Broken Arrow: Sound familiar?

[Scanner]

JimOhio,

That's what I am doing more or less - taking a more active role in my portfolio and thinking beyond the "stock/bond" portfolio.

R.I.P. standard stock/bond portfolio.

I sold off my JAOSX (for now) and I'm going to buy REZ today with the money and "think" about your healthcare assessment and whether the market risk is worth it (consider the downside risk).

I read an article the other day on one of the major websites (I think yahoo). NOt sure how credible the article is but according to the author, Uncle Warren Buffet says we need about 1,000,000 new residential homes per year but had a surplus of about 1.5 million. . .with the economic declline, we are building only 500,000 new homes/year (his assessment seems to validate my empiricical observattion).

Anyhoo, Uncle Warren is predicting residential real estate will return to a profitable industry within 2 years, where demand is matching supply more or less. I'm sure the returns won't be astronomical but I think this is a good place to park my money.

[Broken Arrow]

I would say our American population has perhaps grown geometrically but not exponentially the last 100 years (the world probably grew at a faster clip.) Besides, the stock market is about businesses, not people. Has American business exponentiated? hmmm. Maybe.

But... population growth and population demand doesn't have to be joined at the hip. Even if population growth is linear or goes flat, it doesn't necessarily translate to linear rather than exponential stock market growth. And either way, it's still growth.

I am not sure what the standard of living has to do with stock market growth. I think that has more to do with the rise of cheap oil/energy.

Maybe this isn't the best example, but not everyone has a car, TV, or even a cellphone. Perhaps they would like one, but they haven't had the spare cash to buy it until recently. The Chinese market is a classic example of this. This isn't theory, it's exactly what's happening right now.

what if you, A Centrist Pundit, told someone in 1999 to buy a 2020 Target Fund?

Now. . .it's 2009 and that theorectical person, suffering at the hands of savingadvice mainstream, centrist advice

Why do I feel like you have a stick against me, like I represent this evil machined system called "The Centrists". Dude, I'm just another guy on the internet trying to figure out the world the best I can.

And anyway, you're still cherry-picking a time period, a period that suits your own argument.

I've already stated that the stock market is volatile, and I've even warned others in the past (and on this forum) that you can't always rely on stock market growth, and hence, need to diversify properly. DIVERSIFY.

The portfolio is buying high (in 1999) and selling low (today) to buy bonds, which will probably only go lower.

This again is using hindsight to cherry-pick a time frame that suits your argument.

The answer is I think they'll be lucky to break even in 2020, maybe make 2-5% if bonds rally in late part of the next decade.

Perhaps it's an answer you believe in, but we won't know that for sure until we reach 2020.

Or am I just extrapolating a time period to make a point? Cherry picking?

Yes.

They didn't even outpace that worrisome bug you all worry about - inflation

I never said bonds in general would out-pace inflation. I don't know anyone that has said that, and if someone did, they are grossly misunderstanding the nature of bonds.

Now, inflation-protected bonds like TIPS, yes, they will keep pace but not out-pace inflation. And no, I'm not worried about those at all.

Look. . .all I am saying is that I think we need to evolve beyond the stock/bond portfolio we continually advocate here if the stock market is going to be up 50%, down 40%, up 60%, etc. There's nothing to justify that kind of erratic behavior.

Yeah, I'm all for evolving and thinking outside the box. That's why I advocate so strongly for index funds, because believe it or not, and only a few decades ago, that was exactly the position index funds were in.

But I wouldn't go so far as to say that investing and even trading in stocks and bonds automatically translate to erratic behavior. I've never understood why you feel this way.

There's something vehweee skawoowee goin on.

Indeed....

[Scanner]

BA,

It's nothing personal. You are just the personification of "da' man" in my mind. IF it weren't for you, who else would a contrarian with contrary ideas have to be contrary with, LOL?

I disagree with using China explosive population growth and correlating that with an economic rise. One does not have to do with the other.

It's like the rooster taking credit for the dawn. China could very well be in the sewer if it hadn't relaxed it's socialist policies.

And I don't recall index funds ever being so volatile.

My point on the target fund example is, okay, yes, you think I am cherry picking but you would agree even if your time frame is 30 years, you will only have a limited time where the majority of your portfolio is in stocks and then it has to be bonds (unless you take my ultra-aggressive position that I read once of a 85 year old 100% in stocks). As you get older, theorectically, you are selling 1% of your portfolio of stocks, taking the proceeds, and buying 1% with bonds, right? (if you use the 100 - your age = % stocks model).

