I have heard it said that a financial planner can provide more value with planning techniques than with just managing your money (an investment adviser only).
According to Kiplinger's Personal Finance (Washington Post August 8, 2010), "...Morningstar analyzed investor returns of institutional funds and funds sold with sales charges, both of which are typically purchased with the "help" of advisers. Measured against no-load funds, which individual investors usually buy on their own, these funds produced roughly the same poor results..."
Guess what? Market timing does not work. Buy low, sell high. Simple. But there were not many interested in selling in October of 2007 (market high) and even fewer interested in buying in March of 2009 (market low).
The answer is a strategy, a plan and an allocation of financial assets based on your personal situation.
Showing posts with label Investments-General. Show all posts
Showing posts with label Investments-General. Show all posts
Wednesday, September 8, 2010
Monday, March 8, 2010
More Stock Market History - Worst 3-year Periods
Investors in stocks should have a long-term horizon: 10-15 or more years before they need that portion invested in stocks. Most consider 1 year long and 3 years an eternity.
Here are some interesting statistics on 3-year rolling periods since 1926 (there are many 3-year rolling periods when measured month by month). For example, July 1, 1929 through June 30, 1932 is one and August 1, 1929 through July 31, 1932 is another, etc.)
As measured by the S&P 500 (and this index was actually started in 1970 so interpolation is required for this data provided by the Center for Research in Security Prices and Bank of America):
Of the 25 worst 3-year periods in stock market history since 1926, 22 occurred in 1931, 1932 and 1933 (with market declines ranging from (43% ending 7/31/1933) to (81% ending 6/30/1932).
The worst two (only 2) 3-year periods of recent history were for the periods ending 2/28/2003 and 3/31/2003 (39% and 42% respectively) before the market took off again during late 2003 through October 2007.
The 3-year period (March 1, 2006 through February 28, 2009 just before the March 9, 2009 low from which the market posted sizeable double-digit gains), is measured as a loss of (38%).
As bad as this recent period has felt for most investors, it ranks as #25 out of the worst twenty-five 3-year rolling periods. Now there is some perspective.
As Samuel Dedio, head of U.S. Equities at Artio Global Management, stated "...even professional advisors were stunned during the downdraft..." but, in reality, it has not been the worst 3-year performance on record.
Here are some interesting statistics on 3-year rolling periods since 1926 (there are many 3-year rolling periods when measured month by month). For example, July 1, 1929 through June 30, 1932 is one and August 1, 1929 through July 31, 1932 is another, etc.)
As measured by the S&P 500 (and this index was actually started in 1970 so interpolation is required for this data provided by the Center for Research in Security Prices and Bank of America):
Of the 25 worst 3-year periods in stock market history since 1926, 22 occurred in 1931, 1932 and 1933 (with market declines ranging from (43% ending 7/31/1933) to (81% ending 6/30/1932).
The worst two (only 2) 3-year periods of recent history were for the periods ending 2/28/2003 and 3/31/2003 (39% and 42% respectively) before the market took off again during late 2003 through October 2007.
The 3-year period (March 1, 2006 through February 28, 2009 just before the March 9, 2009 low from which the market posted sizeable double-digit gains), is measured as a loss of (38%).
As bad as this recent period has felt for most investors, it ranks as #25 out of the worst twenty-five 3-year rolling periods. Now there is some perspective.
As Samuel Dedio, head of U.S. Equities at Artio Global Management, stated "...even professional advisors were stunned during the downdraft..." but, in reality, it has not been the worst 3-year performance on record.
Wednesday, March 3, 2010
DCA - Dollar Cost Averaging
Dollar Cost Averaging is often used by investors because they are worried that their investments will go down in value.
Wrong reason.
I have stated before that the reason to put a set amount of money into investments on a regular basis (paycheck deduction, for example) is because you simply do not have a lump-sum to invest. If you have a lump-sum, then diversify it appropriately but immediately - not in stages.
