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11/16/2008 6:59:56 PM

http://ftalphaville.ft.com/blog/?p=18150



I mostly agree that buy-and-hold has had too many holes shot in it to follow through with it. Obviously, now is a good time to buy, but the thing is - normal investors won't get in at a time like this, and are much more likely to get in during a bubble when other people tell them to and loose all their money.

But honestly, there are people on both sides of the spectrum that frustrate me. For one, brokers that tell you to buy and hold and that given enough time, you will be shielded from the volatility of the market. This is simply not true. There have been 5 times in the last century when a 10 year investment in the entire stock market would have been outperformed by 30 year T-bills. This is an entirely normal outcome - to invest over the long term and essentially get screwed. It's happened before and it will happen again.

On the other side of things, the vicious short sellers and doomsters are not wrong in thinking that there is no long term growth to be spoken of. Nonetheless, we're currently seeing a lot of models crashing into the ground right now that were built of the idea of continued growth in the 90s that just can't hold true anymore.

The behavior we're seeing now (1998-2002-2008) is similar to what the 70s saw. Get used to it. The market follows HUGE swings as well as small swings. And right now, we have to brace for a huge paradigm shift, at the end of which, we are all a lot less well off than we thought. The good news is, the markets may have already corrected for this. The bad news is, we can't be sure if it did so enough.

You see the market dividends on that chart? What kind of idiot would think that a market could sustainably operate while paying out dividends of less than 2%? That behavior is simply built for a model that no longer applies - rapid expansion of the economy. We've had out growth, it's time to start writing paychecks, but the companies don't get it yet. They still want to reinvest into faltering sectors.

Anyway...

Buy and hold is no different than market timing. It just implies a different time scale.

11/16/2008 7:29:47 PM

Quote :

"Unless you panic and sell when it hits a low you haven't actually lost any money. Hang onto your investments, don't panic and ride this shit out. "

That's what I meant by "not if you don't realize the losses".

(yes, I know that isn't always totally true)

Quote :

"Unreal. You're right, you don't know my folks, you really have no idea what you're talking about. But it's a crappy ole message board on the internet, so I guess I shouldn't be surprised some anonymous dick thinks they know more about my own family history than I do. "

What I'm saying is that I don't know your folks, but the odds are statistically overwhelming in favor of my assertion. Obviously I'm not claiming to know more about your family history than you do, dumbass. I was offering a caveat to what I was saying, though the odds are pretty good that it does, in fact, apply to your family.

Quote :

""No no no, he wasn't talking out both sides of his mouth, and I'm not about to either - stocks have the best return on investment...but they're risky" Really? If they have the best ROI, then why are they risky?"

Whoa, whoa, whoa...if we need to take a few steps back and explain stuff this simple to you, then that's fine. I'd love to dispense some knowledge for your benefit...but if so, then I think you need to stop trying to argue with me, LoneSnark, and 1337 b4k4 on this subject, as the three of us together have probably forgotten more about it than you know. No problem, I'd be glad to teach you, but I don't want to hear your half-cocked, ill-informed arguments.

Quote :

"Where did you pick up this little nugget of advice? Maybe once the emerging economies have fully broken away from the US, they'll be decoupled from us, but for the time being forget about it. We sneeze, they catch the cold."

Yes, yes, globalization has taken away some of the protection of diversifying across numerous foreign countries, but that still isn't a counter to what I said.

Quote :

"Are you saying my dad should been have diversified into other countries with worse returns? "

Well, yeah, he should be invested in foreign stocks to a certain extent, but lack of foreign investment isn't what kicked his ass. The problem is that he shouldn't have been so heavy into stocks of any sort at his age.

Quote :

"Or, maybe if you aren't born with shit to your name, and you've never had shit to your name, then when you finally have something worth investing, it doesn't automatically mean you know what to do with your money. And financial planners aren't exactly a dime a dozen in small town America."

Frankly, I don't want to hear excuses, as you dad's money was his responsibility, and there are more than ample means available for anyone to be an effective investor. I don't feel like posting my background again, other than to say that I spent time as both lower middle class and very upper middle class growing up. My parents had singlewide trailers and oceanfront beach condos...old pickup trucks and new Lexuses. Neither ever spent a day in college. The financial guidance I got from my parents, though, was pretty much my dad telling me to max out a Roth IRA as soon as I got out of college. I learned basically everything I know on my own, with nothing more than the internet and Kiplinger's/Money Magazine.

