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View Full Version : OT: Stock Markets/Investments. Any experts out there?


Jeff N.
09-30-2014, 06:41 PM
Just retired two months ago and rolled over my pension into an IRA with middle-of-the-road investments, risk-wise. So far, in the last 60 days, I've lost close to 30K from my portfolio. I'm new to this and certainly no expert; people tell me all the time to NOT look at daily results on investments, but sometimes I can't help it. Anyone here going through the same kinda stuff? -Jeff N.

SlackMan
09-30-2014, 06:52 PM
Finance Ph.D.here with over 25 years of investing experience, and studied and still study most research papers focused on the investment performance of professional money managers like mutual fund managers, hedge fund managers, etc. In short, listen to the advice you mentioned about not looking at daily results. Indeed, I would lengthen that to not looking except maybe once a quarter or every six months so you can rebalance if necessary.

The overwhelming majority of studies on the ability of professional money managers to time the stock market or to pick stocks with superior risk-adjusted returns conclude that the professionals fail at these tasks. To hope to do these as an individual investor is next to impossible.

The problem is that if you get out when things get scary, you will usually miss the rebound and then wind up behind. Just be sure that you are well diversified across US and global stocks and bonds appropriate for your age, and then... just go ride around (JGRA)!

Louis
09-30-2014, 06:53 PM
What exactly is the problem?

CNY rider
09-30-2014, 06:54 PM
The stock market is not tanking.
Is $30K a significant percentage of your portfolio?

Jeff N.
09-30-2014, 07:00 PM
The stock market is not tanking.
Is $30K a significant percentage of your portfolio?
I was wrong to say, "tanking". And no, 30K is not a significant percentage. It's just that, since watching my portfolio activity, it's been an almost steady decline. It's a bit disconcerting. -Jeff

Jeff N.
09-30-2014, 07:01 PM
Finance Ph.D.here with over 25 years of investing experience, and studied and still study most research papers focused on the investment performance of professional money managers like mutual fund managers, hedge fund managers, etc. In short, listen to the advice you mentioned about not looking at daily results. Indeed, I would lengthen that to not looking except maybe once a quarter or every six months so you can rebalance if necessary.

The overwhelming majority of studies on the ability of professional money managers to time the stock market or to pick stocks with superior risk-adjusted returns conclude that the professionals fail at these tasks. To hope to do these as an individual investor is next to impossible.

The problem is that if you get out when things get scary, you will usually miss the rebound and then wind up behind. Just be sure that you are well diversified across US and global stocks and bonds appropriate for your age, and then... just go ride around (JGRA)!Will do. -Jeff N.

Llewellyn
09-30-2014, 07:02 PM
Some days it goes up, some days it goes down. Don't worry about it. In 5 years time it will most likely just be a blip in the graph like every other correction.

Personally I think it's a time to buy good shares

Louis
09-30-2014, 07:03 PM
Jeff, if you're going to worry that much about it you need to strongly consider finding something else to invest in. Otherwise, it will be a constant source of worry and not worth the additional return you're getting for the risk you're taking.

MattTuck
09-30-2014, 07:04 PM
Shane and Louis make good points, assuming that Louis' post wasn't tongue in cheek.

If you own a globally diversified portfolio of low cost ETFs or mutual funds, there isn't any reason to watch it day to day unless you believe that you can predict something that the market can't.

If you believe that the chart Louis posted is an indicator of future prosperity, then you have nothing to worry about. If you believe it is an indication that this rally has grown long in the tooth, and we're about to see a big crash, then that is something to take into consideration.

YOu didn't say exactly what you do own, so it is hard to say specifics. But hopefully you aren't holding a few individual securities.

54ny77
09-30-2014, 07:07 PM
wait for the frn rant....

biker72
09-30-2014, 07:07 PM
No expert but stick with index mutual funds and low cost ETF's. You can manage your own portfolio with minimal effort.

Louis
09-30-2014, 07:08 PM
Shane and Louis make good points, assuming that Louis' post wasn't tongue in cheek.

I'm not a Chartist and I'm assuming I can't predict the future. The point of the graph was not to say that we're about to have a huge correction (although we might).

My point, which is 100% based on the data, is that the recent fluctuations are not a whole lot different from other previous fluctuations (and in fact, not bad at all). Furthermore, if the OP is worried about that, he's in for a very bumpy ride.

Louis
09-30-2014, 07:10 PM
wait for the frn rant....

What's an "frn?"

Jeff N.
09-30-2014, 07:11 PM
Thanks to everyone. Much appreciated. You are all obviously FAR more educated on this subject than I am! -Jeff N.

54ny77
09-30-2014, 07:12 PM
louis it's the rant that can't be prevented because forum software doesn't permit "ignore list" to include mods.

Louis
09-30-2014, 07:14 PM
I know - I was just kidding. ;)

SlackMan
09-30-2014, 07:18 PM
What's an "frn?"

As long as you don't own any frns, you're good. Don't worry. If you do own some, well, it's been nice knowing you. :eek:;)

zmudshark
09-30-2014, 07:22 PM
I am stupid when it comes to stocks, but I have forgone my morals and invested in dividend stocks for the most part. In my case, I have a lousy pension and want steady income so I can continue to live my humbler lifestyle without worrying whether or not I can pay my bills.

I have no debt and can weather a market downturn without selling. I have no problem in investing in defense and vice companies. I used to, but got over it after a few years of dividends and a bump in stock prices.

YMMV. I gladly accept frn's, so does ray. :banana:

PS--- never look at your losses unless you are planning on selling something, then use them to offset taxes.

PPS-- I know nothing about finance, I was a mediocre truck driver.

Tony T
09-30-2014, 07:49 PM
Some days it goes up, some days it goes down. Don't worry about it. In 5 years time it will most likely just be a blip in the graph like every other correction.

Personally I think it's a time to buy good shares

Was there a 20% decline that I missed? :)

Louis
09-30-2014, 07:53 PM
Was there a 20% decline that I missed? :)

I'm sure there's been a 20% decline in at least some stocks that will soon rebound. So yeah, it's probably a good time to buy some shares, the trick is simply to know which ones.

bargainguy
09-30-2014, 08:13 PM
Unless you're a day trader, shouldn't be a concern. I watched all my IRAs lose half their value in the Great Recession of '08, but since I wasn't going to pull that money out in 15 yr. at least, wasn't the least worried about whether they would regain their value (they did).

zmudshark
09-30-2014, 08:20 PM
I'm sure there's been a 20% decline in at least some stocks that will soon rebound. So yeah, it's probably a good time to buy some shares, the trick is simply to know which ones.I have a feeling the defense sector will be doing okay, security too. I've bought defense, because they pay a dividend, not sure on the security stuff. I have a feeling they are mostly private and owned by insider profiteers. I'm a bit cynical.

In spite of the biggest airplane boondoggle since the Spruce Goose, look at this:

http://chart.finance.yahoo.com/z?s=LMT&t=2y&q=l&l=on&z=l&a=v&p=s&lang=en-US&region=US

Plus 3%+ dividend.

saab2000
09-30-2014, 08:46 PM
Unless you're a day trader, shouldn't be a concern. I watched all my IRAs lose half their value in the Great Recession of '08, but since I wasn't going to pull that money out in 15 yr. at least, wasn't the least worried about whether they would regain their value (they did).

That would have been a great time to add money to your IRA. ;)

Timing markets is tough (impossible) but adding at a regular basis seems wise.

Also, to the OP, don't worry too much but try not to draw down at too fast a rate. Talk to an actual professional or a friend who is a pro at this. But be careful about whom you choose to pay - they have their own motivations.

