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Hard-won lessons about money and investing

mattcutts.com

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Re: Hard-won lessons about money and investing

#221

Post by tacos »

Retric wrote: post #213
tacos wrote: post #205

Earlier quoted context omitted.

Worldwide bond market is $82 trillion. Larger than the entire stock market. Meanwhile "Retric" on HN says bonds are pointless. Hmm.

Because clearly individual small time investors make the majority of all investments... Err, wait no. Sure, there is also a huge market for elemental fluorine that does not mean it's something you want in your house. Don't get me wrong there generally small risk adjusted net gain in any portfolio if you spend the effort picking the correct set of bonds. The problem is there a far more complex financial instrument tha…

Matt Cutts bought federal tax-free and California muni (also tax free for him) bonds. The point of my speaking up was pointing out how odd, narrow, and narrowly-specific his recommendations are. You've now added your voice to the chorus. Your recommendations are also -- narrow and a little odd.

If you're a Googler with a 3% Cali muni, that's equivalent to a taxable 6.07% yield. Beats cash.

Re: Hard-won lessons about money and investing

#222

Post by Chronic29 »

jseliger wrote: post #170
dredmorbius wrote: post #152

Matt's article (and the linked one of Scott Adams' advice) is a good and basic foundation. Adding to the reading list, I'd very strongly recommend the following: A Random Walk Down Wall Street by Burton G. Malkiel lays out the basics of portfolio diversification. http://www.powells.com/biblio/1-9780393340747-0 The Great Crash: 1929 by John K. Galbraith tells the story and aftermath of the biggest stock market catastr…

Great comment! I want to emphasize this: A Random Walk Down Wall Street by Burton G. Malkiel lays out the basics of portfolio diversification. A Random Walk Down Wall Street is one of the best books I've ever read, and I'd only add that I think The Millionaire Next Door is also excellent. When most of us think about millionaires we think about Hollywood stars, tech company founders, and finance moguls. But most milli…

Becoming a millionaire today is easier than ever before.

Re: Hard-won lessons about money and investing

#223

Post by mistermann »

vpeters25 wrote: post #203

> You are probably a bad stock picker You might find a stock that looks good, you check financials, fillings, read forum posts and "expert" financial blogs such as Seeking Alpha. They all concur: stock looks good, BUY! BUY! BUY! So you buy the stock thinking you are making an informed decision only for it to crash the next day after their latest SEC filing hits the wires. There you learn they all knew the filing was…

I doubt you'll believe me, but there are a lot of 100% independent investors that are on twitter and forums as well as write in-depth blogs who consistently outperform the market and do not resort to any sort of tricks like this.

Of course, you have to find them (and I'm certainly not going to share as I have made a significant investment of time finding these people, and many of the stocks they buy are small caps), and you also have to (or should) do your own due diligence on every purchase.

Seeking Alpha specifically is mostly full of people like you describe, but there is also some honest, legitimate advice there.

Re: Hard-won lessons about money and investing

#224

Post by hnnewguy »

walshemj wrote: post #210
hnnewguy wrote: post #195

Earlier quoted context omitted.

QE doesn't need to be unwound; bonds can roll off into cash.

you do know that bond prices and the bank rate are linked bank rate goes up bond prices go down - sucks if you lose 20% of your capital that way and that has happened recently

>you do know that bond prices and the bank rate are linked bank rate goes up bond prices go down

Yes, that is true. But how is the bond price relevant, from the Fed's perspective, if they aren't selling the bonds?

Re: Hard-won lessons about money and investing

#225

Post by justin66 »

hnnewguy wrote: post #201
jandrewrogers wrote: post #147

Earlier quoted context omitted.

I only invest in large caps, ones everyone knows, based on two criteria: 1) They are are fairly or somewhat undervalued given the conventional market view and metrics. 2) They are likely to be significant beneficiaries of large-scale technological trends that the market is oblivious to and has not priced into the stock. Then I wait a few years for the trend to become more obvious and for the market to adjust the stoc…

So, you're investing only in large cap stocks, while spending as little time as possible doing analysis, and over decades have consistently surpassed the S&P returns, with low risk and low volatility? Forgive me if I don't believe this in the least.

The tech sector is the third strongest sector (of 11 sectors) over the past five years: http://news.morningstar.com/stockReturns/CapWtdSectorReturns...

So what he's describing, beating the S&P 500 by a bit over that period, isn't implausible. Comparing his portfolio's performance to the S&P 500 is an obvious mistake and, more importantly, attributing his portfolio's performance to anything other than luck (good or bad) is very silly.

I didn't pull apart his post as much as I might (it's indicative of a whole range of bad ideas people have with regard to investing, like his ideas regarding sector-specific investing) but the notion that really needs to be attacked is that beating the S&P 500 or total market index can be regarded as indicative of some special ability without taking into account the portfolio's risk.

Re: Hard-won lessons about money and investing

#226

Post by ema »

hnnewguy wrote: post #201
jandrewrogers wrote: post #147

Earlier quoted context omitted.

I only invest in large caps, ones everyone knows, based on two criteria: 1) They are are fairly or somewhat undervalued given the conventional market view and metrics. 2) They are likely to be significant beneficiaries of large-scale technological trends that the market is oblivious to and has not priced into the stock. Then I wait a few years for the trend to become more obvious and for the market to adjust the stoc…

So, you're investing only in large cap stocks, while spending as little time as possible doing analysis, and over decades have consistently surpassed the S&P returns, with low risk and low volatility? Forgive me if I don't believe this in the least.

