Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 10-22-2014, 06:58 PM   #141
Full time employment: Posting here.
 
Join Date: Jan 2005
Location: northern Michigan
Posts: 732
Quote:
Originally Posted by Hamlet View Post
I don't think this correction is actually done yet.
I agree. I will be surprised if the S&P 500 ends up on the positive side for this year. A lot will depend on whether the Fed continues to manipulate the market with more QE stuff (round 4?), or not. It has to end at some point.
__________________

__________________
RAE is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-22-2014, 07:02 PM   #142
gone traveling
 
Join Date: Sep 2013
Posts: 1,248
Quote:
Originally Posted by NW-Bound View Post
But, but, how long is the history of the American stock market for us to be sure that it will always go up? Did the economy of the Roman, the British empire keep on going up?
Could it be that total global wealth in 1800 was larger then in 1900 which was larger then one in 2000?

We have many many more people who enjoy higher and higher standard of living each decade....

BTW in global economy even S&P 500 is not reflection of US GDP only.
__________________

__________________
eta2020 is offline   Reply With Quote
Old 10-22-2014, 09:24 PM   #143
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,444
Definitely, the world wealth keeps on increasing. But while it blooms here, it wilts there.

Yes, globalization changes a lot of things. The issue is how we should react to these changes. Your last sentence suggests that we do not need to change much, and can stay US-centric in our investment choices. Perhaps you are right. Just recently, there was an article showing the correlation between international stocks and US stocks is getting stronger and stronger.

But the underlying problem remains: the world-wide economy and stock markets evolve, and even to say that as things change they are self-compensating requires some analysis, not just arm-waving and ignoring the question.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is online now   Reply With Quote
Old 10-22-2014, 09:47 PM   #144
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,696
I just let the market pricing decide. My international allocation switches between US and international and has been mostly in US over the last 4 years. Probably no coincidence that the dollar has been in an uptrend over the last 3+ years.
__________________
Lsbcal is online now   Reply With Quote
Old 10-23-2014, 05:21 AM   #145
gone traveling
 
Join Date: Sep 2013
Posts: 1,248
Quote:
Originally Posted by NW-Bound View Post

Yes, globalization changes a lot of things. The issue is how we should react to these changes. Your last sentence suggests that we do not need to change much, and can stay US-centric in our investment choices. Perhaps you are right. Just recently, there was an article showing the correlation between international stocks and US stocks is getting stronger and stronger.
Equity only investor would do quite well with for example 50% VTI and 50% VXUS. That's it. As simple as that.

The rest is having plan, stick with it, discipline, LBYM, stay away from timing....and add and add and add as years go by.

Algorithm:
Each month:
If VTI is below 50% add to VTI else add to VXUS.

That would give you portfolio with about 2.5% yield so at 2 million you are looking at 50k annual "qualified" dividend TAX FREE from federal government.
__________________
eta2020 is offline   Reply With Quote
Old 10-23-2014, 06:19 AM   #146
gone traveling
 
Join Date: Sep 2013
Posts: 1,248
Quote:
Originally Posted by NW-Bound View Post
But the underlying problem remains: the world-wide economy and stock markets evolve, and even to say that as things change they are self-compensating requires some analysis, not just arm-waving and ignoring the question.
If I try to be smarter than 50% VTI/50% VXUS I risk that I will in fact be stupider and make bad decisions. And indeed this is what most people end up doing.

With simple strategy I take no risks and I know I will do quite well. But I need to resist temptations that I am smarter then that....

So i elect arm-waving and ignoring if AAPL will do great or Europe will have 2 terrible years.
__________________
eta2020 is offline   Reply With Quote
Old 10-23-2014, 09:08 AM   #147
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
HFWR's Avatar
 
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 12,964
The Fed has been winding down QE for some time, and it's near the end, and it's not a secret. I think it's priced in...
__________________
Have Funds, Will Retire

...not doing anything of true substance...
HFWR is offline   Reply With Quote
Old 10-23-2014, 10:32 AM   #148
Thinks s/he gets paid by the post
 
Join Date: Aug 2006
Posts: 1,361
The problem with using the Kelly criterion for investing is that you don't neccessarily know the probability of winning or whether an asset is "on sale".

If stocks go down because their earnings power is impaired, that is not a reason to increase your holdings. If they go down because of irrational fear, it is a reason to increase your holdings. In practice, it is very difficult to tell the difference.