You are correct in that our society is RIDICULOUSLY, WOEFULLY financially illiterate. I'm just saying that there's no excuse for it, especially these days. If you fuck it away, it's your own fault.

Quote :

"You pull some nice econ theory out of one of your little text books, slap it in the thread and call it a day, then when I can't figure out what it is you've posted because what you've posted doesn't at all jive with the real world, you're going to cry I didn't bother to respond to you? I'd love to see you use a one or two definitive real world examples of companies that fit that little theory you posted."

Goddamn anti-intellectual conservatives.

Oh, wait...

Quote :

"60% are agreeing that buy and hold isn't going to work in the near future. "

What the fuck? Of course it might not work in the near future. That's why it's "buy and HOLD".

Quote :

"a lot less to do with you and a lot more to do with people like duke having the damn audacity to think he actually knows my family. "

Or the damn audacity to assume your reading comprehension was strong enough to not essentially get the exact opposite meaning out of what I said.

Quote :

"Why on earth did he need to go check out a book?"

I think that is self-evident. He dumped his life savings into something based some "something he heard?" I mean, sure, I feel bad for him and hate that he learned that one the very hard way, but it's nobody's fault but his own.

Quote :

"When you consider we don't manufacture dick anymore, we've gotten good at creating fake wealth, why can ANYONE be safe with thinking buy and hold is going to be a good strategy in the near term? "

1. We still manufacture a lot of stuff.
2. Just because it isn't a manufactured good doesn't mean it's "fake wealth".
3. Buy and hold, by definition, is not for the near term.
4. The more the near term is a concern, the less you need to be invested in stocks to begin with.
5. What does manufacturing have to do with misunderstood investment strategies, anyway?

Quote :

"Here's a tip, those of us in this thread are in a pretty special group to be able to talk about it this far ahead and these terms, don't go around life with your snout sky high in the air because you worked your way through college and just assume the entire country knows all the golden secrets you do, there isn't anything special about that. Oh sure, you'll come back to the thread and try some pathetic defense about your attitude, but you make it pretty clear over and over again, especially with your big L libertarian views, that every decision in life is clear cut and if people made them they'd have zero problems or troubles. "

That's not it at all...it's more that when grown men fuck themselves over with things that are totally within their control to avoid, it's not our responsibility to carry their weight for them.

Quote :

"College educated people were surrounding you from the womb. So yeah, it does have to do with college you thick skull asshole. "

Fine, if we're slinging anecdotal evidence around, how about me? Nobody on either side of my family, all the way out to 3rd cousins and great uncles, ever went to college, with the exception of one aunt and uncle, and one great-grandmother. My dad was a barber, then an insurance agent. Mom was a secretary. Grandparents farmed, drove buses, worked as mechanics. Cousins farmed. I got some guidance in how to plow a field, and how to catch a bass. Investing? Not so much.

Besides, I never learned a fucking thing about investing in college. This isn't about education (unfortunately. there should be much more teaching of personal finance in this country)...it's about taking personal responsibility for your fortune and future.

Quote :

"ever cautious about his extremely hard earned 401k finally and hesitantly went to the same planner my uncle had been using who advised him on some nice mutual funds that then proceeded to shit the bed. "

Wait, what was his 401k invested in before?

Quote :

"I suspect with this market crash, there are millions others just like him that have lost sizeable chunks of their retirement as hardly any sector of this market has been safe. You do realize that even Gold has taken a ~25% haircut since this whole mess began, right? "

YES. WE KNOW. JESUS, WE KNOW BETTER THAN YOU DO--WE'VE WATCHED THOUSANDS OF OUR DOLLARS EVAPORATE. That also has absolutely nothing to do with what we're saying here.

Quote :

"You're probably a spoiled brat. I bet your mother still coddled you and breast fed you until you were 8 you little punk. "

You care to get into the "who's harder" dick-measuring contest with me, too?

Quote :

"How risky can something be with a fantastic ROI."

Do you understand what ROI is? I don't even know where to start with this.

Quote :

"So, now I need insider information to pick stocks?"

No, you just probably won't have much luck consistantly beating any given index without insider information. Fortunately, you can still get rich without doing so.

