Were you able to make market investing your only source of income?

[jcunning]

I would like to be a good enough investor to bring in enough money to live on.
I have spent the last three years learning about the stock market and learning both fundamental and technical analysis.

While I'm still getting my personal finances in order, I have been able to dedicate a small portion of money towards investing to help my learning process. So far I have done very well, but when you start with peanuts, you only get peanut butter as a win.

I'm now focusing my attention on options and just starting to purchase some calls. While I don't have enough free cash to really play the options game, I do want to understand them as a tool to make money. Nothing teaches you better than using real money!

Just curious if any of you have been able to successfully make investing your only source of income and what system you mostly use (buffet, IBD, fools, etc).

[Porsche-O-Phile]

Any "system" is going to have ups and downs. Using a combination is a crap shoot. You need to understand the underlying fundamentals, have some sense of perceptions out there and try to predict irrational market behaviors. If you get it right more than you get it wrong you're doing well. "Beating the Street" is extremely difficult over the long term - and right now the big boys are only making very modest returns. Assume 3%-4% ROR and figure out how much you want to live on each year. That will determine how much you need invested. It'll be a lot.

Example:

If I want $100k a year based on a realistic 3.5% return:

$100k = 0.035(x)
x = $2.857M

So in other words I need to leverage almost $3M to get that comfortably.

I'm not there yet, but I'm workin' on it. Slowly.

[MRM]

It is almost impossible for an individual investor without the resources of an institution behind them, to make returns that are significantly greater than the market. And to be fair, almost 90% of actively traded funds fail to beat the S&P 500 on a five or ten year basis. Those funds have all the resources and insider information possible and they still find it hard to beat the market after fees. They guy who used to handle Yale's endowment was ledgendary for beating the market, and when he retired (pre-bubble burst) he started to write a book for individual investors on how to beat the market. He eventually came to realize that he could not do as an individual what he was able to do as an institutional investor, and it was impossible for any individual investor to compete without the built-in advantages of the large institutional investors. He ended up writing a book on personal finance that recommended investing in index funds.

Here's why an individual trader can't beat the market: Do you remember the movie Wall Street? Charlie Sheen's character finally gets through to big time investor Gordon Gekko and makes his pitch, trying to get him to invest in Charlie's stock picks. Gekko keeps asking why he should buy those particular stocks; what makes them special? The central question of all stocks is why do you think it is going up in value when the seller thinks it is going down? One of you is mis-evaluating the stock. One of the two parties has superior information and better analysis than the other and knows something the other doesn't. Why is it that you know more about the stock than the one who is selling it?

In Wall Street, Charlie Sheen's answer was that did have special information that no one else had, that did affect the value of a stock. He knew of an airline who had just settled a class action suit so favorably that its stock was going to go up, and that the settlement was so secret even the named plaintiffs didn't know about it.

Of course, this was inside information, but it illustrates my point. Stock traders make money by buying stocks that are undervalued and selling them when they are overvalued. The only way you can do that is by knowing something the other side does not, or analyzing the situation better than the other side. If there was a system, or a source of information, or a way of analyzing the market that gave one investor an advantage, Buffett would already know about it and use it. The market would adjust, and there would no longer be an advantage to using that information or system, you would fall behind if you didn't have it.

So the question for you is: What do you think you know that Warren Buffett doesn't? If there's a killer stock deal out there, why doesn't Buffett know about it?

You talk about fundamentals and technical analysis. Do you know how to read a balance sheet? I mean, really sit down and take the numbers published each quarter and run your own ratios and valuations. If so, you're one in a million, and that's the starting point for a professional investor. When Buffett, of someone of his ilk, looks at a stock, they don't rely on published figures. They look into the company's books themselves. They look at actual sales volumes, sales forecasts, calculate their own estimates of profitability, and make their decision on that. It's all legal. Do you think you can compete with that? If you call the CEO of GE, do you think he'll sit down with you and explain his 6 month forecast, one year business plan, five year strategic plan, and the latest quarter's top line and bottom line results? He will if you just loaned the company 10 Billion Dollars, like Buffett did, but maybe not for you and me. These are the people you are competing with.

The number of people who have made themselves rich by trading stocks and have lived to retire on that money can probably be counted on one hand. The only way for ordinary people to make money in the stock market is careful investing over time. Actively trading is a ticket to losing everything.

Research stocks, buy carefully, but hold quality stocks for investment purposes. Don't try to trade. The pros will eventually win. Options, puts, calls, if you don't do them for a living, you don't have any business messing with them. There is a reason they are professionals. Don't try to compete with professional traders any more than you would compete with a professional athlete.

