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-   -   The best investment advice you will ever get. (http://www.elitetrader.com/vb/showthread.php?t=234606)

noob_trad3r Jan 13th, 2012 08:47 AM

The best investment advice you will ever get.
 
http://www.modernluxury.com/san-fran...oull-never-get

RedDuke Jan 13th, 2012 09:44 AM

Even very smart people confuse bull market with brains.

Whatever Bogle, Malkiel say only works in a cyclical bull period. How does index investing helped to Nikkei inventors since late 80s or our current market since 2000???

piezoe Jan 13th, 2012 11:34 AM

The article is right with regard to the unsavory aspects of Wall Street, and the importance of avoiding high costs etc., etc. But the investment advice is bad nevertheless. The problem with index funds is they include too much stuff you should not own.

I've covered this topic in more detail in other threads so I don't want to repeat everything. I'll just summarize the conclusion without going into why, but there is sound reasoning behind this. You should use a Roth IRA for this to the maximum extent you can.

Take an index approach but but cast a wider net. Select from among only stocks that meet these two criteria at a minimum: 1) pay dividends and have an established history of raising their dividends, and 2) are in a long term up trend. Do not buy anything that does not pay a dividend. Examples: PHG, PG, SQM, DEO, XOM, STO, etc.

Buy casting a wider net I mean include stocks that would not be together in the same index. You can include any stock that meets your selection criteria even if it is over the counter, such as Roche for example. Make sure you have wide international representation and haven't emphasized any one country. You only need a few shares to begin. Reinvest all dividends. Review your portfolio once or twice a year but only make changes when absolutely necessary because the company no longer satisfies your criteria.. If the market goes down and your stocks go down don't worry about it, but if the market goes up and your stock doesn't worry a little, if the market goes up and your stock goes down find out why and consider making a change.

Don't diversify too much to the point where you lose track, and make sure no holding represents more than 10% of your capital. Ultimately when you've built your portfolio you want between ten and twenty stocks. That's it. No more.

Never take a brokers advice on anything. If you need help in selecting candidates use an independent rating service such as Morningstar.

This type of portfolio will beat the market and index funds in total returns, while allowing you to sleep at night. You can get rich in about 30 years by steady investment into this kind of portfolio.

newwurldmn Jan 13th, 2012 12:29 PM

Quote:

Quote from RedDuke:

Even very smart people confuse bull market with brains.

Whatever Bogle, Malkiel say only works in a cyclical bull period. How does index investing helped to Nikkei inventors since late 80s or our current market since 2000???

RE: Our Market 2000 to 2012
You are picking the top of the biggest bull market and comparing it to a recovery from the worst financial crisis in 80 years. And even then when accounting for dividends are up 6.5% assuming you reinvested. If you didn't reinvest you would have 3.4%.

Is it great? No. But the data that describes the failure of the market to investors is cherry picked.

Ghost of Cutten Jan 14th, 2012 06:15 AM

Quote:

Quote from RedDuke:

Even very smart people confuse bull market with brains.

Whatever Bogle, Malkiel say only works in a cyclical bull period. How does index investing helped to Nikkei inventors since late 80s or our current market since 2000???

Wrong, a diversified portfolio can grind out respectable money over the long-run even in an era of a down stock market, due to being invested in several classes of stock, doing rebalancing from bonds (taking profits at high prices) to stocks (investing at low prices), and reinvesting the income. For example, during the 'lost decade' of 2000-2009, investing 100% S&P lost money, but investing in a typical diversified balanced portfolio of 20% S&P, 10% Russell 2000, 20% MSCI World, 10% Emerging Markets, and 40% US Treasuries would have made quite respectable returns (better than being in cash or bonds). Throw in say 10% gold there and you would be even better, due to gold's negative correlation.

It would be fair to criticise index investing if a balanced portfolio had under performed cash and bonds over many extended periods, but this rarely happens. A diversified low-cost index portfolio is the best shot for 99% of people to achieve reasonable returns superior to cash and bonds, without taking the high risks of excessive stock market exposure, or stock-picking/active trading.

Ghost of Cutten Jan 14th, 2012 06:21 AM

Quote:

Quote from piezoe:

The article is right with regard to the unsavory aspects of Wall Street, and the importance of avoiding high costs etc., etc. But the investment advice is bad nevertheless. The problem with index funds is they include too much stuff you should not own.

I've covered this topic in more detail in other threads so I don't want to repeat everything. I'll just summarize the conclusion without going into why, but there is sound reasoning behind this. You should use a Roth IRA for this to the maximum extent you can.

Take an index approach but but cast a wider net. Select from among only stocks that meet these two criteria at a minimum: 1) pay dividends and have an established history of raising their dividends, and 2) are in a long term up trend. Do not buy anything that does not pay a dividend. Examples: PHG, PG, SQM, DEO, XOM, STO, etc.

Buy casting a wider net I mean include stocks that would not be together in the same index. You can include any stock that meets your selection criteria even if it is over the counter, such as Roche for example. Make sure you have wide international representation and haven't emphasized any one country. You only need a few shares to begin. Reinvest all dividends. Review your portfolio once or twice a year but only make changes when absolutely necessary because the company no longer satisfies your criteria.. If the market goes down and your stocks go down don't worry about it, but if the market goes up and your stock doesn't worry a little, if the market goes up and your stock goes down find out why and consider making a change.

Don't diversify too much to the point where you lose track, and make sure no holding represents more than 10% of your capital. Ultimately when you've built your portfolio you want between ten and twenty stocks. That's it. No more.

Never take a brokers advice on anything. If you need help in selecting candidates use an independent rating service such as Morningstar.

This type of portfolio will beat the market and index funds in total returns, while allowing you to sleep at night. You can get rich in about 30 years by steady investment into this kind of portfolio.

This approach increases costs and risks, and there is absolutely no evidence that it will outperform on a risk-adjusted basis. It is also tax-inefficient, you'll pay a lot more in taxes when one of your holdings goes into a downtrend or cuts their dividend and you have to sell one or more components. It will also take much more time and effort than passively owning 3 or 4 index funds.


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