There is an abundance of stuff to read and starting with the "Finance" or "Retirement" sections of some well known websites is not a bad place to start. Read, read, read. Knowledge is power.

Ken Robb
09-30-2014, 10:22 PM
Jeff, I sent you a PM.

Mr. Pink
10-01-2014, 07:52 AM
Read any of John Bogle's books. Use Vanguard.

Ahneida Ride
10-01-2014, 09:22 AM
Inflation or fed note dilution is about 6% per year, over the past 40 years
prices have increased about 10X. So just to stay even you need to make
6% annually.

Our Monetary system creates $ outa thin air by someone signing a debt
document. Money is now debt, debt = peonage, hence money = peonage.

Note the principle is created by typing numbers into a computer server,
but not the interest. The interest has to come from some one else's
principle or more $ must be created out thin air, which only perpetuates
the cycle.

Just Google "Modern Money Mechanics" a publication of our nations
private central bank.

If all debts were paid off, there would be no federal reserve notes in
circulation.

Mr. Pink
10-01-2014, 10:00 AM
And if my unicorn would stop eating and creating, you know, piles, she would be the perfect pet.

oldpotatoe
10-01-2014, 10:18 AM
I was wrong to say, "tanking". And no, 30K is not a significant percentage. It's just that, since watching my portfolio activity, it's been an almost steady decline. It's a bit disconcerting. -Jeff

I'd say it depends. I threw all my $ in a managed fund last November...about +5% to date...pretty conservative.

Tony T
10-01-2014, 03:41 PM
They use to say that a "sign of a top" was when your cab driver gave you stock tips ;)

carlineng
10-01-2014, 03:52 PM
FRN = Federal Reserve Note (http://en.wikipedia.org/wiki/Federal_Reserve_Note)

For a forum about bikes, this place has a pretty surprising history of "discussion" around central banking...

FlashUNC
10-01-2014, 04:03 PM
The simple rules I try to follow:

Low cost index funds are your friend. (Following the Vanguard recommendation from earlier.) If you don't like equities, find a bond fund that you like.

Don't try to out-think the market. No one can time the market.

If everyone else is selling, buy.

If everyone else is buying, sell.

And for all that's holy, don't check it day-to-day. You'll only drive yourself crazy.

moose8
10-01-2014, 05:00 PM
Don't look today. Yikes. That's the only good advice I have.

slidey
10-01-2014, 05:26 PM
The chart Louis posted is very relevant. Let me expand a little bit more on it, just so you can read up more on this to see for yourself what direction your portfolio is actually trending - moving average. As the name suggests, it isn't tracking every single minute-wise upward/downward trend, but averaging over a certain period (usually, 50-day) and is giving you the trend. You can do this in Excel (http://youtu.be/jbfr3XGolBo) for your portfolio, and make a judgment for yourself.

Jeff N.
10-01-2014, 05:35 PM
Don't look today. Yikes. That's the only good advice I have.Agreed. Nothing but baaaaaad news. DON'T LOOK!!! It took a DUMP! Jeff N.

saab2000
10-01-2014, 05:58 PM
Agreed. Nothing but baaaaaad news. DON'T LOOK!!! It took a DUMP! Jeff N.

It took a dump. But corrections are natural. it's obviously more concerning for the OP but for those still adding to IRAs and 401(k)s it's not a bad thing and investing in down markets means you buy more shares.

I have a friend who in the down market of 2009 actually pulled significant money from his 401(k) because he was concerned about getting out before it was all gone. I just upped my contribution then.

Looking at bad days is depressing but looking at the good days when things go up several percentage points is equally unrealistic.

I'm in 'Buy and Hold' mode for now. Today's quarterly dividends purchased more than they would have yesterday. :banana:

Tony T
10-01-2014, 06:12 PM
It took a dump. But corrections are natural

Today was not a correction.
Should a correction occur in the DOW, it would have to close at 15,550 (10% off of the 09/19/14 closing high of 17,280)

saab2000
10-01-2014, 06:27 PM
I know that today wasn't a correction. But the past week or so has been net negative. And many analysts feel the market is overvalued.

Ken Robb
10-01-2014, 07:11 PM
One driver of stock prices is the lack of attractive alternatives when interest rates are this low.

Tony T
10-01-2014, 07:38 PM
[duplicate, deleted]

Tony T
10-01-2014, 07:39 PM
I know that today wasn't a correction. But the past week or so has been net negative. And many analysts feel the market is overvalued.

Actually I missed this:
"The Russell 2000 small-cap index entered correction territory during Wednesday's session, as a 1.5% decline brought the index to a loss of 10% from its July high." (http://blogs.wsj.com/moneybeat/2014/10/01/russell-2000-hits-correction-territory-again/)

Too much focus on the DOW, I guess.

saab2000
10-01-2014, 08:29 PM
Actually I missed this:
"The Russell 2000 small-cap index entered correction territory during Wednesday's session, as a 1.5% decline brought the index to a loss of 10% from its July high." (http://blogs.wsj.com/moneybeat/2014/10/01/russell-2000-hits-correction-territory-again/)

Too much focus on the DOW, I guess.

Yup, getting to be that territory. I'm not loving it, but I can't control it, so I just go with the flow. Continue to max my stuff out as much as I can.

'Buy low, sell high', as they say.

rounder
10-01-2014, 09:20 PM
I am not an investor...my only investment is a 401-k. When I was in school 30 years ago, my investment teacher (a Harvard PHD) said that over the long haul, no one out performs the Dow. So, that is what I do.

OtayBW
10-01-2014, 09:24 PM
Agreed. Nothing but baaaaaad news. DON'T LOOK!!! It took a DUMP! Jeff N.
I think one of the key things that should be addressed is matching your investment strategy to your temperment. Sounds like you might need to adjust things a bit more conservatively??

SlackMan
10-01-2014, 09:24 PM
I am not an investor...my only investment is a 401-k. When I was in school 30 years ago, my investment teacher (a Harvard PHD) said that over the long haul, no one out performs the Dow. So, that is what I do.

I hope you're including some foreign stock exposure for diversification. Investing just in the Dow Jones still leaves you exposed to lots of risk that you could diversify away.

Tony T
10-01-2014, 09:25 PM
'Buy low, sell high', as they say.

…or "Buy High, Sell Higher"

rounder
10-01-2014, 09:29 PM
I hope you're including some foreign stock exposure for diversification. Investing just in the Dow Jones still leaves you exposed to lots of risk that you could diversify away.

Thanks SlackMan...I will look into it.

1centaur
10-01-2014, 09:39 PM
More than diversification, per se, investing overseas gives you a chance to tap into more secular growth potential than the US has a chance of hitting over the next decade. Trade-offs to get that growth are many, not least of which are the nature of markets.

Not that they are trying, but I wonder if any fund has beaten the Dow Jones Industrial Average over the last 20 years. Maybe one of the other indices has because it carries more risk, on average.

Chris
10-01-2014, 09:43 PM
Slight thread drift...I max out the 401 etc. but beyond retirement, what if I want to generate more income now from investing? Let my money do the work etc... I am not interested in buying real estate and managing that as I have a fairly busy professional practice and family life as well as cycling addiction. Friends and I have talked about business ideas, but instead of investing in one business that with my luck would fail, what about investing in already established businesses (the stock market) with the intention of generating quarterly or annual returns now?

joosttx
10-01-2014, 09:55 PM
Slight thread drift...I max out the 401 etc. but beyond retirement, what if I want to generate more income now from investing? Let my money do the work etc... I am not interested in buying real estate and managing that as I have a fairly busy professional practice and family life as well as cycling addiction. Friends and I have talked about business ideas, but instead of investing in one business that with my luck would fail, what about investing in already established businesses (the stock market) with the intention of generating quarterly or annual returns now?