Quote :

"But if you locked in some profit when you first started noticing the signs of competition, you looked like a genius, or merely observant? "

Dude, being a LTBH investor doesn't mean you dogmatically refuse to sell your holdings, regardless of changes in fundamentals, the business, or nature of the sector as a whole.

Quote :

"There were plenty of people that were skeptical of the dot.com bubble just as there were plenty of people that were skeptical of housing never going down. Those people didn't buy and hold, and they made great calls. "

See my previous comment.

11/16/2008 8:09:43 PM

Quote :

"Just what are you describing as "my winners"? Stocks that I intend to buy after I identify them as winners, or stocks that I am holding that become winners? I think you've severely misinterpreted what has been stated and you've wasted a lot of everyone's time."

There is no question that everyones time is being wasted. Obviously I am taking about stocks you call winners but have not yet purchased.

Quote :

"You're also mildly retarded if you think the market is perfectly efficient and that all it's participants have all possible information about a company."

You must be completely retarded to think that is what I was saying. Again, we are talking about YOU. I am asserting that YOU are lacking information that professionals on wall-street already have. The assertion is that you are not an insider and therefore the best knowledge you or I have about the future value of a stock is its present price. Pointing out that many on wall-street are similarly not insiders is irrelevant.

Quote :

"I've been following guys that have been sounding the housing alarm for a long time, you know, guys that haven't been idiots about this shit. They've saved me TONS as I pulled my cash out of certain stocks to the sidelines. I've saved deep into the 5 figures by getting out of the way of this crash."

Horray. 5 figures. What a bunch of idiots. If I had bothered to know for certain that this shit was junk I would have turned my 5 figures into 6 figures. I would have shorted stocks, traded options, and made myself a millionaire if not more by now. In the process, I would have reduced the institutional damage and made society better off. But I didn't.

Far more likely, just like me, you and them believed for whatever reason that stuff was going to fall; but you had no idea it would be anything like this much.

11/16/2008 9:20:08 PM

Quote :

"What I'm saying is that I don't know your folks,"

Don't backpedal now, you were pulling the whole internet asshole thing off so well. You in fact said this

Quote :

"Look, I don't know your folks, so you might be right, but find it very hard to believe."

I might be right? Might?

Quote :

".but if so, then I think you need to stop trying to argue with me, LoneSnark, and 1337 b4k4 "

I definitely respect LoneSnarks econ knowledge despite the guy in the bar in Good Will Hunting type of impression I get from time to time. 1337 on the other hand, has spent so much time investing and dabblign in stocks, that he didn't realize the prices at Google Finance were split adjusted. It's one thing to misspeak or get a minor detail a bit off, but when you fuck up something so basic and fundamental as that, your value on the subject matter is cut at least in half.

Quote :

"Yes, yes, globalization has taken away some of the protection of diversifying across numerous foreign countries, but that still isn't a counter to what I said."

You tell me why it isn't a counter? Tell me outside of Japan (which is barely winning versus the S&P), which index is doing so much better than the S&P that your advice is worthwhile. Not until decoupling officially exists (do you even know what that is?), the value of diversifying into other countries just doesn't exist.

Quote :

"Well, yeah, he should be invested in foreign stocks to a certain extent"

I'm not sure what foreign stocks did during the dotcom blowup, you may very well have been correct over this time period, but not for the current crisis. So stop acting so smug when the damn numbers reveal this advice as bunk.

Quote :

"The problem is that he shouldn't have been so heavy into stocks of any sort at his age."

I don't know which fund or funds he was in or how aggressive it was. It very well could have been appropriately allocated for his age. For now, I'm not really sure how much comfort your sage advice would be for the current crop of folks that got into Gold near its peak because GOLD IS SAFE, for even those folks to have suffered a 25% haircut in just a few months. That's what you yoyo's really haven't gotten through your skull pieces. It MAKES SENSE to turn paper profit into real cash from time to time.

Quote :

"Frankly, I don't want to hear excuses, as you dad's money was his responsibility,"

What does this even mean? Do you libertarians ever listen to your damn selves? Do you expect a mill worker to actually be able to comprehend the nuances of the stock market or investing? I haven't cracked investing for dummies, but I can imagine there is a huge population of people that aren't exactly dumb that still might be clueless as to where to put their money at the end of the day. To that end, they turn to financial planners, relatives, and other folks they trust for advice - and every one of those people fail the infallible test.

