Posts Tagged ‘ Investments ’

You are Solely Responsible for Your Investing Success

Guest Post

It is quite unfortunate that the majority of investors approach investing with the mind set that they need to find stocks that will provide the greatest return in the shortest possible time. The entire day trading industry is built upon this need for instant gratification. Brokers are all too happy to fill this need by offering low trading commissions and beautiful charting and trading tools. As is often the case, constant portfolio turnover and churn is where the real money is for the brokers. “Making it up in volume” may not work for Detroit any more, but it works very well for the discount brokerage industry.

Investors who get seduced by these tools and the hope of a quick profit, tend to significantly under perform the market. Step back for a moment and consider this: The total market return (for example an index such as S&P 500) is the sum of the returns of all the individual investors in that market, institutional investors such as funds, less the commissions and fees they pay out to their brokers.

The problem is that of the three main participants in the market, individual investors are the only ones who are completely dependent on good stock picking for their profits:
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Buy-and-Holders Are Good and Smart People

Beyond Buy-and-Hold #71

By Rob Bennett

When it comes to Buy-and-Hold investing strategies, I’m tough. I describe Buy-and-Hold as the purest and most dangerous Get Rich Quick strategy ever concocted by the human mind. I say that it was the heavy promotion of Buy-and-Hold that was the primary cause of the economic crisis. I point out that the academic research has been showing for 30 years that there is precisely zero chance that Buy-and-Hold could ever work for any long-term investor.

Yowsa!

I must really hate Buy-and-Holders, huh?

No. That’s not even close to being true.

As negative as I am re Buy-and-Hold, I am just that enthusiastic re Valuation-Informed Indexing. I say that we could bring the economic crisis to a quick end by opening up the internet to honest posting re Valuation-Informed Indexing strategies. I often cite research showing that we could all retire five to ten years sooner if only we would make the switch to Valuation-Informed Indexing. I note that the historical stock-return data shows that switching to Valuation-Informed Indexing reduces the risk of stock investing by 80 percent.

Guess which group of investors it was that laid the foundation for the discovery of Valuation-Informed Indexing?

It was the Buy-and-Holders!

The way to financial liberation

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Why I Don’t Pull Punches in My Discussions With Buy-and-Holders

Beyond Buy-and-Hold #70

By Rob Bennett

I was talking with a friend of mine at the Financial Bloggers Conference in Chicago. He’s a Buy-and-Holder. He told me what I need to do to get reinstated at the various boards and blogs that have banned me for pointing out the dangers of this popular investing strategy.

I need to pull back a bit. It’s okay for me to say that valuations matter, people can deal with that. But I need to not post so often. It really gets on people’s nerves when they see me participating in every thread in which the valuation issue comes up. And my posts are so long! I need to write shorter posts less frequently and not take such strong stands. It wouldn’t hurt if I would stop describing Buy-and-Hold as a Get Rich Quick scheme, for example.

Okay.

He’s right, of course. The Buy-and-Holders would love it if I followed that advice.

The investment strategy of the future—maybe the near future

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In the Future There Will Be No Bulls or Bears

Beyond Buy-and-Hold #69

By Rob Bennett


As we learn more about how stock investing works (and as we permit ourselves to talk over what we have learned), we will need to change the language we use to discuss the subject.

Are you a bull?

Or are you a bear?

If you are a smart investor, you are neither.

The designations “bull” and “bear” were meaningful in the days before there was academic research showing that short-term timing (changing your stock allocation because of a guess as to where stock prices are headed) doesn’t work. In the days when large numbers of investors believed that guessing where prices were headed was the way to buy low and sell high, the most important thing to know about an investor was whether he was a bull or a bear.

”Bull” and “Bear” no longer matter

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How Our Stock Addiction Grew Gradually Worse Over Time

Beyond Buy-and-Hold #68

By Rob Bennett

One of my critics makes a great point in a recent Bogleheads Forum discussion of the Valuation-Informed Indexing concept. A poster going by the name “nisiprius” says: “I just don’t believe that a few simple rules based on numbers that are easily available to everyone will substantially improve your risk-adjusted returns.”

I say that the typical middle-class investor could retire five to ten years sooner if he were willing to switch from Buy-and-Hold to Valuation-Informed Indexing. I say that the heavy promotion of Buy-and-Hold was the primary cause of the economic crisis. I say that we would eliminate 80 percent of the risk of stock investing by letting investors know about the 30 years of academic research supporting this approach.