Buy a lake house or a cabin in the woods. It'll appreciate and you can enjoy it instead work at it.

1centaur
10-01-2014, 09:56 PM
There is a lot to be said on the topic of income generation. In my opinion most people are too scared of credit risk and ought to take more, on a diversified basis. High yield, loans, BDCs all are often good income generators over time compared to Treasuries, munis and investment grade corporates yet too many people who are willing to take equity risk (hint - more risk in equities than high yield bonds) somehow are unwilling to take credit risk. Makes no sense. Preferred stock funds, dividend funds, MLPs and REITs also deserve consideration.

Best place to start is to figure out what each category realistically can offer in yield (1% to nearly 10% these days, with volatility rising somewhat commensurately along that scale) and then dig in on the real risks to see what you can stand. A month of heavy reading is far better than years of ill-informed half truths. Know yourself; be rational.

Louis
10-01-2014, 10:17 PM
Live frugally - a penny saved is a penny earned.

Chris
10-01-2014, 10:26 PM
Live frugally - a penny saved is a penny earned.

I do. That's why I have some money to invest. My goal is to start building some wealth, if you will, by letting my earnings do the work rather than me.

Ken Robb
10-01-2014, 10:34 PM
Without trying to make specific recommendations I will just say that I am glad I bought Thomas Partners Fund through Chas. Schwab. Its philosophy mirrors mine but they are more active watching/managing holdings than I am with my individual stocks. The fee is .9% which I consider very fair. I will have lunch with Mr. Thomas (and other local investors) next week. He isn't coming to town just to see me. :)

rounder
10-01-2014, 10:37 PM
There is a lot to be said on the topic of income generation. In my opinion most people are too scared of credit risk and ought to take more, on a diversified basis. High yield, loans, BDCs all are often good income generators over time compared to Treasuries, munis and investment grade corporates yet too many people who are willing to take equity risk (hint - more risk in equities than high yield bonds) somehow are unwilling to take credit risk. Makes no sense. Preferred stock funds, dividend funds, MLPs and REITs also deserve consideration.

Best place to start is to figure out what each category realistically can offer in yield (1% to nearly 10% these days, with volatility rising somewhat commensurately along that scale) and then dig in on the real risks to see what you can stand. A month of heavy reading is far better than years of ill-informed half truths. Know yourself; be rational.

You know way more than me.

My boss holds investments in Puerto Rico bonds. They are high yielding interest rate wise, but they are borderline default investments.

I understand the logic in investing over a wide range of investments, but where is the logic of investing over something that has been proven to be worthy(i.e. the dow) over something that is high yielding (i.e. junk stuff).

.

Louis
10-01-2014, 10:38 PM
I'm not interested enough in making more money to put significant effort into investing.

Low expense mutual funds with the appropriate choice of risk vs return for my time horizon and I'm good to go. YMMV

MattTuck
10-01-2014, 10:44 PM
You know way more than me.

My boss holds investments in Puerto Rico bonds. They are high yielding interest rate wise, but they are borderline default investments.

I understand the logic in investing over a wide range of investments, but where is the logic of investing over something that has been proven to be worthy(i.e. the dow) over something that is high yielding (i.e. junk stuff).

.

The Dow is 30 super large companies. It gives you exposure to mega-large cap firms. You can invest in equities (think Vanguard's Total Market Fund) that will give you exposure to all ~6,000 public equities in the US. Still, that will be on a market cap weighted basis, so you are going to be holding a disprorionate share of larger firms, and high PE firms. You can find products that offer an equal weighted approach. Or just hold different products (funds that track s&p 500, russell 2000, etc.) and do the weightings yourself.

Junk bonds (now known as high yield) are just another asset class that you can get exposure to. In a world where every asset's returns aren't correlated with other assets, you want to be diversified. Holding 100% puerto rico bonds is foolish because it is not diversified, not because it is a default risk.

rounder
10-01-2014, 10:59 PM
Matt, you are smart and I appreciate your advice. I am trying to hold on to what I have and am not making any changes until later. Not trying to beat the market, just trying to preserve what I have.

Ken Robb
10-01-2014, 11:05 PM
In 36 years as a real estate broker in a very expensive area I got to know quite a few wealthy and a few very wealthy people. Most of the ones you may have heard about took big risks and won big rewards, albeit with early failures in some cases. Let's call them home run hitters.

There were also the ones who pursued a more conservative path, suffered no major reversals, and eventually amassed quite a few assets too. They were folks with high batting averages who didn't swing for the fences.

When choosing a path for investing I think one should weigh his willingness to accept risk against his drive for big, fast returns. A person driven to make the big score probably will also need to be m a much more active manager of his investments than one on a conservative path.

Recognizing and following the path that suits one's personality will likely reduce the mental stress of investing.

54ny77
10-01-2014, 11:25 PM
http://cdn.screenrant.com/wp-content/uploads/breaking-bad-season-5-king.jpg

...what if I want to generate more income now from investing? Let my money do the work etc... I am not interested in buying real estate and managing that as I have a fairly busy professional practice and family life as well as cycling addiction...

Tony T
10-02-2014, 11:50 AM
Very timely thread.
With the correction that's been predicted for the past year looking possible, is now a time to lock in some of the gains of the past 2 years?

1centaur
10-02-2014, 12:16 PM
My boss holds investments in Puerto Rico bonds. They are high yielding interest rate wise, but they are borderline default investments.

I understand the logic in investing over a wide range of investments, but where is the logic of investing over something that has been proven to be worthy(i.e. the dow) over something that is high yielding (i.e. junk stuff).
.

MattTuck pretty much got there but let me say a bit more.

What is diversity (in the investment context) and what does it get you? Diversity is having enough different risks in a portfolio that you smooth out your return patterns over time to make them more predictable so you can make simple choices - often, do I want more or less of a certain kind of risk. The unique risk of a single investment, say, Puerto Rico bonds, is called specific risk. Specific risk can be great or terrible, for example making 100% more or 100% less than the stock or bond market. Investors in Puerto Rico bonds (at least the thoughtful ones) are making very specific bets on how the legal system and the politicians will treat the debts of PR given that simply paying them back appears impossible (in some cases). Good lawyers and political observers can disagree over how governments short of money will not pay their bills. Major hedge funds are placing their bets on PR bonds (for or against). They have the means to pay for the best legal advice and push legal theories into the halls of government. Most bondholders don't have a good reason to be in PR bonds - they just want to get some predictable returns.

How much diversity makes returns fairly predictable at the portfolio level? Academics worked through the arithmetic a long time ago. Call it 30 stocks, for the sake of argument, since we are talking the Dow Jones average. 30 stocks can average out most of the specific risk and give investors decent likelihood of of getting a market-ish return (depending how picky you are about "ish" and the definition of market). The more stocks you add the more you get a market return, generally speaking. The Dow Jones represents 30 huge industrial companies, so how much one likes that depends on one's view of huge industrial companies. S&P 500 has more companies and more diverse risk bets than the Dow, so it should represent a smoother ride to average.