I mean, you will eventually be out of stocks, no, BA?

So, every year 1% of your portfolio is a loss. Are you okay with this? Is it good business or investing to sell at a loss?

[Scanner]

PS: I have these "graduate level" discussions (although I am only a college senior here, lol) because I do think when advsing people here that we present a semi-unified front.

I don't think it's best that a contrarian constantly say, "No. . .buy gold and silver. To hell with the stock market" when a 35 year old divorcred mother comes to us for investing advice.

I try to reserve this for the more "graduate level" participatns here.

[disneysteve]

I mean, you will eventually be out of stocks, no, BA?

I don't know about BA but I don't expect to ever be 0% stocks. I don't buy the 100-age formula. I think even retirees need some money in stocks to help protect against inflation. And this isn't a new idea. For decades, utilities and other dividend-paying stocks were widely held by the elderly. The old AT&T is probably the classic example of a grandmom stock.

My mom is 79 and owns a stock mutual fund and several individual stocks. I don't see her getting rid of those things anytime soon if ever. I've spoken with other older relatives and they all own stocks, too.

[Broken Arrow]

It's nothing personal. You are just the personification of "da' man" in my mind. IF it weren't for you, who else would a contrarian with contrary ideas have to be contrary with, LOL?

Heheh, well ok, I can understand that. Although, I have to say I may not be the best example of a mainstream investor. Investment-wise, I'm willing to go just about anywhere. And in many ways, I am also contrarian....

Actually, I don't even see myself as mainstream or contrarian anymore. All that I am looking for now is the correct answer. Whatever it is, regardless of what labels come with it, that's what I'm going to go with.

I disagree with using China explosive population growth and correlating that with an economic rise. One does not have to do with the other.

No, I didn't correlate the population growth with economic rise in this case. But yes, China did relax its economic policies and started to experiment with their form of capitalism. That and they were able to leverage their cheap labor to sell to us eager Americans.

Regardless, the result is still the same: A growing consumer base with money to spend.

And I don't recall index funds ever being so volatile.

Uh, I think there's a miscommunication with this point. I didn't point to it in terms of volatility. I pointed to it because, once upon a time, it was an extremely radical notion that, to this day, it still meets resistance. On the surface, it really does seem radical if not almost counter-intuitive. I mean, how could some arbitrary funds on mostly auto-pilot net roughly the same performance as funds being managed by professionals?

My point on the target fund example is, okay, yes, you think I am cherry picking but you would agree even if your time frame is 30 years, you will only have a limited time where the majority of your portfolio is in stocks and then it has to be bonds (unless you take my ultra-aggressive position that I read once of a 85 year old 100% in stocks). As you get older, theorectically, you are selling 1% of your portfolio of stocks, taking the proceeds, and buying 1% with bonds, right? (if you use the 100 - your age = % stocks model).

I mean, you will eventually be out of stocks, no, BA?

So, every year 1% of your portfolio is a loss. Are you okay with this? Is it good business or investing to sell at a loss?

This part, you're describing rebalancing strategies based on one's horizon, which I am OK with. Arbitrary rebalancing strategies help to mitigate one of the most important risks in investing: Investor risk. Also, you're due to the arbitrary nature, it's not cherry-picking.

As for taking a loss... there's no guarantee that by the time you rebalance, there is going to be a performance loss. You could end up with a performance gain as well. Or it could stay flat....

But yes, eventually, I may be out of stocks entirely. That's not going to happen anytime soon though, as even when we retire, it's possible for us to live another 30 years into retirement. That's a long time, and without earned income to support us, it becomes even more important to manage our portfolios wisely. So, ask me again when I am at least 70.

[Scanner]

DisneySTeve,

Noo. . .I guess you are right. Unless you become a centurian, you would always be at least 1% in stocks if you follow the Magic Formula (some say 110 - age but that was prior to this crash/correction).

But I would think you and BA would at least see the spirit of what I am trying to say.

Between ages 40 and 60, (some earlier), most people are aggressively investing. . .if something lifechanging isn't happening (ahem. . .like a divorce). BA is saying you must look beyond 10 years, maybe 20 or beyond.

When I am saying that that is the time you aren't only buying stocks, but by virtue of automatically rebalancing, you are selling too and going into bonds.

You could be selling at a loss if you are "buying, holding and 'rebalancing'", which rebalancing is really just another way of saying "taking a profit on a certain part of your portfolio."

