<<< Back to: Sidestep The Decline: The UN-Beta Portfolio

I can’t say if we are in a bear rally or, after 7 years, phhht, that was all the correction we got before heading off to the races again.But since I don’t know, I’m very happy with our Un-Beta Portfolio. In my last article, here, introducing this portfolio, I noted that for a generation now, a little more than 70% of the total market return has come from dividend income. Some might say, “Yeah, but didn’t people who invested that way miss the big moves?” First of all, what is a “yabbit” and second, yes, the massive rise from April 1997- Dec 1999 skewed the capital returns to the upside – but the 2000 to mid-2002 decline took 100% of the rise back again! Ditto for the rise from mid-2002 until the spring of 2007; all that and more was lost by March 2009.

(By the way, if Un-Beta has a familiar ring to it, readers of a certain age may recall my inspiration for this title: back in the ‘70s, Geoffrey Holder , the Tony Award-winning actor, dancer, choreographer, painter and singer, pitched “The Unnn-Cola” for 7-Up, to distinguish its clean, refreshing, unadorned taste with all the other colored, flavored, more complicated colas out there.)

It “seems” to me, now that we have had 7 good years of good market (certainly prolonged by Fed intervention, stock buybacks at ever higher prices, and a proliferation of pro forma rather than GAAP earnings reporting) that we are likely to see another decline. But no matter how many gurus tell you they “know” what the market will do, no one really knows.So mine is not a prediction, nor do I invest with the certainty “it must go up” or the certainty that “it must go down!” So I put my money, and that of our clients, where there is some certainty in an uncertain situation. I look to form the base of my investing pyramid by placing 50% or so in fixed income. That doesn’t mean bonds necessarily, though I’m happy to use them where appropriate. And it doesn’t mean we have a static portfolio; one must always fine-tune as a better opportunity to increase yield or raise quality comes along.

In my last article, I mentioned some of my favored foreign and US bond funds and closed-end funds; municipal funds, closed-end funds and ETFs;  and specific preferred shares, all of which we purchased below par and all of which, thanks to the Fed’s unwillingness to stick to its charter of keeping employment high and inflation under control (in favor of goosing the markets to the detriment of savers!) have roared ahead just like common stocks. All these form the base of a very solid investing pyramid.If you’d like to review some of these for your own due diligence, I refer you to that article.

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