The same arithmetic of diversification applies to a portfolio of junk bonds. Most high yield managers have well over 100 bonds in their portfolios, some more than 200. Let's say the average yield of those bonds is 6% and they all are trading at par, or 100 cents on the dollar of their principal amount. What could you actually return on that portfolio? Junk bonds are called that because they have a higher chance of default than investment grade bonds, but how many of them will actually default? Lately 1-3% a year. How much are they worth when they default? Maybe they lose 60% of their principal value. That's arithmetic, so you can figure out what your return might be, before price changes or management fees. In a really bad year junk bonds might have 10% defaults, but in those kinds of years stock markets can often decline 20% (or more).

So when you compare stocks and junk bonds, realize that the arithmetic of diversification makes likely market returns fairly predictable, especially over longer periods. The high income of junk bonds overcomes much of their risk in a portfolio context, whereas stock valuations can drop a ton and rise a ton on sentiment. I would encourage anyone to look at the history of returns for high yield bonds vs. stocks before they decide that junk bonds are somehow worse than stocks. It's really just a different risk/return (lower risk and lower return) choice with a higher income component. For people with the time to ride through volatility, which after all is the argument for holding stocks, junk bonds are highly likely to outperform investment grade bonds over most multi-year periods, especially if rates are not declining. "Junk" is a misnomer and always has been.

Ralph
10-02-2014, 01:11 PM
MattTuck pretty much got there but let me say a bit more.

What is diversity (in the investment context) and what does it get you? Diversity is having enough different risks in a portfolio that you smooth out your return patterns over time to make them more predictable so you can make simple choices - often, do I want more or less of a certain kind of risk. The unique risk of a single investment, say, Puerto Rico bonds, is called specific risk. Specific risk can be great or terrible, for example making 100% more or 100% less than the stock or bond market. Investors in Puerto Rico bonds (at least the thoughtful ones) are making very specific bets on how the legal system and the politicians will treat the debts of PR given that simply paying them back appears impossible (in some cases). Good lawyers and political observers can disagree over how governments short of money will not pay their bills. Major hedge funds are placing their bets on PR bonds (for or against). They have the means to pay for the best legal advice and push legal theories into the halls of government. Most bondholders don't have a good reason to be in PR bonds - they just want to get some predictable returns.

How much diversity makes returns fairly predictable at the portfolio level? Academics worked through the arithmetic a long time ago. Call it 30 stocks, for the sake of argument, since we are talking the Dow Jones average. 30 stocks can average out most of the specific risk and give investors decent likelihood of of getting a market-ish return (depending how picky you are about "ish" and the definition of market). The more stocks you add the more you get a market return, generally speaking. The Dow Jones represents 30 huge industrial companies, so how much one likes that depends on one's view of huge industrial companies. S&P 500 has more companies and more diverse risk bets than the Dow, so it should represent a smoother ride to average.

The same arithmetic of diversification applies to a portfolio of junk bonds. Most high yield managers have well over 100 bonds in their portfolios, some more than 200. Let's say the average yield of those bonds is 6% and they all are trading at par, or 100 cents on the dollar of their principal amount. What could you actually return on that portfolio? Junk bonds are called that because they have a higher chance of default than investment grade bonds, but how many of them will actually default? Lately 1-3% a year. How much are they worth when they default? Maybe they lose 60% of their principal value. That's arithmetic, so you can figure out what your return might be, before price changes or management fees. In a really bad year junk bonds might have 10% defaults, but in those kinds of years stock markets can often decline 20% (or more).

So when you compare stocks and junk bonds, realize that the arithmetic of diversification makes likely market returns fairly predictable, especially over longer periods. The high income of junk bonds overcomes much of their risk in a portfolio context, whereas stock valuations can drop a ton and rise a ton on sentiment. I would encourage anyone to look at the history of returns for high yield bonds vs. stocks before they decide that junk bonds are somehow worse than stocks. It's really just a different risk/return (lower risk and lower return) choice with a higher income component. For people with the time to ride through volatility, which after all is the argument for holding stocks, junk bonds are highly likely to outperform investment grade bonds over most multi-year periods, especially if rates are not declining. "Junk" is a misnomer and always has been.

Agree 100% It's always amazed me how individuals will own the common stocks of low quality companies, but avoid the bonds of those same companies because they are called "junk" bonds. Hey.....who gets paid something first in a bankruptcy? Also there are different degrees of Junk bonds. Some are a lot "junkier" than others. The Vanguard Hi Yield is an example of relatively hi quality hi yield junk. I'm a huge fan of junk bonds, and always in the middle of a recession move a large part of my assets into several junk bond funds. Also I look for closed in funds trading at a deep discount.

1centaur
10-02-2014, 01:18 PM
I think you mean Vanguard is known for higher quality "junk."

Yes indeed on closed end funds trading at a discount in a market swoon.

And even blue chip stocks may have more volatility than high yield bonds - have not checked.

Labels become fact for many people. That's demonstrated in the political process every day.

SlackMan
10-02-2014, 01:22 PM
Very timely thread.
With the correction that's been predicted for the past year looking possible, is now a time to lock in some of the gains of the past 2 years?

Well, a primary bit of advice in this thread is not to try to time the market. If you lock in gains by getting out, are you going to hold cash instead? How will you know when to get back in? A question I always ask those who want to try to time the market is whether they think they can reliably forecast the future better than others, because that's what it takes to consistently beat the market by timing.

SlackMan
10-02-2014, 01:24 PM
Agree 100% It's always amazed me how individuals will own the common stocks of low quality companies, but avoid the bonds of those same companies because they are called "junk" bonds. Hey.....who gets paid something first in a bankruptcy? Also there are different degrees of Junk bonds. Some are a lot "junkier" than others. The Vanguard Hi Yield is an example of relatively hi yield junk. I'm a huge fan of junk bonds, and always in the middle of a recession move a large part of my assets into several junk bond funds. Also I look for closed in funds trading at a deep discount.

True, but remember that a bond is a fixed claim, meaning that you have limited upside. If the company goes bust, you lose. If it does amazingly well, you get your coupon payment and principle.

An equity is a residual claim. If the company goes bust, you lose. If it does amazingly well, you could get an amazing payoff that is much higher than the junk bond coupon payment and principle.

The above two facts do not imply one is better than the other. But, in thinking about the junk bonds, realize that your upside is probably more limited than it is for equities.

SlackMan
10-02-2014, 01:27 PM
MattTuck pretty much got there but let me say a bit more.

What is diversity (in the investment context) and what does it get you? Diversity is having enough different risks in a portfolio that you smooth out your return patterns over time to make them more predictable so you can make simple choices - often, do I want more or less of a certain kind of risk. The unique risk of a single investment, say, Puerto Rico bonds, is called specific risk. Specific risk can be great or terrible, for example making 100% more or 100% less than the stock or bond market. Investors in Puerto Rico bonds (at least the thoughtful ones) are making very specific bets on how the legal system and the politicians will treat the debts of PR given that simply paying them back appears impossible (in some cases). Good lawyers and political observers can disagree over how governments short of money will not pay their bills. Major hedge funds are placing their bets on PR bonds (for or against). They have the means to pay for the best legal advice and push legal theories into the halls of government. Most bondholders don't have a good reason to be in PR bonds - they just want to get some predictable returns.

How much diversity makes returns fairly predictable at the portfolio level? Academics worked through the arithmetic a long time ago. Call it 30 stocks, for the sake of argument, since we are talking the Dow Jones average. 30 stocks can average out most of the specific risk and give investors decent likelihood of of getting a market-ish return (depending how picky you are about "ish" and the definition of market). The more stocks you add the more you get a market return, generally speaking. The Dow Jones represents 30 huge industrial companies, so how much one likes that depends on one's view of huge industrial companies. S&P 500 has more companies and more diverse risk bets than the Dow, so it should represent a smoother ride to average.

