Just One Man's Opinion - 02 July 2005
by JMac
I am constantly amazed at my peer group's (professionals) lack of basic investing tools. I have been investing since college (1966) have made money have lost money, but managed to put four people (including myself ) through college AND law school by following some SIMPLE rules that, when I discuss with my peers, seems to surprise them. Warren Buffet I am not, but I am an existentalist investor and facts are my best friend, what is.... is.
A long those lines I recommend the following UNoriginal rules to investing, also believing in KISS (keep it simple stupid)
Questions:
Are you a day trader? if so STOP here
Do you know your investment goals? if not STOP here
Do you have 1yr in living expenses in a liquid money market ? if not STOP here
Can you afford to invest 25K and wait 3-5 years? if not STOP ( if you have less than 25k to invest see mutual fund section below) if not STOP here
Do you want to get rich quick? if so STOP here
Do you have life insurance or annuity equal to 3 years of your current income? if not STOP here
Will you spend 1-2 hours a week reading IBD, Barrons and the WSJ? they are free on-line and at your local library
If you are still with me then here we go:
The trend is NOT your friend- do not be a momentum player
Forget "technicals analysis "like" double tops, inverted W's", etc., it is all mumbo jumbo. Market technicians know as much as you do as to what the market's next move will be. They rank up there with pyschic detectives and FBI profilers.
Do your own trading on-line, it is cheap and why pay for brokers' advice when you have access to the same info they do AND a lot of them are simply market makers? ( several years ago I had a small account at A.G. Edwards, one day a broker called me and spent 15 mins. on the phone touting Continental Illinois, "great loan potfolio, great yield" yada yada. The next Sat I went to library and read a small blurb in IBD that the Comptroller was putting their loan portfolio "under review" shortly after that: POOF!! they cratered and I closed my account, fortunetly I had not followed my broker's advice).
Do not chase the new hot IPO
Do not chase the new "cancer cure"
Be diversified, but in doing so you WILL have dogs, when they lose their fundamentals cut your losses
Understand BROAD fundamentals, e.g. for months now Larry Kudlow of CNBC (who I like personally) has been pooh poohing the affects of high oil prices on the market, stating that energy is now a much smaller percentage of GDP than in the 70's... well that may be true, but this market, at least certain stocks in this market, are psychologicaly and fundamentaly sensitive to oil at certain breakpoints. You can fight the tape, but not fundamentals. This market now looks to the price of oil almost more than it does interest rates, and next year it will look to congressional elections.
Forget your brother-in-law's "tips". A few years back a very good friend and tennis partner had taken a new job in Houston with an energy conglomorate which he said was going to be the "Standard Oil of the 21st century". He moved to Texas, put all his 401k and his grandmother's money in the stock...well, I guess by now you know the "rest of the story". His grandma no longer speaks to him, he is living with his parents in Miami............. (Ohio) and selling meat door to door. (He got"LAYed").
If you do not understand a company or its business, forget it.
Avoid bonds, in the long run the market will outperform the bond market and if you are diversified you will too, BUT there are a few junk bond funds out ther with consistent returns that you should consider. Remember: a junk bond (high yield) in a company is safer than the common stock as bond holders get paid first (unless issued by Donald Trump maybe)
Do not be a pig...take a profit once in a while. When in college I bought a stock at $9, sold it nine months later at $15.50 to buy somthing I really didn't need. Well, it eventully went to $28, boo! hoo!.....so what? I got over it.
MUTUAL FUNDS
In my current personal situation, with the exception of a few shares of common stock I inherited, all my funds are in mutual funds including my IRA' s and my wife's 401k. It is the lazy man's investment vehicle, although I still spend 1-2 hrs reading IBD, Barron's and WSJ and somtimes ValueLine.
For full disclosure we own Vanaguard S&P 500, Vanguard Total Market Index, Dodge & Cox Stock, and a variable rate annuity with international and small cap indexes.
Hard and fast rules: Do not buy a fund with a load ! Avoid funds with an expense ratio of more than 1%
Read John Bogle's books (at least two) on mutual funds. This guy will never lie to you, and he knows where the bodies are buried.
