Trading Environment Shifting?

Most Traders are sensitive to the market environment. my reponse has always been to keep two portfolios: a core portfolio and a trading portfolio. The core portfolio includes bonds, and dividend stocks which yield about 8-12% a year on average. Since I agree with Bogle's remarks on the WSJ story, (see below), the core portfolio will grow in the future, while my trading portfolio will get smaller and be managed more tightly (more options, scalps). This is a significant change in my view of the market environment (toward a more defensive stance).

My views are likely affected by my experience as a bond trader for many years. But, it may be worth thinking about the yield you expect from your portfolio strategy. My trading portfolio has always yielded more than the core over any five year period, however, the core has provided important cash flow in lean years. But the "balance" provided by both helps my nerves. Just a thought about managing the long range solvency of a trader. It takes a plan. Best, Islander.


By Andrew Fisher | 26 Mar 2008 | 02:54 PM ET - Vanguard founder and former CEO John Bogle told CNBC that he expects the stock market's meager returns to continue for some time.

"Be mentally prepared for some pretty slovenly going--some subdued returns--for quite a few years," Bogle said during a live interview.
Bogle was reacting to an article in the "Wall Street Journal" describing a "lost decade" in the stock market, when an index fund based on the S&P 500 would be lower today than it was roughly ten years ago when adjusted for inflation.

"What it doesn't say...is this, that we have these decades where returns are low," Bogle said. "The bad decade was really quite predictable."

He pointed out that at the beginning of the period covered in the Journal article, stocks were selling at a record 32 times reported earnings, and are now about 40 percent cheaper.

"It's a different story, and a far better story, but still not, I think, a good story," he said. "I think we should be a little bit cautious, make sure we've got a few bonds in our portfolio -- a lot of bonds, if you're older, and not so many bonds, if you're younger."

He also advised investors to look for low-cost mutual funds, one of Vanguard's trademarks.

"Get the costs out of your equation," he said. "The more subdued the market returns are in the future, the bigger a hunk your costs will take out of that return. Get the costs out, be careful, have a little bit in bonds, be very diversified, and, I guess, hold onto your hat."

"The core portfolio includes bonds, and dividend stocks which yield about 8-12% a year on average" Which stocks yield 8-12% a year?Don't they go down with the market / on dividend cut ?

Yes, the value of the Core varies over time, but the high yields are there: FLY, GNV, HTE, OCNF, ONAV,PWE, TNH are few you can look at that will average over 10% dividend yields. I have a range of bonds including HY corps, GNMAs, and emerging market bonds. You can do it and exceed my 8-12%. Remember I look for dividend yield, not total return.

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