The same arithmetic of diversification applies to a portfolio of junk bonds. Most high yield managers have well over 100 bonds in their portfolios, some more than 200. Let's say the average yield of those bonds is 6% and they all are trading at par, or 100 cents on the dollar of their principal amount. What could you actually return on that portfolio? Junk bonds are called that because they have a higher chance of default than investment grade bonds, but how many of them will actually default? Lately 1-3% a year. How much are they worth when they default? Maybe they lose 60% of their principal value. That's arithmetic, so you can figure out what your return might be, before price changes or management fees. In a really bad year junk bonds might have 10% defaults, but in those kinds of years stock markets can often decline 20% (or more).

So when you compare stocks and junk bonds, realize that the arithmetic of diversification makes likely market returns fairly predictable, especially over longer periods. The high income of junk bonds overcomes much of their risk in a portfolio context, whereas stock valuations can drop a ton and rise a ton on sentiment. I would encourage anyone to look at the history of returns for high yield bonds vs. stocks before they decide that junk bonds are somehow worse than stocks. It's really just a different risk/return (lower risk and lower return) choice with a higher income component. For people with the time to ride through volatility, which after all is the argument for holding stocks, junk bonds are highly likely to outperform investment grade bonds over most multi-year periods, especially if rates are not declining. "Junk" is a misnomer and always has been.

It's probably useful for all to remember in any context that diversification only works if the investment returns are not perfectly correlated with each other. If you have 1,000 different investments, but they all get clobbered by the same economic or financial shock, then you really don't have much diversification. This is why it's useful to diversify across a large number of securities within an asset class, and then also diversify across asset classes (e.g., large cap domestic stocks, mid-cap stocks, small cap stocks, foreign stocks, bonds, ...bikes, etc.).

MattTuck
10-02-2014, 01:34 PM
It's probably useful for all to remember in any context that diversification only works if the investment returns are not perfectly correlated with each other. If you have 1,000 different investments, but they all get clobbered by the same economic or financial shock, then you really don't have much diversification. This is why it's useful to diversify across a large number of securities within an asset class, and then also diversify across asset classes (e.g., large cap domestic stocks, mid-cap stocks, small cap stocks, foreign stocks, bonds, ...bikes, etc.).

http://niketalk.com/content/type/61/id/415652/flags/LL

1centaur
10-02-2014, 01:36 PM
"In a crisis, all correlations go to 1" (except for bikes, which never go to 1 :) )

The more global we get, the less international diversification works to offset risks. The Global Financial Crisis was exactly that, at least in developed capital markets.

SlackMan
10-02-2014, 01:46 PM
"In a crisis, all correlations go to 1" (except for bikes, which never go to 1 :) )

The more global we get, the less international diversification works to offset risks. The Global Financial Crisis was exactly that, at least in developed capital markets.

If the whole world melts down totally and there is no energy traded to power autos and trucks, bikes will increase in value. That makes bikes a negative beta asset, which then means that in normal times, a negative expected return on them is perfectly acceptable, and indeed, predicted by theory. How's that for justifying bike purchases?! ;)

1centaur
10-02-2014, 01:50 PM
Works for me, but I'd advise Trek not to use it in their next ad campaign.

Tony T
10-02-2014, 02:08 PM
Well, a primary bit of advice in this thread is not to try to time the market. If you lock in gains by getting out, are you going to hold cash instead? How will you know when to get back in? A question I always ask those who want to try to time the market is whether they think they can reliably forecast the future better than others, because that's what it takes to consistently beat the market by timing.

"Locking in some gains" is not getting out of the market.
If done, think about dumping some losers (that you no longer want to own) to off-set the capital gains.
Also, "Cash" should always be a part of any portfolio.

rounder
10-02-2014, 02:17 PM
The Dow is 30 super large companies. It gives you exposure to mega-large cap firms. You can invest in equities (think Vanguard's Total Market Fund) that will give you exposure to all ~6,000 public equities in the US. Still, that will be on a market cap weighted basis, so you are going to be holding a disprorionate share of larger firms, and high PE firms. You can find products that offer an equal weighted approach. Or just hold different products (funds that track s&p 500, russell 2000, etc.) and do the weightings yourself.

Junk bonds (now known as high yield) are just another asset class that you can get exposure to. In a world where every asset's returns aren't correlated with other assets, you want to be diversified. Holding 100% puerto rico bonds is foolish because it is not diversified, not because it is a default risk.

He has numerous investments, including the PR bonds. We were actually working in PR last year around the time the bonds were downgraded. He had bought the bonds pre-downgrade, so they were on his mind and he wanted to talk about them.

happycampyer
10-02-2014, 02:23 PM
If the whole world melts down totally and there is no energy traded to power autos and trucks, bikes will increase in value. That makes bikes a negative beta asset, which then means that in normal times, a negative expected return on them is perfectly acceptable, and indeed, predicted by theory. How's that for justifying bike purchases?! ;)If bikes are intended to be a hedge in that scenario, I would suggest that ammunition and whiskey would be better hedges...

Ralph
10-02-2014, 02:24 PM
True, but remember that a bond is a fixed claim, meaning that you have limited upside. If the company goes bust, you lose. If it does amazingly well, you get your coupon payment and principle.

An equity is a residual claim. If the company goes bust, you lose. If it does amazingly well, you could get an amazing payoff that is much higher than the junk bond coupon payment and principle.

The above two facts do not imply one is better than the other. But, in thinking about the junk bonds, realize that your upside is probably more limited than it is for equities.

If you had bought way way way out of favor junk bond funds in the worst part, or when they were at their lowest prices, of the past recessions (since 80's), most likely you had appreciation in share price (plus income) of 35-40% the first year coming out, around 30% or so next year, little less each year for next year or so.....till you get to where we are now pretty much fully priced (or baloon priced). That kind of return is tough to beat in an equity fund. Plus if you are wrong or early, there were some 10% plus yields at those mid recession junk prices....while you waited. You can call this market timing if you wish, but for any student of business cycles, it's not to difficult to figure out. You just have to have a long term optomistic view of the US economy, and not get caught up in the noise about how we're "going down the tubes" etc.

Louis
10-02-2014, 02:32 PM
You can call this market timing if you wish, but for any student of business cycles, it's not to difficult to figure out.

Anything that's "not difficult to figure out" should already have been taken into account in the price.

54ny77
10-02-2014, 02:39 PM
Hedge your Puerto Rican bike exposure with some vintage Italian product.

SlackMan
10-02-2014, 02:47 PM
If you had bought way way way out of favor junk bond funds in the worst part, or when they were at their lowest prices, of the past recessions (since 80's), most likely you had appreciation in share price (plus income) of 35-40% the first year coming out, around 30% or so next year, little less each year for next year or so.....till you get to where we are now pretty much fully priced (or baloon priced). That kind of return is tough to beat in an equity fund. Plus if you are wrong or early, there were some 10% plus yields at those mid recession junk prices....while you waited. You can call this market timing if you wish, but for any student of business cycles, it's not to difficult to figure out. You just have to have a long term optomistic view of the US economy, and not get caught up in the noise about how we're "going down the tubes" etc.

I'm still thinking equities provide higher returns and a higher Sharpe ratio. See below.

Ralph
10-02-2014, 02:49 PM
I'm old enough now, experienced enough now, to know I don't have the answers. There are some things I think I have learned since I retired in 98 from the largest US brokerage firm.

The accumulation of assets phase of your life is easier than the distribution phase of your life. Lots of folks pretty good at accumuling assets, few real good at distributing it. Takes differnt skills.....different goals.