Quote :

"What the fuck? Of course it might not work in the near future. That's why it's "buy and HOLD"."

Umm, they aren't saying that buying and holding a stock might not work, they are saying the concept of buying and holding a stock or groups of stocks isn't a smart move under current economic conditions. Seems like if buy and hold were really the way to go, it would be 80-90% in favor. For such a smart guy, I can't believe you didn't get this point.

Quote :

"He dumped his life savings into something based some "something he heard?""

Did you just say something about reading comprehension?

Quote :

"1. We still manufacture a lot of stuff. 2. Just because it isn't a manufactured good doesn't mean it's "fake wealth"."

I'm just random googling here, looking for information to confirm my position, feel free to do the same for yours
http://usinfo.state.gov/products/pubs/economy-in-brief/page3.html

Quote :

"ervices produced by private industry accounted for 67.8 percent of U.S. gross domestic product in 2006, with real estate and financial services such as banking, insurance, and investment on top. Some other categories of services are wholesale and retail sales; transportation; health care; legal, scientific, and management services; education; arts; entertainment; recreation; hotels and other accommodation; restaurants, bars, and other food"

Hmm, so we've continued to reduce real goods manufacturing to the point that it is less a percentage of GDP than the government itself in favor of GDP that services the paper wealth we've created on the backs of the American consumer that has been driving the economy for the past decade. The consumer is gone, the jobs are getting erased, AND MANUFACTURING HAS BEEN SHIPPED TO A PLACE WHERE THE GOODS THAT WE NOW CAN'T AFFORD TO BUY WILL BE MADE CHEAPER!

Quote :

"Fine, if we're slinging anecdotal evidence around, how about me? Nobody on either side of my family, all the way out to 3rd cousins and great uncles, ever went to college, with the exception of one aunt and uncle, and one great-grandmother. My dad was a barber, then an insurance agent. Mom was a secretary. Grandparents farmed, drove buses, worked as mechanics. Cousins farmed. I got some guidance in how to plow a field, and how to catch a bass. Investing? Not so much. Besides, I never learned a fucking thing about investing in college. This isn't about education (unfortunately. there should be much more teaching of personal finance in this country)...it's about taking personal responsibility for your fortune and future."

Aside from the fishing part (which bored the fuck out of me) you and I really aren't that much different. I spent a few summers bailing hay at midnight to avoid the heat, shoveling shit from the barn because we were too retarded and too young to be trusted with a tractor and blade and then graduated to a third shift job in a warehouse the summer before I started at NCSU. You basically confirmed my point, that those of us that are fortunate enough to get an advanced degree have a huge headstart on what it means to invest because we typically make enough right away that you can see real results quickly.

Quote :

"You care to get into the "who's harder" dick-measuring contest with me, too?"

Sure, why not? Everyone is tough behind the internet.

Quote :

"Do you understand what ROI is? I don't even know where to start with this."

I'm sorry you missed the subtle sarcasm. The point was the folks trying to argue for buy and hold do so by looking into the past and using the historic rate of return as their reason as if this will continue into the future (and they also do so by refusing to acknowledge periods in time that make buy and hold look like trip to the dentist in time scale), ignoring the shit this country has gotten itself into starting around the mid 90s.

Quote :

" No, you just probably won't have much luck consistantly beating any given index without insider information. Fortunately, you can still get rich without doing so."

I've been beating the S&P 500 since about mid year.

Quote :

"Dude, being a LTBH investor doesn't mean you dogmatically refuse to sell your holdings, regardless of changes in fundamentals, the business, or nature of the sector as a whole."

...

11/16/2008 9:44:24 PM

easy on the quotes d00d

11/16/2008 9:54:44 PM

yeah, probably best for all involved to just let this one die

11/16/2008 11:13:17 PM

Quote :

"I am asserting that YOU are lacking information that professionals on wall-street already have. The assertion is that you are not an insider and therefore the best knowledge you or I have about the future value of a stock is its present price. Pointing out that many on wall-street are similarly not insiders is irrelevant."

Full disclosure, you probably don't do a whole lot of actual investing do you? Sure, I might not be a big time investor with direct access to company management, but I can study a financial report, I can read sector news, and I can observe my environment. There is a narrative to tell for every stock out there.

Let me give you a good example that hits pretty close to home. Crox.

