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So what’s a 80/20 portfolio? It is a portfolio composed of 80% passive strategies (index funds, etfs) and 20% active (mutual funds, stocks, etc…). I decided to do a virtual portfolio via marketocracy to see how a 80/20 portfolio will perform over time. When you start a new portfolio, you have $1,000,000. As for now, I only have spent around $720,000 of the money, and only about 2% of the money went to active (two stocks).

So what are the asset classes for the 80% passive?

Vanguard Bond Index Fund, Incorporated Shares Short Term Bond ETF
Vanguard Small-Cap Value ETF
Vanguard REIT ETF
PowerShares Global Water Portfolio
Vanguard Small-Cap Growth ETF
Vanguard Total Stock Market ETF
Vanguard Extended Market ETF
Vanguard Large-Cap ETF
Vanguard International Equity Index Shares FTSE All World ex US ETF
Vanguard Emerging Markets ETF

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My 20% active part, I only focus (as for now) on value mostly conservative stocks. As for instance, I bought Wells Fargo (WFC) and Johnson and Johnson (JNJ) last month because I both thought that their price was undervalued (I certainly got that right for Wells Fargo — which gained 8% since I bought it 2 weeks ago). I don’t do anything fancy when I analyze stock to see if it is a good value to stock to buy. I mostly use PE versus historical PE, see what Value line has to say, other bloggers’ opinions, I keep an eye on all the stocks Warren Buffets carries, and with my guts…that’s about it! And when I buy a stock, its for the long-run.

This portfolio’s inception date is June 18 2008 (so yeah..just started), and its performance is in the negative: -4.01%. The reasons why I haven’t invested my cash all at once, is to do a “little” dollar-cost average strategy.

So, you might wonder how well it did versus the market…see below (CMF is my fund):

Beating Today MTD QTD YTD
CMF -0.00% -0.30% -1.08% -4.12%
S&P 500 -0.56% -0.56% -1.39% -13.14%
DOW -0.45% -0.45% -0.21% -14.61%
Nasdaq -1.65% -0.63% 0.78% -12.87%

As you can see it did better than the market so far. I will keep this portfolio updated on this blog and hopefully start new passive portfolios (i.e. 100% all passive). You can see here a fully detailed performance for each assets and stocks since inception.

From the great book Dick Davis’ Dividend by Dick Davis; here’s the best way to describe the market:

“Like a boxer, the investor’s first step toward winning is knowing what to expect from his adversary…. He should know that the market goes to extremes in both directions, that it can be both the supportive, caring, seductive lover and the cruel, cold, insidious antagonist; that it can cause euphoria and exhilaration or anger, fear and despair. He should know that the market can change its mood on a dime; that it can be capricious, enigmatic, and ornery; and that mostly it can be dull, listless, and boring.”

Just simply well said… I wanted to share it with more people.

This Idea is taken from the great great book “Dick Davis Dividend” by Dick Davis“.

“So where is the stock market going this year Charles?”

– I don’t know.

“How come you don’t know? Aren’t you suppose to be one of the top finance student at your University?”

– What do you mean by top? I just have good grades but that doesn’t mean I know where the market will go this year or next year… actually no one can!

“How come no one can?’

– Do you know anyone who actually can predict where the market is going on a constant basis?

“Well I thought someone could because of all the news on TV, etc… I mean those stock specialist sounds so smart no?”

– Well they have to sound smart, otherwise no pay check! I could give you tons of reason why the market will go up or down by the end of the year.

“No but what do you think?”

– I still don’t know…

“I am confuse”

– PERFECT! Now you understand the market!

“What do you mean?”

– You are CONFUSE! That’s the hole point… the market is simply a weird non-sense confusing thing !

“I still don’t get it…”

– good.

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That famous conversation, I have it with my dad, family, and some school friends a couple of time. Everyone has to realize that no one can predict the market and where it will be by the end of year or next year or in 3-4 years. There are 2 types of Stock Market Specialist. There are some who don’t know where the market will go and those who haven’t realize yet that they don’t know where the market will go. Simple no? Not really because it goes against human nature for not knowing something. Humans seemed to be program to find trends where there are actually none.

But why is the market really confusing? I could go in deep details but I won’t. Simply ask yourself “What is the market? or Who is the market?” Us, the population of the world is forming the market and since humans often act in manners that are so unpredictable, how can we predict the market? Get it?

However, there’s something for sure I can say about “predicting” the market, if you actually can call this a market prediction. In the past, Bull markets are followed by Bears but Bull periods tend to last longer than Bears… there you go! Now everyone understands the stock market? Simple no?

The subprime crisis is sure is one important financial crisis, but we have to admit, unless you are an experience banker, security analysis, or economists, this subprime crisis is quite hard to explain or to understand. Watch this video below and you will understand a little more…let’s say you will gain an overall understanding of the big picture of this subprime crisis with a little comedy touch:

I want to people to also understand that being creative and using comedy is a great vehicle to make a hard topic to explain more easy… and simply more fun to learn about it.