What most people think the markets are going to do in near future probably isn't going to happen.

Spending more time "at it" probably won't increase returns.....without a plan. And with a plan, it doesn't take much time.

And.....Like 1Centaur says, investors really need to understand what the word "risk" means. Risk to your assets, risk of not being able to buy groceries because you were afraid, etc? I'm more concerned with being too conservation than overly aggressive. It's the nature of a 73 year old to be overly careful.

And finally.....I get a lot of good ideas of looking at mutual fund portfolios and see how they are invested. This is easy to find. Vanguard a good example. I may or may not follow their example. I'm more interested in seeing how they are investing for new ideas, then I am in what they say on TV they are doing. Not always the same. Also.....I own some shares in Berkshire Hathaway.....Warren Buffet's company. Interesting portfolio. You could do worse than buy his stock.

Ralph
10-02-2014, 02:59 PM
I'm still thinking equities provide higher returns and a higher Sharpe ratio. See below.

I plead guilty to being a market timer, at least with reguard to business cycles. And trying to figure out what investment work best where you are in a particular part in the cycle. I never had much luck in short term stock trading though. You only buy junk bonds in worst part of a recession market, then sell them out a few years later.

When deciding about what to buy (or sell), I start first by trying to figure out where we are in a business cycle. If I can get that right, or close to right, I'll do OK. I find that easier to do than trading stocks or bonds because of technical factors. I never had any luck in short term trading. Might as well go to Vegas I think.

BTW....I'm guessing we in the latter stages of this cycle, but since that's the prevailing view, I believe this market is going to continue up for a while yet. Prevailing view usually not too accurate. Rising interest rates don't scare me.....that's a sign of improving economy. But won't bet the farm on it. Easy money already made this go around I think. We had a 8 year cycle under Clinton once. That could take us out to winter of 16-17. We'll see.

Also try not to get caught up in politics, and what some gloom and doomers say about one party or another. Doesn't matter much I think.

verticaldoug
10-02-2014, 03:52 PM
Just to summarize the thread:

1. Have a plan, stick to the plan. (harder than it sounds in a 50% drawdown, or when a trade is just an instant click away)
2. Have enough diversification
3. Keep the transaction costs as low as possible
4. Use a tax efficient structure as much as possible. (In investing, taxes are theft of future gains)
5. Don't be a timer

The one caveat I will "" on timing, is about once every ten years or so in different asset classes, the ···· really does hit the fan. During those real crisis, you should consider allocating capital. However, you don't need to rush, because you have a long period of opportunity to consider the investment. The nice thing about the real crisis is the market doesn't snap back like it can in a 5%, 10% or even 20% correction because real damage has been done. . . . This is one of the things Buffett does so well. . .
(actually, he does more than a few things really well)

1centaur
10-02-2014, 04:13 PM
I'm still thinking equities provide higher returns and a higher Sharpe ratio. See below.

I said HY had lower returns and lower volatility. Sharpe Ratios capture both, while the word "junk" focuses on the denominator.

But watch your periods. Almost nobody is buy and hold for 50 years, and the second half of the American Century was pretty good for stocks, plus we have the Internet era in there. Speaking of which, eyeball 2000 to the end of the graph. 11 years is a pretty long period for stocks to underperform junk bonds.

Finally, the junk bond market was not really going in size until the 1980s, so the first 20 years of bond data there may not represent what we have today.

Louis
10-09-2014, 06:21 PM
A buy opportunity !!!

Tony T
10-09-2014, 07:07 PM
Can you post the 5 day chart?

Louis
10-09-2014, 07:10 PM
Can you post the 5 day chart?

https://www.google.com/?gws_rd=ssl#q=spy

Click on "5 day"

saab2000
10-09-2014, 07:15 PM
Here's what I found for the 5-day chart.

http://markets.money.cnn.com/services/api/chart/snapshot_chart_api.asp?symb=SPX

My next contributions come next week. We'll see where we're at. "Steady on", that's what I say. Buying and holding. I have a long time to go.

Jeff N.
10-09-2014, 07:32 PM
Wonderful yesterday, mega-sucks today. :eek:

Tony T
10-09-2014, 07:56 PM
Tues-Wed was 'flat'

rounder
10-09-2014, 09:05 PM
MattTuck pretty much got there but let me say a bit more.

What is diversity (in the investment context) and what does it get you? Diversity is having enough different risks in a portfolio that you smooth out your return patterns over time to make them more predictable so you can make simple choices - often, do I want more or less of a certain kind of risk. The unique risk of a single investment, say, Puerto Rico bonds, is called specific risk. Specific risk can be great or terrible, for example making 100% more or 100% less than the stock or bond market. Investors in Puerto Rico bonds (at least the thoughtful ones) are making very specific bets on how the legal system and the politicians will treat the debts of PR given that simply paying them back appears impossible (in some cases). Good lawyers and political observers can disagree over how governments short of money will not pay their bills. Major hedge funds are placing their bets on PR bonds (for or against). They have the means to pay for the best legal advice and push legal theories into the halls of government. Most bondholders don't have a good reason to be in PR bonds - they just want to get some predictable returns.

How much diversity makes returns fairly predictable at the portfolio level? Academics worked through the arithmetic a long time ago. Call it 30 stocks, for the sake of argument, since we are talking the Dow Jones average. 30 stocks can average out most of the specific risk and give investors decent likelihood of of getting a market-ish return (depending how picky you are about "ish" and the definition of market). The more stocks you add the more you get a market return, generally speaking. The Dow Jones represents 30 huge industrial companies, so how much one likes that depends on one's view of huge industrial companies. S&P 500 has more companies and more diverse risk bets than the Dow, so it should represent a smoother ride to average.

The same arithmetic of diversification applies to a portfolio of junk bonds. Most high yield managers have well over 100 bonds in their portfolios, some more than 200. Let's say the average yield of those bonds is 6% and they all are trading at par, or 100 cents on the dollar of their principal amount. What could you actually return on that portfolio? Junk bonds are called that because they have a higher chance of default than investment grade bonds, but how many of them will actually default? Lately 1-3% a year. How much are they worth when they default? Maybe they lose 60% of their principal value. That's arithmetic, so you can figure out what your return might be, before price changes or management fees. In a really bad year junk bonds might have 10% defaults, but in those kinds of years stock markets can often decline 20% (or more).

So when you compare stocks and junk bonds, realize that the arithmetic of diversification makes likely market returns fairly predictable, especially over longer periods. The high income of junk bonds overcomes much of their risk in a portfolio context, whereas stock valuations can drop a ton and rise a ton on sentiment. I would encourage anyone to look at the history of returns for high yield bonds vs. stocks before they decide that junk bonds are somehow worse than stocks. It's really just a different risk/return (lower risk and lower return) choice with a higher income component. For people with the time to ride through volatility, which after all is the argument for holding stocks, junk bonds are highly likely to outperform investment grade bonds over most multi-year periods, especially if rates are not declining. "Junk" is a misnomer and always has been.

Thanks. Beautiful explanation. I am a CPA and have a masters degree in finance, but we never got that kind of insight jn school.

54ny77
10-09-2014, 11:15 PM
1centaur's posts are generally stuff nobody teaches in school.

One man's junk is another man's high yield.

Ok, that didn't sound right, but you get the idea.

;)

Ken Robb
10-09-2014, 11:38 PM
I am very happy with my investment in Thomas Partners through my broker at Chas. Schwab. Mr. Thomas and I have very similar attitudes about investments but he is smarter and more diligent than I and his fee is VERY reasonable.

