New Buy: (LSBRX) and Portfolio Management

I didn't think to post about a new buy I made last week, because it wasn't really a stock trade. Today I got to thinking since I consider it part of my trading portfolio, I should treat it like any other stock trade with this capital.

I consider myself to have three different sections to my portfolio: my 401k through work, my Roth IRA, and my Trading capital.

I contribute 7% of my income to my 401k - that's the maximum amount that my company matches with a 25% contribution. Nothing like getting an immediate 25% return the first year you add to your capital! These funds are split just about evenly among three mutual funds: an S&P 500 Index Fund, an International Fund, and a Small Cap Value Fund.

I also contribute the maximum I'm allowed to my Roth IRA on a monthly basis. Like my 401k, these funds are split pretty evenly into mutuals: an Energy Fund, a Mid Cap Growth Fund, and an International Fund. I'm probably too heavily weighted in International funds and will look to shift some of that weighting to the Small Cap Value and Mid Cap Growth Funds.

Finally I have my trading capital, which includes a cash account and a Traditional IRA account. The Traditional IRA is a small amount that I had saved before the Roth existed. Because I'm optimistic that I'll be better off in retirement than I am today, I contribute to the Roth IRA now and the Trad IRA I just trade with the amount it has.

If CAN SLIM is so great, why not trade with all of my capital? Originally this is the question I asked myself. Fortunately my coworker and fellow CanSlimmer (see his investing blog here)is less aggressive and probably more prudent than I am, and he gave me the following advice: 'Don't nuke yourself!' Ok, there was more to it than that, but the basic premise is pretty simple. If I'm successful investing, I won't need my 401k and IRA to generate wealth. If I'm unsuccessful, I'll be glad I left them alone and should still be able to retire comfortably on their proceeds.

That brings me to this week. I've been buying a Loomis Sayles bond fund, (LSBRX), for a couple of years for my son's education IRA. This is a well respected, well managed, well performing fund historically. Not surprisingly, it's been beaten down this year, particularly in the past few weeks. It trades around $10 NAV now, when I began buying it it was at $15 NAV. This doesn't concern me for my son's education because I believe my time horizon is long enough (at least 10 more years) that I'll have a good exit point and because I contribute monthly so I'll dollar cost average down during these low points. Furthermore, the fund is now yielding close to 9% so each month I reinvest that at this all time low price.

With my outlook on the stock market and belief that we have another year left in this bear market, I decided to take my entire Traditional IRA, which is about 33% of my total trading portfolio, and put it in (LSBRX). While I don't subscribe to bottom fishing in individual equities, I think it can be done in funds, particularly those with a strong track record and a high yield. When the fear leaves the market (and it will) there should be plenty of buyers lining up for bonds with that kind of yield. In the meantime, I'll earn the 9% and if the price goes down further I don't mind leaving this money invested in LSBRX for a longer time period.

We should get a bear market rally soon and I've left myself plenty of working capital to take advantage of it.

-Geoff