Saving/Investing

[CyniQ]

That's exactly the problem bob. The continuing education required to keep up with the markets. Buy and Hold is slipping by the wayside. If you want to be successful in stocks nowadays you've got to keep an eye on the trends. It's almost more trouble than it's worth. That's precisely what drove me to real estate, and self-employment in a sense. I don't want to be sitting in the corner of the homeless shelter mumbling incoherently about those bastards at Merrill Lynch.

Hogg, the problem with your idea is that most people simply dont have the desire or inclination to learn how to invest for themselves. The amount of reading and research is too much for most people, plus it can be a very dry subject that doesnt hold peoples attention for great lengths of time. This is why a good investment guy can be invaluale. But therein lies a problem of finding a good one.

For most people, I think mutual funds are the best route.

 

[Bob Smith]

Real estate is where I would ultimately like to have a large portion of my investment money. Commercial properties whether warehousing, apartment buildings, office buildings. There are many advantages to RE investing.

 

[Hogg]

Hogg, the problem with your idea is that most people simply dont have the desire or inclination to learn how to invest for themselves. The amount of reading and research is too much for most people, plus it can be a very dry subject that doesnt hold peoples attention for great lengths of time. This is why a good investment guy can be invaluale. But therein lies a problem of finding a good one.

For most people, I think mutual funds are the best route.

I agree with you BS. They are still passive investment vehicles though. As far as using a broker, the downside is the cost of your trades and for that matter, placing your trust in someone who you dont know from Adam. Its an old portuguese belief that you trust no one with your money other than yourself

The guys from Merryl Lynch come in bi-annually to talk about our 401k and its a joke because they push lame methods like dollar/cost averaging and no load funds that have shitty performance. One of the guys here blindly followed ML's advice and lost $ 10K of his own money in a year. In my opinion, thats what he gets for not committing the time and effort to his investments. Not everyone is going to make money in the market, someone has to lose. When the plane runs out of gas, there will be a herd of people on board who will ride it to the ground. Were they smart enough to check the maintenance records before boarding the plane, they would not have suffered the loss.

 

[Hogg]

That is not entirely true. Why is that not true? I will share with you a few key principles of the world-reknowned billionaire, Warren Buffett:


1.) Margin of safety.

2.) Patience.

3.) Discipline.

Buy and Hold does not slip if you buy at a discount to intrinsic value. The problem is, there are few issues on the street that meet the criteria right now. However, if you are following the current correction, there will be a few good deals to snap up ....and I'm not talking about techs either. I started buying a radiator and heat exchanger company at a 50% discount to its book value. I have made 41% on my initial investment and 21% on the next batch of shares that I picked up....since December. Mind you, this is not a high-flyer stock.....daily volume is 10K or less.....but the company is worth more in terms of break up value than it trades at.....and there are only 70MM shares on the street so there is no way that the ownership will be unseated in a takeover. THAT is a homerun.

That's exactly the problem bob. The continuing education required to keep up with the markets. Buy and Hold is slipping by the wayside. If you want to be successful in stocks nowadays you've got to keep an eye on the trends. It's almost more trouble than it's worth. That's precisely what drove me to real estate, and self-employment in a sense. I don't want to be sitting in the corner of the homeless shelter mumbling incoherently about those bastards at Merrill Lynch.

 

[CyniQ]

What method for determining intrinsic value do you support? How do you apply value to intangibles such as patents, goodwill, etc.?

That is not entirely true. Why is that not true? I will share with you a few key principles of the world-reknowned billionaire, Warren Buffett:


1.) Margin of safety.

2.) Patience.

3.) Discipline.

Buy and Hold does not slip if you buy at a discount to intrinsic value. The problem is, there are few issues on the street that meet the criteria right now. However, if you are following the current correction, there will be a few good deals to snap up ....and I'm not talking about techs either. I started buying a radiator and heat exchanger company at a 50% discount to its book value. I have made 41% on my initial investment and 21% on the next batch of shares that I picked up....since December. Mind you, this is not a high-flyer stock.....daily volume is 10K or less.....but the company is worth more in terms of break up value than it trades at.....and there are only 70MM shares on the street so there is no way that the ownership will be unseated in a takeover. THAT is a homerun.