My general point is that the number of trials to separate luck out from skill in poker or active investing is very large, and the game itself is changing in the meantime. In practice, I don't think most people will ever really know with any confidence which led to their outperformance (or underperformance).

It's somewhat easier in poker, because you can analyse individual hands after the fact and come up with your true chances for winning and losing a hand, and figure out if you played that same hand 1000 times what your expected win/loss rate would be.

With stocks, you can't really do that. When a company starts having troubles and the stock goes down, what are the odds of it turning things around? Those odds are unique for each company, and they aren't something that can really be calculated. Ultimately, you're just making educated guesses, and there is no way to know what the odds really were, regardless of how it actually turns out.

Buffett's margin of safety is an acknowledgement of how hard it is to be precise about investing. He tries to find situations that aren't even close, so that even if his judgement is quite a bit off the mark he still won't lose money. Those situations are pretty hard to find though, and come up infrequently enough that you end up wondering if it really was just luck.



Quote:
Originally Posted by NW-Bound View Post
I am not a poker player, but understand that the game or some variations of it involves bluffing, reading the opponent's reaction, etc... So there's skill involved. Other card games may be just like slot machines, i.e., all pure chance.

Regarding investing, I should have been more specific and talk about "active investing" and not "trading", as the latter term implies quickly jumping in/out or day trading. The quicker you buy and sell, the more it looks like a pull of the lever of the slot machines.

Kelly criterion, if anyone cares to read the article, says that the optimal bet size varies with the probability of winning. You increase your bet when the chance is higher, and decrease it when it does not look as good. Applying it to investments, you would increase the bet when a particular asset is on sale, and decrease the bet when it has been on the run. You do not go 100% one way or another, because how can you be sure of anything?

Applying Kelly criterion requires you to increase stock AA when the market goes down, and lower stock AA when the market runs hot. This is hard to do when the average investor has enough trouble maintaining constant AA.
__________________
Hamlet is offline   Reply With Quote
Old 10-23-2014, 12:07 PM   #149
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,444
Quote:
Originally Posted by eta2020 View Post
If I try to be smarter than 50% VTI/50% VXUS I risk that I will in fact be stupider and make bad decisions. And indeed this is what most people end up doing...
I stay fairly diversified too. Using the Kelly mathematical criterion, one only puts 100% on a bet when he is 100% certain that it will pay off. Too many random things happen in real life, and only fools can be 100% certain of anything (other than facts like the sun rising in the east or 2+2=4, of course). Actually, the average Joe intuitively knows not to "go for broke" or "going all in", and he never hears about Kelly criterion. It's common sense.

This talk of diversification brings us back to the question of outperforming the market. Any fool can beat the market for a day, a week, one year. There is enough randomness to guarantee that. And it is not possible for anyone to beat the market every single year. How can one beat the market during the bubble years? Going on margin in 1999 and early 2000? One can only outperform a crazy market by being crazier. So, the period of measurements has to be longer, like 5 or 10 years.

Many value MF managers in the past beat the market when measured over periods of one, two, or three decades, but the EMH proponents still say that is not enough. They usually point to the coin-tossing monkey argument, and say that there will always be a lucky monkey if we add more monkeys.

And the longer the period, the more monkeys they will bring in to the argument. By that definition, they will never be satisfied that anyone can beat the market, because they do not run out of monkeys, but an investor has a limited life.

In fact, some even say that there is not enough evidence to prove that Buffett is not a lucky guy. I am serious. This for a guy with an investing career of 60 years!

Quote:
Originally Posted by Hamlet View Post
The problem with using the Kelly criterion for investing is that you don't neccessarily know the probability of winning or whether an asset is "on sale"...
True. The market is not a textbook game where one can determine the chances a priori. What one can do is to apply it heuristically: increase stock AA during a downturn, and decrease it after a good run. If the stock is truly a random walk, then the above would not work (in fact if the stock movement is a mathematical random-walk like a coin toss, one has to be a fool to play). The simple explanation is that after a crash, the market has a higher probability to go up than down. The converse is true after a good run. It is just a probability, never a certainty, hence you cannot go all in/all out.

