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re: For all those poorly misguided do-it-yourselfers
Posted on 2/14/09 at 3:48 pm to Iona Fan Man
Posted on 2/14/09 at 3:48 pm to Iona Fan Man
quote:
all we did is basically input a client's portfolio into the system and the computer would tell us which positions they should sell(overweight in a sector), and which positions we should "suggest" for them to buy to "diversify"...think that theory is down the tubes now.
Risk diversification models have been around for a while now - speaking very broadly they are built around some of the same principles governing CDS valuation. Those principles are still good IMHO, but the model is no guarantee once basic assumptions are violated.
For mom and pop (and their financial planners) the tools probably aren't bad at identifying holes in their portfolios though. Markowitz portfolio theory is IMHO pretty sound because it is so rare that anyone really knows anything the rest of the world doesn't already. The trouble is translating it to real life decisions. For stocks and standard bonds that is far easier than for newer contracts like the CDS, which was intended to be essentially risk-free.
0
Posted on 2/14/09 at 3:51 pm to ForeLSU
quote:
the key word is "disintermediation", a popular term during the dot.com boom. Markets used to rely heavily on intermediaries because knowledge and information flow was snail-like. In many markets, intermediaries thrived mainly because they owned the information and controlled the flow in order to maintain their strong positions...thus customers relied heavily on them. Today information flows freely and time delays have collapsed. The old intermediaries are struggling to defend their role, some will probably re-define, most won't.
And that is why index funds rule and actively managed funds are always sucking wind trying to keep up.
Posted on 2/14/09 at 3:59 pm to LSU0358
quote:
This sums up the entire argument...the pro's used to have information days to weeks ahead of the average joe. Now that is down to hours or a day or two.
Less than that sometimes ... there isn't that much that is really juicy, but if it is you need a time machine. Most analysts are *behind*. There are exceptions, but they are uncommon and won't be found in the popular press.
Posted on 2/14/09 at 4:12 pm to tirebiter
quote:
tirebiter
Good stuff. quote:
some investors simply won't maintain equity allocations in the face of severe losses, indicating the investor did a poor job of establishing risk tolerance at the outset
Bingo!
Posted on 2/14/09 at 4:20 pm to SlowFlowPro
quote:
next week on one of my veg days i'm goin to ask the board what its opinion of making insider trading illegal
I think it is not nearly the problem it's cracked up to be. An executive team that deliberately misrepresents financial results is another matter. But insider transactions are reported (a fine thing, btw), that at least is still publicly available.
Sometimes corporate insiders don't really know what is going on either. I'm reminded of the time Microscribe's sales director was caught booking disk sales when he was really just shipping bricks. It killed what at the time was a fast-rising company. I bet the CEO and CFO both lost a bundle.
Insiders have an edge but not a guaranteed one. Something I try to keep in mind whenever I hear someone who worships at the Church of Jim Cramer.
Posted on 2/14/09 at 4:22 pm to foshizzle
And now that I've done roughly an entire page of consecutive posts, it's time for me to get ready for Valentine's Day. See ya.
Posted on 2/14/09 at 5:33 pm to foshizzle
Fos, as discussed in other past threads, you and I are much more alike than different regarding portfolios and outlook.
In a perfect world investors would have much higher equity allocations when market valuations are low while waiting on the expected equity risk premium to reward the allocation. The questions are is the current market valuation truly a good economic proposition and, if so, how long does one have to wait? Maybe it will take a decade, I don't know. Personally, I am still sitting on significant cash in the event the market declines another 20-40%, but did do some equity rebalancing in November.
In a perfect world investors would have much higher equity allocations when market valuations are low while waiting on the expected equity risk premium to reward the allocation. The questions are is the current market valuation truly a good economic proposition and, if so, how long does one have to wait? Maybe it will take a decade, I don't know. Personally, I am still sitting on significant cash in the event the market declines another 20-40%, but did do some equity rebalancing in November.
Posted on 2/14/09 at 5:47 pm to LSU0358
quote:
Do you have any data on what happens to long term returns if we were to miss the 20 worst days in the market over a 10 yr period?
This data set is always conveniently kept filed away from inquiring minds during advisor dicussions.
Posted on 2/14/09 at 10:27 pm to wampawampa
quote:
also 5 yrs not significant enough time frame.
quote:
i just want that guy who is looking retirement in the face to pause and think for two seconds before he goes to bed at night
Posted on 2/16/09 at 11:55 am to Colonel Hapablap
General Lee, Your example, sir, fails. You compared AGTHX, a large cap domestic growth fund to VTSMX, an index fund tracking the market overall. General, a growth fund, or stock for that matter generally pays a much lower dividend than the market as a whole. A growth company is reinvesting much of their profits back into the company rather than paying dividends to shareholders but thanks for playing.