Ah. . .I don't know what I am saying any more. NOw I am confused and lost.

You all befuddled me.

LOL.

[kv968]

Sorry to befuddle you more, but what the hell...let me jump into the fray with a few observations...

Scanner, I love to hear your take on things (might not always agree, but like to hear it nonetheless). However the thing I can't understand is why do you have to be so "all or nothing"? For example, with your Janus fund...it's up ~100%. Why abandon it totally and not just take your original investment and let the "other's people money" ride as Jim suggested? Hell, why not MOST of the money out but leave a little in just because you never know? (Or maybe you do and if that's the case, please let us in on it )

I make moves now more on downside risk vs, upside potential (except silver - I admit I a bit emotional on that )

I find it funny that you say that because to me it seems as if you do that very well with the individual funds you look to get into but I don't think you apply that same "downside risk" notion to your entire portfolio. Again, I'm no pundit who's going to say..."oh have x% stocks/ y% bonds" but having your money in 2 or 3 sectors or classes doesn't sound very risk aversive to me.

And I'm not knocking your silver because to tell you the truth I've been giving a good look lately myself. Although I've been actually looking at it as a short-term trade rather than a buy-and-hold. Which brings me to your observation that the market is currently "up 100% one year, down 60% the next year, down 30% the following, back up 50%". That's true, and I don't know if that's your rationale for not getting back into the stock market, but holding silver hasn't been much less of thrill ride either as of late...






Looks pretty volatile to me recently. And if you notice, not saying that it means anything, but look at when the volatility really started. Say around 2006? When did the SLV ETF come into play? Ah yes conspiracy abound So maybe it would be best if you looked into taking a little off the top of that baby too regardless of how attached you are to it.

[Broken Arrow]

Between ages 40 and 60, (some earlier), most people are aggressively investing. . .if something lifechanging isn't happening (ahem. . .like a divorce). BA is saying you must look beyond 10 years, maybe 20 or beyond.

When I am saying that that is the time you aren't only buying stocks, but by virtue of automatically rebalancing, you are selling too and going into bonds.

You could be selling at a loss if you are "buying, holding and 'rebalancing'", which rebalancing is really just another way of saying "taking a profit on a certain part of your portfolio."

Well, maybe part of the confusion is that there is a lot of passive investment and active trading talks at the same time. And as I've mentioned before, the two are not the same at all. In fact, at times, they are as different as night and day.

With rebalancing, a classic, if not simplistic, asset allocation for someone who is 40 years old would be 60% stock, 40% bonds. Ok, if stocks gain and becomes 62% and bond becomes 38%, you just rebalance it back to 60% stocks, 40% bonds. Conversely, if bonds gain and it results in 58% stock and 42% bonds, then you... again, rebalance it back to 60/40.

Then, when you turn 45, maybe you decide that you want to dial down your portfolio. Now you've decided to have 55% stock and 45% bonds instead. Fine, then you buy and sell until you get that percentage, and each year after that, you rebalance it to maintain that percentage.

That's basically how rebalance works.

Now, when you go... say... 33% silver, 33% REIT, 33% international mutual fund or whatever, and you decide to sell that 33% international and change it to 50% silver, 50% REIT, well... that's not rebalancing. Rebalancing would be maintaining those same funds and buying, selling, and contributing to maintain that 33/33/33. No, what you're saying here is that you've decided to change the asset allocation. And not only that, but you're also saying that you're making the mother of ALL asset allocation changes.

Seriously, to me 50% commodity ETF and 50% REIT is not diversification. Maybe you don't think you're taking much risk, but you are! A lot of it! How else could you get lucky and gain 100% (or 44.2% to be exact)? Just because something isn't likely to drop to $0 doesn't mean you can't lose a lot of money still.

But anyway, I hope that helps to clarify some things.

Looks pretty volatile to me recently. And if you notice, not saying that it means anything, but look at when the volatility really started. Say around 2006? When did the SLV ETF come into play? Ah yes conspiracy abound So maybe it would be best if you looked into taking a little off the top of that baby too regardless of how attached you are to it.

Back when SLV peaked at $200 per NAV (before the 10:1 split), I remember sweeps and I were urging him to sell. I was saying to dump the whole thing, but really, shaving some off would've been fine. But uh.. he held, despite ominous warnings and the split. He rode it down all the way to $9 per NAV. I don't know what happened during this time, because he wasn't on this forum.