Yet the only difference between Buy-and-Hold and Valuation-Informed Indexing is that Buy-and-Holders choose a single stock-allocation percentage that makes sense for them at all times while Valuation-Informed Indexers change their stock allocations in response to big valuation shifts. Could this one strategic change really make such a big difference? That’s more than a little hard to believe, isn’t it?

It’s hard to believe.
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It Takes a Tough Man to Put Forward Sound Investing Advice

Beyond Buy-and-Hold #67

By Rob Bennett

I was talking by telephone with a supporter of mine the other day. He generally shares my views on investing. He likes my stuff. He thinks I have made important contributions. He also thinks I am a bully.

Well, not exactly.

He really did use the word “bully” in the conversation. He also used the word “intimidating.” He said that he didn’t think that either word properly described me. He wasn’t able to think of the precise word that fits. But those were the two that came to his mind.

If I am not quite a bully, I am something close to it. This is according to a friend of mine! This is according to a supporter!

How did I respond when he said that?
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Recent Stock Market History Has Too Much Influence on Our Thinking

Beyond Buy-and-Hold #66

By Rob Bennett

I believe that the case against Buy-and-Hold is rock solid. Common sense tells us that it cannot possibly work. There is now 30 years of academic research confirming what common sense tells us. That research is based on 140 years of historical stock-return data. What more could you ask?

Lots of people are asking for more. Buy-and-Hold remains popular. My articles stating the case against it remain unpopular.

I have exchanged a number of e-mails with a fellow who is a big believer in Buy-and-Hold but also not entirely unsympathetic to my case for Valuation-Informed Indexing in an effort to better understand what is going on in people’s minds. This fellow has looked at the research and acknowledges that is appears generally solid. Still, he is not a convert. Buy-and-Hold seems right to him.

He was fair-minded enough to tell me that, following one of our recent e-mail conversations, he laid in bed for a time asking himself what it would take to persuade him that Buy-and-Hold does not work. That’s the question I most need answered. So I listened carefully to what he told me.

The “this time it’s different” philosophy

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Most Stock Investors Are Gambling with Their Retirement Money

Beyond Buy-and-Hold #64

By Rob Bennett

We go to markets to buy things. We go to casinos to have fun.

Why do we invest in stocks?

We tell ourselves that we invest in stocks to provide for our retirements. We refer to the place at which stocks are bought and sold as a “market.” I think we are kidding ourselves.

Actions speak louder than words. The behavior we engage in when buying stocks is more akin to the behavior we exhibit in gambling casinos than it is to the behavior we exhibit when buying things.

Seeking value

What is it you are most worried about when participating in the car market or the banana market or the computer market? You want to obtain a good value proposition. You don’t want to overpay.

How many people do you know who worry when they are buying stocks that they are overpaying?
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Buy and Holders Must Sell Their Stocks Before the Economy Can Recover

Beyond Buy-and-Hold #63

By Rob Bennett

If stock prices continue their 12-year march downward, we are going to end up in the Second Great Depression. So we would all like to see a turnaround. The thing with which there is a difference of opinion is the question of what we need to see to bring on this happy event.

Buy-and-Holders believe that it is economic developments that cause stock price changes. If that is so, what we need is an economic recovery. That’s obviously a good thing. So, from a Buy-and-Hold perspective, we all just have to wait for and hope for an economic recovery.

Stock prices are the root of economic crises

Valuation-Informed Indexers have a very different understanding of how stock investing works. We don’t believe that it is economic developments that determine stock prices but that it is stock prices that determine economic developments. Once stocks become insanely overpriced, a crash becomes inevitable and, once a crash becomes inevitable, an economic crisis becomes inevitable because the price crash subtracts so much spending power from the economy.
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Investing in Volatile Markets

By Kevin M

After the briefest of pauses, the stock market is back to swinging back and forth and showing no clear direction either way–Europe-itis is to blame once more. On Friday the European Union was assuring the world that it had matters well in hand—by Monday the world was back to not believing any of it. The global markets responded accordingly by whipsawing back and forth.

As much as we might wish otherwise, the signs are screaming out for of more of the same. Rising stock markets are based on calm and predictability, and both are in short supply—hence the volatility. And volatile markets typically settle in unhappy places. Consider the large stock slides in 2000-2002 and again in 2007-2009; I believe we’re at just such a point again today. Where this run ends is anyone’s guess, but there’s enough uncertainty out there to support an argument for just about any scenario we can imagine—and most of them are bad for our finances.
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