

So I was true to myself when the portfolios we studied  blasted upwards.  I did not become a sudden share guru just because the shares we studied happened to temporarily do well.  I did not abandon my principles. I did not abandon me.

Good thing too since these same portfolios went to zero in 2008.

Another reason I did not jump into those shares and abandon the financial philosophy that suits me, is that I love my business (publishing) and I love real estate. Plus my publishing business helps my real estate business.

The third reason is why the first two reasons make sense. Merri and I live beneath our means….well beneath.

So when markets were racing up… I did not lose my sense because my thoughts were…“why take extra risk to chase more money?  I already have enough.”

Then when markets crashed I did not panic because my thoughts were…“the portfolio is down a bit.  So what?  There is still way more than enough.”

When we invest, based on perceived needs…  needs to pay bills… needs to pay off debt… needs to consume,  our ability to think straight is reduced.  Our desires impose on our logic and common sense.

When we invest based on comfortable philosophies that are beyond the bottom line, we do not abandon our core values, just because numbers on a balance sheet change a bit.

The market rewards the patient, steady, conservative investor.

Take for example Social Security.  Because we are conservative, Merri and I do not need Social Security  now.  But we are taking it so we can use it to invest in real estate. The land we buy with our Social security payments now may mean we really will have some extra security ten years from now when Socialsecurity may be worthless.

The same is true of Ecuador as well as US real estate.  Because we have a good cash position now we can invest in more real estate while most investors remain in a state of fear.

See more on Social Security and Ecuador real estate here.

Following my philosophy allows me to do what I love… travel…write…look at real estate. I put my energy in these endeavors so they  earn more than I spend.  This means I am not in a hurry to stress my investments to earn more now so I can quit working and retire.   My activity is not work. Its fun. Who wants to quit having fun?

This leads us to the finer multi currency aspects of why my portfolio did not really drop 11.41% in 2007 and has not really risen 4.1% this month.

Our last message looked at the asset allocation of my total portfolio.

Let’s view the currency breakdown of the same portfolio.

Real Estate     52%

Dollar Block
US$                   8%
AUD              Nominal
CAD                  1%
NZD                  1%

Euro block
EUR                16%
NOK                 1%
SEK                  3%
GBP                  4%
DKK                  9%

Emerging Currencies
TRY                   2%
BRL                   1%
HUF                   2%

These numbers are all rounded. Specifics do not matter much anyway because the numbers are always bouncing up and down.   This is why the portfolio did not really move.

Most of the drop in 2008 was due to the US dollar rising versus other currencies.

Most of the gain this month has been due to the US dollar drop.  I am not a currency speculator. I diversify currencies and take advantage, from time to time, of positive carry (I borrow low and redeposit high).

Recently an investor who saw this portfolio asked me why I do not like the Australian dollar.  I have no concerns there.   Events in the course of diversifying did not present any Australian dollar opportunity at a time when I had cash to reinvest. If next time I expand my dollar block position Australia has as good a chance as other dollar currencies.

Here are three of the philosophies behind this portfolio.

Real estate is carried at cost.  Though I could make the portfolio look better by adjusting properties to appraised value…this is meaningless.  The property is only worth what its worth when it is sold. 

Rule #1: I assume that this real estate portion of my portfolio will protect the entire portfolio’s purchasing power.

The portfolio, if looked at by the numbers, has failed in one important respect. It is worth about what it was a year ago.  Inflation has reduced the dollars purchasing power so the portfolio in real purchasing power terms, is down.  Yet the real estate has hidden added purchasing power that I feel confident will be there if ever needed.

PLEASE QUESTION THIS COMMENT IF YOU DO NOT UNDERSTAND WHAT THIS MEANS.

Rule#2: In tough times disregard currency fluctuations if well diversified. Currencies bounce around on a day to day, week to week, month to month, year to year basis.  If you are not trading currencies  disregard this motion.  Sometimes it makes you feel rich. Sometimes it makes you feel poor…but in the end it all balances out.  If you wish to trade and if you like to trade then that is a business in itself….one in which most lose.

I know that I spend my time better writing.

Once in awhile I’ll spot distortions in currencies and interest rates and jump on them… this is also true in real estate.

Rule #3.  No rule is fast. I have strong opinions about what is best for me…but am always willing to change.  For example. I have been focusing on Ecuador real estate. Yet on our way down here this winter, Merri and I spent time with our daughter in Lakeland Florida.  Wow what prices!   We saw a two bedroom house in foreclosure on a lake for $16,000. Many good looking places were under $50,000. I was tempted to stay longer and look more. In fact I employed my daughter to start checking prices out for me now and will spend extra time there on our next trip to the US.

I love the fundamentals of Ecuador real estate but do not let this infatuation blind me to new opportunities in old places I know.

I wrote about investing in the Lake Placid area in 2002.

A number of readers told me they did really well from that information then.  Prices rose.  Now prices are down and opportunity may be good again.  This may well be where I secure my Social Security money. If I do you’ll be the first to know here.  I am also looking in Collier and Lee counties.

Until next message good global investing.

Gary

Your own business is another good way to secure purchasing power. This is why Merri, our webmaster and I decided to create a new course on how to build a web business with a webmaster.  There is a special offer on this new course that runs until tonight at midnight. See the offer here.

Get this course FREE if you join us in Ecuador this February.

Feb 9-11 Beyond Logic Keys to More Wealth & Better Health

Feb. 13-15 International Business & Investing Made EZ

Feb. 16-17 Imbabura Real Estate Tour

Attend any two Ecuador courses or tours in a calendar month…$949 for one.  $1,349 for two

Attend any three Ecuador courses or tours in a calendar month…$1,199 for one.  $1,799 for two


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