There could be a thousand people on hn who follow the same strategy, it's not that unlikely that it works for one of them and having it work for him makes it more likely that he writes about it.

Re: Hard-won lessons about money and investing

#227

Post by chatmasta »

ingend88 wrote: post #217

I am one of those people who have lived this advice and after 10 years of following some of the recommendations here, I can confirm that it works. Here are my 5 simple rules that I followed, no lottery/IPO, just a steady single income. - Max out 401K and get company match - Max out Roth IRA for me and my wife - Invest in Vanguard S&P 500 Index Funds, some international funds and some bonds - Invested in a property in…

This is good advice but may also have some element of survivorship bias. If you haven't noticed, not everybody works for Google. In fact, not everybody works for a company that will match their 401(k). If you're lucky enough to be taking home a six figure salary (not to mention one that grows with bonuses as you progress) every year, maybe this advice is good. But you should consider in your advice that not everyone is taking home $xxx,xxx per year, plus bonuses, plus full company 401(k) matching and all benefits. You are very lucky that you were able to live below 35% of salary.

Still, I wonder if advice would be different for people who are making less?

Re: Hard-won lessons about money and investing

#228

Post by 7Figures2Commas »

gfodor wrote: post #178
7Figures2Commas wrote: post #156

Earlier quoted context omitted.

I agree. One of the most cringe-worthy parts of this post is the author's multiple references to bond funds. Owning bond funds is not the same thing as owning bonds and every bond investor should know the difference. Bond prices have an inverse relationship with interest rates. Bond prices fall when interest rates rise. When you own individual bonds, you cannot lose your principal if you hold to maturity unless the i…

This is oft-cited difference between bonds and bond funds is a red herring when it comes to determining the proper investment of the two. The reason a single bond keeps you from losing your principal is because it has a declining duration, whereas bond funds generally have a fixed duration (more or less) since maturing bonds in the portfolio are usually reinvested into bonds of the same time to maturity. You can simu…

> You can simulate the behavior of a single bond by rolling your investments into shorter and shorter duration bond funds over time.

As I noted, there are ways to address interest rate risk with bond funds, but you're ignoring the most important question in the context of this discussion: how many retail investors who put money into bond funds actually know about laddering strategies?

> But if a bond's price has declined because of increased interest rates, this means you will be able to re-invest the coupon at a larger yield...

This is true, but you have to wait until maturity unless you're willing to sell your bond at a loss. Despite the low interest rate environment, there are still a good number of retail investors buying exposure to long-dated bonds because they don't take the time to understand their investments. Many of these investors will either have to realize potentially painful losses or wait a long time before they have the opportunity to buy new bonds with higher yields.

Re: Hard-won lessons about money and investing

#229

Post by hnnewguy »

justin66 wrote: post #225
hnnewguy wrote: post #201

Earlier quoted context omitted.

So, you're investing only in large cap stocks, while spending as little time as possible doing analysis, and over decades have consistently surpassed the S&P returns, with low risk and low volatility? Forgive me if I don't believe this in the least.

The tech sector is the third strongest sector (of 11 sectors) over the past five years: http://news.morningstar.com/stockReturns/CapWtdSectorReturns... So what he's describing, beating the S&P 500 by a bit over that period, isn't implausible. Comparing his portfolio's performance to the S&P 500 is an obvious mistake and, more importantly, attributing his portfolio's performance to anything other than luck (good or ba…

>So what he's describing, beating the S&P 500 by a bit over that period, isn't implausible.

Certainly not. I suppose I take issue with having been able to do so for "decades", via only large-cap stocks.

That's implausible, to me at least. That would be all-time-great hedge fund manager type results.

Re: Hard-won lessons about money and investing

#230

Post by Retric »

tacos wrote: post #221
Retric wrote: post #213

Earlier quoted context omitted.

Because clearly individual small time investors make the majority of all investments... Err, wait no. Sure, there is also a huge market for elemental fluorine that does not mean it's something you want in your house. Don't get me wrong there generally small risk adjusted net gain in any portfolio if you spend the effort picking the correct set of bonds. The problem is there a far more complex financial instrument tha…

Matt Cutts bought federal tax-free and California muni (also tax free for him) bonds. The point of my speaking up was pointing out how odd, narrow, and narrowly-specific his recommendations are. You've now added your voice to the chorus. Your recommendations are also -- narrow and a little odd. If you're a Googler with a 3% Cali muni, that's equivalent to a taxable 6.07% yield. Beats cash.

Long term capital gains is 15% not 50+%. Also, California bonds are far from a risk free investment which is why they pay more than 1%. Remember a 5+ year bond can have negative real returns if inflation increases.

EX: People have paid 50 k for a 30 year T bill, waited 5 years and sold that for less than 50k. The important thing to remember in such situations is just because you did not sell the bond does not mean you did not lose money.

Also The tax-exempt status of municipal bonds does not extend in all instances to the alternative mininimum tax. - See more at: http://www.investinginbonds.com/learnmore.asp?catid=8&subcat...

"Under some circumstances, a taxpayer who receives tax-exempt interest will have a greater portion of his - See more at: http://www.investinginbonds.com/learnmore.asp?catid=8&subcat... ". So that tax free bond might not actually be tax free.

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