Jeff N.
10-10-2014, 04:38 PM
Market took another dump today. Day after day after day. Man, at this rate, I'll have about 5 bucks left this time next year!:eek:

Louis
10-10-2014, 04:50 PM
Market took another dump today. Day after day after day. Man, at this rate, I'll have about 5 bucks left this time next year!:eek:

But just as many shares as you have today. (unless you panic and choose to sell them at the bottom of the market)

eddief
10-10-2014, 05:04 PM
but you might want to check the full history of the US stock market. Much not to like about the world today, but I am hoping those terrible corporations keep my retirement afloat.

http://finance.yahoo.com/echarts?s=%5EGSPC+Interactive#symbol=%5EGSPC;range =my

saab2000
10-10-2014, 05:57 PM
But just as many shares as you have today. (unless you panic and choose to sell them at the bottom of the market)

This. Corrections happen. Buy low, sell high. Not the other way around.

It's not realistic to expect 10%-15% growth year and year out.

I'm going to trust my 'buy and hold' strategy for a long time. Anyway, I have no choice.

Jeff N.
10-10-2014, 06:06 PM
This. Corrections happen. Buy low, sell high. Not the other way around.

It's not realistic to expect 10%-15% growth year and year out.

I'm going to trust my 'buy and hold' strategy for a long time. Anyway, I have no choice.Neither do I, really...cast fate to the wind.

oldpotatoe
10-11-2014, 08:14 AM
This. Corrections happen. Buy low, sell high. Not the other way around.

It's not realistic to expect 10%-15% growth year and year out.

I'm going to trust my 'buy and hold' strategy for a long time. Anyway, I have no choice.

Me neither..when you look at a trend chart over a longish period of time, in spite of 'downs' and even corrections, the overall trend is positive.

paulh
10-11-2014, 08:26 AM
Up 34% last year. Maybe -4% ytd even with this past week's cluster $%#@. Now's the time to buy!!!

Tony T
10-11-2014, 08:56 AM
Now's the time to buy!!!

"You know it's time to sell when shoeshine boys give you stock tips. This bull market is over" (http://seekingalpha.com/instablog/661124-brijwanth/73895-hidenburg-shoe-shine-boy) — Joe Kennedy

Tony T
10-13-2014, 12:28 PM
FWIW, the S&P 500 fell below its 200-day moving average today.

MattTuck
10-13-2014, 12:36 PM
"You know it's time to sell when shoeshine boys give you stock tips. This bull market is over" (http://seekingalpha.com/instablog/661124-brijwanth/73895-hidenburg-shoe-shine-boy) — Joe Kennedy

I almost posted this when this thread first came up. Every afternoon, a custodian comes in to my office and empties my trash. Two weeks ago, I asked him how he was doing and what his plans were for the weekend. He told me he was working on his portfolio and trying to move it more into income stocks.

It made me think of that quote.

Look585
10-13-2014, 12:40 PM
"You know it's time to sell when shoeshine boys give you stock tips. This bull market is over" (http://seekingalpha.com/instablog/661124-brijwanth/73895-hidenburg-shoe-shine-boy) — Joe Kennedy

I'm wondering how different "shoeshine boy" stock tips are from "internet bike forum" stock tips?

Tony T
10-13-2014, 12:42 PM
Well, that was the intent of my comment to the "Now's the time to buy!!!" post :)

Mr. Pink
10-13-2014, 12:48 PM
I almost posted this when this thread first came up. Every afternoon, a custodian comes in to my office and empties my trash. Two weeks ago, I asked him how he was doing and what his plans were for the weekend. He told me he was working on his portfolio and trying to move it more into income stocks.

It made me think of that quote.

It took him a whole weekend to do that? I can do it in a few minutes on my phone.

verticaldoug
10-13-2014, 02:54 PM
It took him a whole weekend to do that? I can do it in a few minutes on my phone.

At least he wasn't trying to buy ROCKET INTERNET IPO in Germany.

Louis
10-15-2014, 02:28 PM
More buy opportunities today !!!

MadRocketSci
10-15-2014, 02:41 PM
More buy opportunities today !!!

Sell, Mortimer, sell!!!

saab2000
10-15-2014, 02:43 PM
I buy every 15th or so, right after payday. Today was no exception.

Climb01742
10-15-2014, 03:23 PM
Gotta believe in the long game. Never more so than the last few days.

EDS
10-15-2014, 03:30 PM
Sell, Mortimer, sell!!!

Too late now. Current drop should probably be viewed more as a buying opportunity.

Tony T
10-15-2014, 03:38 PM
Current drop should probably be viewed more as a buying opportunity.

Why?

Tony T
10-15-2014, 03:43 PM
Current drop should probably be viewed more as a buying opportunity.

Today's drop? or yesterday's? or Monday's? or Friday's? ….

Mr. Pink
10-15-2014, 03:43 PM
Why?

Well, one reason is that, if you bought in March of '09, or just stayed put, when the market was at it's lowest after the crash, you would have tripled your money by a few weeks ago, if you simply had it in an S&P index.

The people who complain that they "lost" all their money in the market at that time didn't "lose" it, they sold at the wrong time.

Ralph
10-15-2014, 03:48 PM
Just remember for you young (or younger) folks, this current stock market volatility is your friend if you invest regularly....like in a 401K or similar. Dollar cost averaging really works over the long term. Buying low on a regular basis sure helps your growth.

For us old folks......dollar cost averaging out of investments can really kill your portfolia, because taking money out regularly, especially when markets are down, works against you.

So I try to keep enough cash or near cash around so I'm not selling in down markets.

Point is......depending on where you are in your investment life should determine how you view current sell off. it helps you younger folks, who are accumulating. It hurts us old folks who need the value of our investments.

No one piece of advice fits all.

Tony T
10-15-2014, 03:49 PM
Well, one reason is that, if you bought in March of '09, or just stayed put, when the market was at it's lowest after the crash, you would have tripled your money by a few weeks ago, if you simply had it in an S&P index.

The people who complain that they "lost" all their money in the market at that time didn't "lose" it, they sold at the wrong time.

That's a very good reason to have bought when the S&P was at 700.
But why buy now?

If you tripled your money, maybe it's a good time to sell.

MadRocketSci
10-15-2014, 03:55 PM
Too late now. Current drop should probably be viewed more as a buying opportunity.

Ha...look around. Might rebound in the near term so if you're a trader go for it. But for the longer term....

No one got my Trading Places reference???

Tony T
10-15-2014, 03:57 PM
Only us old guys :)

Mr. Pink
10-15-2014, 04:00 PM
That's a very good reason to have bought when the S&P was at 700.
But why buy now?

If you tripled your money, maybe it's a good time to sell.

So where are you going to go to make money if you sell? (And, before you go there, no way I want to be a landlord)

Tony T
10-15-2014, 04:01 PM
So where are you going to go to make money if you sell? (And, before you go there, no way I want to be a landlord)

If tripling your investment is not a good time to sell, when is?
Or do we hold until we die?

Mr. Pink
10-15-2014, 04:06 PM
Buffet will, and live off the dividends until then.

Tony T
10-15-2014, 04:09 PM
Hope no one here bought NFLX today :(

Louis
10-15-2014, 04:40 PM
Hope no one here bought NFLX today :(

After-hours: 330.27 -118.32 (26.38%)

Tough business, when someone else enters the market and you get clobbered by that much. Apparently they think HBO will be a tough competitor.

saab2000
10-15-2014, 04:45 PM
Today's drop? or yesterday's? or Monday's? or Friday's? ….