However, due to the inflation scare, SLV ran back up and now he's back... claiming his positions are the greatest thing ever. But... imagine how much more money he could've made if he did sell back then.... and then waited until it fell down those levels, only to buy it back up?

In fact, I could be wrong, but I think he said his buy-in price was $14 per NAV. If that is the case, then the real paper gain right now is only 6.3%....

Yeah, I'm sure I'm crossing some netiquette by pointing this out. And certainly, it's not right to speculate in hindsight either, but.... I'm just saying, SLV lost as much as it gained. It too is just as volatile as stocks. And unless inflation runs out of control-- and mind you, the Fed's current worry isn't actually inflation, but DEFLATION-- to me, this is all the signal I need to sell, if not dump the entire position.

As Scanner said though, this is an emotional position. Not knocking the guy for it because, in the end, it's his money. But! To use that and claim that his investments have doubled and that the stock market is doomed? Well, that doesn't even make any sense.

[kv968]

Back when SLV peaked at $200 per NAV (before the 10:1 split), I remember sweeps and I were urging him to sell. I was saying to dump the whole thing, but really, shaving some off would've been fine. But uh.. he held, despite ominous warning and the split. He rode it down all the way to $9 per NAV. I don't know what happene during this time, because he wasn't on this forum.

I know, I've been on here before then and I was one of the "Pundits" saying that holding a 1/3 in silver was too much also. But I understand, after a run-up like that why would anyone listen to that kind of logic?

...Until the next crash hits.

[Broken Arrow]

I know, I've been on here before then and I was one of the "Pundits" saying that holding a 1/3 in silver was too much also. But I understand, after a run-up like that why would anyone listen to that kind of logic?

...Until the next crash hits.

Oh! Oh yeah, you were here right? Yeah, I don't really keep track of people, only subject matters.

[Scanner]

No, Broken Arrow. . .you are right. I sold half of my Janus (which was 100% of my portfolio - my wife had a blue chip fund which hasn't broken even in 10 years) in 2006. . .and then I bought SLV at $13.65 (and I don't care about netiquette - it's fine to scutinize me) and then it fell to $9.00 and now it's around $16.00.

My Janus went to around 60, then to $20.00 and now I sold at 40. I beleive the ride is over for awhile.

It was the best move I could have made actually because that's the only part of my portfolio that at least has gained something in 2-3 years.

My only regret was not selling 100% of my Janus, LOL because my spider senses were right in 2006 that this was not sustainable.

I hedge my bets too much and that's my error.

But if you guys are so smart, let's pony up what you did in 2006 and how you are doing

I have been thinking of putting a bottom on the SLV rather than "taking a profit."

I am out of Janus totally as of Wednesday and now in REZ.

And my logic is I can sacrafice some amount of diversity because real estate and silver can never be worth nothing, whereas bonds and stocks can be.

Why was 1/3rd (factoring in my wife's Blue Chip) too much? To me, it wasn't enough on retrospective analysis. Coulda, woulda, shoulda. . .shoulda put 100% in silver.

I am not saying the stock market is doomed either (did I?) I have said something is not right about it - it's erratic and illogical. . .I don't understand it and I am not sure in the next 100 years (or even 20) that this is the place where investors should be, even though that was the reality in the 20th century.

I am not sure you can expect a 7% return on average in the next 20 years. There's almost too much money in it for what the earnings are (P/E ratio).

Tell u what - if u want to buy my business for 20x what it makes, I'll sell it to you right here, BA (and KV -thanx for joining in). I'll hand you the keys today and let my patients know Monday morning there's a new sherriff in town.

But that's what we are buying everyday - companies with a price 20X earnings (on average) and thinking this will go somewhere (or 13X).

Now, who's logical?

[Scanner]

KV and BA,

BTW, that will about $2,000,000 but I'll take 10% down and a financed note.

[Scanner]

Tell you what. . .I think maybe I am being too unreasonable. After all, I am not Bill Gates, or Steven Jobs or some other big business mogul so to buy my business for 20x it's earnings is asking too much. I don't want to kill this deal.

I'll take 5x what it earns.

S&P 500 P/E Ratio - Chart

Current PE for hte S&P 500 is 18.3. I"m selling you mine at 5, BA. 5, I say!!!! That would mean I am extremely undervaluing my business.

We have a deal yet?

No?

Why not?

You are buying stocks (via mutual funds/ETF's) every day sometimes 50X their earnings and no big name behind it. I mean my business, like Microsoft has remarkable simliarities - it has assets and liabiliities, it has cash flow, it has a balance sheet.

