Investing 102

[GregWeld]

I don't want this to seem like an argument - which it isn't... as usual -- I must respond to EVERYONE that's reading these posts so that they can make sense of them for themselves. They're just merely "food for thought" rather than "YOU SHOULD BE DOING X" or "YOU'RE WRONG". Not my intent here at all.


Having said the above --- You bolstered what I said by posting your "other holdings" --- which closely DUPLICATE the holdings in the fund we were discussing. That's NOT diversification --- thats just duplication. And this is the point I was making about holding MUTUAL FUNDS without doing the underlying research to see what they're made up of.

Like most investments -- a few make up for the many. A couple good holdings in a basket of 10 plus -- will pull the wagon as far as "group" performance. If you had Five stocks - Apple being one of them - over the last 5 years - Apple would more than make up for two of the five being losers. The key to investing is to be on top of your investments enough to have fewer losers and have at least one or two winners -- and the middle being stuff that's "average" (generally the steady eddies).

But if you're duplicating investments - you're just generally going all in on just a few names. It's akin to buying all your rental property in one neighborhood.
That's where "THE WORK" comes in to the equation... people get lazy and don't stay abreast of what all makes up their funds etc... and then find themselves "stuck" five years down the road in investments that have just performed so so.

The fund you mentioned sole goal is to duplicate the S&P 500 index. If you want to just do what the S&P 500 index does --- just buy it! It trades as the SPY.... That way you'll be assured that you'll at least equal that index.

But there's not much reason to just buy the SPY and then go and duplicate many of what makes up that index - in individual names. Does this make sense??

Originally Posted by XLexusTech

well let me put real time facts to my position on funds. in 10 years I am up 30+ on my funds.. includes deducting for expense fees.. (for which i keep my ratio below .10%)
this is not employee sponsored but post tax cash investment. ANYONE can do this.. the fund I quoted is an Admiral fund the same fund non Adminral VFINX has a 3K minimum investment and a slightly higher fee...all of my funds started at between 100-3K as NON admiral... and i moved them into admiral as they grew.

My point is that Funds can and should be part of a smart portfolio.

I have another pure stock account were i apply the principles here.. several DRIPS all smart names.. APPL, JNJ, KO, MCD XOM, CVX and so on... over the same period its up 17%.

then i have Gamblers... FB... for example which to date are doing real well for me.
My point here really is... in my opinion its a portfolio that has the principles of good funds+ individual stocks which are solid DRIPs and shooting star throw aways money looking for a good run.. is the way to go for me..

[XLexusTech]

Discussion is never argument.

Here is why i go the route I do... the 100 other stocks in the fun offer me some risk mitigation , the fund allows me to "Set it and forget it" and never look at it..

The individual stock Drips allow me to trickle in directly thereby managing the total cost whilst providing me the ability to Punch out of the individual stock at any time and buy it back at any time.

Its that flexibility and risk limiting factor that for me supports the logic of owning an SP INDEX FUND and some of the same stocks in that INDEX individually

Think of this, I am applying both the "Lazy portfolio" Approach and the active trading approach at the same time... taking the benefits of each.

[GregWeld]

I have always said that everyone needs to do what makes THEM feel comfortable and that is style and choices of investments.... I'm never a guy that will say you should only do things my way....

I just wanted readers to understand WHY I was saying what I was saying.... not in a defensive way --- just as an explanation.

I had breakfast the other day with a retired accountant buddy - he was a managing partner at KPMG -- his wife is a retired CFO... both should understand investments and money and compounding... They're pretty well healed. Then he tells me his "money managers" have him in about 30% bonds which he tells me has just taken a huge hit... but that now he doesn't want to sell at a loss.... My question to him was why the hell does he think these people are worth what he's paying them? I sold my bonds months ago AHEAD of the impending interest rate rise and made a very handsome gain on them...

So much for "professional" money managers. And my buddy should just be embarrassed as hell to even mention that he's not smart enough to manage his own money -- or care enough is really what it boils down to. When I asked him if his money was UP 29 to 30% this year... he could only look down and say "well their strategy has me in pretty safe stuff" --- then I reminded him of his bonds and asked how safe those were??

UGH!!

Originally Posted by XLexusTech

Discussion is never argument.

