Market Philosophy: What You Got?

Edited it. Better?

The advantage to the advisor is based on my goals and timeline to retire I had too much risk in my portfolio he pointed out to me.  I can pull back on the allocations.

Other thing i did was shop Vaguard vs. Fidelity to get a better deal on commissions on trading as I had an acct at both.  Got 500 free trades from Fidelity

Per the previous talk about low cost investing.  Watch out for index funds.  Even John Bogle has been quoted he is worried how big they are getting.  They could create thier own bubble as poor performing stocks in the sp500 or R2000 went up a lot just by being in the indexes.  That is the definition of a bubble.  I think it’s a stock pickers market now with the cream of companies with good earning and sales growth going to outperform the market as a whole considerably.

Z wrote

Got 500 free trades from Fidelity

I think 500 free trades is more dangerous than an index fund.

If anyone responds I'll delete it and the response.

Harvey wrote

Z wrote

Got 500 free trades from Fidelity

I think 500 free trades is more dangerous than an index fund.

There is truth in that.
Some people really like trying to outsmart the market. I hated playing that game and would rather focus on my job.

PeeTex wrote

. . .
he gets a small percentage of whats in the account, not what the account earns. His incentive is to grow the account but he makes money regardless. It works as this account has beaten every one of my other equity type investments and consistently outperforms the market. It may not be the cheapest fee based equity account but the end result is it grows faster.

I've had my IRA and 401K money with the same financial planner for almost 25 years.  He gets a small percentage fee every quarter based on the value of the funds in the account.

My financial planner has many of the same investments in his personal account.  All funds, no individual stocks.  He's also well aware of the financial assets that my husband has and how those are invested.  My husband prefers a much more hands on approach to his investments.  My financial planner pays attention to the stock market so that I don't need to.  Only problem is that he'll probably end up retiring since he's about 10 years older than I am.  But his son works with him so the company will be around for a while.  I found out about him when he started working with a few of the execs at my company.  They had far more financial assets to invest than I did after the company had gone public successfully in 1993.

I’ll never use 500 trades.  I usually only make a trade or two per month but it did lower my expenses of my trades.

Z wrote

I’ll never use 500 trades.  I usually only make a trade or two per month but it did lower my expenses of my trades.

I think one or two free trades a month is more dangerous than an index fund.

What happened this afternoon?  The market jumped 700 points between 2:30 and 3:45.

Something must have driven it.

Harvey wrote

Z wrote

I’ll never use 500 trades.  I usually only make a trade or two per month but it did lower my expenses of my trades.

I think one or two free trades a month is more dangerous than an index fund.

Let’s assume you are investing 100k in an s&p500 index fund.  

Would you rather blindly own hundreds of underperforming stocks especially at the end of a bull market vs. 10 fundamentally strong companies at 10k each which are picked to out perform in the current business environment.  

I’m sure we all own a significant $ amount of index funds as part of our portfolio.  I just don’t see it as a core holding at the back end of a bull.  Those weak stocks are going to pay the piper soon when thier fundamentals can’t support their price.

Z wrote

Let’s assume you are investing 100k in an s&p500 index fund.  

Would you rather blindly own hundreds of underperforming stocks especially at the end of a bull market vs. 10 fundamentally strong companies at 10k each which are picked to out perform in the current business environment.  

I’m sure we all own a significant $ amount of index funds as part of our portfolio.  I just don’t see it as a core holding at the back end of a bull.  Those weak stocks are going to pay the piper soon when thier fundamentals can’t support their price.

I guess you know how to pick those ten stocks. Or you are paying someone to pick them for you.  That works if:

• The stock picker is correct
• Other stock pickers don't know the same info so that the price doesn't reflect the true value

We don't have access to a good index fund, so unfortunately we don't have one as a core holding.  My wife's plan has an S&P 500 fund with a 1.05 expense ratio, so not touching that. Our plan doesn't even offer one. I'd put half of what I have into VTSMX if I could.

How many companies are in VTSMX... 5000? How many of those are overvalued? Is there a pseudo index fund without all the dogs?

Keeping cost low and buying every week of your life without fail is fairly simple.  Picking stocks and trading twice a month seems harder to me.  I guess if it is a hobby that you can afford, go for it.

One thing that I did that was very costly... I didn't start until I was 30. I'd probably be all set if I started at 22. But hey I was finding myself, that is worth something right.


The difference between you and me is that you know which stocks are bad and I don't.

Harvey wrote

The difference between you and me is that you know which stocks are bad and I don't.

If he did he would not complain about the cost of ski racing and college or complaining about STRs or still working. I know few people who have made their money by making consistently good stock picks.

Most millionaires these days did what you are doing, building a nest egg year over year.

PeeTex wrote

Harvey wrote

The difference between you and me is that you know which stocks are bad and I don't.

If he did he would not complain about the cost of ski racing and college or complaining about STRs or still working. I know few people who have made their money by making consistently good stock picks.