It has a kick-ass manager/entrepreneur

Why no bites?

*sniffing underarm *

Do I offend?

[Broken Arrow]

But if you guys are so smart, let's pony up what you did in 2006 and how you are doing

I'm not that smart, and I was going through my divorce then. Everything was a mess and I was heavily in debt. To be perfectly honest, I have nothing to show for it, or at least I don't feel like I do.

And my logic is I can sacrafice some amount of diversity because real estate and silver can never be worth nothing, whereas bonds and stocks can be.

"Can't be nothing" still doesn't mean it can't lose half or double its value. Volatility is still volatility. To me, the question in these circumstances isn't necessarily whether it will end up being "nothing" but how much risk and loss are you prepared to take?

Also, and I feel like we need to set the record straight here: Stocks and bonds being capable of being nothing is a very broad generalization. Yes, companies can belly up, but that's a small minority on the stock exchange. That's also why people diversify or valuate. The vast majority of these companies (which consists of the stock market) are still here!

And it's a lot more so when it comes to bonds. Even if a company goes belly up, bondholders are usually the first in line to be compensated. Granted, it's almost never its original value, but it will still qualify for your standard of "can't be nothing".

And yet, the same standard doesn't seem to apply to.... real estate? Where properties can be foreclosed?

Why was 1/3rd (factoring in my wife's Blue Chip) too much? To me, it wasn't enough on retrospective analysis. Coulda, woulda, shoulda. . .shoulda put 100% in silver.

When we talk about asset allocation, thirds can be enough, if each asset class in itself contains diversification/valuations (and non-correlation). However, the asset classes you have chosen in itself contains a lot of inherent volatility, and really not a whole lot of valuations or diversifications to protect it (in my opinion).

For example, SLV is trading on an inventory of silver. That's basically it. No diversification, and I'd argue about its potential as a position right now.

REZ is at least diversified into several real estates, but it's still at the mercy of the housing market. Well, I think this may have even better potential, because at least this sector has been beaten down, and I too am bullish on its eventual recovery. The thing about this, though, is that once it starts to climb back out... so will the rest of the stock market.

I am not saying the stock market is doomed either (did I?) I have said something is not right about it - it's erratic and illogical. . .I don't understand it and I am not sure in the next 100 years (or even 20) that this is the place where investors should be, even though that was the reality in the 20th century.

Well, 100 years and I'll be dead. 20 years is OK, but stock market will still be here by then.

That said, the stock market has always been a volatile place. That's just the way it's always been. The irony is that commodities is even more volatile, because some are driven almost exclusively by speculation. Commodities as a production material varies, but in the case of precious metal, it's typically a minor story....

Tell u what - if u want to buy my business for 20x what it makes, I'll sell it to you right here, BA (and KV -thanx for joining in). I'll hand you the keys today and let my patients know Monday morning there's a new sherriff in town.

But that's what we are buying everyday - companies with a price 20X earnings (on average) and thinking this will go somewhere (or 13X).

Now, who's logical?

I'm sorry but the question in itself isn't logical at all. Some are worth more than that, and some are less. To me, you either figure out which is which, or you diversify to cover yourself. It's also the same reason why I don't bet the farm on any one single company (or commodity or even asset class).

Scanner, I just don't get it. Throughout this thread, I've repeated several key concepts such as valuation and diversification, but it keeps getting ignored and instead, the table is "turned" with a question like this, which would easily be answered if we simply go back to those two words again: Valuation and diversification. Why?

The greatest irony in all this is that the one thing that gave you the 100% gain you have proclaimed earlier was the Janus fund: A stock mutual fund!

Not that commodities can't give you that either. But... the bottom line is, your portfolio is going to swing wildly, more than even mine. If it shoots up, I'm going to be seeing a lot more posts from you rubbing in how you are right and everybody else is wrong. But if it doesn't... then what?

And I don't think taking on volatility alone is enough to consistently make money, because all these swings can take a toll, especially if you are also worried about "not going to nothing".

When it's all said and done, nobody knows what will happen in the future. We all make our guesses, but nobody knows. And to be so convinced that the stock market is wrong and commodities is right.... That's what I don't get. I'm no eternal defender of the stock market. Honest. But we must invest in a way that where we account for the fact that we don't know the future. We must! Unless you're psychic. In which case, I'll gladly load up double on what you've got.