Here is why i go the route I do... the 100 other stocks in the fun offer me some risk mitigation , the fund allows me to "Set it and forget it" and never look at it..

The individual stock Drips allow me to trickle in directly thereby managing the total cost whilst providing me the ability to Punch out of the individual stock at any time and buy it back at any time.

Its that flexibility and risk limiting factor that for me supports the logic of owning an SP INDEX FUND and some of the same stocks in that INDEX individually

Think of this, I am applying both the "Lazy portfolio" Approach and the active trading approach at the same time... taking the benefits of each.

[XLexusTech]

Yes anyone investing that doesn't correlate interest rates and Bonds is pretty far behind the curve.. knowing the rates have nowhere to go but up sitting on Bonds is pretty clear cut bad decision for the foreseeable future .. ....

[GregWeld]

Originally Posted by XLexusTech

Yes anyone investing that doesn't correlate interest rates and Bonds is pretty far behind the curve.. knowing the rates have nowhere to go but up sitting on Bonds is pretty clear cut bad decision for the foreseeable future .. ....

Amazing isn't it!! A partner in KPMG (retired) and a CFO... you'd think that money management would not only come easy -- but be massively important. Like I said to him -- gee -- I'm glad I don't have enough money to need a professional manager! <knowing that he knows I have triple his net worth!> Okay - yeah it was a dagger in the back. But hey! What are friends for???

[SSLance]

I'm not posting this to agree or disagree with anything said above, but in regards to loads and funds...some investment houses have vehicles to get around those.

At Merrill Lynch for example, you can buy into a fund that may or may not have a front load and not pay any of the load as long as you hold it for at least a year. I believe they get around this because Merrill will buy X amount of those shares from the fund and then buy or sell them to their clients after. They probably also get a break on the load from the funds themselves for being such a large player.

Now, regarding the types of investment accounts you can have at Merrill. You can be in a non-managed account, without any fees...but you will pay a high commission on equity stock trades. You can buy into most funds inside these accounts though...without paying a load if you hold it for at least a year. I don't remember the last time I paid any sort of commission or load on a mutual fund in my Merrill accounts.

Or...you can be in a managed type account where you do pay a fee every quarter based on the value of your total account...get free trades and free buys or sells of mutual funds with no loads. I think the last managed account plan I was in had a 1.5% yearly fee. Your Financial Advisor will completely manage your account for you or you can be very active in the buy\sell decisions in this type of account...your call. Typically in this scenario you don't get a FA that runs you in and out of equities all the time because he doesn't get paid on the trades made, he gets paid more from your account the larger he makes the account grow.

If you were going to have your portfolio totally self directed, Greg's example of a discount investment account at Schwab and buying the equities directly that most funds hold large stakes in is the most efficient way to do this...but you have to remember to be in total control of all of the buy\sell decisions and stay on top of it. It isn't a set it and forget vehicle.

If you wanted to let the money managers do what they do and participate in funds instead, an investment account at a larger house can be efficient in this manner if you can get around the loads as described above and not pay fees on the value of the account. Keep in mind though that the money managers running the funds do need to get paid and this happens from the expenses that come right off the top of the funds before any gains or losses trickle down to the fund holders. Some funds are better about this than others, research is again key.

I have had the opportunity in the last 7-8 years to watch some very high end Financial Advisors...and the different strategies they take. One in particular that is becoming somewhat of a regular appearer on WSJ, Fox Business News etc. It is amazing to me that he isn't much of a stock picker at all. About 90% of his portfolios are built around index funds. He tax harvests regularly, re-adjusts portfolios based on asset class, and buys and holds while reinvesting dividends much like what is talked about here...but all in pretty much Index ETF types of funds. It is interesting to watch and he has done very well over the years, even after the 2% a year he charges his clients.

[GregWeld]

Let's be very clear here ---- Nobody is going to be on a fee managed account anywhere, without having a rather substantial amount of money to plunk into an account. They're not offering fee based accounts to people with 5 grand to invest...


I know this because I have fee based accounts with at least TWO different large institutional investment firms. One is a hedge fund - we won't even get in to that kind of investing here.


Here is something you may want to read...