[Crowbob]

^^^^^ +~

[TheMentat]

Originally Posted by MRM

It is almost impossible for an individual investor without the resources of an institution behind them, to make returns that are significantly greater than the market. And to be fair, almost 90% of actively traded funds fail to beat the S&P 500 on a five or ten year basis. Those funds have all the resources and insider information possible and they still find it hard to beat the market after fees. They guy who used to handle Yale's endowment was ledgendary for beating the market, and when he retired (pre-bubble burst) he started to write a book for individual investors on how to beat the market. He eventually came to realize that he could not do as an individual what he was able to do as an institutional investor, and it was impossible for any individual investor to compete without the built-in advantages of the large institutional investors. He ended up writing a book on personal finance that recommended investing in index funds.

Here's why an individual trader can't beat the market: Do you remember the movie Wall Street? Charlie Sheen's character finally gets through to big time investor Gordon Gekko and makes his pitch, trying to get him to invest in Charlie's stock picks. Gekko keeps asking why he should buy those particular stocks; what makes them special? The central question of all stocks is why do you think it is going up in value when the seller thinks it is going down? One of you is mis-evaluating the stock. One of the two parties has superior information and better analysis than the other and knows something the other doesn't. Why is it that you know more about the stock than the one who is selling it?

In Wall Street, Charlie Sheen's answer was that did have special information that no one else had, that did affect the value of a stock. He knew of an airline who had just settled a class action suit so favorably that its stock was going to go up, and that the settlement was so secret even the named plaintiffs didn't know about it.

Of course, this was inside information, but it illustrates my point. Stock traders make money by buying stocks that are undervalued and selling them when they are overvalued. The only way you can do that is by knowing something the other side does not, or analyzing the situation better than the other side. If there was a system, or a source of information, or a way of analyzing the market that gave one investor an advantage, Buffett would already know about it and use it. The market would adjust, and there would no longer be an advantage to using that information or system, you would fall behind if you didn't have it.

So the question for you is: What do you think you know that Warren Buffett doesn't? If there's a killer stock deal out there, why doesn't Buffett know about it?

You talk about fundamentals and technical analysis. Do you know how to read a balance sheet? I mean, really sit down and take the numbers published each quarter and run your own ratios and valuations. If so, you're one in a million, and that's the starting point for a professional investor. When Buffett, of someone of his ilk, looks at a stock, they don't rely on published figures. They look into the company's books themselves. They look at actual sales volumes, sales forecasts, calculate their own estimates of profitability, and make their decision on that. It's all legal. Do you think you can compete with that? If you call the CEO of GE, do you think he'll sit down with you and explain his 6 month forecast, one year business plan, five year strategic plan, and the latest quarter's top line and bottom line results? He will if you just loaned the company 10 Billion Dollars, like Buffett did, but maybe not for you and me. These are the people you are competing with.

The number of people who have made themselves rich by trading stocks and have lived to retire on that money can probably be counted on one hand. The only way for ordinary people to make money in the stock market is careful investing over time. Actively trading is a ticket to losing everything.

Research stocks, buy carefully, but hold quality stocks for investment purposes. Don't try to trade. The pros will eventually win. Options, puts, calls, if you don't do them for a living, you don't have any business messing with them. There is a reason they are professionals. Don't try to compete with professional traders any more than you would compete with a professional athlete.

Couldnt have said it better myself!

[sailchef]

Originally Posted by jcunning

I would like to be a good enough investor to bring in enough money to live on.

After 15 years I am still saying the same thing.

[sammyg2]

There was a time when I thought I was good enough and had the results to back it up. Was on a pretty good run for about 5 years. Then reality set in, I realized I was just being blind arse lucky and lost quite a bit on bad moves a few years ago trying to time the rebound.

I got humble and more conservative. One thing I am certain of, the big boys know what is going to happen before I do. Not sure how that works but they are at least a month ahead of me, all I can do is react to their moves and hope to pick up the table scraps.

You don't live or work in a high rise, do you?

[McLovin]

I remember a few years ago, a lot of Pelicans here said you'd have to be "an idiot" to not be able to average at least a 20-25% return in the stock market.

[jcunning]

Good feedback so far.

So nobody subscribes to any of the stock service companies for guidance and recommendations?

I subscribe to a few and I find the information they provide very helpful and helps strengthen my decisions. This cost obviously takes away some of the gains, but it helps to have different points of view available.

[RWebb]

answer to the OP question is yes

the system I use is wait decades, live cheap, avoid fees - search on Vanguard in OT and look for the posts by me and pwd72s

[sammyg2]

Originally Posted by McLovin

I remember a few years ago, a lot of Pelicans here said you'd have to be "an idiot" to not be able to average at least a 20-25% return in the stock market.

4 years ago that was true.
Things changed.

