How to get "lucky" in investing

[patssle]

I started playing with stocks the year after I graduated college, so I've been dabbling for 3 years now. And as one of those pays close attention to world happenings/events (not for stocks) - I have very much noticed that the entire thing is crap. Good news about a company? Stocks go down. Oil surges? Gas price stays the same. Company posts a negative profit margin for a quarter? Stock goes up.

I'm sticking to mostly mutual funds managed by large companies. Lets face it, they are the people that go on to positions in Washington DC...they are the corrupt that know how to game the system. All my mutual funds are in the green by double digits % - and I started investing before the big crash. I still manage a little profit in individual stocks annually - but it's mostly luck.

[Vintage Racer]

Originally Posted by pwd72s

Yep, Cindy & I are VERY conservative investors...we have reached (for our simple lifestyle) what Bob Brinker calls "critical mass", do not wish to put that "mass" at risk...so the 30% is just keeping our toe in the pond, so to speak.

No problem, he is rated high in the Mark Hulbert "Financial Digest" Investment Letter Honor Roll. I have never heard of Brinker, but I know Hulbert does a good job.

Originally Posted by 74-911

For some good ideas on low fee index investing philosophy:

AssetBuilder Inc. - Registered Investment Advisor- Couch Potato Cook Book

That is very good. The only thing that I see is there is no adjustment for age. A 20-something year-old guy can take a little more risk than a 50-something guy?

The Couch Potato portfolio is good for guys that have no time for "Security Analysis" (another good book by Ben Graham) :

1/2—Vanguard Inflation-Protected Securities
1/2—Vanguard Total Stock Mkt Idx

Originally Posted by patssle

I started playing with stocks the year after I graduated college, so I've been dabbling for 3 years now. And as one of those pays close attention to world happenings/events (not for stocks) - I have very much noticed that the entire thing is crap. Good news about a company? Stocks go down. Oil surges? Gas price stays the same. Company posts a negative profit margin for a quarter? Stock goes up.

No one "dabbles". Successful investing in stocks requires a big commitment in time. Those investors know how to study an annual report (~20-30 hours of hours of work per company). That is "bottom up" or microeconomics.

They understand how each asset class correlates with other asset classes based on macroeconomic ("bottom down") conditions.

It's just that the 30-year U.S. Treasury was up 35% in 2011 (you had none of this?). The overall UST was up 17%. You know bond prices go up when interest rates go down (and vice-versa)?

You can get a lot of help from Pelican guys. Here is a picture from this morning at the local cars and coffee thing (all Pelican guys):

[patssle]

It's just that the 30-year U.S. Treasury was up 35% in 2011 (you had none of this?). The overall UST was up 17%.

So as a noob question, how does one play that game? I've researched bonds some and the numbers are all yield %...which are mostly less than 2% for all of them (less than 1% for most). Is that 35% gained through trading the bonds?

You can get a lot of help from Pelican guys.

Ok, so to test it...what's something that one could throw 10k-20k in cash into a safe investment but actually see a return? What would you go with in these times of market uncertainty?

[pwd72s]

Originally Posted by patssle

So as a noob question, how does one play that game? I've researched bonds some and the numbers are all yield %...which are mostly less than 2% for all of them (less than 1% for most). Is that 35% gained through trading the bonds?



Ok, so to test it...what's something that one could throw 10k-20k in cash into a safe investment but actually see a return? What would you go with in these times of market uncertainty?

I wouldn't just "throw 10K-20K cash"...If you're a newby I'd dollar cost average...put a certain amount in every month. "Safe investment" is a relative term depending on one's age, tolerance of risk, long term goals...I would not buy treasury bonds at this time...if interest rates change, you could quickly find yourself underwater in terms of the bonds losing resale value...

There are corporate bonds that offer a good yield, but there is risk...for example, those holding GM bonds found their investment worth zero after the government took over GM.

Right now? Cash is king...

[RWebb]

how safe an investment, patssle?

time horizon?

