Portfolio Price Update

For now, the 14,000 horizon for the Dow is still in sight, which means that one would expect US equities to carry on doing well for a while. On the other hand, the following factors are loom large:

• China, where multiples are in the 40x-50x range and every Tom, Dick, and Harry (err, Chen, Cong, and Fai) is rushing to get in on things. Although this is from a May New York Times story (and things have fallen off since then) it is still pretty illuminating (my emphasis).

  Whoever succeeds Mr. Zhou confronts one of the toughest challenges of any financial policy maker. Chinese families eager to make money are opening brokerage accounts around the country, with the number of new accounts rocketing from several thousand a day two years ago to nearly 300,000 a day this month.

  I think it is self-evident that people, as a whole, can't get wealthier faster than the overall economy is growing; all these paper fortunes have to fade sometime.
• The subprime thing, for which I blame Alan Greenspan and his 1% interest rates. "Home ownership is at record levels in America!" Tell me about it. It appears that many "respectable" firms, even Merrill Lynch, are intent on hiding the true extent of the subprime damage, or building it into "contingency " funds on the balance sheet rather than admitting the loss outright, thus sustaining "high earnings". On the other hand, this thing could be blown all out of proportion by the penchant of financial radio and television shows to beat each story to death for several months at a time.
• The inevitability of recession in the US economy. These things happen periodically, and when they do, typically market prices suffer out of all proportion to the economic declension.

Current price of all investments in the portfolio is $97,247.88 purchased at a cost of $81,237.87 for an appreciation (of current investments) of $15,872.34 or 19.5%.

Totally excluding taxation, gains are 29.7% ($22,247.88) since the beginning of year 1 and 10.2%($8,967.68) from the beginning of year 2 until now.

Since the start, here's how the three major US market indices have been faring.

• Dow: 11,278.7695 -> 13,851.08: up 22.8% since the beginning of year 1. (12,961.98 -> 13,851.08: up 6.9% since the beginning of year 2).
• S&P 500: 1,309.93 -> 1,534.10: up 17.1% since the beginning of year 1. (1,484,35 -> 1,534.10: up 3.4% since the beginning of year 2).
• NASDAQ composite: 2,370.8799 -> 2,687.60: up 13.4% since the beginning of year 1. (2,526.39 -> 2,687.60: up 6.4% since the beginning of year 2).

Three final comments: first, besides all the things that Joel's methodology requires, it absolutely forces one to consistently maintain the cheapest possible "good" equities in one's portfolio. By forcing down the portfolio price, you are arguably (in a very loose sense!) maximizing the potential price appreciation at these regular intervals. Second, given how different the Canadian economy's make-up is to that of America, how likely is it that Canadian equities exhibit the same "magical" behaviour? Is the Canadian economy big enough? Diverse enough? Thirdly, I really want to start doing this stuff with my own money, however puny an amount it is. Although reasonably confident in the logic of the method, I am still fearful that the exuberance of "earning" a few thousand dollars in fake money is carrying me away...