The Economic Cycle- Ray Dalio- The subject of Debt, Inflation, Fed policy rates and the Central bank printing money- An interesting 30 minute video- I don't think I posted the link here before- http://www.economicprinciples.org/ Having an interest in Investing vs trading, I have been reading different books over the past few years concerned with Investing, Asset allocation- Timing methods- and I have become a fan of John Bogle- Vanguard-Funds low cost approach - whether through the low cost Index funds they offer- or perhaps their combined approach in Target date funds for those that don't want the bother of determining how much of what to invest in and then rebalance- Primarily, it's the low cost approach that gets the majority of the index's return. I'm reading a book by Tony Robbins-"Money -Master the Game" where he also promotes the low cost approach- and -being promotional- an organization he is involved with that may provide oversight- for a small net annual fee- less than the typical fees imposed through conventional brokers- The book offers some views of different approaches to investing that I have not ever heard of. I haven't verified the accuracy of any of the items I mention here- just a book report- but it has some elements and controversial concepts that I find interesting, but skeptical about. How about this for a start- Would you be willing to Invest with the guarantee that your investment would remain intact- that you would get charged a 1.5-2% fee on positive market returns and nothing on any year when the market declined? And you would get the remainder of the gains added to your account? Sounds too good to be true-Sounds like a hedge fund guarantee- If the market returns 15, and you keep 13%- and the next year it drops 15%, your gain is intact? and no fee? Doesn't seem possible- Aside from the link to the promotional organizations he is associated with, there is a lot of instructive material. In this book, he offers different approaches- Ray- Dalio's market approach to reduce Risk, but still give above average market returns- is interesting- It is now a a popular fact - and the cornerstone of passive investing- that active management generates higher costs and on average lower returns over time. Dalio would appear to be the exception- with an average return of 9.88% over 40 years- with only 6 losing years in 40 years- and the worst loss less than 4%.in 2008 . The market average return is something like 7.5% historically. His portfolio recommendation includes some layers of Bonds, TIPS, commodities including Gold- Stocks- - but a smaller exposure to stocks- Noting that the market decline in 2008 took down both stocks and bonds- I expect that Dalios allocation structure had more active management than just a simple allocation model allowed- And Dalio uses leverage that a typical investor would not employ- That being said- Nothing is black and white- but investing with the belief that what we have had for the past 5 years is going to just continue into the future for another 5 years is naive. On that realization, it is worth considering how one will identify that a minor correction is turning into a major correction- and we will only know the extent in hindsight- Professionals protect their assets with Options- or rebalancing allocations to non-correlated areas. The rest of us do as we normally do and keep our fingers crossed the music keeps playing. Robbins also promotes some thinking of newer types of financial products- as methods to reduce RISK- including newer types of Variable annuities that may indeed be nothing like the crap that was peddled in past years- and that gave annuities such a bad name. He also touches upon areas of long term financial planning that most of us simply don't get around to thinking about- but perhaps we should. Not so much from this book- but planning for retirement- one can not expect to survive on social security alone- it will be a stark financial existance if one is not able to supplement SS with something one planned and invested for. In the book, Robbins also touches upon -what if one does plan for the future- and the market dives for 1-2-or 3 years just as one retires- What is one's exposure? Do we even consider that such an event would occur after we work for 40 years and plan to now 'enjoy' ourselves? Statistically, WE (retiring generation) are not well prepared for retirement- and the following generations less so. The recent generations- seeing 2 market declines in a decade is skeptical - and you can't blame them on what seems to be a Random market decision. For those people that had "plans' to retire at that point, Life dished up a plate of 'unexpected' - and they had to make do with what they were handed. Does that mean the long term planning they had put in place over decades was simply wrong by chance? Maybe we should expect the unexpected is the new normal and plan differently? What will it take to retire and take withdrawals to supplement the SS? Safer estimates use 4% of asset value should be able to be withdrawn, and the principal continue to maintain, possibly grow- based