Look for funds with consistent 10 year growth in total return and a manager with 5 or more years with the fund
If you are happy with your selections : set it and forget it! Review every 6 mos, but do not watch its daily quotes
Make sure you have at least 10% of you total holdings in DIVERSIFIED international funds
Look for funds with Morningstar Ratings of 4 stars or more for at least the last 5 years
I am constantly amazed at my peer group's (professionals) lack of basic investing tools. I have been investing since college (1966) have made money have lost money, but managed to put four people (including myself ) through college AND law school by following some SIMPLE rules that, when I discuss with my peers, seems to surprise them. Warren Buffet I am not, but I am an existentalist investor and facts are my best friend, what is.... is.
A long those lines I recommend the following UNoriginal rules to investing, also believing in KISS (keep it simple stupid)
Questions:
Are you a day trader? if so STOP here
Do you know your investment goals? if not STOP here
Do you have 1yr in living expenses in a liquid money market ? if not STOP here
Can you afford to invest 25K and wait 3-5 years? if not STOP ( if you have less than 25k to invest see mutual fund section below) if not STOP here
Do you want to get rich quick? if so STOP here
Do you have life insurance or annuity equal to 3 years of your current income? if not STOP here
Will you spend 1-2 hours a week reading IBD, Barrons and the WSJ? they are free on-line and at your local library
If you are still with me then here we go:
The trend is NOT your friend- do not be a momentum player
Forget "technicals analysis "like" double tops, inverted W's", etc., it is all mumbo jumbo. Market technicians know as much as you do as to what the market's next move will be. They rank up there with pyschic detectives and FBI profilers.
Do your own trading on-line, it is cheap and why pay for brokers' advice when you have access to the same info they do AND a lot of them are simply market makers? ( several years ago I had a small account at A.G. Edwards, one day a broker called me and spent 15 mins. on the phone touting Continental Illinois, "great loan potfolio, great yield" yada yada. The next Sat I went to library and read a small blurb in IBD that the Comptroller was putting their loan portfolio "under review" shortly after that: POOF!! they cratered and I closed my account, fortunetly I had not followed my broker's advice).
Do not chase the new hot IPO
Do not chase the new "cancer cure"
Be diversified, but in doing so you WILL have dogs, when they lose their fundamentals cut your losses
Understand BROAD fundamentals, e.g. for months now Larry Kudlow of CNBC (who I like personally) has been pooh poohing the affects of high oil prices on the market, stating that energy is now a much smaller percentage of GDP than in the 70's... well that may be true, but this market, at least certain stocks in this market, are psychologicaly and fundamentaly sensitive to oil at certain breakpoints. You can fight the tape, but not fundamentals. This market now looks to the price of oil almost more than it does interest rates, and next year it will look to congressional elections.
Forget your brother-in-law's "tips". A few years back a very good friend and tennis partner had taken a new job in Houston with an energy conglomorate which he said was going to be the "Standard Oil of the 21st century". He moved to Texas, put all his 401k and his grandmother's money in the stock...well, I guess by now you know the "rest of the story". His grandma no longer speaks to him, he is living with his parents in Miami............. (Ohio) and selling meat door to door. (He got"LAYed").
If you do not understand a company or its business, forget it.
Avoid bonds, in the long run the market will outperform the bond market and if you are diversified you will too, BUT there are a few junk bond funds out ther with consistent returns that you should consider. Remember: a junk bond (high yield) in a company is safer than the common stock as bond holders get paid first (unless issued by Donald Trump maybe)
Do not be a pig...take a profit once in a while. When in college I bought a stock at $9, sold it nine months later at $15.50 to buy somthing I really didn't need. Well, it eventully went to $28, boo! hoo!.....so what? I got over it.
MUTUAL FUNDS
In my current personal situation, with the exception of a few shares of common stock I inherited, all my funds are in mutual funds including my IRA' s and my wife's 401k. It is the lazy man's investment vehicle, although I still spend 1-2 hrs reading IBD, Barron's and WSJ and somtimes ValueLine.
For full disclosure we own Vanaguard S&P 500, Vanguard Total Market Index, Dodge & Cox Stock, and a variable rate annuity with international and small cap indexes.
Hard and fast rules: Do not buy a fund with a load ! Avoid funds with an expense ratio of more than 1%
Read John Bogle's books (at least two) on mutual funds. This guy will never lie to you, and he knows where the bodies are buried.
Look for funds with consistent 10 year growth in total return and a manager with 5 or more years with the fund
If you are happy with your selections : set it and forget it! Review every 6 mos, but do not watch its daily quotes
Make sure you have at least 10% of you total holdings in DIVERSIFIED international funds
Look for funds with Morningstar Ratings of 4 stars or more for at least the last 5 years
posted by TandaPundit at 12.7.05
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