[Aurel]

I have some money managed by an excellent investor, and he got me 15% return this year. Now, if only I had 10 times more money in this account, I could live from it. This guy is a genius.

[tabs]

Originally Posted by MRM

It is almost impossible for an individual investor without the resources of an institution behind them, to make returns that are significantly greater than the market. And to be fair, almost 90% of actively traded funds fail to beat the S&P 500 on a five or ten year basis. Those funds have all the resources and insider information possible and they still find it hard to beat the market after fees. They guy who used to handle Yale's endowment was ledgendary for beating the market, and when he retired (pre-bubble burst) he started to write a book for individual investors on how to beat the market. He eventually came to realize that he could not do as an individual what he was able to do as an institutional investor, and it was impossible for any individual investor to compete without the built-in advantages of the large institutional investors. He ended up writing a book on personal finance that recommended investing in index funds.

Here's why an individual trader can't beat the market: Do you remember the movie Wall Street? Charlie Sheen's character finally gets through to big time investor Gordon Gekko and makes his pitch, trying to get him to invest in Charlie's stock picks. Gekko keeps asking why he should buy those particular stocks; what makes them special? The central question of all stocks is why do you think it is going up in value when the seller thinks it is going down? One of you is mis-evaluating the stock. One of the two parties has superior information and better analysis than the other and knows something the other doesn't. Why is it that you know more about the stock than the one who is selling it?

In Wall Street, Charlie Sheen's answer was that did have special information that no one else had, that did affect the value of a stock. He knew of an airline who had just settled a class action suit so favorably that its stock was going to go up, and that the settlement was so secret even the named plaintiffs didn't know about it.

Of course, this was inside information, but it illustrates my point. Stock traders make money by buying stocks that are undervalued and selling them when they are overvalued. The only way you can do that is by knowing something the other side does not, or analyzing the situation better than the other side. If there was a system, or a source of information, or a way of analyzing the market that gave one investor an advantage, Buffett would already know about it and use it. The market would adjust, and there would no longer be an advantage to using that information or system, you would fall behind if you didn't have it.

So the question for you is: What do you think you know that Warren Buffett doesn't? If there's a killer stock deal out there, why doesn't Buffett know about it?

You talk about fundamentals and technical analysis. Do you know how to read a balance sheet? I mean, really sit down and take the numbers published each quarter and run your own ratios and valuations. If so, you're one in a million, and that's the starting point for a professional investor. When Buffett, of someone of his ilk, looks at a stock, they don't rely on published figures. They look into the company's books themselves. They look at actual sales volumes, sales forecasts, calculate their own estimates of profitability, and make their decision on that. It's all legal. Do you think you can compete with that? If you call the CEO of GE, do you think he'll sit down with you and explain his 6 month forecast, one year business plan, five year strategic plan, and the latest quarter's top line and bottom line results? He will if you just loaned the company 10 Billion Dollars, like Buffett did, but maybe not for you and me. These are the people you are competing with.

The number of people who have made themselves rich by trading stocks and have lived to retire on that money can probably be counted on one hand. The only way for ordinary people to make money in the stock market is careful investing over time. Actively trading is a ticket to losing everything.

Research stocks, buy carefully, but hold quality stocks for investment purposes. Don't try to trade. The pros will eventually win. Options, puts, calls, if you don't do them for a living, you don't have any business messing with them. There is a reason they are professionals. Don't try to compete with professional traders any more than you would compete with a professional athlete.

This is largely why I have Mother in Tucson.

I suppose Mother is pretty good at what she does. Mother never did get Greenspan to be a client of hers because he only invested in Bonds, but she did get one of his assistants. And the RNC gives her a call every once and awhile to trade info.

Awhile back one of the things I wrote here I passed on to Mother and it was passed on to her guy in the FED and I got my head handed to me, by being accused of being a fking Liberal. BTW Mother likes what I write now, she thinks I have talent.

Let me put it to ya this way...if the Democrats had won in November..it would have been Armageddon time financially. If you notice the stock market declined by about 10% after HC was passed. When it began to look like the Republicans would win in Novemeber (Sept) the market started to rally...SP is up 20% since August...and why oh why is that?

Let me clue ya..if the Republicans conduct biz as usual, when the marekt figures that out by say the first quarter of 2012...YOU ALL ARE GOING TO BE FKED....NO ONE WILL GET OUT ALIVE. Can you say Sovereign debt both in Europe and the USA...I keep hearing that old surfin song by the Safaris in my head...WIPE OUT...

But it doesn't seem to be going down that way..the Republicans will do enough to throttle the Obama and his friends from destroying the world economy.