 

[Hogg]

What method for determining intrinsic value do you support? How do you apply value to intangibles such as patents, goodwill, etc.?

I'm not a fan of seeing goodwill on the balance sheet and many companies do not carry the line item.

Obviously assessing tangible assets is the first step. I then look at the company's debt, I look for no preferred ahead of the common, consistent earnings or if there is a dip in earnings, I look for a cataclismic economic condition. If I find something major, for example, that the whole country fell into a recession, I do not hold it against the company providing that they reduce G&A accordingly. Thereafter, I will look at the book value and price to earnings in relation to their industry peers and also look at the number of shares held by insiders as well as the number of shares on the street. A situation that you do not want is one like Cisco where they give options out like paper clips and thus dilute shareholder equity.

Buffett looks at 'owner equity' which takes plant and property out of the equation; he likes to see a company use its cash wisely and tends to buy discounted future cash flows. I've not used that method yet, I tend to look at the method that I mentioned earlier.

 

[crewboss]

Yes, I agree with you during times of volatility. But not as a regular investment vehicle, like the example of my grandma. Short term push towards short-term bonds is fine.

sometimes even when we invest well, we also forget to avoid taxable transactions at all costs. this is what makes speculation very tough to be successful at. if you've made a good investment and withdraw funds regardless of the purpose, capital gains will kill you. of course methods differ from investor to investor, but i try not to turn over often, if at all because taxable events will kill profit.

also the best benefit of the Roth is to 1st time homebuyers. An investment set up in a Roth is 100% capital gains free if the fund's proceeds are executed in a down payment on a 1st home. so if your exit strategy is a year or more and you have cash that you want to eventually use as a downpayment for a house, there's no better vehicle than a Roth..

 

[Hogg]

Good post CB, I didnt know that the Roth had that flexibility.

 

[hardcore210]

Hardcore, I am actually very much against ULs and similar products. I think they are complete and total shit. If anyone has one, I recommend they get rid of it.

BTW, Im not longer in insurance. I quit about a month ago.

This could also be another great topic of discussion, as very few people have any real idea about insurance.

I totally agree w/you there. I was a financial professional up until 2 months ago, and it used to make me sick how the company structured commission schedules, incentive bonuses, and excessive marketing on products that sucked from a client's perspective. Most insurance co's push hard on ULs & VULs and shy away from better investment vehicles. I didn't figure you'd be much of a fan, especially since you seem like an honest guy....but I had to give you a hard time! BTW, what type of job did you end up taking?

HC210

 

[Bob Smith]

I totally agree w/you there. I was a financial professional up until 2 months ago, and it used to make me sick how the company structured commission schedules, incentive bonuses, and excessive marketing on products that sucked from a client's perspective. Most insurance co's push hard on ULs & VULs and shy away from better investment vehicles. I didn't figure you'd be much of a fan, especially since you seem like an honest guy....but I had to give you a hard time! BTW, what type of job did you end up taking?

HC210

Good to hear your opinion on UL products. They are totally set up to benefit the company and agent, certainly not the client. But the agents tell clients that they are the best product since the invention of insurance. IMO, they are nothing more than a scam.
I am a sales rep for a sports supp company now.

The ins company I used to work for didnt sell UL products, which is a good thing. When I left, my commission on WL products was 65%, and term was something like 35%.

 

[KTCKSports]

Good post Bob. So many people don't realize the cost of borrowing versus savings. You may be surprised how you can over time turn $20,000 into $500,000. If you wanted to borrow $20,000 then you may have to pay back $30,000. I don't have my financial calculator handy so these numbers are only estimates but you catch my drift.

Have a nice day
K-

I decided that its about time we gave this topic a thread of its own, instead of burying it in an unrelated thread.

I was leafing through the paper today and came across a little review about a new book coming out. It is "We're Not in Kansas Anymore" by Walter Updegrave. From the little bit it says about his philosphy, it closely mathces my thoughts on savings. Here is what the blurb said

"Book debunks excuses for not saving

I dont make enough money to save
Thoughout history, there have been rich people who have spent everything they own and poor people who manage to save enormous amounts. Savings means discipline. Begin by putting aside small amounts each month.