But as I said, maintaining AA in a down turn is already plenty hard. Buying more stocks is beyond what most people have the stomach for, but afterwards we all say "woulda, shoulda".
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is online now   Reply With Quote
Old 10-29-2014, 01:41 PM   #150
Thinks s/he gets paid by the post
 
Join Date: Aug 2006
Posts: 1,361
And that is one of the hardest things about stuff like this. You can't really prove Buffett wasn't just lucky. He chose a very concentrated portfolio. Sure, he's invested for 60 years, but you can probably distill a large portion of his success to less than two dozen investments that turned out really well. Given the massive numbers of people investing, you would expect some pretty amazing outliers using that investment method just given chance alone.

Do I think it was just luck? Nope. I find his explanation of his investing choices over the years to be pretty compelling. However, I think luck was certainly involved. GEICO could have gone bankrupt. The Buffalo News could have been prevented from having a Sunday paper indefinately by the courts. People could have lost faith in American Express during the Salad Oil Scandal. Solomon Brothers could certainly have gone under if Buffett hadn't managed to get the Feds to allow them to continue. Etc, etc.

How much of his performance was luck and how much was skill? It's a question that can't be answered. I think both are non-zero, but I also think the luck factor is bigger than most people think.

Quote:
Originally Posted by NW-Bound View Post
Many value MF managers in the past beat the market when measured over periods of one, two, or three decades, but the EMH proponents still say that is not enough. They usually point to the coin-tossing monkey argument, and say that there will always be a lucky monkey if we add more monkeys.

And the longer the period, the more monkeys they will bring in to the argument. By that definition, they will never be satisfied that anyone can beat the market, because they do not run out of monkeys, but an investor has a limited life.

In fact, some even say that there is not enough evidence to prove that Buffett is not a lucky guy. I am serious. This for a guy with an investing career of 60 years!
__________________
Hamlet is offline   Reply With Quote
Old 10-29-2014, 02:28 PM   #151
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,696
Sometimes I wonder: what is luck?

Aren't we all here because of luck? And I'm not going to invoke some higher power explanation here. Why did this spherical mass we live on get the atmosphere to sustain life? Probably just luck that we evolved as we are now at this very moment. And Buffet, he's said that he was lucky to be born at a period in time where his talents could be utilized. Maybe in a few thousand years there will be a much higher percentage of Buffet minds. But the markets will be so evolved in those years that Buffet's mental advantages will be almost impossible to duplicate.

I'm personally turned off by the extreme uses (not mild statistical arguments) of the "luck explanation" when it comes to investing. Not saying Hamlet is guilty of this. But others quite often use luck as a justification for one form of investing as the only way to do things. I've seen it used here and at Bogleheads in some outrageous ways.

I think the luck explanation should be used sparingly.
__________________
Lsbcal is online now   Reply With Quote
Old 10-29-2014, 03:18 PM   #152
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,444
There have been a couple of concurrent threads about ER's being lucky. And another poll reconfirms what long-timers here have known for a long time, that a high percentage of ER's are of the INTJ personality. Perhaps it's all due to luck that they have the INTJ gene.

About Buffett, there is no way he would let Geico get into the subprime business like AIG. In fact, I remember the earlier episode, perhaps in late 2007 when the words were out that some financial corps were in trouble due to leveraging and lack of liquidity, Buffett laughed in an interview and said that only when the tide was out that we would know who had been swimming naked.

And later, when one after another corp went belly up, they asked him if the carnage was over, if the last shoe had dropped. Again, he laughed and said that we could be dealing with a centipede here.

I really like Buffett's sense of humour.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is online now   Reply With Quote
Old 10-29-2014, 04:26 PM   #153
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 5,914
Oh, oh. My return for the year is now over 8%. Time to see if there is something we can do without as not all MRDs have been shoveled out the door.
__________________
Duck bjorn.
Brat is offline   Reply With Quote
Old 10-29-2014, 04:33 PM   #154
Moderator
Walt34's Avatar
 
Join Date: Dec 2007
Location: Eastern WV Panhandle
Posts: 16,579
Quote:
Originally Posted by Brat View Post
Oh, oh. My return for the year is now over 8%. Time to see if there is something we can do without as not all MRDs have been shoveled out the door.
__________________
I heard the call to do nothing. So I answered it.
Walt34 is offline   Reply With Quote
Old 10-30-2014, 10:30 AM   #155
Thinks s/he gets paid by the post
 
Join Date: Aug 2006
Posts: 1,361
GEICO isn't going to go bankrupt now, but when Buffett first bought stock it was in severe distress. Bankruptcy was a definate possibility at that time. One of his biographies quotes him as saying at the time that he had put huge money into something that could go under tomorrow. It didn't, but it could have. If it had, his investing performance would have been impacted dramatically. He would still have been successful, but he might not be famous.