[dmcummins]

I have been living off my investments for the last three years. The majority is in index and mutual funds. I have a small portion in individual stocks that I like to think that I can do better with, but I usually don't do much better than the mutual funds. I tried trading options years ago. I did OK for a while, but when a trade went bad it went very bad.

The only thing that I do now is change my asset allocation some. I have sold most of my bond funds as I think interest rates have to go up from here. But I have just put the money in other fixed income.

Just keep saving and investing, you will eventually get there if you start early and put enough away. When you get to where you can live off 3%-4% of your money you should be OK.

[Crowbob]

Excuse me dmc,

May I ask how long a slog it was for you? Targeted mutual funds (2020) are around 15% YTD. Meaning 9 years from now they first become at all useful as income. OP needs to start thinking LONG TERM.

[djmcmath]

I've been doing a huge amount of investment research recently. I'd say the best two books were Benjamin Graham's "Intelligent Investor" and Seth Klarman's "Margin of Safety."

Benjamin Graham, who taught Warren Buffet, spends the first half of the book talking about how you need to set realistic investment goals, in terms of the percentage gains that you actually plan on seeing. 20% is right out. 10% might be unrealistic, unless you have a lot of time and the market is good, and you're lucky. Most professional fund managers don't do that well. So PoP's math showing that you'll need ~$3M in order to do nothing but invest is probably pretty good.

Both Klarman and Graham (as well as Michael Lewis, if you have time for even more reading) have some excellent analysis as to why actively managed funds don't beat the market. They also both close their books with a couple of major points:
1 - Unless you're full-time, you are unlikely to be fortunate enough to find the good values that you need to consistently beat the market. And if you're not consistently beating the market, your best bet is an annual rebalancing strategy of 50% index fund, 50% bonds.
2 - If you must invest in a fund, research them carefully. They both discuss a number of important things to look for in a fund, but neither of them seriously recommends it.

There's a few other threads on the topic here -- oddly, this group seems to be very interested in investing -- and I've read a number of the others for good advice on the topic.

Good luck,
Dan

[turbo6bar]

Originally Posted by McLovin

I remember a few years ago, a lot of Pelicans here said you'd have to be "an idiot" to not be able to average at least a 20-25% return in the stock market.

Your plan sounds simplistic.

The guaranteed winner was:
1) Extract equity from home.
2) Invest in equities at 14% return.
4) 10% appreciation of home + 14% return on equities = happy days

What could possibly go wrong?

To the OP, a plan for investing and income is not effective unless you pay attention to debt, debt interest payments, and expenses. You can make a buck of income go farther if you minimize Uncle Sam's cut, eliminate debt, and keep expenses manageable.

[Crowbob]

Ditto on 6bar's advice. I prioritized 1) eliminate (prevent) debt 2) manage expenses 3) minimize Obama's cut. These make living off investments possible in the first place. A healthy cash reserve facilitates #1. Keep it simple. Making more $ + spending less = wealth no matter how $ is acquired. For OP, spending less would include buying my '83 SC project.

[dmcummins]

Originally Posted by Crowbob

Excuse me dmc,

May I ask how long a slog it was for you? Targeted mutual funds (2020) are around 15% YTD. Meaning 9 years from now they first become at all useful as income. OP needs to start thinking LONG TERM.

I got out of school in 1980, I retired @ 50 in 2007. Always saved some but put more away every year. When I turned 40 I figured I didn't want to have to work when I was 55. I then set goals and started tracking my investments and expenses, still do. Things went better than I had though so I quit when I hit 50. My net worth is higher now than it has ever been. Thankfully I changed to more conservative investment's just before I quit working. No debt helped also.

There were many years I saved around 50% of my income, and some years my investments made more than I did. I invested in stocks, bonds, and raw land. A couple years before I retired I also paid off my house so I could reduce the amount I needed to withdraw. I sold off all my residential lots that I had bought in 2005, after the tech boom I did learn that sometimes its good to take some profits when things go up to fast.

[KFC911]

Originally Posted by Crowbob

Ditto on 6bar's advice. I prioritized 1) eliminate (prevent) debt 2) manage expenses 3) minimize Obama's cut. These make living off investments possible in the first place. A healthy cash reserve facilitates #1. Keep it simple. Making more $ + spending less = wealth no matter how $ is acquired.....

Everyone in this thread has it just about perfect. For twenty years I just maximized 401Ks (at minimum, get matching), with diversified, low cost funds, while I played adult and built equity (through many ups and downs). At 40 (with no debt by then), I took a more active approach, slowly at first, and haven't looked back. I did peer into Sammys crystal ball one time and bought TSO at 39...sold it at 13. I don't blame Sammy...I knew better and couldn't resist greed either . You guys are good...

edited: Dmcummins posted as I was typing...nicely done too