Losing patience with Large Caps

[Scanner]

Good point, Jim - never seen it expressed like that.

You know. . .I'm a small businessman and we tend to think differently:

Where can I cut pork or underperformers (or should?)? That's what I am thinking about Blue Chips/S & P 500.

I wonder if the Blue Chip would be better placed in a Small Cap and just elimnate Blue Chips altogether from our positions. But now isn't the best time - should have done it before it tanked 10%. . .I'm in for a little while but I may tell my wife to slowly move her shares over to small cap after a small recovery.

As one poster has said, "Don't throw good money after bad."

Why? I think small business is what can rescue the American economy, not big business. Big business has become too executive salary laden.

No. . .not the Mom and Pop Store. . .but a business with 40 employees and grosses a few million per year who is investing in alternative energy (I think there will be a bull run on energy like we've never seen). That's America's future.

Businesses go through 5 stages similiar to portfolios:

1. Start-up (initial loss)
2. Growth (breaking even but cash flow growing)
3. Profit
4. Leisure
5. Decline

I'm probably going from Stage 3 to 4 right now, which is why I am itching to sell.

[jIM_Ohio]

Scanner-

small caps will have a place in a growing economy. To convince me they lead the way out of this, you would need to convince me that the economy is growing. 8 out of last 10 recessions have been led out by blue chip companies- they have economies of scale to make things efficiently and keep costs low to do so- these advantages are not seen by smaller companies many times.

I think SOFTWARE leads the way out. Maybe general tech, but software for sure. Many companies use software to get more efficient, large companies can make large software purchases even in slow times.

I also work for a large software company, and during last downturn 2000-2002 we turned a huge profit then and we are turning in record growth now too. Some portions of our business are growing 10-15-25%.

Don't just think Microsoft and Oracle (two biggest software companies right now)- look at healthcare, automotive and similar companies and look at the software products they need to create efficiencies in their business. This is our market and we are highly profitable in it, and as I go around the hospital with my wife and sons, I can see other softwares being used to make hospitals more efficiennt (and the nurses are telling me this is a new system for them- less than 6 months old- so there is more investment being done there too).

Then look for those software companies to grow and lead way out of this.

It used to be tech and electronics (70's and 80's) which led the way out. These were assembly line type capital investments (which created manufacturing efficiencies).

[zetta]

You know. . .my intuition tells me my portfolio has returned about 8%. . .my problem is I guess when I invested years ago in international and large cap. . .I thought large cap would carry the load and international would act as a hedge.

Instead what has happened is my silver had a bull run in one year, and my international has carried the portfolio.

The Blue Chip/Large Cap has been the albatross on the portfolio.

I am trying to assess risk vs. reward.

Scanner, to me this was the whole point behind The Intelligent Asset Allocator -- nobody truly knows ahead of time which asset class will have the next bull run, but by having a horse in each race you are positioned to capture the gains from whichever one wins.

[zetta]

if investing is done in 6 stages
1) starting off
2) accumulation
3) growth
4) stability
5) withdraw start (financial independance)
6) draw down

Jim_Ohio -- does this come from an investing book or site? I'm excited to discover that I'm in the growth phase, and would be interested in finding out more about strategies that should be followed in this stage.

[jIM_Ohio]

Jim_Ohio -- does this come from an investing book or site? I'm excited to discover that I'm in the growth phase, and would be interested in finding out more about strategies that should be followed in this stage.

I came up with it myself, because I was trying to discover what my true risk tolerance is, and how to define the shifts.

1) starting off
2) accumulation
3) growth
4) stability
5) withdraw start (financial independance)
6) draw down

starting off- picking 1-3 core funds and investing in them. Deal with low account fees and learning more than anything else.

accumulation- buying shares, lots of them and have most of asset allocation now figured out. Understands what risks are, may have NOT lived through all of them (yet).

growth- when the gains of portfolio are more than the deposits. Good time to consider taking an incremental risk to boost returns because portfolio will gain most years regardless of what small risks are taken. Generally getting the 9% returns we plan for year over year.

stability- the end is in sight. Need positive returns to reach goal, and maybe 8-12 years of a 6-7% gain reaches final goal. Preservation is more important than growth, provided returns are positive.

Draw down- the first time the portfolio is worth less at year end than it was at year beginning because of a portfolio withdraw. This is usually a point of no return- once you start drawing down principal, it will be tough to stop.

[scfr]

I'm not getting the accounting issue with tax-deferred accounts. As far as I understand it, withdrawals from traditional IRAs, 401ks, 403bs, etc, are all counted as ordinary income. There is no capital gains issue there, and cost basis is irrelevant. Qualified withdrawals from Roth IRAs are completely tax free so again there is no basis issue. I think the issue will really only come up for nondeductible contributions, and there the IRS just uses a pro-rated amount of nondeductible vs deductible, so the cost basis is irrelevant as well.

Of course for taxable accounts the basis issue is applicable.

You may need to prove that you did not make excessive contributions.

Some folks make non-deductible contributions.

And then there is the nightmare scenario that the rules may change.

I think it's a good idea to keep track of what your contributions have been.