Buy high,sell low

[unclemick]

I have codified my investment philosophy of the last 15 yrs of hobby stock investing into two rules:

1. Buy high, sell low

2. Trade actively.

Under 1. you buy DRIP stock with free/low expense reinvestment of dividends. Sell if they fail to raise their dividend rate every 1-2 yrs. Under 2. if you haven't doubled your(not div.) money in 7.2 years(rule of 72) then sell.

Am I rich, does it work? Nope but it does provide 32% of my taxable income stream not counting cap gains/losses. This was originally planned for the fourth leg of the table (pension, IRA, SS, div.) When IRA and SS cuts in, the 32% drops to 10 - 15 % depending on SWR selected. Thoughts are to start shifting toward more div growth oriented stocks as an inflation fighter. ? Are there any true blue old fashioned types that actually live off dividends anymore? I thinking of Frank Armstrong's old online book on mutual funds which contained the one line zinger - 'the rich live off dividens'.

 

[John Galt]

Hello unclemick!

I have no stocks, no SS, and no pension. Plus have not touched my IRA
as yet. Must be a goldang "ER Houdini". Maybe my personal dryer sheet flag should show a stool with one leg

John Galt

 

[cute fuzzy bunny]

One true blue dividend liver offer here.

John, if any of my stools grow a leg, I'd be off to the doctor.

 

[panhead]

John, I still have no idea what keeps your ship afloat, but I wish you many years of calm seas. Though I have to admit, I'm beginning to think you are in the witness protection program or something, I mean, the money has to come from somewhere ?? Right ?? Don't tell me, you were a mafia boss who turned states evidence, right ? Or, you have a very, very, good printing machine ?!

Heh Heh, just jealous man, hope to join you in a couple years !

 

[BigMoneyJim]

John, if any of my stools grow a leg, I'd be off to the doctor.

Okay, which wine were you drinking before that post?

 

[cute fuzzy bunny]

The coffee wine. Starbucks Columbian. Extra strong. Time for another cup.

 

[John Galt]

Hey Panhead! Well, of course there is more to my
story than I've revealed. But what I have posted is 100% true. I'm a stickler for honesty.

Here again I repeat, but it is a huge advantage to
believe you can accomplish about anything with just willpower and brainpower. The downside (of being a
borderline egomaniac) is a small price to pay for being able to sail through life and roll over all obstacles.


John Galt

 

[sgeeeee]

Hey Panhead!  Well, of course there is more to my
story than I've revealed.  But what I have posted is 100% true.  I'm a stickler for honesty.

John,

If you truely want to have a reputation for honesty, then you need to start telling the whole truth. When you say you are invested 100% in bonds, you are ignoring your real estate investments. This is very misleading -- especially to newcomers on the board. And that kind of advice could lead one of them to disaster. In other posts you often mention your significant real estate investments and holdings, but a reader has to read a lot of posts to understand that you really have a diverse portfolio of bonds and real estate.

 

[John Galt]

Salaryguru, you are correct. I am guilty of at least
oversimplification. That portion of my net worth
not in real estate is 100% in bonds or bond-like
securities. About 50% is currently in real estate
and a small amount left over in personal property.

How's that? I hope I won't be smothered in wet
dryer sheets for my errors of omission

John Galt

 

[cute fuzzy bunny]

Slap yourself silly with a wet noodle.

Going by that damned historical data, portfolios consisting of more than 60% bonds give weaker returns with no lessening of risk.

I dont think anyone has done a 50% reit, 50% bond portfolio yet. I'd be interested to see what the past 100 years told us about such a mix. Its probably quite a ride.

 

[unclemick]

1972-2002 efficient frontier curve and eyeballing:

50/50 REITS/stocks: return 12.9%
: SD 14.5%

100% REITS: return 13.4%
SD 17%

100% Stocks(?S&P): return 12.4%
SD 17.2%

At first blush, REITS and stocks have similar SD's and reutrns - BUT no idea of correlation or what happens when you start adding bonds. And REITS haven't been around 100 yrs. The curve looks like a parabola flopped on it's left side. With no correlation data I can't throw REITS into a calculator as a stock substitute and run with bonds. I think I can say (non math here) the REITS 'might' tend to damp SD as an asset class in stock/bond portfolio and 'maybe' slighly enhance 'long' term return by a few tenths of a percent.

 

[cute fuzzy bunny]

I was thinking about doing some modelling on a high REIT portfolio. At first glance they did appear to have similar total returns to stocks with a much higher yield.

Presuming you had a nut that was big enough to live off of the dividends thrown off, and given that inflation should 'inflate' the value of the real estate and hence the REIT, and you never had to sell any shares, wouldnt that work?

Then again, maybe this is just crappy low interest rates making me think about reaching for yields. I already have seen enough to know not to go to long bonds or at this time to high yield corporates, and REITs are expensive right now...but...

 

[John Galt]

Hello TH and all. I have very long term bonds and
High Yield bond funds as a major part of my "forever" money. If I am satisfied with the return and can hold until maturity (assuming no defaults), I don't see a problem.
Say the NAV falls due to higher interest rates or whatever.
It's only a loss if you sell.

John Galt

 

[Bob_Smith]

John, if inflation doesn't swamp your bonds' income, you should be OK if you hold to maturity. That's a pretty big "if", though.

 

[John Galt]

Not a "big if" really. I considered whether I might
need to cash in prior to maturity. Very little chance of that.
If the bonds all disappear, I can still make it. If the real
estate goes to -0- I can still make it. I have back-ups to my back-ups to my back-ups. Nice position to be in.