on historical norms. What is the goal for income in retirement? Expense will be 60% of present expenses. If the home is paid for. If SS provides $1500.00/ month, and the retirement account investment allows 4%, and that is 100,000.00 - you can withdraw $4,000.00 that year additionally- or approx $333.00 every month. With inflation- that extra amount might buy a week's worth of groceries. Is retirement survivable on SS 12 x $1500= $18,000.00 + $4,000.00 = $22,000.00- Wow- That's a grim reality- Let's assume we made more & planned better when we reach retirement age- We get $2,000/month from SS, and we have 1/2 a million dollars in Investment/savings. The 2,000 gives us $24,000.00 a year to live on- and the 4% on the $500,000.00 gives us $20,000.00 -We now can live on $44,000 a year or just under $4,000.00 per month. If our home & car is paid for, That $4,000/ month can pay for food 4 x $250.00 =1,000.00 Utilities- $500.00 Elec, water, gas, oil heat, AC Health insurance supplement $300.00 Medications $500.00 property taxes $600.00 vehicle expenses- insurance $300.00 homeowner's insurance $300.00 incidental medical expenses not covered by insurance- $250.00 Bingo 4 nights a month $80.00 Lottery tickets $2/week $8.00 Investment advisor $250.00 Oh Crud- Over budget- Something to consider! We get there by starting- Let's assume we start early and often- Let's be the hypothetical investor that has the desire and the income to do better: And we now have $1,000.000.00 in our retirement account- We are a millionare! and get to spend 4% per year so we have $40,000.00 a year plus $24,000.00 from SS. That's more reassuring- Gives a bit of breathing room- Maybe even a cruise if we budget carefully! We've got the allocation right- 60% bonds, 40% stocks- and Bang- another 2007-2009 and we lose 30% on our conservative allocation. We now have only $660,000.00 and we just took the cruise off the list. It was not a good year. We are now concerned that this 1st year sharp decline will be followed by a second year of losses. We become very conservative and transfer our assets to a fixed allocation with a guaranteed 1.5% return. We need to use $40,000.00 per year to just maintain our modest quality of life. Costs are actually increasing every year, nothing seems to cost less as time goes on. Government regulations and budget deficits have taxed our Social Security payments. We retired at age 67- By age 87, Some 20 years into retirement, my nest egg has been depleted. The market fluctuations were unexpected. The doctors estimate i will live into my late 90's- perhaps reach 100 -110 years thanks to the great medical advances/medications now developed- I hope my children have a room available.... There are some elements of truth in the above scenario- Will this be the outcome each of us faces? What are we planning for? They are being experienced in one form or another every day by people like you and I that have reached that point in their lives where they are relying on something to provide for them in their retirement years that may not be as beneficial as they thought it would be. This is a provocative subject- How many of us actually consider this in any detail?
The case against passive investing- The premise of this is that there are active managers that can deliver better than the market returns consistently. In this article, Sun America analyzes the data and shows their outperformance. https://www.americanfunds.com/individual/insights/investment-insights/expect-more-active-core.html Vanguard.com calculator- you can directly compare costs & returns of various ETF's or mutual funds. Note the difference in the expense ratio, 12-b-1 fees charged by many funds- Also, in a taxable account, the holders of the fund that has a high turnover is subject to capital gains on stocks sold inside those funds- even if the holder of the fund never sold 1 share of the fund itself. This can allow investors to look inside their retirement or pension fund positions, and directly compare one fund against another, returns and expenses https://personal.vanguard.com/us/faces/JSP/Funds/Compare/CompareEntryContent.jsp?type=fund. There was another page to enter your fund and vanguard would give you their comparable fund offering- https://personal.vanguard.com/us/funds/tools/fundcomparison?ticker= Morningstar is another resource- it gives an investor a comparisom of the fees charged relative to the category average, also lists the various expenses, and gives a net $$$ performance chart against an appropriate index. Morningstar also offers a premium membership , and a 14 day free trial. It may be beneficial to compare both Vanguard funds /ETF's and present funds on Morningstar. Certainly reviewing one's present portfolio positions on Morningstar gives an idea of how the fund stacks up aginst other similar funds- rating within the category,comparisom against the benchmark index. http://quotes.morningstar.com/fund/ another source of ETF specific information is http://etfdb.com/ There's a free trial period - The monthly subscription is $19.00 . .I will start a membership at this site.