Quote:
Originally Posted by NW-Bound View Post
There have been a couple of concurrent threads about ER's being lucky. And another poll reconfirms what long-timers here have known for a long time, that a high percentage of ER's are of the INTJ personality. Perhaps it's all due to luck that they have the INTJ gene.

About Buffett, there is no way he would let Geico get into the subprime business like AIG. In fact, I remember the earlier episode, perhaps in late 2007 when the words were out that some financial corps were in trouble due to leveraging and lack of liquidity, Buffett laughed in an interview and said that only when the tide was out that we would know who had been swimming naked.

And later, when one after another corp went belly up, they asked him if the carnage was over, if the last shoe had dropped. Again, he laughed and said that we could be dealing with a centipede here.

I really like Buffett's sense of humour.
__________________
Hamlet is offline   Reply With Quote
Old 10-30-2014, 11:05 AM   #156
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,444
Buffett does not always make the right call, and he often admits to his errors publicly. And some close calls might have cost him dearly as you said, and might have bumped him from being among the top 5 richest men in the world.

So, there is an element of luck alright. But it is the same as an athlete getting the gold medal at the Olympics. Lucky or not, they are head and shoulder among the peers, let alone the average weekend biker or runner.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is online now   Reply With Quote
Old 10-30-2014, 11:07 AM   #157
Thinks s/he gets paid by the post
 
Join Date: Jun 2014
Posts: 1,035
So did we have a correction? I think it dropped something like 9.8%. (I'm sure someone is about to correct me by <0.2%)

Technically no, but emotionally yes?


Sent from my iPhone using Early Retirement Forum
__________________
dallas27 is offline   Reply With Quote
Old 10-30-2014, 11:25 AM   #158
Thinks s/he gets paid by the post
 
Join Date: May 2014
Location: Utrecht
Posts: 2,213
If I remember well, GEICO previously was owned by his mentor Graham. He made a bundle on it, then sold. I believe he put nearly all his assets in that one company.

Years later Buffett comes across GEICO again, in tatters and in trouble. Somehow (probably with Buffett's help) GEICO recovers and goes on a rampage after that.

That story alone made me stop believing I could ever do anything remotely Buffett-like. It's hard to tell the potential winners on a down from the losers on their way to the graveyard.

Not to mention his own mishap with Berkshire, that wasn't a great idea back then.
__________________
Totoro is offline   Reply With Quote
Old 10-30-2014, 11:49 AM   #159
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,444
I wouldn't dream of doing something like Buffett did. Where was he when he was your age? What he has now, if I have 0.001X of that, I would be very happy and most likely be doing something else rather than chatting here.

But about the "almost correction", I believe it hit 10% down on intraday. I did not sell, and even bought a bit. Don't think I will be setting a new personal high watermark anytime soon. The sectors I am in have not been doing well. Time to look elsewhere, or be patient? This is my own problem to solve.

PS. Umm... Make it 0.0001X Buffett's net worth, and I would be outta here.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is online now   Reply With Quote
Old 10-30-2014, 01:42 PM   #160
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,906
Quote:
Originally Posted by NW-Bound View Post
-snip- What he has now, if I have 0.001X of that, I would be very happy and most likely be doing something else rather than chatting here.

-snip-
PS. Umm... Make it 0.0001X Buffett's net worth, and I would be outta here.
Interesting because I don't think I would be doing anything differently with $5M (if my math is right) as opposed to what I'm doing now. Heck am not sure even 10 times that amount would be much different but maybe it's just lack of imagination on my part...
__________________

__________________
ejman is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Retirement Dissatisfaction is Inevitable Midpack Life after FIRE 59 11-15-2010 06:02 PM
Inflation is inevitable? Gone4Good FIRE and Money 19 05-31-2009 01:39 PM
The bunny-pocalypse is inevitable. HFWR Other topics 9 04-23-2008 09:07 PM

 

 
All times are GMT -6. The time now is 03:42 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.