John Galt

 

[Bob_Smith]

I envy you! My position is not that secure. Reasonably secure, but far from bullet-proof.

 

[John Galt]

Guess my position is enviable in some ways. I mostly
ignore the historical probabilities, because I don't care
what my weird asset mix did over the last 50 years, or 40 years, or 30 years, etc etc. I have no long term
expectations for my life (very short horizon). On the other hand, if I am still here in 30 years, I have it set in my head
how I would handle that. So, when someone points out
how 50/50 bonds- real estate would have done since 1940, except for interesting conversation it does not pertain much to my life. Kind of like who will be elected
president in the fall. I don't much care. My life will
change little no matter who wins. In some ways I
wish that I attached more importance to voting
and that it would make some difference in my life.
Sorry, I don't see it. "Bullet-proof" is mostly
a state of mind anyway. Success in life is primarily based on
whether you believe you can do it. Willpower and
brainpower; an unbeatable combination.............................


John Galt

 

[BunsGettingFirm]

He lives in the boonies. He can grow certain cash crops that you'd have a difficult time growing in your basement.

John, I still have no idea what keeps your ship afloat, but I wish you many years of calm seas.  Though I have to admit, I'm beginning to think you are in the witness protection program or something, I mean, the money has to come from somewhere ??  Right ??  Don't tell me, you were a mafia boss who turned states evidence, right ?  Or, you have a very, very, good printing machine ?!  

Heh Heh, just jealous man, hope to join you in a couple years !

 

[panhead]

Yeah, lives in the boonies and grows a cash crop, good idea ! So I guess the back up plan would be a "state funded" retirement in case of incarceration (sp) ? Not a bad plan ! Maybe I'll buy myself a hemi orange 70 Dodge Charger, weld the doors shut, put an '01' on the doors and a rebel flag on the roof and start runnin' shine (or something more profitable) ! Hah !

I don't know what keeps that bro (sorry, biker talk) afloat, but I know he will be ok, he's got the right attitude. My view is simple, I've read all the safe withdrawal rate stuff, asset allocation, efficient frontier, real estate, gold bullion, mason jar allocation stuff, etc, but in the end, I'm going to create my own early retirement mix, and if something screws up along the way, I'll fix it. I think it's a combination of using you're head, heart, and b*lls that makes all this work anyway (sorry ladies, I ain't counting you out, substitute your own appropriate word there) ! We all (well, most of us) understand where the SWR came from and why or why not it will hold true in the future. Like has been said before, you can always go back to work (ARRRGGGHH)!

Disclaimer: I do still work, but hey, I'm young ! Then again, can you ever be too young to retire ?!

 

[cute fuzzy bunny]

So I guess the back up plan would be a "state funded" retirement in case of incarceration

My backup plan is a stale baguette and a one way ticket to switzerland. I practice my "menacing brandish of the baguette" once a week.

 

[Hyperborea]

1972-2002 efficient frontier curve and eyeballing:
<snip>
At first blush, REITS and stocks have similar SD's and reutrns - BUT no idea of correlation or what happens when you start adding bonds. And REITS haven't been around 100 yrs.

The short length of the data on REITs and the particular time period covered by that data (the home buying phase of the boomers) is my biggest concern with them. I might feel comfortable holding perhaps as much as 10% of them in my retirement portfolio but no more.

 

[cute fuzzy bunny]

I think REITS are run up, but I'm not sure the home buying thing scares me that much. With the vanguard REIT index, most of the top third of their holdings are office buildings, apartment buildings and storage facilities.

Oddly, I'd expect office building rents to have slid a little from 2000-2003, and apartment buildings to suffer as people moved to homes.

One thing thats a major eye-roller for me are the 'experts' who say if you have a lot of equity in your home, to not bother with REITS because you already have enough tied up in real estate. I wanna see one of them explain how a home in the Sacramento area correlates with apartment buildings in Los Angeles, office buildings in Manhattan and 10 acres of storage lockers in Memphis...

 

[John Galt]

Actually, I think there is something important here.
Even though I don't plan to invest in REITs, I have
considered it. But.............I am loaded with real estate
now, if that was a preferred avenue for diversification
I would be pretty well loaded up.

John Galt

 

[sgeeeee]

. . . One thing thats a major eye-roller for me are the 'experts' who say if you have a lot of equity in your home, to not bother with REITS because you already have enough tied up in real estate.  I wanna see one of them explain how a home in the Sacramento area correlates with apartment buildings in Los Angeles, office buildings in Manhattan and 10 acres of storage lockers in Memphis...

I've never understood that advice either. It makes about as much sense as telling me not to invest in J C Penneys because I already have a lot of money invested in my clothes.

 

[unclemick]

WHY,why,why? Being left handed and INTJ - I bought Vanguard REIT Index because of Bernsteins - falling correlation article - as a counterbalancer for my Lifestrategy moderate(balanced index).

And then in 'hobby stock land' bought New Plan Reality as a DRIP dividend coumpounder when they had problems and were yielding 12% - as a reasonable speculation.

Now watching my tiny UDR (apartments) position as a contrary idea - as mentioned in TH's post apartments aren't doing well.

Back to why:

1. REIT index - 10-20% of IRA as a low correlation asset class.

2. Individual REITS as small spec.'s in my hobby stocks with div.'s to reinvest(DRIP's).