Talking stocks, trading, and investing in general

[Master-Classter]

in Rich Dad Poor Dad, he makes the point that it's only by taking (calculated) risks that you really get the rewards. playing it safe and doing wide diversity really just gets you a weak return.

personally I think it makes sense to do both. I invest a large chunk in stable stuff and then have a small bit for playing around to try and up my average return.


at this point, I'm late 20's, just starting out, so i'm basically building a 70/30 portfolio trading ETF's (buy/hold and rebalance quarterly, mostly Vanguard type stuff) and once I've got enough of that as a dollar amount, I'll start playing around with say 5-10% in individual stocks as fun money

 

[tropics]



building a 70/30 portfolio trading ETF's (buy/hold and rebalance quarterly, mostly Vanguard type stuff) and once I've got enough of that as a dollar amount, I'll start playing around with say 5-10% in individual stocks as fun money

late 30s (yikes), that's pretty much what i'm doing.

 

[SkinnyGoomba]

MC I think you are right to take RD-PD with a grain of salt. I read the book and think that there are some good take-aways but also some advice that I think is easily misused.

I've had two very good mentors in the way of finance and both strongly urged me to buy and hold good companies, collect dividends and buy value in times of irrationality. Both made the majority of their wealth investing in the stock market.

 

[idfnl]



MC I think you are right to take RD-PD with a grain of salt. I read the book and think that there are some good take-aways but also some advice that I think is easily misused.

I've had two very good mentors in the way of finance and both strongly urged me to buy and hold good companies, collect dividends and buy value in times of irrationality. Both made the majority of their wealth investing in the stock market.

Never read it, but I personally happen to think the idea of buy and hold is kinda dead. There is too much data flowing and there are just too many daily moves available that are too attractive to not look for.

Otherwise, any book has worth and worthless insight, nothing new there. I can go back 20 years to "Your money or your life" to recycle a few nuggets but also dispel out of hand the idea that buying treasuries is a way to get to retirement intelligently.

 

[Concordia]

Rich Dad/Poor Dad is a supreme bullshit artist. There's a funny blog by a Texas real estate guy who takes him apart on just about anything that can be measured.

Anyway, someone who says that buy-and-hold or diversification is "dead" needs to prove expertise in buying and selling against the guys who do it full time. By the time transactions costs and increased taxes get taken into account, most people can't do it.

 

[Piobaire]



Anyway, someone who says that buy-and-hold or diversification is "dead" needs to prove expertise in buying and selling against the guys who do it full time. By the time transactions costs and increased taxes get taken into account, most people can't do it.

Completely agree with this. My stance is pretty much the opposite of the big swinging dicks here. My career offers me a modestly adequate salary and I am something of an expert in my field. It's difficult to be an expert in one field let alone more than one field. The thought I could be an expert in investments is almost ludicrous.

Now, one can be intelligently informed in several things. I like to think I'm intelligently informed in investments and part of this is knowing my limitations. Just like my career, if I can steward modestly successful returns, coupled with continuous capital additions from the career where I actually am somewhat expert, I should achieve long term success.

Big swinging investment dick? Not me. It's not my career, I don't feign expertise, and mainly buy and hold is what I'm all about.

 

[SkinnyGoomba]



Never read it, but I personally happen to think the idea of buy and hold is kinda dead. There is too much data flowing and there are just too many daily moves available that are too attractive to not look for.

Otherwise, any book has worth and worthless insight, nothing new there. I can go back 20 years to "Your money or your life" to recycle a few nuggets but also dispel out of hand the idea that buying treasuries is a way to get to retirement intelligently.

I think you are overlapping the two things. RDPD is definitely not a book that I am an advocate of, and I do not think that he supports the idea of buy and hold in the book.

I agree with Concordia, but didn't feel the need to rip it apart as MC seems to have appreciated some of the take-aways.

Buy and hold works well for me, I do not need to constantly churn my portfolio.

 

[Texasmade]

I'm 31 and have most of my investments in dividend blue chip stocks. I have a small amount of my 401k in bonds but I would say that's less than 5% of my total portfolio. I have large portion of my investments focused on pipelines and MLP's. This was mainly due to good timing (buying as much as I could during the recession and right before the fracking boom) and never selling. Like SG, I don't churn my portfolio and more risk adverse.

 

[idfnl]



Rich Dad/Poor Dad is a supreme bullshit artist. There's a funny blog by a Texas real estate guy who takes him apart on just about anything that can be measured.

Anyway, someone who says that buy-and-hold or diversification is "dead" needs to prove expertise in buying and selling against the guys who do it full time. By the time transactions costs and increased taxes get taken into account, most people can't do it.

I trade almost exclusively thru retirement vehicles so I don't worry about taxes. Interactive Brokers is like $1 per trade... if you are getting ripped off with $10 trades, then sure, transaction costs will be a drain.

