Posts Tagged ‘ stock market ’

Lets Stop Blaming the Economy for Our Failed Investing Strategies

Beyond Buy-and-Hold #76

By Rob Bennett

Buy-and-Hold doesn’t work. Look around. it’s obvious.

But wait! The Buy-and-Holders have an explanation.

It’s the Economy! Buy-and-Hold is aces. It’s that darnned economy that is messing everything up. Buy-and-Hold cannot be expected to produce good results in the face of such a bad economy.

Trying to have it both ways

Please think over what is being said here. When Buy-and-Hold produces good results, we credit the investing strategy. When the results are poor, we place the blame elsewhere. As Church Lady might observe, “How convenient for the advocates of Buy-and-Hold!” It’s a “heads I win, tails you lose” approach to investing analysis.

And you know what? This isn’t the first time the Buy-and-Hold advocates have played this little trick on us.
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If Valuations Matter It Must Be Possible to Profit from This Reality

Beyond Buy-and-Hold #75

By Rob Bennett

You’re a Phillies fan. You have hopes for the team winning the World Series next year. The manager is interviewed on television. You are reassured to hear him say that “pitching is what matters in this game, it’s all about pitching.”

The next day, the manager releases the team’s best five pitchers on waivers. You are shocked. You tune in to the news that night to hear his explanation. He says: “I strongly believe that pitching matters. That said, I know of no reason to believe that teams with better pitchers win more games. So I am not even a tiny bit concerned that we are losing all our best pitchers. I am convinced that pitching matters a great deal in baseball, but I also am confident that it has no effect on whether you win or lose games.”

That’s crazy talk. To say that pitching matters is to say that, all else being equal, teams with good pitchers win more games than teams with bad pitchers. The idea in the game of baseball is to win games. To say that something matters in baseball is to say that it helps you win games.

Everyone understands this logic for so long as the discussion relates to baseball. Things get foggy for many when we turn our focus to stock investing.
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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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Developing Investment Strategies

Guest Post

Reaching a point when you can grow your money via investments is an exciting time. But there are many factors that affect investors’ decisions. These are normally guided by investment strategies, which are influenced by investment goals, risk tolerance, and your future needs for capital.

There are three basic types of investment strategies: growth investing, income investing and value investing, with the greatest thing separating them generally being the level of risk involved. Many younger investors have greater tolerance to risk as they can bank on having more time to make up losses, while investors closer to retirement may favour a conservative approach that’s protective towards their assets.

The basic investment strategies

Growth investors look for companies in markets that traditionally have high earnings and take risks buying stock from promising start-ups in the hope that the companies will grow into industry leaders. Value investors, by contrast, search for stocks that might have been overlooked by the market. Undervalued as opposed to low priced, these stocks represent a good deal to savvy investors. Income investing is a more conservative strategy that targets companies that consistently pay out high stock dividends.
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Your Favorite Investing Expert Is NOT Your Friend

Beyond Buy-and-Hold #73

By Rob Bennett

Your favorite investing expert is your favorite investing expert. Your favorite investing expert is not your friend.

It’s important that you make this distinction.

Say that a political figure aspires to the Presidency. What happens? Do we hand him the keys to the White House because he talks a nice game?

We do not. He is subjected to vetting. He is asked questions. Hard questions. His answers are not accepted on faith. They are checked. Contradictions are noted. Vagueness is faulted. We place demands on our Presidential aspirants.

That makes sense. You don’t want to let the wrong guy in the White House. Put the wrong fellow (or gal) in the job and you have a big mess on your hands.

Why don’t we do a similar investigation when it comes to investment advisors?

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Get Rich Quick – What Is It?

Beyond Buy-and-Hold #72

By Rob Bennett

I often refer to Buy-and-Hold as “the purest and most dangerous Get Rich Quick scheme ever concocted by the human mind.” People are often surprised to hear me say that.

Am I getting at something in particular? What precisely do I mean to signify when I characterize Buy-and-Hold as “a Get RIch Quick scheme”? Am I just throwing dirty words around?

I hope I am not just throwing dirty words around. The phrase “Get Rich Quick” has a particular meaning in my mind. I mean something specific when I characterize Buy-and-Hold as the most intense dosage of that something that I have seen in my days of walking Planet Earth.

The distraction of empty promises

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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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