Markets, overall, rise over time (15 year or longer time horizons). They have up to this point and that includes the Great Depression, world wars and double-digit inflation periods.
So...
as long as you have a time horizon measured in many years, then do not dollar-cost average (DCA). This DCA technique is simply an easy way to regularly invest if you don't have the cash.
Oh, by the way, if you stopped contributing anytime during the past 2 years, then you truly are defeating the purpose of dollar-cost averaging anyway.
Wrong reason.
I have stated before that the reason to put a set amount of money into investments on a regular basis (paycheck deduction, for example) is because you simply do not have a lump-sum to invest. If you have a lump-sum, then diversify it appropriately but immediately - not in stages.
Markets, overall, rise over time (15 year or longer time horizons). They have up to this point and that includes the Great Depression, world wars and double-digit inflation periods.
So...
as long as you have a time horizon measured in many years, then do not dollar-cost average (DCA). This DCA technique is simply an easy way to regularly invest if you don't have the cash.
Oh, by the way, if you stopped contributing anytime during the past 2 years, then you truly are defeating the purpose of dollar-cost averaging anyway.
Monday, February 8, 2010
Historical Rates of Return of the S&P 500
Long-term investing should be 10-15 years or more but so many investors have months or 1-year time frames. This is not effective in investing to be so short-term in your thinking.
Since 1945 (after most regulations were in place as a result of the 1929 Great Depression like FDIC insurance), here are the ranges of compounded annual rates of return for U.S Large-cap equities:
5-year returns averaged from a negative -2.4% (1970-1975) to a positive 28.6% (1995-2000)
10-year returns averaged from a negative -3.6% (2000-2009) to a positive 19.4% (1950-1960)
15-year returns averaged from a positive 4.3% (1960-1975) to a positive 18.9% (1985-2000)
After the 5-year decline of -2.4% that ended in 1975, the 15-year annual average (1970-1985) was 8.8%. To get there, of-course, the 5-year period of 1975-1980 and 1980-1985 experienced 5-year returns of 14.8%. The perspective of history is important but not a guarantee.
The 5-year period from 2005-2009 was not positive but a negative -3.6% following the negative -2.3% decline of 2000-2005. So there are anomalies, indeed. Up to now, there has never been a negative 15-year period.
Since 1945 (after most regulations were in place as a result of the 1929 Great Depression like FDIC insurance), here are the ranges of compounded annual rates of return for U.S Large-cap equities:
5-year returns averaged from a negative -2.4% (1970-1975) to a positive 28.6% (1995-2000)
10-year returns averaged from a negative -3.6% (2000-2009) to a positive 19.4% (1950-1960)
15-year returns averaged from a positive 4.3% (1960-1975) to a positive 18.9% (1985-2000)
After the 5-year decline of -2.4% that ended in 1975, the 15-year annual average (1970-1985) was 8.8%. To get there, of-course, the 5-year period of 1975-1980 and 1980-1985 experienced 5-year returns of 14.8%. The perspective of history is important but not a guarantee.
The 5-year period from 2005-2009 was not positive but a negative -3.6% following the negative -2.3% decline of 2000-2005. So there are anomalies, indeed. Up to now, there has never been a negative 15-year period.
Monday, February 1, 2010
History of "Down" Years
One or two years in a row of negative returns on the DJIA (Dow Jones) are rare but do occur.
1906 and 1907
1913 and 1914
1916 and 1917
1929, 1930, 1931 and 1932
1939, 1940 and 1941
1973 and 1974
2001 and 2002
2008 was only one year, 2009 did not end negative
These negative years were followed by very high, usually well above the average returns, for at least one year and sometimes many years. The market does not stand alone but over long stretches is based on "expected" economic growth and company's "expected" earnings growth.
Do not be confused by growth projections in different countries. It is the match between real growth and expected growth that makes the real difference. High expected growth could be difficult to achieve in reality and not be reflected in the markets.
