2010 Portfolio Returns

THE ENLIGHTENED-AMERICAN PORTFOLIO SPREADSHEET

  • Enlightened-American Portfolio: +13.8% in 2010 (my actual IRR, including cash balance)
  • DJIA: +11.0%
  • Nasdaq: +16.9%
  • S&P 500: +12.8%
  • DJ Wilshire 5000: +15.6%
  • Russell 2000 (smallcap): +23.6%

The year’s end finds us beating the S&P 500 market average for the fourth consecutive year — every year since the Enlightened American opened its virtual doors. Though we trailed some indexes, I must take some solace in our performance in light of the 40%+ cash position held throughout the year. To beat the two major indexes while holding so much cash and not delving into esoteric asset classes is somewhat noteworthy.

But a new year has arrived, leaving us no time to rest on laurels. Carrying large cash holdings for the better part of two years is tiresome and I have chosen to pull some excess cash out for personal, non-investment use. This withdrawal will bring my cash holding to roughly 30% of all assets held for investment, still relatively high for my liking.  But what to do about it?

From my perspective, today’s investment environment is reminiscent of late 2006/early 2007, mainly in that then, as now, I felt most stocks were fairly or overvalued. But back in 2007, with the Dow racing to 14,000, there were still some notable opportunities in energy and especially precious metals. In the present day, there seems to be no place to hide our money. The huge, glaring difference today is the Fed’s intervention and distortion of the markets, which is driving every asset class up.

In response, I find myself drifting toward a more conservative investment approach these days. The Fed’s actions are reckless and dangerous but there can be no prediction as to when the consequences will hit. After all, Alan Greenspan was considered the greatest Fed chairman ever well after his retirement, only to have that reputation reconsidered (rightly) once the fall-out of his policies ultimately resulted in the financial crises of 2008 and on.

Will Bernanke still be around when the bill for his actions come due? Who knows and in the meantime, market gains can be had for the bold who know when to get out. After all, the housing boom wealth felt real enough in 2005, 2006, did it not? Similarly, gains in the current Fed-juiced market are real today but who knows which tomorrow will bring reality and will we be out in time once that tomorrow comes?

The best course of action is to find investments which do not hinge on the answer to those questions. And that is what we will continue to do in 2011. I have made one such investment in 2011 already and hope to find more opportunities in the coming months.

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