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Beyond Buy-and-Hold #19
By Rob Bennett
Is it better to follow where reason leads when making investment decisions? Or to give in to the pull of emotion?
Everyone agrees that investors should aim for rationality. The difference is in how they go about doing this.
Buy-and-Holders aim to be unemotional investors. They ground their strategies in analyses of the historical stock-return data and in the findings of academic research. Stick to the objective and you can avoid the emotional traps, according to this school of thought.
I view this as a failed approach. It was worth a try. But it didn’t work out. It’s time to move on.
An exit strategy…a day too late
Continue reading There’s No Such Thing As An Unemotional Investor →
Beyond Buy-and-Hold #18
By Rob Bennett
Do you know what alpha is?
Do you know what beta is?
No, me neither.
The investing experts think they are a big deal. I do not. I could look up the terms on Wikipedia and write something here that would make it look like I know what they are. But if you really want to know, you could do that yourself, right? So what’s the point?
Continue reading Knowing the Mathematics of Investing Hurts More Than It Helps →
Beyond Buy-and-Hold #17
By Rob Bennett
What’s a bull?
What’s a bear?
These terms come from the pre-Buy-and-Hold Era. In those days, it was all about timing the market. The operative slogan was “Buy Low, Sell High.” That’s timing. Short-term timing. The kind of timing that doesn’t work.
The most important thing that the Buy-and-Holders got right was their idea that we all should be focused on the long term. In a world in which most investors were focused on the long term, short-term timing had to go and to a considerable extent it has. Unfortunately, long-term thinking has not yet permeated our consciousness to the extent it needs to for us to adopt an investing lexicon that reflects our new investor goals.
We still think of ourselves as bulls and bears, terms that make sense only in a world in which most investors are focused on the short term, even though we now live in a world in which most investors are focused on the long term. Huh?
Continue reading …And the Bull Shall Lie Down with the Bear →
By Kevin M
Do you like to pick your own stock investments? Or have you thought about it but just don’t know where to start? The lackluster returns in the market over at least the past ten years has to have some of us thinking that there’s got to be a better way—an inside secret even.
Most of us go with mutual funds so that we can at least keep pace with the general market. Mutual funds are after all managed by people who are in-the-know, so to speak. Or at least they should be.
If we decide that we’re not comfortable with mere market performance, we have to pick our own stocks and see if we can do better. But how do we do that?
Most of us lack either the time or the resources to pick our own stocks, and truth be told, while we have access to more information than ever before, the sheer volume of it can be overwhelming. How do we make sense of it against the backdrop of complex economic, regulatory and technological environments?
Continue reading How Do You Pick Stocks? →
Beyond Buy-and-Hold #16
By Rob Bennett
The creation of index funds was a breakthrough for the middle-class investor. Most of us don’t have the time needed to do the research required to pick stocks effectively. Index funds provide us a means of obtaining the great returns available from stocks without having to go to all the fuss and bother associated with picking stocks.
That said index funds have often been oversold. Many indexing advocates argue that stock picking does not work and that everyone should thus be in index funds. Even Warren Buffett! They argue that Warren Buffett is just lucky! Oh, my!
Warren Buffett is not just lucky. Warren Buffett knows what he is doing and he obtains far higher returns than indexers as a result. It’s wrong for indexers to argue that indexing is the only way to go. And it’s entirely unnecessary from a marketing standpoint. Indexing is wonderful. Why not just say that and explain why it is so while being entirely straight up about it?
Continue reading Stock Picking Works (But Probably Is Not for You) →
By Jennifer Barry
A couple of weeks ago, Kevin wrote Has the Time Come Again to Invest in Real Estate? and made the case for and against investing in this area, making some excellent points. However, I think the majority of people who jump into real estate right now will be kicking themselves in a few years when their investment continues to lose value.
Kevin is right that prices have dropped a lot since the peak – down more than 50% in some cases. Unfortunately, this doesn’t make housing cheap or even affordable.
Americans are spending too much on housing still. For over two decades, the ratio between the median home price and median household income was 2.8. Based on the latest government figures, the ratio is 4.3. The situation is getting worse as income is falling faster than prices, as unemployment remains stubbornly high.
Continue reading Housing: To Buy Or Not To Buy? →
Beyond Buy-and-Hold #15
By Rob Bennett
Say that you don’t care to invest in stocks. What sort of return can you expect to earn in a super-safe investment class like certificates of deposit (CDs) or IBonds or Treasury Inflation-Protected Securities (TIPS)?
The answer today is — not much.
But today’s realities are unusual ones. Say that you made it a practice always to avoid risk and thus tried to lock in good returns when they were available from super-safe asset classes. What sort of return could you in those circumstances expect from investments that carried virtually no risk?
Continue reading Certificates of Deposit Will Be Paying Higher Returns in Days to Come →
Beyond Buy-and-Hold #14
By Rob Bennett
I am the world’s #1 Boglehead.
I am also the world’s leading critic of Buy-and-Hold, the investing strategy advocated by Bogle.
It’s entirely possible to be both at the same time. The big-picture perspective is that Bogle is going someday to be known as the figure that led middle-class investing out of the dark ages. The Bogle Revolution is an extremely powerful force, one that will one day permit us all to obtain far higher returns at far less risk and one that may even do much to stabilize our free market economy.
But –
Before we get to that wonderful place where we all long to be, Bogle will need to face the music re the mistakes he made in his initial version of the Buy-and-Hold strategy, mistakes that were the primary cause of the economic crisis and that are likely to cause millions of failed retirements in days to come.
Continue reading Is the Key to Stock Market Success in the Past? →
By Kevin M
The investment universe seems to be as confusing now as it’s been at any time in recent memory. While it seems that opportunities exist—they always do—the risks have never been greater. So what are the choices, and how do we play them?
The Stock Market
The stock market is hovering around Dow 11,000—is it a good place to be? Many of the experts are saying that the economic recovery is just getting started, and now is an excellent time to be in the market. Profits are growing and the market is following a textbook post recession path to higher levels, maybe higher than we’ve ever seen in the past.
But voices in the woods—including regular OOYR contributor Rob Bennett—are advocating caution. Valuations remain high by historic standards and the economic backdrop is much more convoluted than it has been in past recoveries.
Continue reading Where Are You Investing Your Money Right Now? →
Beyond Buy-and-Hold #13
By Rob Bennett
Everyone else has gone into the living room to watch television. You’re looking over at the cheesecake. One more slice? No! It would be wrong!
How about a teeny, tiny slice? A slice that small couldn’t hurt anything. I’m talking about a piece so small you can barely see it. I mean, come on.
Sound at all familiar?
We humans are self-deceivers. We’re hard working. We’re creative. We’re loving. Still, deep down inside there’s something weak and bad in us. We cheat. That’s the thing. It’s not only others that we cheat. We cheat ourselves. We do it all the time.
We say we’re going to get regular exercise and it doesn’t happen. Who loses out? We say we’re going to not put off doing the taxes this year and the vow turns out to be a lie. Who suffers the anxiety that comes with getting all those records together at the last minute? We promise we will never again say an unkind word to our loved ones. Yet the next time one says or does something that hits one of our emotional hot buttons, we mess up yet again.
Continue reading Calorie Counting for Stock Investors →
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