You have to go no further than page 26 of the Stock Market thread in the lounge to find a couple of non Wall Streeters that knew something was stinky about Crox. If you actually spent any real time observing your environment instead of buried in your econ books, you would have noticed that the Crox phase must have been reaching it's saturation as everyone and their brother had a pair. If I were really interested in the stock or if I owned it, it wouldn't have taken more than a handful of phone calls to ask around at various retailers how they were selling compared to before. A little social engineering goes a long way. The first red flag came in February, when BobbyDigital noted that Crox had "returned to fundamentals". This denotes attempts to continue to grow and expand the business (and thus, the stock price) had failed. If you shorted Crox there even AFTER that news, you had it at $25 (it's now around $1). Then, you sprinkle in the whole consumer is spent out concept that was gaining traction (pardon the pun) as the year went on, and well, you could see the novelty of a comfortable but rather different piece of footwear would lose favor. Two guys on this very website that aren't Wall Streeters called the right shot. So much for the pro's, huh? Add to all that, thanks to the intertubes and blogging, there are literally scores of very successful people that are giving away for free their opinions and in many instances the trading decisions they are making.

Quote :

"Horray. 5 figures. What a bunch of idiots. If I had bothered to know for certain that this shit was junk I would have turned my 5 figures into 6 figures. I would have shorted stocks, traded options, and made myself a millionaire if not more by now. In the process, I would have reduced the institutional damage and made society better off. But I didn't."

I know, I'm kicking myself for not "double dipping" on my decision to get out of the way of the fall. What can I say, I'm just now finding out the power of short ETFs while I am building up my knowledge of options to use that tool as well. I'm behind but catching up to the game.

Quote :

"Far more likely, just like me, you and them believed for whatever reason that stuff was going to fall; but you had no idea it would be anything like this much."

Ummm, I saw a range of possibilities based on multiple folks I've been following. Just like there seems to be a consensus that this coming recession will be deeper than it looked not even 3 months ago and there is a real high probability based on fair valuations that the S&P will find a home in the low 700s or a bit worse before were done. You keep reading your econ books and maybe in a decade or so you'll be one of those bloggers I use as a key part of my decision making process.

[Edited on November 16, 2008 at 11:52 PM. Reason : .]

11/16/2008 11:48:05 PM

Quote :

"Let me give you a good example that hits pretty close to home. Crox."

That was a lot of work you did. And you used it to gain insider information. Bravo. Hopefully you can keep it up. We are all made better off when you push prices to more closely resemble reality.

As for the rest of us, we are not going to do all that. As such, since we wish to spend less than an hour a month dealing with our investments, what do you think we should do?

Quote :

"Hmm, so we've continued to reduce real goods manufacturing to the point that it is less a percentage of GDP than the government itself in favor of GDP that services the paper wealth we've created on the backs of the American consumer that has been driving the economy for the past decade. The consumer is gone, the jobs are getting erased, AND MANUFACTURING HAS BEEN SHIPPED TO A PLACE WHERE THE GOODS THAT WE NOW CAN'T AFFORD TO BUY WILL BE MADE CHEAPER!"

Here is where the econ books come in handy. Our current classifications were written almost a century ago and the rule is whatever does not fit perfectly into either agriculture or manufacturing is classified as services. Own your own tractor and farm other people's land? You work in the service sector. Run your own company building advanced electronics by hand and selling them to large companies for use on their assembly lines? You too work in the service sector. Contracted to perform scheduled maintenance on some of the machines making up an assembly line? You too work in the service sector.

However, mis-classification is not the whole story. Productivity growth is also key. While the jobs may now be mis-classified as services, there is no denying that there are fewer of them. This is because Americans and the world have been unable to find desirable uses for all the booming production of American industry. As a result, falling prices have forced many factories to close or move offshore. However, thanks to increasing demand and the new lower prices, this lost production has not come close to negating the booming production from America's remaining factories. Overall, American industrial output is still 9% higher than it was in 2002 and almost 50% higher than it was in 1990. And yet, all this output was produced with absolutely fewer workers, even adjusting for mis-classifications. American workers are usually not losing their jobs to Chinese workers; they are losing them to Japanese and American made robots.


[Edited on November 17, 2008 at 12:30 AM. Reason : .,.]

11/17/2008 12:24:42 AM