Investment Choice for 24 Yr old Son

[Danny]

Share with me which tools/methods/charts/ you're getting these negative/expensive feelings from. Maybe I'm just hearing the sunny side...

No! I don't have to show you no stinkin' tools/methods/charts....

 

[cute fuzzy bunny]

Pssst... yield curve inversion, for starters.

Which has predicted 15 of the last 5 recessions, or something like that?

And then theres that Karl Malden guy who says we'll see a 43% drop in a recession, even though I dont think thats happened more than once or twice?

 

[brewer12345]

Which has predicted 15 of the last 5 recessions, or something like that?

And then theres that Karl Malden guy who says we'll see a 43% drop in a recession, even though I dont think thats happened more than once or twice?

Believe what you wish. Assuming a reasonably well-diversified portfolio and a modest withdrawal rate, its not like it makes a whole lot of difference anyway.

Personally, I think we will be heading into recession or a major slowdown in late 2006/early 2007. The Fed will go too far in raising rates. Certain segments off the RE market will drop, which will feed back into the mortgage market. Some of the dumber/riskier lenders will implode, and risk premiums on mortgege-backed paper will go back up to more typical levels. Risk premia on other paper (and maybe stocks, too) will creep up. If someone has created another LTCM (entirely possible), all bets are off for capital markets players. The"real economy" will slow as a backdrop and maybe go into a recession.

But I still think its going to be a short lived event/buying opportunity.

 

[Cool Dood]

Risk premia on other paper (and maybe stocks, too) will creep up.

I never take advice from people who say "premia"

 

[cute fuzzy bunny]

Sounds like a name for a health smoothie, doesnt it?

Your points are well taken Brewer, and market timers are well advised to seek out as many indicators and measurements as they can.

I'm in. Staying in. If I had more money to put in, I'd put it in. Cry havoc and let loose the dogs of war. Makes no difference to me. 20 years from now, lets look back and see if it mattered.

 

[brewer12345]

Sounds like a name for a health smoothie, doesnt it?

Your points are well taken Brewer, and market timers are well advised to seek out as many indicators and measurements as they can.

I'm in.  Staying in.  If I had more money to put in, I'd put it in.  Cry havoc and let loose the dogs of war.  Makes no difference to me.  20 years from now, lets look back and see if it mattered.

It probably won't in 20 years, like I said.

FWIW, I am fully invested, too. However, I mostly like individual stocks and I have shifted to stuff that is not particularly economically sensitive (my default position anyway). Insurers have gotten awfully cheap...

 

[cute fuzzy bunny]

So we agree?

I love agreement.

Group hug with the bunny...

 

[Danny]

Sounds like a name for a health smoothie, doesnt it?

Your points are well taken Brewer, and market timers are well advised to seek out as many indicators and measurements as they can.

I'm in. Staying in. If I had more money to put in, I'd put it in. Cry havoc and let loose the dogs of war. Makes no difference to me. 20 years from now, lets look back and see if it mattered.

http://intelligentspeculation.blogspot.com/2007/03/how-will-we-handle-stock-market.html

 

[brewer12345]

Lets pose a situation for you.
How did you handle the 2000-early 2003 "correction" did you ride it out without touching anything knowing that everything would be ok? Did you get burned at all?
Its one thing to say I have a 20 year horizon, but are you going to stick with it when you see a drop from 11000 to 7600....If you didn't budge then you are a smart investor with large cojones 

CFB will no doubt answer, but let me suggest that the best response to something similar for your son would be very different. From 2000 to 2003, I mostly just gritted my teeth and bought, bought, bought stock. Some of the buys I made back then were the big slam dunks. Your son should be praying for a market collapse.

 

[cute fuzzy bunny]

In early 2000 I sold my technology stocks, because there was clear evidence they were grossly overvalued...P/E's in the triple digits, people who had no idea what they were buying or why they were buying it.

I went into some boring old balanced funds, REITs, energy and precious metals. Sold all of those in the last 2 years because my ER and marital/parental status changed. The reits, energy and precious metals had run up substantially and I didnt need the boring 'get rich slow' funds anymore with a working wifes income.

The overall equity markets have recovered a bit since the minibear we had over the last few years. Earnings have been solid and consistent. The real bad guys like enron/worldcom/tyco etc have been cleared out. Martha Stewarts madness was brought to an end. The sun came out.

Some segments look a bit overpriced. But I'm mostly in target retirements and TSM right now, with a big dollop of Value thrown in for fun.

If the dow ran up to 18000 in the next year, I'd probably consider the relative valuations...in as much as i could articulate them. And if they looked as dumb as they did in 2000, I'd sell.

I still dont see very many measurements or 'experts' feeling that this market is overvalued. Not that i listen to them with any great heed. I see moderately fair prices all around except for perhaps some oil and metal stocks. The bond market looks stupid to me, given that longer maturities STILL havent gotten spanked and money markets and CD's are paying better than short bonds.

