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Investment Plan 2009, Part 1: The Macroeconomic Assessments

Contributed by mm | January 20, 2009 9:35 PM PST

For a long time, I had been rather sporadic in managing my investments, picking up a fancy stock today, and jumping into another mutual fund the next day. Obviously the approach was proven wrong in 2008. So my new year's wish: more rigor in managing my financials. After all, although the financial crisis has wiped out a sizable fortune, I still need to count on building and growing my nest egg for a much aspired early retirement.

In the last few weeks, I have some rarely-find personal time to develop and implement my investment plan for 2009. I will take the next few posts to share my plan and solicit your feedback.

My plan starts with personal assessment of macroeconomic situation, a result of at least 30 hours of readings and analysis:

1. Asset Price

Assessment: Asset price is approaching reasonable levels.

Major stock markets have lost almost half of its peak value, and commodity price have tanked. By many measures, equity price is at very attractive level now. On the flip side, since we haven't seen the full impact on corporate earnings yet, it can be argued that the ordinary price metrics like P/E ratio may offer a false reading at the moment. All told, I come to believe that while no one can predict where the bottom is -- the claim that November is a long-term bottom is becoming weaker every day -- it can be said that asset price doesn't have much room to drop further.

Actions: Currently, 3/4 of my portfolio is on cash and that allocation certainly is not optimized for growth. I intend to start increase exposure to riskier assets. Also, I plan to enter into automatic investment plans to avoid being sidetracked during market swings.

2. Recovery Timeline

Assessment: Slow Recovery Is Expected.

Electing a new president won't automatically fix all our problems from many years of overspending. What has been done by the government by pouring cash into the economy is necessary, but we won't solve the problem of overspending by spending more. The recovery can be very painful and we cannot count on this recession to be the same like previous ones that last 18 months on average. The recovery will be more painful than ever, market can drop much further before it gets better, and one can only assume that there will be many false starts. Therefore, keeping some "staying power" is a better choice than an "all-in" approach.

Actions: I will target to keep 40% of my portfolio in cash or low risk assets at the end of 2009.


3. Inflation

Assessment: Long term inflation or hyperinflation is almost a sure thing down the road.

One way to define inflation is the excessive money being printed. Yes, in the short term we will be looking at deflation. But since our new government is surely willing to incur trillion-dollar deficits for as long as it needs to stimulate the economy, and taking time, it will work its way into the economy, one can only expect at one point of time, inflation will take control and we will pay off the trillion dollar deficits by inflation.

Actions: I will gradually increase my exposure to "real assets", including gold, commodities, inflation-protected bonds and alike. When the price is right, I'll be a buyer in the real estate market again. (Yes, MM sold its house in 2005 and is currently renting.)


4. Currency:

Assessment: Dollar depreciation in the long run.

Another popular doomsday claim that may have merit. Yes, dollar is strengthening, but if we don't figure out a way to pay off the trillion dollar debts, dollar will lose its value along the way.

Actions: I'll arrange my portfolio to keep enough allocation to foreign assets.


Do you have any feedback? What's your macroeconomic readings of how this drama will play out?

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This Post Has Received 8 Comments. Share Your Opinions Too.


CPA1298 Commented on January 21, 2009

MM - please explain your absence for the last 6 mos and provide detailed monthly financial analyses before you launch into a diatribe about how to pick stocks. I feel this is necessary if you're going to hold yourself out as authoritative.

Why are you so heavily over-weighted in cash, when many asset classes are oversold and a risk premium has finally been re-introduced to the market? Is this driven by a near-term home purchase?


Joshua Commented on January 22, 2009

Dude, he has a website that tracks his own financial performance and provides insight from his own financial journey. I would hardly call him an authoritative source for financial advice.

Just because you stay at a holiday inn, does that mean you know how to start a hospitality empire?

Chill and find a different website to vulture.


CPA1298 Commented on January 23, 2009

MM has at least 130,000 readers, who must give at least some weight to what he has to say. He needs to be prudent in dispensing advice.


stock guy Commented on January 23, 2009

He is not a financial authority. He is simply one man telling a broad audience what he is doing with his money and offering up his reasoning. These blogs should be treated as entertainment only. At best they offer good motivation to save money. Even with losses he is doing much better than most people. To be early 30s with his level of net worth is respectable.


Deamiter Commented on January 25, 2009

I'd like to point out that it is not REMOTELY obvious that your strategy was "proven wrong" in 2008. Did you think your investments would never decrease in value? Did you somehow have a poorly diversified portfolio that was hit harder than most?

Just because the markets dropped significantly doesn't mean you should sell like crazy, as it seems you have.


Alex Vig Commented on January 28, 2009

I think we should be looking to diversify. A lot of Vanguard funds are looking great to me right now.


joe Commented on January 31, 2009

All my stocks went to zero or near zero. I lost everything. The stock market is full of fraud. Until you can guaranteed the financial numbers are 100% true, don't go back in. People in the stock market now wish they never heard of the stock market. They wish they put their money in the mattress regardless of inflation and currency concerns. If I had done that, I would have some money instead of nothing. How can the top banks, who were rated AAA go bankrupt?


FT Commented on April 2, 2009

I think your readers will benefit from "A Tale of Today" at financialtales.com . Keep fighting the good fight.



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