Some Adjustments

MOSTLY SELLS

There are some adjustments to the portfolio for Friday 29 Dec.

Sold are:

Kraft (KFT) - this was downgraded to a 'sell' a week or so ago by S&P.
BASF (BF) - has had a huge run of 19.5% since October, and looks ripe for a hefty pullback
Marathon Oil (MRO) - an even larger run of 21.4%. Keeping CVX but it is time to lighten up in oils for now.
Microsoft (MSFT) - had a 5% run, but did not increase its dividend rate, so I sold it (on 26 Dec).

Bought were:

Microchip Technology Inc. (MCHP), which looked better in growth and dividend growth prospects than MSFT. Also, it is a tech stock with a current 3% yield. Tech may do well in 2007, and so I bought it (back) on 26 Dec for $33.10.

Took a hedge against the market near term by buying Profunds Ultrashort S&P 500 (SDS), which is a leveraged '2X short' the S&P. This is a minor hedge compared to the overall portfolio, but the stock market is looking pretty tired right now.

CALCULATING PERFORMANCE

It's was a challenge to figure out how to track the portfolio's performance relative to the Wilshire 5000, but once the light bulb (a G.E. 40 watt) lit up, the basic approach was pretty simple: get the Wilshire value for the date each stock was acquired, then calculate the 'weighted' value of the index.

For example, TTH was 5% of the portfolio when purchased, and the closing value of the Wilshire 5000 on the stock's purchase date was 13213.4, so the TTH 'contribution' to our weighted Wilshire computation is 660.17. You then add the 'contributed' values for every remaining stock holding, add them up, and now you have the weighted 'buy' value for the total Wilshire 5000 Index. This value gives you an 'apples to apples' comparison of performance between your portfolio and the performance of the Wilshire 5000 index.

WHAT MAKES IT COMPLICATED

It gets more difficult when you account for stock sales. First, I thought about whether to adjust the Wilshire computation, the portfolio computation, or both.

What if you could calculate a 'weighted' profit on the stock sale and then apply that to the cost basis of the portfolio? You then wouldn't need to adjust the Wilshire computation because the 'Wilshire' adjustment is already reflected via the portfolio adjustment.

For example, BASF profit upon its sale was 19.48%. Remember we noted the Wilshire value at time of acquisition. What was the Wilshire 5000 initial value and its subsequent 'return' for the same period we held BASF? It was 5.65%. When we subtract that return from the BASF return, we get an adjusted return of 13.83%. This percentage return is then applied to the cost of the BASF stock. The resulting profit amount is the amount of profit that exceeded the Wilshire 5000. By subtracting that amount from the current cost basis of the portfolio, the 'outperformance' is captured in the overall portfolio return. Pretty cool.

ODDS AND ENDS

Great Article from Miller/Herman on Dividends

Some more potential buy candidates:

Arthur J Gallagher & Co. (AJG) 4% yld

Angelica Corp. (AGL) 1.7% yld

Pacer International Inc. (PACR) 2% yld

UGI Corp. (UGI) 2.6% yld

Linear Technology Corp. (LLTC) 2% yld

Xilinx Inc. (XLNX) 1.5% yld

QUALCOMM Inc. (QCOM) 1.3% yld

Syngenta AG (SYT) 2.1% yld