The Best Investment Advice You'll Never Get (2008) • Hacker News Board

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

#101

Post by contingencies » Sat, Nov 08, 2014, 11:49 AM UTC

PhantomGremlin wrote: post #51

jhulla wrote: post #23

Earlier quoted context omitted.

The primary question is this: do we truly have models that can predict future asset correlations. In other words, are our assumptions about distribution of returns valid. Behavioral economics suggests that individuals react differently than mathematically predicted. Personally, I think the biggest problem with any ideal portfolio allocation tool are black swan events (Taleb).

> I think the biggest problem with any ideal portfolio allocation tool are black swan events (Taleb). Yes. Black Swans are certainly a problem. It's insane to think that investment returns are anything resembling a Gaussian distribution. In the financial crisis of 2008-2009, people were using phrases such as "a 9 sigma event" to describe the markets. Wrong! Basically THERE'S NO SUCH THING AS a 9 SIGMA EVENT. Wikipedi…

George Soros' perspective is grounding. Markets are moved by people with incomplete knowledge. The entire field of economics is based on a false analogy with Newtonian physics. There is no equilibrium, no mystical balancing force underlying the economic universe. Just a whole bunch of relative idiots trying to get rich for free.

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

#102

Post by EliRivers » Sat, Nov 08, 2014, 12:05 PM UTC

mangeletti wrote: post #59

Did anybody stop to notice the date of the article? I'm confused by the conversation herein. I thought this was posted as a sort of mockery of the author. After-all, if you put your money into an index right when this guy told you to, you would have lost your shirt. If you had a while until retirement, that wouldn't be a big deal, since it would now be back along with more, but what about the folks moving their IRA o…

Even if you invest at peaks, and watch it all crash shortly afterwards, you can still do very well. Just start early so you're not staring at retirement the year after your first investment.

http://awealthofcommonsense.com/worlds-worst-market-timer/

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

#103

Post by ddebernardy » Sat, Nov 08, 2014, 12:09 PM UTC

abuteau wrote: post #13

jhulla wrote: post #7

Assuming you believe the underlying assumptions (and they very well may not be true), modern portfolio theory allows you to build a mathematically ideal portfolio for a given amount of risk. The math behind MPT might be hand waved as followed: goal seek a maximum portfolio return by combining assets with minimal correlation under a fixed risk scenario. In the end, you will have portfolio that will give you the maximu…

There's ton of criticism on MPT. Would like to hear you on that ! Are they valid ? Should we use PMPT ?

You'll want to check out Steve Keen, of "Debunking Economics" fame, for the gory details. He has a blog (debtdeflation.com or something) with a couple of finance class videos on it, and he runs or used to run a talk all over, a version of which you'll find in the Google Talks channel.

In short though, the entire thing is based on the idea that finance is based on guassians, whereas the evidence overwhelmingly suggests it's based on power laws instead. (And intringuingly, the consequence of the latter would mean that portfolio risk increases when you're diversified in many asset classes.)

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

#104

Post by DennisP » Sat, Nov 08, 2014, 1:03 PM UTC

falsedan wrote: post #86

mahyarm wrote: post #83

I don't think you should try to become a 'professional full time investor' and put everything in index funds until you reach the ratio of funds that would significantly beat your current salary, compared to the average returns of an index market portfolio. Lets assume the average return is %5, so if you make $200k/yr annually in your engineering craft, then you would need $4 million minimum to match the market for yo…

Your numbers are off: - average long-term return on the stock market is 8-12% - full-time wealth management means no more tech job, means no need to live in the bay area, means $100k p.a. nets you a comfortable lifestyle You're looking at $1-1.5MM before retiring to the quiet life.

That's the average long-term return over the past century or so, but not necessarily the return over any particular 30 or 40 year period. Sometimes it's quite a bit lower, and it's probably a good idea to take that into consideration.

Periods that start with PE ratios as high as they are now tend to do especially poorly.