1906 and 1907
1913 and 1914
1916 and 1917
1929, 1930, 1931 and 1932
1939, 1940 and 1941
1973 and 1974
2001 and 2002
2008 was only one year, 2009 did not end negative
These negative years were followed by very high, usually well above the average returns, for at least one year and sometimes many years. The market does not stand alone but over long stretches is based on "expected" economic growth and company's "expected" earnings growth.
Do not be confused by growth projections in different countries. It is the match between real growth and expected growth that makes the real difference. High expected growth could be difficult to achieve in reality and not be reflected in the markets.
Wednesday, January 27, 2010
Will Stock Market Returns Return?
In a November 2008 Financial Advisor magazine article by Ken Ziesenheim, he stated that "...the current consensus is that we may remain in a low-return envrionment for a significant time to come..."
He could not have been more wrong, so far (although 20 years from now we may look back and find that the average annual return will be lower than the 1990-2009 period). In 1999, we were bombarded with "...this is a New Economy...and this market will continue to see new highs..."
It is interesting to me (and research backs it up) that we have a recency bias which makes our brains interpolate the future based on recent past events. When all is good, we expect it to continue and when we have watched this economic earthquake we think it will continue.
The short-term = unknown. The long-term market performance can only be guessed at based on past long-term performance that included depressions, recession, euphoria, unemployment, wars, earthquakes, terrorist attacks, no regulation and some regulation of financial sectors and on and on it goes.
He could not have been more wrong, so far (although 20 years from now we may look back and find that the average annual return will be lower than the 1990-2009 period). In 1999, we were bombarded with "...this is a New Economy...and this market will continue to see new highs..."
It is interesting to me (and research backs it up) that we have a recency bias which makes our brains interpolate the future based on recent past events. When all is good, we expect it to continue and when we have watched this economic earthquake we think it will continue.
The short-term = unknown. The long-term market performance can only be guessed at based on past long-term performance that included depressions, recession, euphoria, unemployment, wars, earthquakes, terrorist attacks, no regulation and some regulation of financial sectors and on and on it goes.
Tuesday, January 26, 2010
2007-2009 Stock Decline
The period of October 2007 through March 2009 that resulted in an over 50% drop in value of the stock market was not "unprecedented". It was the 4th decline of more than 30% in the past 35 years. 1973-1974 saw a 49% decline; 1987 saw a 33.5% decline (including one day of over 22%); and, of-course, 2000-2002 saw a 49% decline. It will happen again, too.
Many investors got out in early or late 2008 and others got out in early 2009 - maybe. But, getting out is a bit easy (let's face it, everyone was scared); however, for those who did get out, then, getting back in is the hard part.
That is why buy and hold works. You must have a long-term perspective. The markets have been quite shakey lately (3rd-4th weeks of January 2010) and, after a 65% rise from March 2009, have recently retreated about 6%. Is there more to come? Who knows? But those who have been waiting for 9 months for this retreat are now paralyzed.
Historically, a 10-20% decline after a run-up like we experienced is normal and healthy. Yes, the economy is very damaged and recovery will come slowly.
Many investors got out in early or late 2008 and others got out in early 2009 - maybe. But, getting out is a bit easy (let's face it, everyone was scared); however, for those who did get out, then, getting back in is the hard part.
That is why buy and hold works. You must have a long-term perspective. The markets have been quite shakey lately (3rd-4th weeks of January 2010) and, after a 65% rise from March 2009, have recently retreated about 6%. Is there more to come? Who knows? But those who have been waiting for 9 months for this retreat are now paralyzed.
Historically, a 10-20% decline after a run-up like we experienced is normal and healthy. Yes, the economy is very damaged and recovery will come slowly.
Sunday, January 24, 2010
A Funny Video
I rarely do this, but here is a funny video:
Subject: John Stewart Rips the Wall Street Pundits
http://www.huffingtonpost.com/2009/03/05/jon-stewart-eviscerates-c_n_172057.html
Enjoy.