But I wouldnt hesitate to buy in right now if I had extra cash laying around. I also wouldnt be completely shocked by a 25% drop. Or a 25% runup. Aside from the unique insanity of 1995-2000, I doubt I'll make many portfolio changes for the next 15 years.

If I get the urge to "do something", i'll do 2-3 days of research, and then fully restructure my wifes $35,000 403b...for the third time. Gets it out of my system.

 

[Nords]

Lets pose a situation for you.
How did you handle the 2000-early 2003 "correction" did you ride it out without touching anything knowing that everything would be ok? Did you get burned at all?
Its one thing to say I have a 20 year horizon, but are you going to stick with it when you see a drop from 11000 to 7600....If you didn't budge then you are a smart investor with large cojones 

Hey, Dan, you know the answers to this situation.  It's buy & hold, not buy & forget-- that's what sell stops are for.  We didn't retreat but we sure danced around a lot.

When the fun started in mid-2000 we had just sold out of Heartland Value (HRTVX) after those SOBs expunged their last shred of ethical behavior.  We DCA'd into Tweedy, Browne Global Value (TBGVX) & Berkshire Hathaway (BRK.B) for the next two years.  We held our existing Tweedy shares that we'd been buying since 1996 because those guys were selling their fully-valued stocks and buying value shares as fast as we could send them the money.  Why, I bet those wild-eyed carefree analysts got their turnover up to 15% in 2001-2002.  Today most of our TBGVX shares are worth twice what we paid for them.  Our Berkshire shares are up about 30% from our 2001-2002 purchases.

After 9/11 our retirement portfolio nosed over sharply and completed a selloff that totaled 40% since early 2000.  I remember running what was left of our portfolio through FinancialEngines and it was still enough for a low-end ER, so we held on tight and watched.  I remember buying Disney (DIS) that week for under $18 and riding it up to $24, as well as a few local stocks (HECO, Central Pacific Bank, HE & CPB) with similar results.

We kept buying QQQs and kept getting stopped out with minor losses.  Eventually we made a big purchase at $20 in Oct 2002 and rode that pony until it dropped around $30 a few months later-- and then we were stopped out again. 

As the Iraq invasion became a different sort of conflict, I eventually caught on to what was happening with small-cap value and started buying the S&P600 Value ETF (IJS) in the $60s.  We kept buying and even dumped a bunch of mortgage money in at $110.  Today they trade at a split-adjusted $140.

As Brewer has mentioned, it wasn't fun.  I think a sell stop would trigger just about every month, and after a year some of them would be in the same stock or ETF for the fifth or sixth time.  If a particular stock dropped 40% overall, we probably dropped about 20% through our stops until we finally got it right. 

I kept reading and buying, especially when Buffett & the Tweedy, Browne guys were turning cartwheels over valuations.  We were doing this as spouse left active duty in 2001 and as I retired in 2002 so the situation was pretty fluid.  When the paychecks stopped in 2002 we decided to keep an eye on the sell stops but not try to time things too tightly-- how much lower could they go?  I became very good at finding tidbits of encouragement and different ways to say "stay the course".  It almost turned her into a bond investor but it was one heckuva way to determine our volatility tolerance.

I should warn the rest of you dirty market timers that this week our retirement portfolio hit an all-time high.  That means the market is going to back off at least 5% in the next couple of months...

In the next few months our 13-year-old is going to take her first steps into investing. Once we teach her about stocks, bonds, & mutual funds, we're going to start with half her minimum investment in a Fidelity small-cap value index and the other half in an international fund or ETF. Maybe she'll decide that she wants to invest in individual stocks, but she sees how much time I spend on it and she'd rather be doing other things. No bonds for the next decade or two, and no CDs until she starts thinking about a home down payment...

 

[ats5g]

Lets pose a situation for you.
How did you handle the 2000-early 2003 "correction" did you ride it out without touching anything knowing that everything would be ok? Did you get burned at all?
Its one thing to say I have a 20 year horizon, but are you going to stick with it when you see a drop from 11000 to 7600....If you didn't budge then you are a smart investor with large cojones

Hi Dan, [as Brewer said] IMO your son should be praying for a contraction in valuation levels [a large market downturn]. See Bernstein's The Duration of Stocks.

I started investing in 2001 at age 26. Most of my contemporaries had been "making a killing" with concentrated tech portfolios. I made it through the bear market by doing some reading, like Bernstein's books, Why Smart People Make Big Money Mistakes, and some of Terrance Odean's easy to read articles [which scared me into no trying to do much analysis or trading, especially Boys will be Boys: Gender, Overconfidence, and Common Stock Investment ]

I decided that a very good strategy was to try to own everything [large caps, small caps, int'l, REITs, and bonds]. Once I realized that no amount analysis was going to help me move deftly from one asset to another, I tried to set up a portfolio in which I wouldn't lose the loser's game.

