My Portfolio – Your Responses

Feb 12, 2007 by Adam C. Powell, Ph.D.

I actually do listen to you guys. After so many of you told me to sell OIL, I put in a sell order for $37.00, which went through on Friday. Thus, I bought OIL for $36.71, and then resold it for $37.00, making enough profit to cover the commission. I appreciate all of the comments that I have received on my portfolio. Here are some additional comments that I received from readers at mturk.com:

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1.- OIL 2.- As soon as possible. 3.- Because is goind down little by little. Is 13 points under high level in 52 weeks. This fund increase or decrease according wars, and now is not a good season for wars because it looks that wars will finish soon.

 I evaluated this portfolio using the economicinvestor.com system. For individual investors, their reports are available through Yahoo! Finance, also Bloomberg. A link below follows to a report for EPP. Reports are $15. http://reports.finance.yahoo.com/w0?r=33963937:1 Note: The system requires three years of historical trading data, and the tickers DVY, FXI, INP and OIL do not have three such years (incidentally, we have 3 yrs of data on the underlying index, but I haven’t researched that). The model produces two indicators that can be used to forecast future prices. For EXT and FEZ, both indicators are slightly favorable. That means that the current macroeconomic climate is favorable for those ETF’s. EPP has one favorable, one neutral indicator, also a possible hold signal. The current macroeconomic enviroment seems worst for EWY and IYT, with IYT taking a large downward swing on one indicator in the last month. However, they too both show one favorable and one unfavorable indicator, possibly indicating a weak sell signal. Before making any decisions based on a ‘nickels-worth’ material, I would strongly recommend purchasing a report to have an understanding of the system and its limitations. You should also be aware that the sale of an ETF could have tax implications, and you might wish to consult with your tax professional before trading.

 I would sell OIL. I’m going to assume that your large exposure to Asia/Pacific economies is deliberate, and although I personally wouldn’t concentrate so heavily in them, I don’t think its a bad choice either. Your portfolio is well protected against a falling U.S. dollar by all the foreign holdings, therefore, hedging on the price of oil adds little additional inflation protection, while being dead-weight in the portfolio (oil’s price may fluctuate, but, unlike an equity, it cannot increase in productivity and pay you a dividend). If you want commodity exposure, I would replace it either with a broader commodity index (maybe DBC), an etf that concentrates in oil companies and oil services, or a commodity play closed-end fund like GCS. At least that way, you get the dividends. One other way to play oil would be to invest in a Russian-concentrated fund (CEE).

 Transports are confirming to the upside. There appears to be more upside. Wouldn’t sell that. I think Oil has more upside than downside. As some of the developing economies continue to industrialize and their people continue to get accustomed to motorized transportation, demand will continue to rise. Don’t sell the oil. I think you are overly diversified in the overseas areas. Instead of owning a Japan, Korea, Taiwan, Euro and FTSE, you should consider a broad international ETF. I would not try to wait for some magical moment. Sell the narrow international ETFs now, and replace them.

 Sell Oil first. Energy markets are in turmoil now. While I am bullish about long term energy, GS precipitated the current bear energy market in January by downgrading the enitre sector. Oil is getting more expensive to produce and alternative fuels aren’t being applied reasonably. The ethanol situation is seriously messing with corn futures and will add more instability to OIL when the bubble bursts.

1. OIL 2. IMMEDIATELY 3. THE RETURNS ARE TERRIBLE FOR THIS ETF. STAY AWAY FROM THIS ETF. LOOK AT THE 1 YEAR AVERAGE.

1. FXI 2. Soon. 2 weeks? 3. Too many pressures on Chinese to adjust currency. Additionally, in the past, the Chinese military has taken the pains to tack billions of unrelated debts into the corporate structure of public Chinese companies, so that when the foreign injection of cash is made they could wipe their hands of some significant financial drag on other military-run ventures… Lack of governance and oversight, generally… Good luck!

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So, why did I buy OIL, and why did I sell it? I bought it because I thought that there was a greater chance of extreme cold weather than was priced into the oil. Also, during the past two years, the United States has been subsidizing the cost of oil by taking previously purchased oil out of the strategic oil reserves. I felt that an effort to replentish the reserves at low prices might help cause an increase in demand. Then again, the government would not buy enough to substantially increase prices, as that would defeat the purpose of holding oil reserves to stabilize prices. After so many of you commented that oil was still likely to be overpriced, I decided that perhaps, OIL was really priced correctly at the moment, and not substantially underpriced. A friend of mine who studies economics pointed out to me that the price of oil is largely determined through long-standing futures contracts. As a result, it is not likely to fluctuate much in the short term.