Posted on 2/16/09 at 12:15 pm to wampawampa
Wampawampa is absolutely correct. Investing in mutual funds is all about accumulating shares, not the current share price.
I am an advisor in an area with a lot of farmers. One of my clients came up with this analogy which a plagerize daily.
"So my account is kind of like my farm. I get paid a certain yield for every acre planted, sometimes it's more and sometimes it's less but I still get paid by the acre, so the more acres I end up with, the more my retirement income will ultimately be. So for my retirement account, I should focus on accumulating acres. Right now instead of living off of my account/acres, I can buy additional shares/acres and take advantage of lower prices. The end result is that at retirement, I will have a larger number of shares/acres to generate my income in retirement."
Folks try and remember, the share price is only relevent to those that are buying or selling TODAY. If you are buying, which hopefully you are if you are still years from retirement, you are buying at better prices and accumulating more "acres" for your dollar. If you are currently in retirement, hopefully you were properly allocated to minimize the risk to your portfolio and hopefully you can access the cash portion of your portfolio so you don't have to sell shares in a down market.
Happy Presidents Day everyone!
I am an advisor in an area with a lot of farmers. One of my clients came up with this analogy which a plagerize daily.
"So my account is kind of like my farm. I get paid a certain yield for every acre planted, sometimes it's more and sometimes it's less but I still get paid by the acre, so the more acres I end up with, the more my retirement income will ultimately be. So for my retirement account, I should focus on accumulating acres. Right now instead of living off of my account/acres, I can buy additional shares/acres and take advantage of lower prices. The end result is that at retirement, I will have a larger number of shares/acres to generate my income in retirement."
Folks try and remember, the share price is only relevent to those that are buying or selling TODAY. If you are buying, which hopefully you are if you are still years from retirement, you are buying at better prices and accumulating more "acres" for your dollar. If you are currently in retirement, hopefully you were properly allocated to minimize the risk to your portfolio and hopefully you can access the cash portion of your portfolio so you don't have to sell shares in a down market.
Happy Presidents Day everyone!
Posted on 2/16/09 at 12:20 pm to ed3303
that only even begins to make sense if one is investing in a bunch of fixed income and dividend stuff. It is completely non-applicable when you're stuffing people into "growth" funds and other non-dividend paying equity.
Posted on 2/16/09 at 12:22 pm to kfizzle85
quote:
Mutual funds are hazardous to your wealth Timing is everything
I rarely ever read these opinion pieces (and I admit I didn't read either of these), so take them fwtw.
I found the comments particularly interesting. A lot of blowback against buy and hold from former true believers.
This is a fair comment though:
quote:
Headlines read " Timing is everything ... "
Maybe soooo but isn't it about a yr or so late to be talking about " Timing "
This post was edited on 2/16/09 at 2:22 pm
Posted on 2/16/09 at 12:24 pm to Cold Cous Cous
At the end of the day, there is no free lunch. You will not make any money in the market for yourself if you are not actively engaged in it YOURSELF.
Posted on 2/16/09 at 1:13 pm to Cold Cous Cous
Indeed my friend, hindsight is 20/20 (I'm nearsighted personally, but I'm supposed to be getting lasik for a graduation present, so you can all kiss my arse.)
Posted on 2/16/09 at 1:26 pm to kfizzle85
My day-trading using TA will own anything you 9-5ers at the local small shop finance firm are picking...
There's a reason most accountants are in debt ... most real estate agents don't invest in real estate ... and most financial advisers are still punching in at the leased office around the block on low-6-figure incomes.
There's a reason most accountants are in debt ... most real estate agents don't invest in real estate ... and most financial advisers are still punching in at the leased office around the block on low-6-figure incomes.
Posted on 2/16/09 at 1:27 pm to threesheets
:boom:
Posted on 2/16/09 at 4:04 pm to Colonel Hapablap
I'm not sure what that even means? They're all dumb compared to threesheets?
Posted on 2/16/09 at 7:46 pm to tirebiter
quote:
Personally, I am still sitting on significant cash in the event the market declines another 20-40%
Me too.
quote:
Maybe it will take a decade, I don't know
I hope so! Still in my early forties, I very much hope things will dawdle around for another decade while I shovel money into my tax-deferred acounts at relatively low prices. But that's just me.
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