Most millionaires these days did what you are doing, building a nest egg year over year.

That's one the best posts I've ever read from you.

I knew a guy who knew how to pick them.  He died a millionaire many times over and started with nothing.  He was an accountant by trade and worked for the IRS when he was young.  Then later started his own businesses both in business accounting and as owner of nursing homes.

I still recall seeing his hand drawn charts.  It was more of an obsessive hobby I believe.  It also helped that he didn't spend much money throughout his life and always had lots to invest.

Most people are better off not paying that much attention to the market IMO.

I read an article many years ago that had an impact on me.  It said that the returns reported by stocks and funds assume that you bought and held that investment for the entire period. If they are reporting 10 year returns the assumption is that you bought it at the beginning of that period and sold it at the end.

The article showed that reality of investment returns for stocks and funds is much lower because investors jump in and out. Apparently there is a way to see the actual returns investors get from investments. The difference was more than your average managed fund expense ratio.

If you believe that the market, over the long haul, will continue to go up, then the most important thing is not to pick specific points to sell low. It's not easy. Human nature and all.

I remember buying my house. It was sort of towards the top of the market cycle I think. But it was in 1988. Today the fact that I paid 10k more than I could have is kind of irrelevant. Not suggesting that a house should be consider equivalent to a mutual fund, but the idea is the same.

What opened my eyes to this was when I was at the end of my Networking equipment company, we were building specialty routers and switches. The investment houses were buying up equipment and they wanted the absolute fastest devices. They would pay a premium for a router that decreased the latency by a few micro seconds and/or had a higher throughput. This was all to execute trades faster than their competition. That made me realize I could never keep up with the professionals just picking stocks on the weekends. The were on this all the time, they have sophisticated algorithms looking at thousands of factors and calculating probabilities. The only way to beat that was with insider information.

I think it's important to take into account the regulation and technological changes that have occurred over the past 25 years.  We have seen some significant changes in the market landscape since the advent of online trading and the commingling of investment/commercial banking.  Buy and Hold strategies were rock solid for a long time.    Things used to move at a much slower pace.  There was a time when a stock transaction required a "call" to a broker in order to execute a trade.  Those days are long gone.  Trading volume is much higher.  Derivatives that require a team of mathematicians to calculate estimated valuations are now common place.  With the ease of trading and added complexity comes volatility... and the potential for more frequent mass panics.  A mild panic can become disastrous very quickly as a result of programmed trading (think Flash Crash).

IMO: There is still an enormous amount of upside potential in equity investments... but that comes with much more risk than it did in the past. Unfortunately, even if you don't have the tolerance for risk, you don't have much of a choice.  The outsider has been screwed by the interest rate environment that we have experienced over the past 20 years.  There was a time when you could deposit your money in a guaranteed interest account, and get a decent return.  Today, you've got to lock your money up for 5 years in order to get an FDIC insured of return 2.5%.... and that's after a series of rate hikes.  A healthy rate environment would provide risk free returns of at least 4% on cash.
   

Nepa... I'm not sure I understand.

One thing I do get at a gut level... What other options did I have over the last 30 years.

I did buy some real estate but I'm too attached to it to consider it an investment.

I’ve been pretty good at what not to buy but one one is perfect.  Far from it I bought GE expecting a bounce which was plain stupid becuase i went on valuation and not earnings fundamentals like I normally do.  My point is fundamentals matter and right now buying a basket that at least 40% of is guaranteed dog shit becuase it’s an index of everything vs picking a small number of decent companies might be worth considering.  If one goes wrong you have risk but indexes have become thier own bubble so which really is safer?

Timing the market truely is impossible though sometimes you get lucky.

I'm totally confused. I thought you bought GE because you knew the new CEO and believed he could turn it around? That was like a month ago?   How can you declare that a bust?

Also Peetex what does Z's stock picking have to do with his crankiness about STRs?

Harvey wrote

What other options did I have over the last 30 years.

You totally get it.  The answer to your question is very few.

This is a result of the hyper-financialization of our economy that has taken place over the past 30 to 40 years.  Theoretically, with the assistance of compound interest, and good savings habits, you should be able to fund a healthy retirement without taking on very much risk.  That's simply not possible in today's environment.  Part of it has to do with some cultural issues (most people don't place a high enough priority on savings), but the extended period of low cost borrowing has also been a significant factor.  Rates we near 0 for over 15 years.  This made the "pass book" savings account a useless hole for generating a "safe" .75% on your cash.  Add to the mix, systemic risk associated with a loosely regulated banking system, and the savings account is no longer a safe haven... It would be a different story if your savings account guaranteed 4% on a million dollars (FDIC is currently 250K).  

You would then have the option of putting your money in a safe place and growing it slowly at a rate that exceeds normal inflation.  It's boring.  It doesn't generate much revenue for the financial industry (so it's pretty much a dead concept)... but it should be an available option.