Jim, Prophet, and Persistentone,
My portfolio's coefficient of correlation is low, perhaps around 0.3 to -0.2 or so. I was down today 0.6% versus 2.3% for the S&P. I don't know if any of you have estimated your portfolio's ratio. I knew mine was low at the beginning of the year. There are trade-offs of course. If the market moves up sharply you're not going to participate that much, but if drops sharply like today the opposite will take place. The low ratio doesn't come as a surprise since I'm 93% in exchange traded debt issues. After last year any marginal improvement is fine with me. When the average yield you have is 7.5% trying to get capital gains just isn't that important. Mini-bonds for ever!
When Eugene Fama, then at the University of Chicago, first came up with the efficient market theory it became the rage in academic circles. It's been discredited by many since then. Market information is not disseminated perfectly or, more importantly, not interpreted perfectly.
Interesting comments and question.
This week I suspect you saw your portfolios correlation with the S&P500 increase.
I have brokerage accounts with 4 different brokers (mostly to get access to bond inventory and other desirable features). In my various accounts I hold common stocks, preferreds, trust preferreds, 3rd party trust preferreds, exchange traded debt, "normal" muni bonds, and "normal" corporate bonds. Looking at my accounts, it it clear to me that exchange traded debt moved significantly more than "normal" bonds. I think this is true because exchange traded debt is easier to trade when one gets worried and because exchanged debt has a much higher respresentation by retail investors.
Just the same, I'm sure your portfolio is safe because if I remember correctly you restrict your investments to A credits.
I have not calculated portfolio correlations for any of my various accounts. However, interestingly enough, it is very clear to me that my 100% corporate junk bond portfolio that I hold in an account at Zions is doing the best. I mark all of my accounts to market each Saturday morning in a permanent spreadsheet record. The Zions junk bond account hit its peak value last Frday, April 30. This week the account was down 1.48%. I think that is a pretty low correction to the S&P500 which I think was down 6 or 7% this week.
Interestingly, I read that lower grade bonds were hit hard this week while higher grade bonds actually increased in value. I'd like to think that the performance of my junk bond portfolio was due to my bond selection skill but my ego is not quite that big. Plus, the stock and overall market correction is just getting started so my junk portfolio may still suffer big time. Regardless, I'm comfortable with the financial strength of the issuers in the junk portfolio so I have no intentions to sell into a down market.
Did you ever sell any of your FSA/AGO bonds?
Good Luck Tony!
The correlation that I calculated between my portfolio versus the S&P was based on only about 5 observations and the results were the extremely low range I mentioned previously. This Friday I was actually up 0.2% versus the S&P decline of 1.5%. Conversely, if the S&P is up 1.0% I'll only be up perhaps 0.3%. You said that your bond account was down for the week 1.48%. This is truly excellent. For the year so far I'm up 5.8% versus 0.5 for the Lipper Balanced fund index and 0.2 for Vanguard's 500 index fund, their S&P proxy.
Regarding the number of brokers you have. I'm a bit surprised you have so many. I have only one VBS Vanguard Brokerage Service. I was contemplating a switch to Fidelity because of their free ETF transactions and $7 dollar commissions, but fortunately didn't change. On May 4 Vanguard announced a new commission schedule to compete with Fidelity. Like Fidelity, Vanguards ETFs will henceforth be without commission, but more importantly as a Vanguard Select customer my commissions on stocks will only be $2 per trade versus $7 for Fidelity. So I'm sticking with Vanguard.
The mini bonds I have are mostly lower A rated bonds with exception of the ING bonds and JSM which are not investment grade. I feel that as long as you have a large number of companies in your portfolio that will offset the lower rated bonds.
I too use a variety of Excel spreadsheets to measure changes in the portfolio not only by value, but also by allocation in companies. I also have another spreadsheet that shows interest income that will be credited to my account by month over the future 12 months.
I still haven't sold any of the AGO mini bonds.
We appear to be facing another financial crisis of a different type based on last week’s market performance. That for me will be another opportunity to improve my portfolio. Good luck to you.