Subject: John Stewart Rips the Wall Street Pundits
http://www.huffingtonpost.com/2009/03/05/jon-stewart-eviscerates-c_n_172057.html
Enjoy.
Tuesday, January 19, 2010
Volatility
Market volatility of 1% in a day seems rather common these days. Is this normal?
Volatility - the up and down movements, especially intraday (from 9:30 AM - 4:00 PM) - of the stock market has been analyzed by many practitioners and it is interesting to observe trends.
A 100 point swing on the DOW when it is hovering in the 10,000 range is equal to 1% (or 12 points on the S&P 500 when it is in the 1,200 range). Adam Hamilton, CPA charted the historical volatility for a 10-year period from 1996 to 2005. This included the bull market ending with the stock market bubble that burst in March of 2000 and the subsequent bear market that followed to a 46% decline in the market before its subsequent rise again starting in October of 2002. An interesting period to observe, indeed.
During the bull market (1996-2000), rounding days to the nearest 1-day:
67% (14 out of 21) of the days in a month saw a 1% change (either up or down)
18% ( 4 out of 21)....................................................2% change
4% ( 1 out of 21) ...................................................3% change
During the bear market that followed (2000-2003):
87% (18 out of 21) of the days in a month saw a 1% change (again, either up or down)
35% ( 7 out of 21)....................................................2% change
10% ( 2 out of 21).....................................................3% change
Fear spawns volatility and this appears to continue to be true. By 2005, 3% changes in the market on a daily basis were non existant as greed and complacency replaced fear until October of 2007 when fear again surfaced.
Company's earnings matter in the long-term, but in the short-term sentiment (fear and greed) as measured by volatility drives the markets. Stock positions, therefore, should be long-term holdings since no one seems to have discovered a method to predict future short-term movements.
Buy and hold and rebalancing does work and is not dead as a strategy. It is just very hard to implement. Those who did so during this 2007-2009 rollercoaster did not miss the 50% downturn but also did not miss the 60%+ upswing. Rebalancing through this turmoil was a tried and true methodology. The money that was used to purchase stocks at the lower points on this rollercoaster returned enough to help offset the declines. Those investors are near or surpassed break-even.
Buy and hold does work for those with a long-term outlook and strategy.
Volatility - the up and down movements, especially intraday (from 9:30 AM - 4:00 PM) - of the stock market has been analyzed by many practitioners and it is interesting to observe trends.
A 100 point swing on the DOW when it is hovering in the 10,000 range is equal to 1% (or 12 points on the S&P 500 when it is in the 1,200 range). Adam Hamilton, CPA charted the historical volatility for a 10-year period from 1996 to 2005. This included the bull market ending with the stock market bubble that burst in March of 2000 and the subsequent bear market that followed to a 46% decline in the market before its subsequent rise again starting in October of 2002. An interesting period to observe, indeed.
During the bull market (1996-2000), rounding days to the nearest 1-day:
67% (14 out of 21) of the days in a month saw a 1% change (either up or down)
18% ( 4 out of 21)....................................................2% change
4% ( 1 out of 21) ...................................................3% change
During the bear market that followed (2000-2003):
87% (18 out of 21) of the days in a month saw a 1% change (again, either up or down)
35% ( 7 out of 21)....................................................2% change
10% ( 2 out of 21).....................................................3% change
Fear spawns volatility and this appears to continue to be true. By 2005, 3% changes in the market on a daily basis were non existant as greed and complacency replaced fear until October of 2007 when fear again surfaced.
Company's earnings matter in the long-term, but in the short-term sentiment (fear and greed) as measured by volatility drives the markets. Stock positions, therefore, should be long-term holdings since no one seems to have discovered a method to predict future short-term movements.