I can get started later
The problem is that "later" never seems to arrive. Start today. Compounding interest helps those who start early.

I want to spend my money now
Money does not mean happiness and retiring is not just sitting around the house.

My family as never saved
Updegrave is sympathetic but says saving is a choice that anyone can make. The choice is yours. Updegrave urges people to begin saving as early as possible."

I emphasized "excuses" in the title of the article because thats what all these are. They arent reasons, they are excuses.

One note on my personal views. I believe that saving and investing are two different animals. The terminology is often used interchangeably, when they each should realy denote different viewpoints. Saving is putting money in the bank. Its very liquid, doesnt accrue much interest and is perfect for having on hand in case of future emergencies, job loss, etc. Investing is about higher returns and growing your wealth exponentially rather than geometrically (savings). Income-generating real estate, mutual funds, stocks, and some other vehicles are investing.

 

[jdog dude]

Bob Smith

Bob Smith,
What reading material would you advise for someone to learn about investing?The only investing that i have done is the 401k at work,which i have maxed out the last 6 years.The 401k is with Fidelity which has a wide range of funds and would like to figure out what funds suite me best..


Thanks

jdog

 

[Bob Smith]

Im not all that familiar with research on mutual funds. A prospectus is a decent place to start.

I just brought my investing books back to the library and I forgot who wrote them. Hogg knows, as he was the one that recommended them to me.

 

[crewboss]

Im not all that familiar with research on mutual funds. A prospectus is a decent place to start.

I just brought my investing books back to the library and I forgot who wrote them. Hogg knows, as he was the one that recommended them to me.

Check out Morningstar, Lipper & Hoover's. They set company benchmarks, it's good to be familiar w/ their rating systems. Best bet is their websites.

Also some great gurus to listen to. These guys have forgotten more about personal finance than I'll ever know.

Bob Brinker (680am 4pm ed in boston, not sure what time elsewhere)
Bob Glovski (1060am 10am ed in boston)
Chuck Jaffey (1060 11am ed in boston)

 

[Hogg]

Morningstar is good.....S&P spins reports on mutual funds too.

A totally passive investor would look for a mutual fund with low volatility, low fees, and perhaps a deferred sales charge (which diminishes to 0 if you hold it long enough), and consistency in earnings. Low risk is the only way to go if you are not going to put a lot of time into your portfolio. The downside is that a low risk, low volatility fund will also have low gains in bull runs whereas growth funds will typically explode.

Also, WRT the no load vs deferred load fund, if a fund is totally no load, the money has to come from somewhere to pay the managers and typically, that money will then come in the form of higher fees. A deferred sales charge is often a better way to go since you will be holding for the long haul anyway.

The other option is of course index funds but when you watch the volume of trading in a bull run, there will be movement from sector to sector within the S&P or DJIA such that again, low volatility results in lower gains. What I mean by this is, right now, finance stocks are representing larger and larger portions of indexes as investors are finding shelter in bank stocks. Consequently, techs are lagging. When the market shifts to a boom period, you might see a selloff in finance stocks and a run back to techs. Finance stocks will plummet while techs will boom, yet the overall change in the S&P will be mediated because the movement will occur within the index - sort of moving from one to the other, which means an explosive period of growth in tech will nto necessarily be an explosive period of growth in the index....that is the problem with index funds. Mutuals on the other hand have the flexibility of weighting the fund toward growth sectors or moving back to bellwethers in times of risk...and they usually have a writer in there to play some internation issues as well thus having greater flexibility to make money than a manager who is responsible for holding an index. Now the index will have lower turnover and thus a lower tax consequence but if your holdings are sheltered in a traditional IRA, 401k, or 403b, you dont care because you arent paying cap gains. The downside is the trading expense and this increases a fund's G&A but then again, I'd rather pay a higher management fee to see a fund manager protect my holdings than to simply watch an index take a bath.

