Issue 34

07/11/05

Comprehensive Portfolio Review

Issue #34 - Comprehensive Portfolio Review

1. Comprehensive Portfolio Review
2. Future Opportunities

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Dear Friends,

Seeing that we have now passed one full year of publishing Investing
With Mom online and that I've had a little bit of time to catch up
with the spreadsheet that is my mom's portfolio, I've decided to write
up the most comprehensive portfolio review to date and provide you
with some fairly detailed information.

Before I get started though, a quick explanation of some technical
issues regarding this newsletter.

Up until the last couple of months, I had no problem e-mailing out
this newsletter but recently that has begun to change.

The main reason for this change has been some changes at the server
level by my e-mail providers.

Unfortunately that has forced me to begin searching for an alternative
option and will ensure that for now I have maximum difficulty in
getting each issue of the newsletter in your inbox.

Until I get this sorted out, publication of this newsletter will
continue to be sporadic and problematic, but fortunately there is a
way around it.

If you check the blog on a regular basis, you will find all the
updates you need along with links to each issue of the newsletter, as
soon as they reach the website.

I encourage you to look into it and take advantage of the technology
that is available.

For now, let's take a very close look at my mom's portfolio and the
results of my investing recommendations over the last 13 months.

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Comprehensive Portfolio Review

First of all at the end of the quarter we had 20 stocks in my mom's
portfolio, of which 14 were up and 6 were down. (In just the last week
however, one of those down stocks has turned around from down 11.0% to
only down 0.4%.)

My mom also carries 20.8% cash in her portfolio currently, as opposed
to being fully invested.

While this protects her portfolio from major down drafts in the
market, there is also a downside that would not be true of any other
portfolio. My mom does not currently get a return on her cash
position, simply due to the fact that it would be just a little too
complicated for me to adjust the account to reflect the return her
cash position is generating.

What this means is that for every percentage point of return my mom's
total portfolio generates, her equity position is actually generating
1.263% to compensate for the lack of return on her cash position.

Over the last 12 1/2 months, we've placed 7 sell orders on 6 different
stocks, of which 5 were profitable and 2 were not. These 7 sell orders
generated an actual return on investment (ROI) of 19.0% for my mom, or
17.7% on an annualized basis.

In this same time frame, the portfolio as a whole, including both open
and closed positions, has generated a total return of 27.9%, or 26.1%
on an annualized basis.

This very positively compares to the 3 major indices, the S&P 500, the
Nasdaq and the Dow, none of which have returned more than 7.8% over
the same time frame. In fact, if this comparison had been made at the
end of the quarter, we would have found the Dow negative for the time
frame being compared.

Over the last year, I've also published several issues specifically
addressing the cost of commissions and their affect on your
portfolio's returns.

In this case, my mom's portfolio has had a constant cost that will not
rise as her portfolio increases. Over the last year plus, these costs
have come to 4.2% of her current portfolio, or 3.9% on an annualized
basis.

However, I do anticipate that these commission costs will only amount
to 3.2% over the next 12 months, and possibly even lower depending
upon how our portfolio does going forward.

One way to keep commissions low that I've never really discussed is to
avoid churning your account, or constantly buying and selling
equities. The only person who benefits from excessive churn in your
trading account is the broker who is pocketing all of the commissions.

Of the 7 sell orders I've placed for my mom since last July, 3 of them
were placed at least 370 days after the equity was purchased. A 4th
equity was held over 305 days and 2 more were held for at least 160
days.

In fact, the average holding period for these 7 sell orders was 296
days, or nearly 9.9 months. In fact, only 1 of these positions was
held for less than the average individual investors typical holding
period of 150 days.

What this means is that on these 7 trades, not only did we get an
excellent return, we kept commissions to the absolute minimum level
possible and thus added an additional percentage point or two to our
overall returns.

All of this boils down to a very simple situation, from June 11th,
2004, when Investing With Mom went live online, until the present,
closed positions have returned 19 cents for every dollar my mom
originally invested and all positions have combined to return 27.9
cents for every dollar my mom originally invested.

This total combined return is over 3.5 times the return that the S&P
500 has generated, over 3.8 times the return that the Nasdaq has
generated and over 25 times the return that the Dow Jones Industrial
Average has generated.

And that's assuming that you could have even made money being invested
in the Dow!

Here are the returns, hopefully laid out in such a way that it is easy
to understand what I'm attempting to convey:

Index . . Returns . . Annualized
IWMI . . . 27.9% . . . 26.1%
S&P 500 . . 7.7% . . . . 7.2%
Nasdaq . . . 7.3% . . . 6.8%
DJIA . . . . 1.1% . . . 1.0%

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Future Opportunities

Now obviously past results are absolutely no indication of future
returns, but if you want to be a part of the future of Investing With
Mom as described in Issue #32, I wouldn't sit back and wait if I were
you!

My recent travels have obviously extended the amount of time needed to
revamp the website, but with returns exceeding 26% on an annualized
basis I'm beginning to come to the conclusion that the Investment Club
will be a bigger priority than the website itself.

At present there is still no firm date for the launch of the Investing
With Mom Investment Club, but I must emphasize that only paid
subscribers to the Advisory Newsletter will be eligible for
participation in the Investment Club.

In the future we may change that, but it will only be if all the
club's members can agree on the membership fee that will be charged as
well as any other limits that might be put in place.

While there will be no membership fee for paid subscribers to the
Advisory Newsletter, there will be investment minimums and maximums in
order to be able to maximize the benefits of investing as a club.

First of all, a minimum of one share must be purchased when joining
the club, up to a maximum of 100 shares. After that, at least one
share must be purchased each quarter, up to a maximum of 25 shares at
a time.

Initially, each member of the Investment Club will be limited to a
maximum of 250 total shares, each of which will be valued at $40.

Obviously the value of a share will fluctuate with the markets, so the
initial members of the club will have to decide whether each
subsequent investment should be share based or dollar based.

Either way the minimum will be one share or $40.

Although I will handle the buy and sell orders, any active member of
the Investment Club will be free to present any investment idea they
wish.

There will be a formal presentation process for presenting investment
ideas and the club members will vote on these ideas before any orders
are placed.

At first, the portfolio will consist of our current Investing With Mom
Advisory Newsletter's recommendations, hopefully purchased as prices
as low or lower than what my mom and I have already paid.

Some of the positions that have previously been recommended have
obviously exceeded the maximum price that I recommended paying, and
would probably be unable to present us with opportunities for profit
and so would be ignored for purposes of the Investment Club.

Afterall, there's no point in investing if you won't make a good
return.

You might as well keep your powder dry and focus on the next
opportunity.

That's all for now, but I'll be updating the blog in the near future
with more information regarding the Investment Club, so keep an eye on
that area of the Investing With Mom website.

Until next time,

Investments good for my mom and you,
Andy Prior