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

#105

Post by oldspiceman » Sat, Nov 08, 2014, 1:49 PM UTC

Punoxysm wrote: post #53

I feel like I get this advice all the time. "Invest in Indexes" is ridiculously popular advice. I've also been exposed to portfolio theory in lots of academic literature. It's not obscure within finance or without.

These guys didn't know about it: http://www.hypun.com/gallery/1298/Top_10_NBA_Players_that_we...

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

#106

Post by [deleted] » Sat, Nov 08, 2014, 2:18 PM UTC

lmm wrote: post #97

ryandrake wrote: post #44

Earlier quoted context omitted.

> So what is the amateur person worth $25M to do today? A person worth $25M already has it made. They could light $1,000 a day on fire for the rest of their lives and still not go broke. Their investment options aren't really so interesting because only deliberate idiocy could destroy their retirement. I think a more useful question is, what is the amateur person worth $25 K to do today? Or the young person with nega…

> I think a more useful question is, what is the amateur person worth $25K to do today? Or the young person with negative net worth? The usual "just dump it into the stock market and pray" seems very risky. Sure, long-term the overall stock market expected to go up on average, but that is if you can survive the variance. Netted out over the years, I'd guess that I've pretty much lost money on the stock market, and I'…

[deleted]

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

#107

Post by kirsebaer » Sat, Nov 08, 2014, 3:02 PM UTC

AngrySkillzz wrote: post #76

jhulla wrote: post #23

Earlier quoted context omitted.

The primary question is this: do we truly have models that can predict future asset correlations. In other words, are our assumptions about distribution of returns valid. Behavioral economics suggests that individuals react differently than mathematically predicted. Personally, I think the biggest problem with any ideal portfolio allocation tool are black swan events (Taleb).

If by Taleb you mean Mandelbrot, then maybe.

Taleb wrote a book together with Mandelbrot.

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

#108

Post by k3strel » Sat, Nov 08, 2014, 4:08 PM UTC

falsedan wrote: post #86

mahyarm wrote: post #83

I don't think you should try to become a 'professional full time investor' and put everything in index funds until you reach the ratio of funds that would significantly beat your current salary, compared to the average returns of an index market portfolio. Lets assume the average return is %5, so if you make $200k/yr annually in your engineering craft, then you would need $4 million minimum to match the market for yo…

Your numbers are off: - average long-term return on the stock market is 8-12% - full-time wealth management means no more tech job, means no need to live in the bay area, means $100k p.a. nets you a comfortable lifestyle You're looking at $1-1.5MM before retiring to the quiet life.

Also remember that what matters are real returns after inflation and taxes.

The S&P 500 has returned 11% a year since 1983, but 6% after taxes and inflation.

http://www.thornburginvestments.com/pdfs/TH1401.pdf

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

#109

Post by sopooneo » Sat, Nov 08, 2014, 4:22 PM UTC

pbreit wrote: post #88

Also, pretty much guaranteed to improve outcomes for almost investor: 1) pay off your credit cards before investing 2) max out your IRA/401(k)

I agree. But I think then there is still some question of which funds to invest in of those available through your 401K.

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

#110

Post by j_lev » Sat, Nov 08, 2014, 4:28 PM UTC

Of course, choosing stocks/index funds/mutual funds/hedge funds/asset allocation/tilt/tax-minimization/etc all only come into play after everything else is in order.

I refer most people who ask to Dilbert's 9-Point Plan, which Scott Adams originally published in 2002 but has been reproduced many times all over the Internet eg

https://retirementplans.vanguard.com/VGApp/pe/PubVgiNews?Art...

If you can't click through, here's the list:

Everything you need to know about financial planning

1. Make a will.

2. Pay off your credit cards.

3. Get term life insurance if you have a family to support.

4. Fund your 401(k) to the maximum.

5. Fund your IRA to the maximum.

6. Buy a house if you want to live in a house and you can afford it.

7. Put six months’ expenses in a money market fund.

8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement.

9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues) hire a fee-based financial planner, not one who charges a percentage of your portfolio.

"What to invest in" is only answered in #8, which you shouldn't even think about until you've worked through the previous 7 steps. Yes, write that damn will already!