So there are multiple arguments here in terms of which fund is the right way to go.

 

[Dowstrategy]

Investing

As might be evident from my name; I am an investment professional (fee based no comissions) I have read this thread thru and seen some very good advice, some very bad advice, and a lot of opinion. Please realize I am not crtizising just commenting. Invetments area very very personal thing. What one person sees as perfect for investment smells like dead fish to another. Generalizations are very difficult. My clients laugh when they ask what they see as a simple question and it takes 10 min to answer which then leads to 3 more questions. I plan on being on this board regularly and would like to continue to comment and read on this topic. I am considered an expert in tax free bonds, and bonds in general. Look foreward to some interesting discussions.

Regards.
Dowstrategy

 

[thick]

fire away with some opinions and get the arguments flowing lol. welcome to meso

As might be evident from my name; I am an investment professional (fee based no comissions) I have read this thread thru and seen some very good advice, some very bad advice, and a lot of opinion. Please realize I am not crtizising just commenting. Invetments area very very personal thing. What one person sees as perfect for investment smells like dead fish to another. Generalizations are very difficult. My clients laugh when they ask what they see as a simple question and it takes 10 min to answer which then leads to 3 more questions. I plan on being on this board regularly and would like to continue to comment and read on this topic. I am considered an expert in tax free bonds, and bonds in general. Look foreward to some interesting discussions.

Regards.
Dowstrategy

 

[KTCKSports]

Hi,

It depends on what your needs are. Anyone that tells you that you can time the market isn't worth listening to. I would suggest invest long term in an index fund because al though the stock market has been volitale short term, the same cannot be said for long term. The stock market on average has grown an average of around 9% over the past 50 years or so and index funds are very represenative of the market. I would look into the Vangaurd Index fund.

A great book I have read is by Burton Malkiel entitled "A Random Walk down Wall Street". It was first published in the early 70's but it is currently on its 8th edition I believe and the book is basically the same since its inception except for providing up to date info on current conditions.

Have a nice day
K-

Bob Smith,
What reading material would you advise for someone to learn about investing?The only investing that i have done is the 401k at work,which i have maxed out the last 6 years.The 401k is with Fidelity which has a wide range of funds and would like to figure out what funds suite me best..


Thanks

jdog

 

[crewboss]

Hi,

It depends on what your needs are. Anyone that tells you that you can time the market isn't worth listening to. I would suggest invest long term in an index fund because al though the stock market has been volitale short term, the same cannot be said for long term. The stock market on average has grown an average of around 9% over the past 50 years or so and index funds are very represenative of the market. I would look into the Vangaurd Index fund.

A great book I have read is by Burton Malkiel entitled "A Random Walk down Wall Street". It was first published in the early 70's but it is currently on its 8th edition I believe and the book is basically the same since its inception except for providing up to date info on current conditions.

Have a nice day
K-

Vanguard is a great family. Switched out of Janus Global Tech a while ago with the huge fallout over there, and into Vanguard Capital Opportunites, very happy w/ it. They're index funds are great too.

 

[Bob Smith]

Hi,

It depends on what your needs are. Anyone that tells you that you can time the market isn't worth listening to. I would suggest invest long term in an index fund because al though the stock market has been volitale short term, the same cannot be said for long term. The stock market on average has grown an average of around 9% over the past 50 years or so and index funds are very represenative of the market. I would look into the Vangaurd Index fund.

A great book I have read is by Burton Malkiel entitled "A Random Walk down Wall Street". It was first published in the early 70's but it is currently on its 8th edition I believe and the book is basically the same since its inception except for providing up to date info on current conditions.

Have a nice day
K-

Ahh...a book about the EMF (efficient market hypothesis). The debate will be ongoing, but overall I think it makes quite a leap in terms of relevance and accuracy, particularly the semi-strong and strong variations. Just as a single example, if the hypothesis were true, then Warren Buffet wouldnt be a billionaire and his methods would be bunk. I can cite other reasons opposing the hypotheses, but choose not to do so at the moment. IMO, its crap. And as the Random Walk is similar in ideas, so I think thats crap too.