Another "trick" that helped me to ignore the short term performance of my portfolio was having some rather unplanned children [not recommended of course].

- Alec

 

[brewer12345]

What is funny is that Nords and I were buying the same kind of thing (SC Value) in the midst of the bear market, but I bet he did a LOT more trading than I did.  I didn't (and don't) use stops, etc.  All I did in the pit of the bear was find stuff that looked cheap, was in no imminent danger of going BK, buy it, and hang on.  Yeah, sometimes I was in a little early, but what I was buying was already beat up, so the drops weren't that bad.  I still own some of the stuff I bought back then, all of which is trading at handsome unrealized gains.  Along the way I bailed out of CTAC at a ~80% gain, MINI at a ~150% gain, GMCR at a ~80% gain, a cheesy rural hospital chain that got acquired for ~75% more than I paid for it, and NLS for a ~75% gain.

Boy were there some days that my stomach about rolled over watching prices jump around.  But I learned something: buy cheap and put it away.  The vast majority of times the business chugs along and/or rights itself and the market will eventually come around to your point of view.

Now I am busy buying insurers, shipping companies and finance companies that are out of favor but still make gobs of money.  I'm also waiting for Mr. Smith to implement his exit strategy with PPD.  The market will come around to my view of the world eventually (some time in 2007 for the insurers, I would guess).

 

[Nords]

What is funny is that Nords and I were buying the same kind of thing (SC Value) in the midst of the bear market, but I bet he did a LOT more trading than I did.

Regardless of how many times you traded, you're probably still right.

The other side of that coin is that I've probably lost less $$ on MOVI. Not that either of us should be proud of that accomplishment...

I've learned that sell stops are one of the few ways to keep an eye on my portfolio when I'm not. I renewed my sell-stop religion card when I bought Overstock.com at $69 in Dec 04. I recall that it was sagging "a little" when I looked at my daily prices but it didn't stand out among the other couple dozen stocks I was tracking. Then one day in April I read about the shorts piling on and the CEO being stupid so I checked and realized I was holding $35 shares. I smacked myself upside the head a few more times, did the research, and cut losses at $40.

ETFs, mutual funds, and even Berkshire Hathaway aren't that volatile (and in many cases don't have enough trading volume). I don't keep sell stops on them. But for individual stocks, one of the few Bill O'Neill practices that I'm following is the 8% sell stop. With $8 trades I'll find one winner for every 8-10 losers and still come out ahead.

But that doesn't solve the turnover/taxes drag and the fact that I'm getting tired of keeping tabs on all the details. I still feel like I'm working through a phase where I'll eventually buy a small-cap international ETF and let it ride.

Making filthy piles of lucre just doesn't hold the attraction that it used to.

 

[Danny]

Hi Dan, [as Brewer said] IMO your son should be praying for a contraction in valuation levels [a large market downturn]. See Bernstein's The Duration of Stocks.

I started investing in 2001 at age 26. Most of my contemporaries had been "making a killing" with concentrated tech portfolios. I made it through the bear market by doing some reading, like Bernstein's books, Why Smart People Make Big Money Mistakes, and some of Terrance Odean's easy to read articles [which scared me into no trying to do much analysis or trading, especially Boys will be Boys: Gender, Overconfidence, and Common Stock Investment ]

I decided that a very good strategy was to try to own everything [large caps, small caps, int'l, REITs, and bonds]. Once I realized that no amount analysis was going to help me move deftly from one asset to another, I tried to set up a portfolio in which I wouldn't lose the loser's game.

Another "trick" that helped me to ignore the short term performance of my portfolio was having some rather unplanned children [not recommended of course].

- Alec

Hi Alec, with any luck the contraction started today. Good luck with your portfolio.

 

[Danny]

In early 2000 I sold my technology stocks, because there was clear evidence they were grossly overvalued...P/E's in the triple digits, people who had no idea what they were buying or why they were buying it.

I went into some boring old balanced funds, REITs, energy and precious metals. Sold all of those in the last 2 years because my ER and marital/parental status changed. The reits, energy and precious metals had run up substantially and I didnt need the boring 'get rich slow' funds anymore with a working wifes income.

The overall equity markets have recovered a bit since the minibear we had over the last few years. Earnings have been solid and consistent. The real bad guys like enron/worldcom/tyco etc have been cleared out. Martha Stewarts madness was brought to an end. The sun came out.

Some segments look a bit overpriced. But I'm mostly in target retirements and TSM right now, with a big dollop of Value thrown in for fun.

If the dow ran up to 18000 in the next year, I'd probably consider the relative valuations...in as much as i could articulate them. And if they looked as dumb as they did in 2000, I'd sell.