If you have $10,000, you can open an account at, say, Morgan Stanley, a prototypical full-service brokerage. You’ll work with a broker, who, for a fee of up to 2% of assets annually, will provide guidance on mutual fund investments. But to get more-comprehensive advice at Morgan Stanley—from an adviser who offers a range of services, from investing guidance to retirement and estate planning to banking services—you need at least $100,000. Fees are negotiable and may include commissions on investments, asset-based advisory charges or both. At Merrill Lynch, you’d need at least $250,000 to access that level of service.


Now --- I have a rather large "estate" and have professionals on many different levels from trust accounts on up. I can tell you that most of these "pros" are 30 something folks that are mostly wet behind the ears, they're all "VP's" and when you drill down on them -- they don't know very much except that they can read the "reports" from the analysts in their respective firm. What I LOVE TO DO is to have one of my "team" call and give me some sage advice. I usually then hang up the phone and call my other firm and say --- hey! I was thinking about doing "X" (using the information I just received from broker A)... most of the time - brokerage B has a completely different and opposing view. I have my own view - which is generally not to take either ones advice and do something (If I choose to do anything) in the middle... Broker B was insistent that I continue to hold the 4 million laddered bond portfolio they had built for me (fee managed @ .75% at that level) I owned stocks in this account as well. Thank gawd I knew more than they did and sold the entire portfolio and then closed that account. It saved me at least a half a million bucks, perhaps MORE than that if you figure in the gain I took that I would have otherwise lost and add it to the loss of holding til today. They were FIRED. He was a Senior VP and personal friend. In fact - I wouldn't even let them sell the bonds - I just transferred them lock stock and barrel over to another account and sold them via Schwab (I have 4 accounts just as schwab).

The key to paying FEES of any kind is whether or not you are willing to abdicate decision making to someone else. Because they really are just "selling" their advice. Supposedly educated advice - and they have all manor of people doing lots and lots of analysis. But what you're really looking for then -- is that they can do a better job than you can. I'm good with that! Nothing wrong with that -- but then I demand all manor of other services and features and entrance to investment vehicles for my fee. I get away with that because they'll kiss my butt to infinity if that's what I ask for.... I get free tickets to all kinds of stuff - golf events - pro sports - fancy dinners - and entry to things I otherwise would have no access to at all. For instance -- I just borrowed 5 million dollars -- at 2%. CASH. I can do anything I want with it - no questions asked. How many of you can do that?? That's worth a management fee to me.

But if you're investing 10 grand a year -- and have under 100K invested -- and are expecting to make an 5% ANNUAL dividend -- and the "market" is on average growing 9% per year -- then paying someone 2% looks mighty expensive to me... And that 2% is whether you have an up year or a down year. Let me tell ya -- when you're down 15% and then pay 2% (Cash mind you!) for them to "manage" your account -- you're not going to be a happy camper.

What most people do is pay a fee based firm TO BEAT the average market... Do you understand that "beating the market" also means that if the market is DOWN 12% and they are ONLY down 10% this means they "beat the market"! You also pay a fee for the access to info - and to basically NOT have to do much thinking. The minute you let someone else run things -- your interest drops just about to zero. The next time you have any interest is when you get a statement that shows you LOST MONEY.... and all of a sudden you get REAL INTERESTED. But by then - it's too late - and they always have a reason. My point is and always will be on this issue ---- That it isn't that hard to do most of this ---- and the thread was about learning how to do it on your own because it isn't hard to figure out. If it's not worth your time -- then when your "broker" calls and advises you -- how would you know if he's right or wrong -- or even if you should say yeah "go ahead" or "no - let me look into that"?


Just sayin'.

[GregWeld]

Let me share some investment "advice" (sales pitch is a better description) from one of my brokerages I just received today as a matter of fact. And YES I actually read all the crap they send me. I like this stuff -- I have lots of time -- I'm actually pretty damn good at it too!


Listen to this drivel.... from a FEE BASED FIRM....


Focus List

Focus List Addition: Follow-on Report

• On December 17, we added Teva Pharmaceutical Industries (TEVA) to the Focus List with a Buy rating and $48 price target. Teva is based in Israel and is the world’s largest generic drug manufacturer. Consensus earnings estimates are $4.66 for 2014 and $4.64 in 2015. Our price target is based on 12x a worst-case earnings estimate of $4.00 per share for 2015.

