Spiritual awakening

Nothing like waking up to an overcast summer morning, running a slight fever due to what could possibly be flu and looking at the stock market shed probably the second largest points for the year.

Actually, I was looking for a dip in the market because I was looking to buy (in case you didn't know, my investment theory does not involve any selling) in my every increasing pursuit of getting a strong, balanced and distributed portfolio. Unfortunately, I wasn't prepared enough to know what to buy. So I ended up getting some more "foreign" stocks.

So, I decided today is going to be the first day for the rest of my balanced portfolio. I need the following things:
a) define a goal.
b) get a good analysis of where I currently stand.
c) figure out a plan to get from (b) to (a).

Its damn hard; I mean investing is easy, I would say even making some money in the process is easy, but it is hard to do it well, do it right. All I have needed to do since some time now is get a good understanding of what my portfolio looks like, figure out what is missing, pick one of the model portfolios and do a few trades to get me there.

So, as a first step, I sort of figured out what my portfolio looks like currently. I will need some more time to figure out a goal so some things will have to wait. But as of 26th July, 2007, I know what I am working with...........I am awake!! (for a little while, at least until the medicines kick in)

The IIF conundrum

As they say, incomplete knowledge is worse than no knowledge...or something like that.

When I actively started investing about 2 years ago, I was convinced that index funds were the way to go. That was till the time I discovered ETFs and I ended up with a portfolio where 30% of my assets are Index funds and the rest is all in ETFs.

So, about a year and a half ago, when I purchased a bunch of IIF (Morgan Stanley India Investment Fund), my intention was to get a piece of the amazing growth and development that India has been observing and which is being reflected in the SENSEX reaching all time highs. The idea was right, but my execution a bit flawed as I realize that now.

So, without doing a lot of research, I sort of assumed that IIF is an ETF and the best way to get a good basket of strong Indian equities. The holdings included all the proven Large-caps and stayed away from the much more risky small-caps and IPOs that seemed to be going crazy over in India since the last few years. I figured having such a focused fund was risk enough.

Now, IIF is not an ETF, it is a close ended fund. Which, now that I am a little wiser (refer to the previous posts where I claim to be reading books), I believe is not what I was looking for. Here is why:
A closed-end fund looks, walks and talks like an ETF. The shares are listed on securities exchanges, are actively managed and trade intra-day on the open market. However, the price is not completely reflected by the total value of the underlying net assets (NAV) as is the case for ETFs. So these shares of closed-end funds can trade at premiums or discounts to their underlying NAVs. I believe this is reflected by the sentiment of the investors.

Most investors like this because it gives them an option to make their purchasing/selling decisions based on this property that the fund is either trading at a premium or a discount.

I started looking into this because I realized that the Indian market has recorded record-breaking gains over the last few months, but IIF isn't even close to its all time high. In fact, currently it is trading at a discount. Now, I would like to re-balance my portfolio and move this concentration on a country specific fund to someting a littler broader, I am looking at BLDRS Emerging Markets 50 ADR Index (ADRE).

I certainly would have done better being invested in something like ADRE which has a few excellent Indian stocks. Also, it has more concentration of the Asian/Pacific region and telecommunications as opposed to VWO (which I also own). I am debating if I should make the plunge, or wait for the investor sentiment to change (which I believe at some point it will and drive the IIF away from the 10% discount that it is currently trading at), or buy into an ETF that is already reflecting the NAV which is at recording breaking levels!

Apparently, I am obviously not the only one to have made this mistake. TheStreet.com explained this in a September 2005 article. Seems this is a common thing for single country investing!

Lesson learned?

ETF: To buy or not to buy, that is the question

Since I expressed the lack of understanding about a set of rules or information on when actually to purchase an ETF, I have been making an effort just learn more about the subject.

Read this recently in some article about an financial firm that looks to build client portfolios entirely from ETFs:
A couple of basic rules regarding what ETFs they track before making purchasing decisions:
a) Only be invested in ETFs that are above their 200-day moving average.
b) Only look at ETFs with some track record. Nothing under $75 million in assets.
c) Look for consistent volume and liquidity (not really sure what this would exactly mean when looking at a yahoo-finance page).

Those seem like sensible rules. However I still need to figure out what qualifies as a good time to buy a particular ETF if you have been tracking. There was some mention of selling when the ETF falls below a 200-day moving average or 8% of its high (without going below the 200-day average). Which would imply that if an ETF is above the 200-day moving average (and not below 8% of it's high) and the sector trend is upwards, and the ETF fits the bill into your diversified portfolio, you buy.

Linux for human beings

I finally gave up on Redhat and Fedora and went with Ubuntu (Feisty Fawn 7.04) for my home/personal laptop; to put it simply and elegantly (as Ubuntu would appreciate), it is excellent!

Well, maybe I am just biased by the fact that everything, including the wireless card on my fairly old Toshiba Satellite worked pretty flawlessly right off the bat. The interface is very well organized and even tough being a "Red Hat" user for a while now, most of the things just make more sense in Ubuntu world. The command line package management with "apt-get" is great to use. The unique concept of not having a "root" user login is something that takes a little getting used to, but the more you use it, the more it seems to make sense.

Even though a Live CD install gives you more or less everything you will need for a Desktop system, we are never completely satisfied, and those basic needs are taken care of by this UbuntuGuide.
Most of us will probably end up doing the following:
- Macromedia Flash plugin for Mozilla/Firefox
sudo apt-get install flashplugin-nonfree
- sudo apt-get install build-essentials
- sudo apt-get install libncurses5-dev
- sudo apt-get install azureus
- The DVD codec for most DVDs seems to not have been included for legal reasons.
sudo apt-get install libdvdread3 libxine1-ffmpeg
sudo /usr/share/doc/libdvdread3/install-css.sh

This is a very short list, but that is a good enough start for me to get working on a Desktop at home. I will try and post as many things as I figure out and build this system up. Right now, I am really happy with this "Linux for human beings".