I still dont see very many measurements or 'experts' feeling that this market is overvalued. Not that i listen to them with any great heed. I see moderately fair prices all around except for perhaps some oil and metal stocks. The bond market looks stupid to me, given that longer maturities STILL havent gotten spanked and money markets and CD's are paying better than short bonds.

But I wouldnt hesitate to buy in right now if I had extra cash laying around. I also wouldnt be completely shocked by a 25% drop. Or a 25% runup. Aside from the unique insanity of 1995-2000, I doubt I'll make many portfolio changes for the next 15 years.

If I get the urge to "do something", i'll do 2-3 days of research, and then fully restructure my wifes $35,000 403b...for the third time. Gets it out of my system.

http://intelligentspeculation.blogspot.com/2007/03/sometimes-your-in-investment-bubble.html

 

[Danny]

CFB will no doubt answer, but let me suggest that the best response to something similar for your son would be very different. From 2000 to 2003, I mostly just gritted my teeth and bought, bought, bought stock. Some of the buys I made back then were the big slam dunks. Your son should be praying for a market collapse.

Yeah that would nice, but I wouldn't want to see my fellow forum members suffer. Although if I warn everyone to get out of the market & buy CD/MMF/bills/Tips and then wait for "blood in the streets" (was that Warren that said that?) opportunities I would feel less guilty.

 

[Danny]

Hey, Dan, you know the answers to this situation. It's buy & hold, not buy & forget-- that's what sell stops are for. We didn't retreat but we sure danced around a lot.

I should warn the rest of you dirty market timers that this week our retirement portfolio hit an all-time high. That means the market is going to back off at least 5% in the next couple of months...

In the next few months our 13-year-old is going to take her first steps into investing. Once we teach her about stocks, bonds, & mutual funds, we're going to start with half her minimum investment in a Fidelity small-cap value index and the other half in an international fund or ETF. Maybe she'll decide that she wants to invest in individual stocks, but she sees how much time I spend on it and she'd rather be doing other things. No bonds for the next decade or two, and no CDs until she starts thinking about a home down payment...

http://intelligentspeculation.blogspot.com/2007/03/invest-in-what-you-know.html

 

[cute fuzzy bunny]

I pulled 18000 out of my rear measuring device.

Point being if the market just shot to the moon, I'd reconsider holding.

Even when theres "blood in the streets" you can step on your weener.

As far as ford, gm and the airline industries...jeez louise, i guess its easy to scare yourself when you're picking between the badly managed companies making crap products and the ones operating on razor thin margins and also failing to alter how they do business to reach profitability.

How about toyota, honda and southwest?

Better still, how about Exxon mobil, Nutrisystem, HP, Boeing or any of the other companies who blew out the doors last year?

EVEN BETTER STILL, how about just buying the whole bucket and making 12.82% off of the TSM last year...forget individual stock performance, thieves, bad management and companies that 'dont get it'?

 

[Danny]

I pulled 18000 out of my rear measuring device.

I'm convinced that's how a lot of market anal-ysts get their predictions.

Well, there are well run companies in the US - that doesn't mean the employees are doing as well as the companies.

Exxon and Mobil - they really didn't have to work to hard to make money last year did they?

Boeing - they make good planes. - aren't they looking to offshore more of their work?

Southwest - the Walmart of Airlines - employees work cheap

HP - improved over a dismal period - they will lose their print cartridge profit center eventually.

Nutrisystem - hard to lose money in helping fat Americans lose weight and money. A growth industry

 

[JPatrick]

I pulled 18000 out of my rear measuring device.

So is that the same device you use to measure a butt-load of pepper for the steaks?

 

[sgeeeee]

I never take advice from people who say "premia"

I rarely take advice from people -- especially not people giving free advice on an internet board. Although I must admit that the advice you get here is probably worth every penney you pay for it.

 

[JPatrick]

I rarely take advice from people -- especially not people giving free advice on an internet board.  Although I must admit that the advice you get here is probably worth every penney you pay for it.   

Well sgeeeeeee I'd bet there will be some good energy stock trades tomorrow. (March 1).  Now that's one you can believe.

 

[sgeeeee]

Well sgeeeeeee I'd bet there will be some good energy stock trades tomorrow. (March 1).  Now that's one you can believe.

Even if you're right . . . predicting one end of a great trading opportunity does not guarantee superior profit.

 

[Nords]

Although if I warn everyone to get out of the market & buy CD/MMF/bills/Tips and then wait for "blood in the streets" (was that Warren that said that?) opportunities I would feel less guilty.

That quote's about to be lost in a sea of sincere imitators:

Baron Rothschild was asked when it would be time to buy stocks. He replied, "When blood is running in the streets of Paris. "

"When there's blood in the streets, I buy." -- J.P. Morgan, Bernard Baruch, & John Templeton...