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5 hard truths for a tough market
Old 10-07-2011, 09:02 AM   #1
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5 hard truths for a tough market

Not really much in the way of "new news" in this article but it's a concise summary of some very good investment advice - at least for me. Those of you who are getting wealthy timing the market need to look away...

1. Donít buy most individual stocks ó and by most I mean nearly all

2. Donít buy most actively managed mutual funds

3. ETFs are no panacea, either

4. You donít have what it takes to be a trader

5. Plan, and lower your expectations

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The market is bad enough; you donít need ďexpertsĒ who are going to make it worse. Use common sense and look out for your interests. And hang in there ó it will get better. But I wonít lie to you and say I know when.
Five hard truths for a tough market - Howard Gold's No-Nonsense Investing
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Old 10-07-2011, 09:18 AM   #2
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A Quote From the Article..

"
So, the only individual stocks I’d consider buying would be blue chips with a long history of raising dividends, and even then I would make sure you’re diversified geographically and by industry.

I think he is maybe OK with my recent significant purchase of DVY.

To wit: Steady dividends diversified geographically and by industry.
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Old 10-07-2011, 09:39 AM   #3
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A Quote From the Article..
"
So, the only individual stocks Iíd consider buying would be blue chips with a long history of raising dividends, and even then I would make sure youíre diversified geographically and by industry.
I think he is maybe OK with my recent significant purchase of DVY.
To wit: Steady dividends diversified geographically and by industry.
When I read this amount of media attention to an investing style and an asset class, I know that the trend is peaking.
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Old 10-07-2011, 09:40 AM   #4
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These "truths" may be comforting for those whose minds are already made up, but they are far from universal. I've been buying and holding individual stocks since the mid-70s, and though very few have been giant winners, there have been close to zero meaningful losers, out of 100s of positions.

A lot of stocks should really not be publically traded. But your index funds at times will hold these in size, while a modestly astute investor in individual issues can avoid them.

Years ago I went to Sport's Authority with my younger son. He was about 10 and getting a new snowboard and boots. I can't remember the name of the snowboard company but it may have been Burton. In the car going home stock news announced Burton's spectacular IPO that day. Son at age 10 said, "That won't last long". That's all it takes folks, the observational and analytical ability of a 10 year old and at least a middling grasp on reality.

Ha
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Old 10-07-2011, 09:55 AM   #5
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Even if we accept these as 'truths', would they be any different in any other market?

-ERD50
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Old 10-07-2011, 10:14 AM   #6
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When I read this amount of media attention to an investing style and an asset class, I know that the trend is peaking.
Yup the "buy dividend stocks "recommenders are everywhere, and that usually portends bad things.
However, these same stocks have the added support/cushion of the dividend which to me means any fall from favor will be small (er).

Nonetheless, I'm looking at writing a few calls if the current rally continues.
FIDO doesn't do those for free, but the commission is very reasonable.
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Old 10-07-2011, 10:37 AM   #7
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2. Donít buy most actively managed mutual funds
Much of Gold's advice I follow, but I have little in bonds, and my mutual funds are all actively managed. I read the reference Gold gives for his point #2, and it seems the evidence behind this advice is mixed. For instance:
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Morningstar did find that the average fund beat all but one of its category Russell and Morningstar indexes over 10 years. It also beat the S&P indexes in five of the nine categories.
Indexes beat most actively managed funds, S&P says - FundWatch - MarketWatch
I'm not convinced there is anything terribly wrong with investing using actively managed funds.
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Old 10-07-2011, 10:58 AM   #8
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Nonetheless, I'm looking at writing a few calls if the current rally continues.
FIDO doesn't do those for free, but the commission is very reasonable.
I've been watching the call options prices on DVY, but they've generally been miserable.

DVY prices also go nuts when the financials get out of hand... in both directions.
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Old 10-07-2011, 11:09 AM   #9
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Not planning to start buying individual stocks again, but I think if dividends are your strategy, you just about have to go that direction. The dividends of broader market funds will include the banking sector, as Nords pointed out, which, these days, may or may not be wise. And I've noted that energy and utility funds/ETFs really don't have that good of dividends, likely dragged down by Ha's "stocks one shouldn't own"...
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Old 10-07-2011, 11:14 AM   #10
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Originally Posted by REWahoo View Post
Not really much in the way of "new news" in this article but it's a concise summary of some very good investment advice - at least for me. Those of you who are getting wealthy timing the market need to look away...

1. Donít buy most individual stocks ó and by most I mean nearly all

2. Donít buy most actively managed mutual funds

3. ETFs are no panacea, either

4. You donít have what it takes to be a trader

5. Plan, and lower your expectations

Five hard truths for a tough market - Howard Gold's No-Nonsense Investing
Interesting article, and certainly has some good advice IMO. At least, it pretty much agrees with my philosophies.

I'm not giving up my Wellesley until they pry it from my cold dead fingers, but then he does say not to buy "most" actively managed funds, not "all".
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Old 10-07-2011, 11:30 AM   #11
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I'm not giving up my Wellesley until they pry it from my cold dead fingers, but then he does say not to buy "most" actively managed funds, not "all".
+1

I have the same opinion of Wellesley that my kids have of Apple products: "It just works" - at least it has in 34 years out of the past 40.
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Old 10-07-2011, 11:32 AM   #12
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W2R, are you putting the "whee" in "Wheellesly"?
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Old 10-07-2011, 11:34 AM   #13
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W2R, are you putting the "whee" in "Wheellesly"?
No, no, no, no, no....
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Old 10-07-2011, 11:34 AM   #14
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W2R, are you putting the "whee" in "Wheellesly"?
I'll never tell!

I do love having it, though, and other than Wellesley I am pretty well focused on index funds so no active management.

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Old 10-07-2011, 11:43 AM   #15
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I've been watching the call options prices on DVY, but they've generally been miserable.

.
A bit early for calls.
The market needs to get a little irrational on the upside.
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Old 10-07-2011, 09:35 PM   #16
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A bit early for calls.
The market needs to get a little irrational on the upside.
I was doing fine selling Berkshire Hathaway and small-cap value (IJS) calls earlier this year while DVY sucked.

Just not enough volatility. It's also tough to price the dividends into the call premium. And that's all probably a good thing...
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Old 10-07-2011, 11:05 PM   #17
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From what I've read, there is nothing wrong with the strategy of the average active fund, it actually tends to outperform index funds a little bit. But, then you factor in costs and the costs end up dragging the performance of active funds well below the index funds.
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Old 10-08-2011, 09:59 AM   #18
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Costs!!!!!
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Old 10-08-2011, 10:29 AM   #19
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Costs are maybe the biggest hindrance to managed funds. Also, active management can make bad decisions and change over time. Vanguard's actively managed funds are competitive to indexed funds on cost and Wellington/Wellesley have a strong record of active management without an individual manager "star". A 50/50 portfolio of:
25% Total US and International Stock Indices
25% Wellington
25% Wellesley
25% Short Term Bonds
is not a bad compromise (IMHO)
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