[pwd72s]

pat...sent you a PM...there is no way a thread on this board could give you the info you need.

[silverwhaletail]

I would recommend "investing" in going to work for a city/county/state in a state where the unions (democrats) have an iron stranglehold on the state legislature.

Work for 25-30 years and then retire with a "100k Public Employees Pension".

In other words, try to get your name on this list. That is my goal...

California Pension Reform's 'The CalPERS 100K Club'

And spend the rest of your money on (legal) hookers and shiny sports cars.

[patssle]

I've actually been in the market for a couple years, but have kept it simple with managed mutual funds (monthly investments doing said cost dollar averaging) and occasional individual stock purchases. I'm a noob on the bond market more of the safer markets for investing.

I just have a ton of money sitting there doing nothing and CDs/saving accounts are offering nothing in returns these days - just curious if I have another option without putting that money at risk. (seeing that a market crash is possible around every corner these days - and I already have plenty of money in high-risk investments).

Time frame..preferably a up to a year or two. I'd like that money to be available in the near future for any potential changes in markets/cds/bonds/etc.

[RWebb]

you first need to decide how much to allocate among equities (with a certain % foreign), bonds and cash

once you do that, I suggest a Vanguard Bond funds, such as Short Term & Intermediate Term Investment Grade funds and some in High Yield Corporate also

AND, unless you have used Hurlburt to independently determine that your managed mutual funds are outstanding ones AND ALSO have low expenses, I would move them to a top Vanguard mutual stock fund, or to some Vanguard Index stock funds -- Fidelity also has a few outstanding stock fund manager -- people who routinely beat the indexes (but most are closed to new investors)

expenses are important in a stock fund and absolutely critical in a bond fund

[RWebb]

various good Vanguard Funds, no particular order:


Selected Value
PrimeCap Core
Dividend Growth
Short Term Inv. Grade
High-Yield Corporate
International Growth
Healthcare
Mid-Cap Index
Int. Term Inv. Grade
Growth Index
Emerging Markets Idx.

[RWebb]

various good Fidelity Funds, no particular order:

Low-Priced Stock
Contrafund
Capital & Income

use Vanguard for Bonds

[74-911]

Originally Posted by patssle

Time frame..preferably a up to a year or two. I'd like that money to be available in the near future for any potential changes in markets/cds/bonds/etc.

If that is your time frame, find a credit union with the best 1 year CD rate and keep it there. Local credit unions are paying 1.6% on 1 year CDs. Not much but no risk and easy availability if you need it.

[RWebb]

yes, if that is the time horizon for everything you are talking about, then either that, or a mix of money market and an ultra-short bond fund

you can add some equities if you have a lot of moola - big bucks means you can take on more risk

[Vintage Racer]

Originally Posted by patssle

So as a noob question, how does one play that game? I've researched bonds some and the numbers are all yield %...which are mostly less than 2% for all of them (less than 1% for most). Is that 35% gained through trading the bonds?

It is not a game. It is a very serious investment. I was talking about a one year gain (1-1-2010 > 1-1-11).

If you bought the May 2020 8 1/4 UST a year ago, you would be up 32%. It was just last year when the pundits were short the 10-Year at 3.31%. That was a bad trade since it closed at 1.88%.

I didn't "make-up" these numbers. They are well explained in today's Wall Street Journal and Barron's. I can't link them because they require a paid subscription (the free stuff is worth what it costs).

You do understand how lower current low interest rates increase the value of a bond based on it's rate and maturity?

This is in today's WSJ (p. R2): total return (not index returns, which no not include interest, dividends, and cap gains, but do include net loses).
DOW 30: 2011= +8.3; 2010 =+14.05
S&P 500: 2011 = +2.11%; 2010 = +15.06:
Long Term Treasury Index: 2011 = 29.93%; 2010 = 9.38%
Intermediate-Term Treasury Index: 2011 = 6.27%; 2010 = 5.29%
It was a year of easy gains. 2012 will be more difficult.

And one more:
International Fund Index: 2011 = -14.48%; 2010 = 11.03%.