Buy and hold and rebalancing does work and is not dead as a strategy. It is just very hard to implement. Those who did so during this 2007-2009 rollercoaster did not miss the 50% downturn but also did not miss the 60%+ upswing. Rebalancing through this turmoil was a tried and true methodology. The money that was used to purchase stocks at the lower points on this rollercoaster returned enough to help offset the declines. Those investors are near or surpassed break-even.
Buy and hold does work for those with a long-term outlook and strategy.
Tuesday, October 6, 2009
Market Rally and What It Means For You
Previous posts mentioned that the best years for stock market returns were in the early 1930's coming after the bottom of the crash.
Here is a quote from Merrill Lynch's September 25, 2009 Global Report which is published monthly (and can be obtained from my website menu option: Topics, Economy)
"...This is the best market rally in such a short period of time (191 days) without a 10%
correction since rallies in 1932 and 1933. This is an extraordinarily rare event..."
Yes, rare but only as rare as this Great Recession is rare. So, what do you do now? Stocks are for long-term. If we fall back and even return to another recession in a year or two and then experience two or three years of inflation after that, then we are still within a 10-year period - minimum - of holding stocks. If you have a strategy, then redirect future contributions or rebalance your portfolio if you have a larger percentage in stocks now than you wanted.
Here is a quote from Merrill Lynch's September 25, 2009 Global Report which is published monthly (and can be obtained from my website menu option: Topics, Economy)
"...This is the best market rally in such a short period of time (191 days) without a 10%
correction since rallies in 1932 and 1933. This is an extraordinarily rare event..."
Yes, rare but only as rare as this Great Recession is rare. So, what do you do now? Stocks are for long-term. If we fall back and even return to another recession in a year or two and then experience two or three years of inflation after that, then we are still within a 10-year period - minimum - of holding stocks. If you have a strategy, then redirect future contributions or rebalance your portfolio if you have a larger percentage in stocks now than you wanted.
Thursday, October 1, 2009
Tactical Asset Allocation
An investment style is getting a lot of attention (but nothing new) to replace the supposedly "buy and hold" style and it is called TAA - Tactical Asset Allocation. Although there is some value in doing this, "...tactical decisions may only explain 5% of returns..." so if you are not interested in moving in and out of alternative asset classes, then "buy and hold" still works fine.
The past 1o years have not been good to investors, but those who are trying to time the markets may perform even worse. And those who move in and out of even tried and true stock and bond funds average substantially less (3% per year) versus 10-12% per year over "long" time periods of 15 and 20 years.
Many investors have less tolerance for risk but what is your "capacity" for risk? That ability to withstand a downturn because you have "safe" money set aside to draw from in need. Buying and holding may "look" risky these days, but in the long-term, historically, it has always won. It is short-term where the risk really lies.
In behavioral economics there is a concept called "recency". Be aware that we all have a tendency to overweight the recent past results. (If it is snowing at 1:00 then we expect it to continue, but it never goes on forever, does it?)
The past 1o years have not been good to investors, but those who are trying to time the markets may perform even worse. And those who move in and out of even tried and true stock and bond funds average substantially less (3% per year) versus 10-12% per year over "long" time periods of 15 and 20 years.
Many investors have less tolerance for risk but what is your "capacity" for risk? That ability to withstand a downturn because you have "safe" money set aside to draw from in need. Buying and holding may "look" risky these days, but in the long-term, historically, it has always won. It is short-term where the risk really lies.
In behavioral economics there is a concept called "recency". Be aware that we all have a tendency to overweight the recent past results. (If it is snowing at 1:00 then we expect it to continue, but it never goes on forever, does it?)
Saturday, September 5, 2009
Three New (Kind-of) Risks
See my website's PowerPoint (under the 9 Simple Steps Logo) slide #10 that includes my 9 risks to financial planning. But here are three more:
(1) Sequence Risk (Reference: Harris; Journal of Financial Planning, Sept. 2009) - withdrawing too much or too little as a result of the sequence of returns that hit you, personally, just before you start retirement. You may be overspending or underspending based on your investment returns and the rate of your withdrawals. 4% may be too little - affecting your lifestyle - or too much - affecting your future wealth. Time to see a financial planner to help explain the sequence of secular bear and bull markets and what it may mean to you.
(2) Media Risk (Reference: Joni Youngwirth; Practice Management Solutions, Sep-Oct 2009) - the risk that clients will overreact to what they hear in the media and, worse, that your adviser may not be immune to this risk either. (I love this as I have blogged much about media hype).
(3) Quant Risk (Reference: Solow; Journal of Financial Planning, Sep. 2009) - not fully understanding the complexities of computer models (like Monte Carlo, for example, and an advisor's color, glossy charts) that are fraught with human misunderstandings and errors in judgment. Investors yearn for a quantitative analysis that can make investing easy but it does not exist in this complicated, uncertain climate and huge economic system that has too many variables.
(1) Sequence Risk (Reference: Harris; Journal of Financial Planning, Sept. 2009) - withdrawing too much or too little as a result of the sequence of returns that hit you, personally, just before you start retirement. You may be overspending or underspending based on your investment returns and the rate of your withdrawals. 4% may be too little - affecting your lifestyle - or too much - affecting your future wealth. Time to see a financial planner to help explain the sequence of secular bear and bull markets and what it may mean to you.
(2) Media Risk (Reference: Joni Youngwirth; Practice Management Solutions, Sep-Oct 2009) - the risk that clients will overreact to what they hear in the media and, worse, that your adviser may not be immune to this risk either. (I love this as I have blogged much about media hype).
(3) Quant Risk (Reference: Solow; Journal of Financial Planning, Sep. 2009) - not fully understanding the complexities of computer models (like Monte Carlo, for example, and an advisor's color, glossy charts) that are fraught with human misunderstandings and errors in judgment. Investors yearn for a quantitative analysis that can make investing easy but it does not exist in this complicated, uncertain climate and huge economic system that has too many variables.
Sunday, March 2, 2008
NAV - How does that work in a Mutual Fund?
NAV = Net Asset Value
Suppose you own 8 shares of a fund with a NAV of $10 a share, equal to a $80 investment, and the fund declares a $2 capital gain. You now have $96.
The NAV falls to less than $10/share -- the amount of the distribution -- and your $16 capital gain (8 shares times $2) is reinvested according to your prior instructions (hopefully you told them that when you signed up), which buys you more shares. Now you own more shares of a fund with a lesser NAV, but still equal to $96.
If you look at your fund, it appears to have gone down in value from $10 - wrong! You have more shares, the value has increased indirectly by getting you more shares.
NAV changes do not equal your RETURN !
Suppose you own 8 shares of a fund with a NAV of $10 a share, equal to a $80 investment, and the fund declares a $2 capital gain. You now have $96.
The NAV falls to less than $10/share -- the amount of the distribution -- and your $16 capital gain (8 shares times $2) is reinvested according to your prior instructions (hopefully you told them that when you signed up), which buys you more shares. Now you own more shares of a fund with a lesser NAV, but still equal to $96.
If you look at your fund, it appears to have gone down in value from $10 - wrong! You have more shares, the value has increased indirectly by getting you more shares.
NAV changes do not equal your RETURN !
Thursday, October 11, 2007
The Contrarian Philosophy to Building Wealth
In the latest Merrill Lynch RIC report (October 9, 2007) it states:
"...The key to building long-term wealth is to identify potential new investment themes, analyze them for risk and return, and, when appropriate, invest in them early, before the crowd forms..."
Is this true? Is it even possible? Is there anywhere we can point to that shows someone consistently doing that? Is this just the contrarian philosophy? Does it work?
Money managers and economists have been debating these questions for quite some time. Money managers sell investments; economists are independent and objective. Hmmmmm...
"...The key to building long-term wealth is to identify potential new investment themes, analyze them for risk and return, and, when appropriate, invest in them early, before the crowd forms..."
Is this true? Is it even possible? Is there anywhere we can point to that shows someone consistently doing that? Is this just the contrarian philosophy? Does it work?
Money managers and economists have been debating these questions for quite some time. Money managers sell investments; economists are independent and objective. Hmmmmm...
Saturday, August 4, 2007
Technical Analysis Reviewed
Some technical analysts say the "sell" point is when stocks drop below their trading "channel" (the yellow).
More nonsense to me.
If you had gotten out of your stock positions at the end of February when stocks broke through the "yellow channel" - which in technical terms was signaling a further drop - then you would have missed the increases from March through July. Please note that the ending values today are still higher than they were one year ago. Overall, the stock markets trend for long-term investors is upward.
Friday, August 3, 2007
Advisor fees
You don't need a babysitter! You can manage your money - you really can with some guidance.
Using a babysitter - that was years ago. Money managers and economists continue to battle over who knows more about the financial markets. One thing for sure is economists aren't selling anything so they may be just a bit more objective.
Have a $500,000 portfolio? Paying 1% or more to an advisor? That is $5,000 per year folks for a babysitter.
Using a babysitter - that was years ago. Money managers and economists continue to battle over who knows more about the financial markets. One thing for sure is economists aren't selling anything so they may be just a bit more objective.
Have a $500,000 portfolio? Paying 1% or more to an advisor? That is $5,000 per year folks for a babysitter.
Tuesday, July 3, 2007
Fundamental Indexing
He quoted the Prussian solider and military theorist Carl von Clausewitz in a barb at fundamental indexes and ETFs:
The greatest enemy of a good plan is the dream of a perfect plan.
The greatest enemy of a good plan is the dream of a perfect plan.
Friday, June 8, 2007
Puts and calls - Options Trading
To protect the current value of your portfolio, one analyst suggests that you simply sell one Standard and Poor Futures Index, sold on the Chicago Mercantile Exchange, for each $25,000 you have in your portfolio.
The index futures make a profit if the market declines. This usually about replaces the loss in stock price you might suffer if the market does go down. The net result is that your portfolio about holds it value as of the day you purchase the index, regardless of whether the market declines or advances.
The symbol of the futures index this analyst recommended is the ZBM7. You will be required to post a $2,000 deposit for each of the futures index contracts you sell. I would never suggest or recommend such a strategy as most investors do not need this level of risk or sophistication (if you can call it that) but I am letting you know of what is "out there".
Expect to hold onto the index until the correction is over according to this analyst. Hmm...Let's see, when would anyone know that? This is the problem with these tactics. Market-timing does not work and past performance is no guarantee of future results. There is a reason that is said over and over - it is true and there to protect you from trading nonsense.
The index futures make a profit if the market declines. This usually about replaces the loss in stock price you might suffer if the market does go down. The net result is that your portfolio about holds it value as of the day you purchase the index, regardless of whether the market declines or advances.
The symbol of the futures index this analyst recommended is the ZBM7. You will be required to post a $2,000 deposit for each of the futures index contracts you sell. I would never suggest or recommend such a strategy as most investors do not need this level of risk or sophistication (if you can call it that) but I am letting you know of what is "out there".
Expect to hold onto the index until the correction is over according to this analyst. Hmm...Let's see, when would anyone know that? This is the problem with these tactics. Market-timing does not work and past performance is no guarantee of future results. There is a reason that is said over and over - it is true and there to protect you from trading nonsense.
Thursday, May 17, 2007
Stock Market Behavior
Wall Street's central goal is to create a dependent investor, not informed, rational investors. Wall Street knows investors are irrational, insecure and vulnerable. Wall Street knows investors are easiest to deceive, manipulate and control if they are like sheep. Here are some notes from Paul Farrell (see bottom of message for his information):
- Short-term 'buy button' -- relentless stimulation. What a mind-control tool: Former SEC Chairman Arthur Levitt warned about the misleading negative effects of performance ads. They increase investor anxieties and trigger a need for instant gratification. They encourage optimism and the gambler's instinct, ironically increasing the frequency for short-term errors in judgment.