Technically I said "kinda dead" about buy and hold. Take KO. After an adjusted all time high around 1997/8, it's still never topped that peak. If you had sold anywhere near that high, that money could have been cycled thru dozens of positions with good prospects. Unless you made bad decisions, I find it hard to believe you'd not do better than the cumulative dividend that 16 year recovery has provided.

Kodak is another example. How many shares sat fallow in buy and hold accounts only to become worthless?

30 years ago, you didn't have the kind of access to data you do today. You bought and held for a decade because it was much harder to find compelling reasons to move the money, and brokerage fees were generally prohibitive. I remember the fees on my first ever stock purchase were like $101, an astronomical number in today's standards.

Buy and hold works well for me, I do not need to constantly churn my portfolio.

We've talked over your strategy, when I say buy and hold, I mean the types that basically never re-balance, or do it so infrequently that they are exposed to KO or Kodak situations.

What I do would probably be considered churn by many, but I'll reiterate that I like to convert profits into free shares, which I tend to hold for quite a long time.

 

[Concordia]

For every Kodak and Polaroid, there is a Philip Morris, Microsoft, or GE. You want to choose only one, and you're going to need to be smarter than average. You buy all of them, and you will get (by definition) above-average results. That is, you own the average portfolio, but don't pay the active fees, commissions, bid-ask spreads, market impact, etc., that nearly everyone else is.

There are other ways to do things, but you need to make sure that they are better than this low-effort solution. Most people don't take the trouble to do it honestly.

 

[idfnl]



For every Kodak and Polaroid, there is a Philip Morris, Microsoft, or GE. You want to choose only one, and you're going to need to be smarter than average. You buy all of them, and you will get (by definition) above-average results. That is, you own the average portfolio, but don't pay the active fees, commissions, bid-ask spreads, market impact, etc., that nearly everyone else is.

There are other ways to do things, but you need to make sure that they are better than this low-effort solution. Most people don't take the trouble to do it honestly.

I find that rather risky. If you held, for example, 10 positions equally, and one takes a nosedive into bankruptcy, you're out like 10% of your entire portfolio. Or a bad acquisition, ****** CEO, lawsuit, etc can all really handicap a stock. I'd look to be way more diversified than that.

Microsoft sat fallow for like 10 years. HP was a real dog, hasn't recovered from it's 2000 all time high... are you really going to wait a position out 15 years?

GE? It was in the 60's back in '01 or so. Sure, you could have averaged down, but in the same period CELG has risen something like 6000%. GOOG ipo'd. AAPL had its run. BIIB, CMG, SBUX, etc, all massive growth stories. Point is, you have to be there to shift the money and actively watch for opportunities.

 

[UnFacconable]

We all agree that constantly turning over positions is no guarantee for success. If you are good at it (and/or lucky) you can make more money that way than buying and holding but that's a double-edged sword.

IDFNL you clearly enjoy the game and have developed mental abstractions (free shares, getting back to even on losers, etc.) that enhance your enjoyment of investing but you know they aren't sound strategies for maximizing your returns.

I liken what a lot of people do in the market to gambling in vegas. Some people say "I played cards all weekend, drank for free and broke even" and consider that a success, other people say "I played cards all weekend, didn't sleep much and didn't make any money - wish I had saved all that time". If you enjoy the process, actively trading can be fun regardless of whether it beats a more passive approach but for people who don't want to spend their time that way, they should be happy knowing they can very easily generate market average returns through low cost passively managed funds. I'm not making the comparison to gambling because all investing is a gamble or speculative just wanted to compare how people view the use of their time.

 

[GreenFrog]

I don't understand why people are cherry picking stocks to fit their narrative. You can cherry pick ANY stock to fit ANY narrative that supports your investing strategy.

It's ******* pointless.

 

[idfnl]



I don't understand why people are cherry picking stocks to fit their narrative. You can cherry pick ANY stock to fit ANY narrative that supports your investing strategy.

It's ******* pointless.

Because they exemplify situations. When you see enough of them patterns emerge, or you have a body of personal experience and/or hear/read enough stories of investment mistakes and start to listen to others, you don't repeat them (like margin ). Otherwise, you invest with a thumb up your ass. Would you like me to name 30 more like CSCO and ORCL?

I made this point a while ago about charting, you can manipulate a chart to fit a narrative too. You can cherry pick a single stock, but go cherry pick 100. That get's hard because patterns and mathematics start to disrupt your ability to fool yourself and/or generate fodder for investing books.

When people like you start to think it's pointless they buy the market fund and sit on it. Maybe you should too. For me, I love the ride and plan to continue.

 

[guyver00]

I'm 34, invest in 5 index ETF's, all stock as I need to build up a pot of "**** You Money" for early retirement. 5% of my portfolio is for trading purposes. Started investing 2 years ago, started with picking stock, then switched into index investing in 2013.

I don't see how you can prevent people cherry pick their data to bury their loses, except perhaps to publish their annualized/YTD returns.