You do know how %'s work? A 20% loss in 2010 and then a 20% gain in 2011 means you lost money? ($100 less 20% is $80; a 20% gain is then $96).

A little homework goes a long way.

I have very much noticed that the entire thing is crap. Good news about a company? Stocks go down. Oil surges? Gas price stays the same. Company posts a negative profit margin for a quarter? Stock goes up.

Please don't be the "dumb money". An experienced guy will bet you. "Dumb Money" loses money and blames someone else; "Smart money" does not complain.

Ok, so to test it...what's something that one could throw 10k-20k in cash into a safe investment but actually see a return? What would you go with in these times of market uncertainty?

There is aways uncertainty. That makes it fun.

You should go with simple index funds in domestic securities. I'd go with 70% in the U.S. Total Stock market and another 30% in AA or A bonds. That is conservative at your age.

You can do better if you are willing to play with d' El Karoui quants.

[Phoenix]

Very topical discussion as we're in the middle of planning with a financial planner.
Wife and I are both pretty conservative and pretty big savers and in our mid 40's.
Our planner is steering us towards ladder bonds for our IRA accounts and Whole Life policies for longer term income generators as well as a few short and intermediate term municipal bonds.
This not being my chosen profession, I'm a bit nautical with this (lost at sea).

Everything I read about WL policies makes me nervous given their huge upfront costs and annual premium commitments (I'm screwed if I get downsized... Again). With the on and off again discussions about countries, states and municipalities filing or considering bankruptcy, bonds scare me as well. Cash savings in regular savings accounts or CDs is minimal and can't keep up with inflation which means I'm losing ground. The equities market seems more emotionally driven than factually. (gone are the days of investing in a company based on it's performance alone?)

Nothing seems "safe" anymore.

Would welcome any thoughts From the group????

[RWebb]

If you don't educate yourself about it* then use a financial planner who works for a fixed fee. Be careful about one who gives you a bunch of funds to invest in that THEY sell or represent. Always ask "How are you compensated?" A % of your assets is ok also. Whole Life ins. does not sound good to me - they are likely getting a rake off from it. Term Life ins. is what you want.

Laddering bonds is common, but why not just use a bond fund? Also, an IRA is usually long term money, and that means mostly stocks, with just a little in bonds. How little depends on how long until you tap into it - sooner means more conservative (again see Paul's comment above and recognize that he is ... ah... not young any more).

What you want is a "low-cost, broadly diversified portfolio of investments, with an asset allocation and expected risk profile that match your risk tolerance over your investment horizon" - quoted from a funny that Vanguard put on their web site (a joke about all the guru-bozos who will be writing columns about the BEST place to put your money in 2012).

It does NOT have to be your chosen profession, and it is not rocket science (or even rocket engineering).



* see the books Paul mentioned above; also if you call Vanguard's 800 # they will send you lots of easily digestible pamphlets on it

[74-911]

Originally Posted by RWebb

If you don't educate yourself about it* then use a financial planner who works for a fixed fee. Be careful about one who gives you a bunch of funds to invest in that THEY sell or represent. Always ask "How are you compensated?" A % of your assets is ok also. Whole Life ins. does not sound good to me - they are likely getting a rake off from it. Term Life ins. is what you want.

Very good advice. If your planner is also representing the funds he is putting you into, he may not necessarily have your best interest in mind (I learned this the hard way many years ago) and they probably have a large front-end load. Term life is definitely what you want. Way to many fees and loads on whole life and your planner will definitely get a very large commission on a whole life policy.

[Phoenix]

Thank you Rwebb and Jack. I have been making time to educate myself which takes. Much of what you read is contradictory and everyone has a slightly different take on any give situation. I've pretty much nixed any notion of Whole Life. Too many fees and a $10-$15k commission!! It's a money losing proposition unless you hold it for 15 years plus. I hope to retire before then. I've asked the FP to come back with a few other options while I research. We'll see what he says. If he's still pushing WL, it will be time for a new planner.