• Teva is dealing with drug patent expirations, revenue concentration, an abrupt CEO resignation, Israeli tax issues, and a questionable growth trajectory.We believe current levels offer an attractive entry point for patient, contrarian investors.We believe Teva’s problems are well understood and that the stock should outperform once we pass the generitization of Copaxone―Teva’s largest drug at 60% of operating profits. Our $4.00 worst-case 2015 EPS estimate assumes a 60% loss of the Copaxone franchise while taking into account Teva’s ability to cut costs and restructure.

• Jeremy Levin recently resigned as CEO, due to what we believe was a board-level fight over his strategic plan. We feel that Chairman of the Board Philip Frost has been the de facto head of the company for some time and provides continuity. Mr. Frost is one of Teva’s top shareholders, and we feel his interests are aligned with those of other shareholders.

• The Copaxone patent expiration is a serious challenge for Teva and a risk to Street estimates. We believe that the bear case has been priced into the stock, and realistic worst-case earnings will be closer to $4.00 and any pullback in the stock will be short-lived. The extent of the threat to the Copaxone franchise should become clearer in May 2014, and clarity should alleviate pressure on valuation. We believe investors have already assumed the bear-case and we recommend positions be built as the company takes steps to reduce costs and reposition itself for future growth.

• Investment risks include revenue loss due to patent expirations, failure to get FDA approvals for new drugs, and other regulatory, operational and financial risks resulting from the global nature of Teva’s business.

Share price at time research report was published: $40.26 (1/02/2014 closing price); Share price at time Week in Review was published: $39.88 (1/03/2014 closing price)



So here's what I got out of reading this:


They are GUESSING that maybe the price will grow to a particular number... big whoop. I hope ALL of my stocks GROW -- if I didn't think they would -- I wouldn't have bought them!!


This is a drug company -- they a have SINGLE product which they are relying on for 60% of their sales!!! Which is about to EXPIRE.

TEVA is a CONTRARIAN investment -- that means that everyone else is WRONG and you're eventually going to be right -- because CONTRARIAN means you're betting against the grain! BETTING ='s GAMBLING. I'm betting everyone else is WRONG -- I'm going to buy low because nobody else wants the stuff --- and I'm hoping they're wrong and I'm right, and I'm going to be a winner. Ya know what? I think the same way when I'm buying a lottery ticket ---- the other 15 million people buying are suckers and my $2 ticket is the winner. So far - I haven't won. CRAP. Oh well.... maybe next time.


That last paragraph is legal mumbo jumbo telling you that when you follow the advice of this broker -- he might just be wrong -- BUT HEY! He told you it was risky so hold on to your hat sucker!



THIS IS THE KIND OF BULL CRAP YOU GET FOR YOUR 2% FEE..... I read it and toss 99% of it in the trash.

[GregWeld]

Now -- here's another absolute NO NO -- don't let me catch ANY OF YOU investing ANYTHING with one of these INDEPENDENT FINANCIAL ADVISORS!!

So help me gawd -- I'll find out and I'll track you down and feed you thru your carburetor!! LOL


Seriously -- this butthole -- is doing 10 years in the Federal Correction facility in Sheridan Oregon... he WAS a big time car collector. He bought one of my '67 Corvettes... the one I frequently post photos of (because I actually had digital pics of it!).... and he had at least 40 or 50 cars!

When I would talk to him at our NCRS meetings -- I KNEW the guy was a phony!!! I told everyone I knew that he was a phony! You know what? People accused me of being "jealous" because he had more cars than I had - and probably more money too! Okay ---- some of these aholes invested with the guy... I'm good with that -- they lost and I'm still on the right side of a prison wall.



http://www.bizjournals.com/portland/...31/story4.html

[protour73]

no....really? just sayin?

The fact that you aren't doing this as a hobby, or something that you are just "trying it to see what happens, and I'll let you know"...... and have really been at this for a long time, sure merits listening to what you have to say.

You care enough to share your real life experience and give folks the chance to glean the pearls of wisdom and hopefully apply them to their own situation

I hope the folks new to this thread keep that in mind

Originally Posted by GregWeld

Just sayin'.