Obviously we don't know where the bottom will be. So all I can do is keep investing at regular opportunities and hope the dips and peaks average out. I have no choice but to engage in the dollar-cost-averaging method as I don't have enormous lump sums to invest. That said, I could probably do weekly investments instead of monthly. Or I could save it all until the end of the year and make one big fat investment.

We'll see what happens. I hope I'm not throwing good money after bad. But historically it's hard to find a 10-year period that's not up and I have a ways to go until retirement. Quite a ways actually.

So I look at dips as buying opportunities even though we don't know where the bottom is. I'm just looking at a dip as buying more shares.

Yes, it sucks to see the value of an account go down by thousands of dollars per day, but the prospectus reminds us that this can happen. ;)

Mr. Pink
10-15-2014, 04:52 PM
After-hours: 330.27 -118.32 (26.38%)

Tough business, when someone else enters the market and you get clobbered by that much. Apparently they think HBO will be a tough competitor.

That's silly. As though HBO isn't already available on devices. And, as a former employee of the company, I'll bet half my IRA that there is no way Time Warner will jump in and compete with Netflix with hardware and delivery options. Bunch of preppies who let their magazines die a slow death. Breaks my heart to see a Sports Illustrated in a doctor's office, and it looks like a comic book from my youth. Meanwhile, ESPN has taken over the world.

MadRocketSci
10-15-2014, 05:04 PM
Reed Hastings is blaming the shortfall of new subscribers (3 million vs 3.7 million expected in 3Q) on the $1 monthly increase from $8 to $9. That might say something about the state of the mainstream economy. Maybe we should be watching SBUX next....

Tony T
10-15-2014, 05:23 PM
Obviously we don't know where the bottom will be. So all I can do is keep investing at regular opportunities and hope the dips and peaks average out.

Yes, that's a valid plan. My comment was directed to the post that said today was a good time to buy. There was a similar post 5 days ago. No one knows if today was a good time to buy (but last month was a good time to sell)

Tony T
10-15-2014, 05:28 PM
My personal problem with Netflix is that there is really only TV shows and old movies available on their streaming service. Need the disc service for new movies. When Netflix split the disc/streaming bundle, I cancelled and never looked back. I can get new movies on Redbox, and if I wanted to watch TV, there's hulu.

54ny77
10-15-2014, 06:18 PM
today was a reminder that financial assets can depreciate as badly as bike stuff.

:p

saab2000
10-15-2014, 06:26 PM
today was a reminder that financial assets can depreciate as badly as bike stuff.

:p

The difference is that financial assets are likely to rebound. Bikes never will. :roll eyes:

Of course, bikes provide just as much joy when they're worthless as they do when they're expensive.

fuzzalow
10-15-2014, 06:39 PM
For us old folks......dollar cost averaging out of investments can really kill your portfolio, because taking money out regularly, especially when markets are down, works against you.

Dollar cost average on capital inflows only. On the outflow side of things, stage and stagger liquidations as a normal process of meeting operating cash requirements. If you are forced to sell to meet cash demands the cash reserve pool is either too small or the rebalancing and timing of drawdown from your capital portfolio needs to be revisited. Selling into a firesale is an excessive and unnecessary liquidity cost that can be planned for and minimized.

If tripling your investment is not a good time to sell, when is?
Or do we hold until we die?

Never sell until you have a reason to rebalance, reposition or need for cash. How else do you build wealth?

malbecman
10-15-2014, 06:48 PM
Long term, I have faith the market will go up as I believe in people's greed. :banana:

Fear and greed are the two main drivers of the market.

saab2000
10-15-2014, 06:51 PM
Long term, I have faith the market will go up as I believe in people's greed. :banana:

Fear and greed are the two main drivers of the market.

That and population growth.

climbgdh
10-15-2014, 07:37 PM
dollar cost average on capital inflows only. On the outflow side of things, stage and stagger liquidations as a normal process of meeting operating cash requirements. If you are forced to sell to meet cash demands the cash reserve pool is either too small or the rebalancing and timing of drawdown from your capital portfolio needs to be revisited. Selling into a firesale is an excessive and unnecessary liquidity cost that can be planned for and minimized.



Never sell until you have a reason to rebalance, reposition or need for cash. How else do you build wealth?

this ^^^^^

happycampyer
10-15-2014, 07:50 PM
today was a reminder that financial assets can depreciate as badly as bike stuff.

:p

Unless you were long Treasuries, the Confente of financial assets.

slidey
10-15-2014, 07:52 PM
My personal problem with Netflix is that there is really only TV shows and old movies available on their streaming service. Need the disc service for new movies. When Netflix split the disc/streaming bundle, I cancelled and never looked back. I can get new movies on Redbox, and if I wanted to watch TV, there's hulu.

Pair that with the fact that there are quite a few series which have a few episodes missing. I realise I mostly watch older series, but this lack of continuity or completeness (as the case may be) spoils my user experience. I stopped using NFLX more than a year back, for this very reason. There are plenty of cheaper, more viable substitutes that seem to work much better for me.

joosttx
10-15-2014, 07:57 PM
http://forums.thepaceline.net/showpost.php?p=1620613&postcount=2


Called this about a month ago.

1) I would pay off the student debt.
2) Make sure you have good insurance
3) Buy High dividend yielding stock ~5%, MLP's RTI's are generally good to look into for buys.

I actually sold most my gains from this year this week and will if I even do cautiously reinvest until 2015. With that said I did buy HCN today.

rounder
10-15-2014, 09:29 PM
The difference is that financial assets are likely to rebound. Bikes never will. :roll eyes:

Of course, bikes provide just as much joy when they're worthless as they do when they're expensive.

Great observation.

Ken Robb
10-15-2014, 09:35 PM
The difference is that financial assets are likely to rebound. Bikes never will. :roll eyes:

Of course, bikes provide just as much joy when they're worthless as they do when they're expensive.

If this is true why do we keep buying new bikes? :rolleyes:

joosttx
10-15-2014, 09:59 PM
If this is true why do we keep buying new bikes? :rolleyes:

I find a kind of pleasure on a bike that money can not buy.

54ny77
10-15-2014, 10:52 PM
If treasuries are the confente of financial assets, what does that make Campy EPS? The equity tranches of CDO squared's?

:p

Unless you were long Treasuries, the Confente of financial assets.

Louis
10-31-2014, 06:09 PM
All-time record high close today for the Dow and S&P 500.

Time to sell (or maybe buy, it's up to you).

Tony T
10-31-2014, 06:11 PM
Didn't see that coming.
Congrats to the brave ones who bought 2 weeks ago.

happycampyer
10-31-2014, 07:03 PM
Didn't see that coming.
Congrats to the brave ones who bought 2 weeks ago.

And condolences to anyone who was short the Nikkei.

54ny77
10-31-2014, 07:04 PM
What if you were long a Nitto?

And condolences to anyone who was short the Nikkei.

happycampyer
10-31-2014, 07:08 PM
What if you were long a Nitto?You're probably a noodle.

malbecman
10-31-2014, 07:20 PM
What a long, strange trip its been.... :):):)

Jeff N.
10-31-2014, 08:01 PM
All-time record high close today for the Dow and S&P 500.

Time to sell (or maybe buy, it's up to you).A beautiful thing indeed. I'm breathing lots easier now since I first started this thread. Of course, I'm not blind to the fact that things could reverse before long, but for now.......:banana: -Jeff N.

SlackMan
10-31-2014, 10:26 PM
Didn't see that coming.
Congrats to the brave ones who bought 2 weeks ago.

It wasn't really that intentional because I think reliable market timing is nearly impossible, but I was overweight Japanese stocks. :banana: