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The Best Investment Advice You'll Never Get (2008)

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Re: The Best Investment Advice You'll Never Get (2008)

#31

Post by hkmurakami »

encoderer wrote: post #14
hkmurakami wrote: post #10

Earlier quoted context omitted.

>So what is the amateur person worth $25M to do today? As with all things, you should seek professional advice. There are many nuances of tax efficiency, estate efficiency, asset protection, personal needs, etc. that a professional advisor should guide you through. While this is true, the problem that most advisors that a $25MM net worth individual has access to are mostly duds and/or salesmen. Identifying true value…

Personally, i think that's more of a problem for the guy with the $500k retirement account. You will have no shortage of white gloved managers eager to help you invest your $25M. But anything short of $1MM you're solidly in Edward Jones territory. At that point you're probably better off keeping it stuffed under your mattress. If you're not a multi millionare, IMO it's worth the time to learn how to manage your own m…

IMHO, the quality of people you will find at your local retail branch of an ibank (think BoAML, JPMChase, WF/Wachovia, etc.) is still very shoddy and suspect. These are the channels that people have immediate access to and think of visiting, even if you have $25MM. For these retail operations, iirc the threshold is $50MM before you are shipped off to a proper PWM team at HQ.

>You will have no shortage of white gloved managers eager to help you invest your $25M.

How do you know which while gloved manager is actually any good though, assuming that the $25MM guy is quite naive about investment management? I believe that the small time millionaire must be up to speed on investing basics just as much as the $500k guy, in order to be able to discern the competence of his managers.

I generally agree with jhulla's advice of going through a good estate planning attorney or accountant to find decent people. If you have a network of rich friends (which you can probably make in a few years after making your $25MM by plugging yourself into the right circles), but barring this (or even if you do manage this), I insist that even the rich guy needs to know at least the basics.

Re: The Best Investment Advice You'll Never Get (2008)

#32

Post by svachalek »

jhulla wrote: post #9
orofino wrote: post #3

Earlier quoted context omitted.

You may need to pay that $10 if you are investing through some other brokerage account. However, do yourself a favor, open an account with Vanguard directly and you can make that purchase without any fees. Additionally, I'd recommend se percentage be invested in the Vanguard total bond market fund as well. Holding se percentage there will reduce overall portfolio volatility, and can actually increase returns slightly…

Asset diversification is more complicated than that. To a first order, yes stocks and bonds are inversely correlated. But it is not enough to hold just stocks and bonds. In order to maximize return over your preferred time frame (while minimizing risk), you have to examine the whole universe of investable assets, examine their volatility as well as correlations amongst themselves. From there, your goal is to assemble…

Stocks and bonds being inversely correlated is an old rule that hasn't held as true since the 2008 crisis. Stocks, most bonds, and most other asset classes have been moving up and down together although with different degrees of volatility. Long term US treasuries are a standout as one of the only investments that has a clear inverse correlation to the general pattern.

Having run a lot of simulations in determining my own portfolio I came to the conclusion that these things affected my returns, in decreasing order:

1. annual maintenance costs 2. tax effects 3. choice of index 4. diversifying beyond stocks/bonds

I imagine most people who aren't using a passive strategy can chop 1 - 1.5% off their costs just by switching to indexes, and the remaining optimizations will pale in comparison. But as the size of the portfolio increases the additional effort becomes worthwhile.

It's possible that over the long term the market will decouple again but keep in mind that most investment advice about "universal truths" about the "long term" are based on a little over 100 years of market data. Given that I started investing at age 20 and will hopefully live to old age, that's not a lot of training data in comparison to the amount of prediction it's generating.

Re: The Best Investment Advice You'll Never Get (2008)

#33

Post by enraged_camel »

MCRed wrote: post #12

Regarding "Don't beat the market", Warren Buffet says "The game is really easy when your opponent decides not to play". Unfortunately, giving up has a lot of appeal: It means it's not your fault you didn't beat the market. It lets people say the game is rigged and take comfort. How many times have you seen buying company stock compared to gambling? Even though, on its face this comparison is ludicrous. (Especially he…

>>Regarding "Don't beat the market", Warren Buffet says "The game is really easy when your opponent decides not to play".

Except Warren Buffet himself is a huge proponent of low-cost index funds, and recommends them for the average person.

You really can't use him as an example because he's at the extreme end of the spectrum: wealthy to the point where managing his wealth is his full-time job. He has decades of experience and the knowledge that brings. So to him, it does look as if no one else is playing the game. That's the real context of his quote.

Re: The Best Investment Advice You'll Never Get (2008)

#34

Post by jacquesm »

orofino wrote: post #3
oldspiceman wrote: post #2

tldr If you're suddenly rich, pay $10 and buy $1 Million of Vanguard Total Stock Market Index. Giving your money to anybody else over the last 10 years would have yielded same or worse performance at a higher cost.

You may need to pay that $10 if you are investing through some other brokerage account. However, do yourself a favor, open an account with Vanguard directly and you can make that purchase without any fees. Additionally, I'd recommend se percentage be invested in the Vanguard total bond market fund as well. Holding se percentage there will reduce overall portfolio volatility, and can actually increase returns slightly…

You can only open an account with Vanguard directly if you are in the US.

Re: The Best Investment Advice You'll Never Get (2008)

#35

Post by thedufer »

encoderer wrote: post #17
MCRed wrote: post #12

Regarding "Don't beat the market", Warren Buffet says "The game is really easy when your opponent decides not to play". Unfortunately, giving up has a lot of appeal: It means it's not your fault you didn't beat the market. It lets people say the game is rigged and take comfort. How many times have you seen buying company stock compared to gambling? Even though, on its face this comparison is ludicrous. (Especially he…

I agree. The awful conventional wisdom that options are "riskier" than stock, that they're not appropriate for retail investors, has not done retail investors any favors. To me, it's like saying that sharp knives are too dangerous for the home cook. If you want returns similar to professional investors, you have to use professional tools. There's a learning curve, but that's true of most things in life that are worth…

Statistically, professional investors don't beat the market. People aren't "downvot[ing] what they don't understand", they're downvoting demonstrably poor advice.

Re: The Best Investment Advice You'll Never Get (2008)

#36

Post by bradleyjg »

oldspiceman wrote: post #2

tldr If you're suddenly rich, pay $10 and buy $1 Million of Vanguard Total Stock Market Index. Giving your money to anybody else over the last 10 years would have yielded same or worse performance at a higher cost.

If want to invest $1M you can get managed tax loss harvesting that will pay for itself. Also you should probably have more asset classes than just US equities. Having said that, you could do a lot worse.

Re: The Best Investment Advice You'll Never Get (2008)

#37

Post by 12423gsd »

MCRed wrote: post #12

Regarding "Don't beat the market", Warren Buffet says "The game is really easy when your opponent decides not to play". Unfortunately, giving up has a lot of appeal: It means it's not your fault you didn't beat the market. It lets people say the game is rigged and take comfort. How many times have you seen buying company stock compared to gambling? Even though, on its face this comparison is ludicrous. (Especially he…

The reality is that the professionals have better tools. It's not just gambling, it's gambling against someone that can see the cards.

If there is some method to turn $1 into $2 then there is a whole sea of people who are better and smarter than me who will keep doing it till that method no longer works.

Re: The Best Investment Advice You'll Never Get (2008)

#38

Post by encoderer »

thedufer wrote: post #35
encoderer wrote: post #17

Earlier quoted context omitted.

I agree. The awful conventional wisdom that options are "riskier" than stock, that they're not appropriate for retail investors, has not done retail investors any favors. To me, it's like saying that sharp knives are too dangerous for the home cook. If you want returns similar to professional investors, you have to use professional tools. There's a learning curve, but that's true of most things in life that are worth…

Statistically, professional investors don't beat the market. People aren't "downvot[ing] what they don't understand", they're downvoting demonstrably poor advice.

It's not about "beating the market." It's about retail investors underperforming professional asset managers AND underperforming the market.

Tell me this: Other than reducing basis, what can you do to increase your chances of success in an investment? If success is defined as "not losing money"?

One way to reduce basis is by selling covered calls on your stock positions, limiting potential profit but adding no additional risk and substantially decreasing your basis month after month. It's not rocket science, and it's not "poor advice". You and retail investors as a class have been scared into thinking that it's "riskier" to spend $300 on a call spread in Tesla than it is to go out and buy 100 shares of TSLA for around $25,000. That doesn't compute.

Edit: It's not that an investment strategy that uses options is the only way to be a successful retail trader -- just like you can cook without sharp knives -- but dismissing them without being able to articulate why, well, that's not doing any favors for the regular investor.

Edit: I've been here for a long time and have plenty of karma to burn in the name of standing up and making a point I believe in. Something is wrong with retail investing when, as a class, we've consistently underperformed, and at the same time we have this dogmatic insistence that options are "too complicated" for the small investor. Mutual Fund? Front Load? Compound Interest? These are all ok but writing a covered call on a stock position is verboten and scary and too hard? Please. Buying (Edit: shouldn't have said "buying", what I meant was "making money on a") stock is a 50/50 bet. (Random Walk theory; Efficient Market). The price can either go up or down. There's no reason a retail investor should not tilt those odds a few points in their favor the same way professional traders do every day.

Re: The Best Investment Advice You'll Never Get (2008)

#39

Post by freyr »

jcdavis wrote: post #28
Apocryphon wrote: post #24

General question about index funds: if a market is about to go into a steep correction or even a recession, wouldn't it be more advantageous to invest in specific stable stocks, rather than an index fund that tracks the entire market?

Sure, if you are sure the market is about to go into a steep correction or even a recession. But how do you know that? Why not go even further - If you knew for sure the market was going to drop, you could make a lot of money in options. Why aren't you doing that instead? You shouldn't be trying to time the market. Lots of people try, they tend to fail. Come up with an allocation plan, and stick to it.

>Lots of people try, they tend to fail.

And with enough people constantly trying to predict the market, inevitably some get it right. They make a lot of money, they're heralded as geniuses, and we hear about them in the news. We don't hear about everyone else who failed, or when the market-timing winners turn out to be repeat failures in subsequent years.

Put a bunch of people in a room and have them start flipping coins. If there are enough people playing the game, chances are somebody will end up tossing many heads in a row. If they keep flipping long enough, chances are they'll revert back to the mean. This is a pretty good model of market prognostication.

Re: The Best Investment Advice You'll Never Get (2008)

#40

Post by bradleyjg »

hkmurakami wrote: post #31
encoderer wrote: post #14

Earlier quoted context omitted.

Personally, i think that's more of a problem for the guy with the $500k retirement account. You will have no shortage of white gloved managers eager to help you invest your $25M. But anything short of $1MM you're solidly in Edward Jones territory. At that point you're probably better off keeping it stuffed under your mattress. If you're not a multi millionare, IMO it's worth the time to learn how to manage your own m…

IMHO, the quality of people you will find at your local retail branch of an ibank (think BoAML, JPMChase, WF/Wachovia, etc.) is still very shoddy and suspect. These are the channels that people have immediate access to and think of visiting, even if you have $25MM. For these retail operations, iirc the threshold is $50MM before you are shipped off to a proper PWM team at HQ. >You will have no shortage of white gloved…

At a minimum you should get a "fee only" adviser who has a fiduciary duty to you. You can still get bad advice, but at least you won't get corrupt advice.
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