- 'Savings button' -- minimize long-term thinking
Psychologists look into your brain, know what makes you buy, sell, save -- information that Wall Street and Madison Avenue use against you. The reverse side of the "buy button" sows doubts about future retirement security. Our daily overdose of ads encourages buying now on credit, increasing debt, resulting in a negative savings rate. - Hyperactive trading -- Wall Street and Main Street
Short-term online trading is encouraged and increasing. Today only 30% of stocks are held directly by passive individual investors. Hyperactive full-time portfolio managers have a competitive edge using psychological trading strategies to beat naïve little guys. - Broker training -- aggressive closing techniques
Securities are sold not bought. Brokers are trained using aggressive psychological tricks. Inevitably, a broker's so-called advice is self-serving and misleading. Anything goes in closing a sale. Just get the commission. - New designer funds -- based on the latest fads
Using psychological tools, the machine can design new funds based on the latest fads that are appealing to gullible investors who can't stop chasing higher returns. Anxious investors want the latest trading gimmicks -- hedge funds, commodities, junk bonds, gold coins -- like teenagers buying the newest techno-toys. - Supply 'free' experts to the media
Remember dotcom talking heads like Merrill's Henry Blodgett and Morgan's Mary Meeker. Today, new ones fill the channels, 30 a day, every day, every channel, pushing their brand of snake oil. Wall Street advertisers love it! Talking heads are free advertising, adding to Wall Street's ability to control investors through media content as well as advertising. - Invest in lobbyists -- protect secrecy and nondisclosure
Wall Street also controls investors by severely limiting what Wall Street must disclose. Lobbying is one of Wall Street's best "investments." It is the largest donor to politicians. Their lobbyists control Congress and the SEC. They fight reforms and push for laws that benefit them personally. Then they spin propaganda to mislead investors. - Disinformation programs -- create a 'we care' illusion
Most Wall Street-sponsored "investor education" programs are self-serving new-business and promotional gimmicks. Wall Street knows these so-called "educational" programs are useless and ineffectual. But they help Wall Street types pretend that they "care." - Retirement gatekeepers -- keep in dark and manipulate
We know pension and retirement managers control 70% of all funds. So most Wall Street money managers rarely have to deal directly with an individual investor. Instead they focus sales pitches on 401(k), 529 and other corporate plan managers who are often just as naïve and easy to manipulate. - Brainwashing geniuses -- on Wall Street's payroll
Using consulting contracts, grants and retainers, Wall Street's "Brainwashing Machine" can lock up the best talent in behavioral finance and investment psychology to work on its side in perfecting the ability to manipulate America's 95 million individual investors. That guarantees Wall Street will achieve its goal of total and absolute domination of the investors' brains.From:
PAUL B. FARRELL
Wall Street's 'Brainwashing Machine'
10 psychological strategies controlling your mind
By Paul B. Farrell, MarketWatch
Last Update: 7:30 PM ET Oct 31, 2005
Thursday, January 18, 2007
Lazy investing
Lazy investing is nothing more than the good old "Modern Portfolio Theory" put into action:
Simple, well-diversified portfolios of three to 11 no-load index funds, either mutual funds or ETFs. (from MarketWatch news)
But, unfortunately, Wall Street doesn't want you to use this Nobel Prize-winning strategy because it can't rake off enough in transactions fees from index funds.
Simple, well-diversified portfolios of three to 11 no-load index funds, either mutual funds or ETFs. (from MarketWatch news)
But, unfortunately, Wall Street doesn't want you to use this Nobel Prize-winning strategy because it can't rake off enough in transactions fees from index funds.
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