Getting back to present trades- FCG took me out this week after adding 100 shares to the position. I raised the stop loss to make it a minor loss should I get taken out- which occurred on the entire position. My lower entry was sold for a gain, the later entry for a slightly larger loss. I felt that the ADD to a winning position was indeed appropriate- One could argue that my stop was simply too tight, since price has now turned right back up higher again. The XLE trade is still performing to the upside, and this week has broken the downtrend decline line with a positive higher close. Oil is going a bit higher, winter is in full blast across the US- with the Arctic cold pushing down and a snow/freezing rain event is predicted for Monday night in Raleigh, NC- Took the motorcycle out for an hour's ride yesterday, and loading up the woodstove and extra wood today! I won't be traveling Tuesday am to work! Northerners would find it amazing - but roads quickly become impassable here due to all the gridlock/accidents that occur. XLE-chart- updated
SSO -i TOOK AN ENTRY HERE AFTER PRICE HAS BROKEN HIGHER . Notice the up and down swings in the prior weeks would have led one to see a lot of whipsaw entry signals. I am setting the initial stop at the bottom of the below resistance/support swing low 126.00- but this is the temporary stop to give price some leeway to test the breakout/new high- Once price makes another new swing low pullback and ideally moves higher, I hope to raise the stop.
BRKB - 2-13-2015 closing trade did not look "happy"- My net concern is that it is not behaving well and should be walking hand in hand with the SPY as it made a new high. The lag on BRKB could be seen also as reason for concern that the SPY move may not have underlying investor support. In the attached chart, I illustrate the Wedge pattern that price had formed, the price drop below the bottom support line of the wedge - and the reversal move higher pushing up through the wedge to make a new swing high compared to the one's made during the decline. This type of price drop, followed by bullish buying- often clears the way for a new upmove as sellers demanded higher prices. The tepid finish to the price action 2.13 does not inspire confidence that this is the case.
2.17.2015 Ice day- home. Good opportunity to get caught up and make some liesurely trading decisions. I hold a small position in Hack- - It is an ETF with a focus on cyber stocks- I think this market segment will likely see continued demand going into the future- I don't think there will be an end to cyber hacking- From Target and home depot breaches last year- to credit card companies, gov't agencies, medical records all being recent targets- The US Gov't held a cyber security conference the past week. There are some individual stocks in the space that likely will be great out performers . I'll paint it with the broad brush of the HACK ETF. It has gapped up the past few days, but may be worth following as a theme for the year. I went overall long today on the markets In the IB account, also in a separate account, and in the Investment account where i had recently raised a larger cash position. The rationale is that in spite of the Greek/Europe 'crisis', Energy concerns -declining oil prices- Rising dollar, falling Bonds, Currency exchange concerns affecting profits - and a polar push across the country that will be used to justify weaker retail sales this month. All the indexes are pushing higher, and there's no point in arguing with the charts- We may go lower before long- The Fed may scare the markets- or a rate hike may be priced in and expected. Jeremy Siegal on CNBC today said he does not think the earnings show underlying growth as being adequate, and doesn't want the Fed to tighten prematurely. In the IB account, waiting buy-stop order filled at the open $73.69- Also in IB I went short Bonds using TBT $45.18 I also went long the leveraged DOW - DDM $138.39 Aside from the IB account- added SSO, leveraged S&P; added more PJP; (overweight); started XBI instead of IBB-similar holdings, but the chart looked a bit smoother; also added DIG today near the close . XLE trade is holding- had gapped higher last week- Oil started lower today, but then it reversed. It is dangerous to get too enthusiastic- there's lots out there that could derail the market or these positions. Saw on CNBC a 'warning' by CVS that the new more expensive cholesterol drugs being released this year could cost "billions" with an average prescription $7k- 12k per year. Some of the recent volatility in this industry was the drugstore companies trying to knock down pricing & increase competition- GILD was one in the news- Healthcare/drugs/senior care will remain a strong driver in the decade as we baby boomers enter our twilight years. - I do still hold a small position in Cure, the 3x additionally, the strong dollar is a concern for profits for US companies with overseas sales- lower profits as the costs of good sold is higher for those foreign buyers. With the expectation of higher rates coming, Bonds have been selling off. Perhaps the push into equities is where the Bond money has to go to get some gains. , Bonds are being sold off- I went short bonds today using TBT in the IB account. I believe this is all about a market reaction to a possible future event- speculation ahead of the fact. In juggling some trades today- BRKB came to mind - I hold a small position- and actually considered adding to this today at this level, in my wife's account- A friend trades around BRKB- I'm expecting that if the US markets move higher, BRKB will also (should) make a similar move- It was disclosed today that BRKB sold all of it's XOM & COP positions today! I would assume That suggests that Warren thinks energy has significantly greater downside for him to unload his entire position in those companies.
The HACK trade- Wow- cramer is promoting cyber security tonight! I think I mentioned the HACK trade when I initially made it- It's not a large position, I own it outside of the IB account and also in my wife's account. Much of what we trade, we tend to have a 'belief in' - This gets to be an emotional reflex, and can be dangerous to the trade and to the account value- Occaisionally, our belief will be correct, reinforcing the idea that our beliefs are valid and will be net profitable. Particularly when we are in a bullish trend; If we trade primarily on our beliefs, the market will eventually prove to us that it does not hold the same belief at the same time-concerning that specific position. We will end up taking very large losses, or becoming a longer term investor in something that could be 'dead money' for an extended period of time- until we capitulate, or it rebounds and we get out at some level that we believe is justified in holding it for that extended period of time. This may seem to be a small nuance at first- but it goes to the core of our make up- and the way we approach the markets in our trading. We want to be right- Human nature-Emotional. That is why we trade what we "know" and are comfortable with- In the case of this ETF- I entered a long position based on my belief that the chart was turning in my favor- and that this ETF made sense - So- I developed a 'Belief". that this should be a valid trade. Normally, I would have been stopped out of this trade as it broke below the minor support level indicated on the chart at the bottom of the declining wedge. Because it was a smaller position, I allowed my stop to be below the initial swing low- Price would have had to drop to $24.50 to tell me my 'belief' was wrong. I gave it more room than a 2 hr chart would allow- largely because of my 'belief' structure- and small position- and the stop was within the limits..... So, what I want to pass on here- is a basic chart formation- a declining wedge- Where price drops lower, but then rallies back higher-- offering the chart trader an opportunity to get a well defined entry/exit . Doesn't always succeed, and my entry was early- but this type of formation -from a chart watcher's view- is worth taking notice of- The basic psychology behind a wedge is that prices are getting compressed in the range between buyers and sellers- The bottom level finds buyers stepping up , price moves highers- sellers sell sooner, the decline line squeezes lower- finally , the horizontal line- which is a minor support level during the recent transactions- breaks down, and price drops and goes below- When price finds additional buyers- and then those buyers are willing to pay up more- price closes above the decline line- Can it find the impulse power to move higher? That becomes the low risk entry long trade- . It doesn't always work out- but it's worth taking notice of - BRKB has indeed had a similar declining wedge- and attempted move higher- but a new swing low- There was not continued momentum higher- or even a simple sideways move- price declined a bit- So, this is an unknown- I would like to think that $148 is the new swing low, and price will move higher-from here. Off tangent- the HACK chart:
DIG trade DIG trade- Oil started selling off today but reversed higher. This will trade on OIL- but presently the trade is bullish-