30 Jun 09, 17:32
RR: If you don't believe, or have some doubts on him.. then just forget about ICAP.
30 Jun 09, 17:32
RR: If TTB is my real life buddy, i think i would have put 90% of my portfolio with him. Just wanna stress again, ICAP = TTB. Believe TTB, hold/buy ICAP.
30 Jun 09, 17:30
RR: cause i actually believes WB said "I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will. "
30 Jun 09, 17:30
RR: So.. so far.. I am not with ICAP yet:) I mostly invest in things that the business itself has its own edge, without really counting on the person in charge.
30 Jun 09, 17:25
RR: the only doubts will be, is TTB a person who I can really believe in? A person with integrity where I can put ALL my savings with him? I personally am not sure..
30 Jun 09, 17:22
RR: So.. my 2 cents is that, if you believe in TTB that his investing style works and he will be employing this investing method as long as he lives. I think, you should keep holding the stock.
30 Jun 09, 17:21
RR: You believe what TTB believes. We believe him, because he has been publishing his method of investing for some time. We believe that he will continue with that style.
30 Jun 09, 17:17
RR: However, it is hard to see any durable competetive advantage ICAP has over other funds. ICAP is all about TTB.. If you are buying into ICAP. You must have known TTB well.
30 Jun 09, 17:16
RR: Taking RM1.80 as current price, ICAP has around 16% compounded return since 2005. As for me, ICAP is one of the business that I can understand and its performance is easy to track.
---
RR, I find your reasoning interesting and would like to offer my comments here:
The track record of iCAP closed end fund is short. Yes, it has given a very good return (cumulative total return and compound annual return). This cannot be extrapolated to future years. Investment returns are often unpredictable.
Over the longer term, it is generally expected that most funds will give returns close to those of the market returns. This is based on statistics and probabilities. We know that. In fact, given the cost of some funds, most funds will give returns lower that the market return.
If you are an enterprising investor, like Leno, with a proven track record, you should continue your own investing. On the other hand, if you have been an investor who has lost money consistently or with a very poor return from your investment, you should seriously consider whether you should be doing your own investing or otherwise.
The issue of integrity of the fund manager is important and cannot be treated lightly. In the light of Madoff, one cannot be too careful. But then, how do you judge integrity in the person? Review how you judged a person to be your business partner or a lady to be your life partner. What criterias did you use? What outcomes, deemed important, did you factor into these criterias? As much as you and I like to be totally objective, often judgement is also a very subjective matter.
Warren Buffett has written on integrity. He would like his managers to have integrity, intelligence and lots of energy. Above all, integrity. Without integrity, these traits of intelligence and energy in the manager will work against the interest of the owner.
Like Warren Buffett, we should only invest in a fund manager with integrity, intelligence and a lot of energy. The managers of these funds also realise the importance of their integrity in their business and their relationship with their investors. A reputation build over 30 years can be destroyed in 5 minutes.
This assessment of the integrity of the fund manager can best be summed up as difficult, subjective and based on your personal views. This view is also influenced by your interactions with others and this fund manager in the same industry. Eventually, in the majority of situations, it is a personal opinion.
For the defensive investor, what are the options? My personal advice, don't even buy a share, if you are not familiar with equity investing and the market place. It is far too dangerous a place for someone with no investing or financial education. Therefore, park the money in FDs and be grateful for the 'safety of capital' and meagre return these offer. But the risks are those of inflation eroding the real income and capital, and also, not meeting your investing objectives.
The next best thing, is to have friends or relatives who are able to invest for you or to advice you on your investments. I was fortunate to have this guidance for many years. But beware of professionals with some knowledge. I have known of investors who ask their remisiers for some stock recommendations with varying results.
Then, you are still faced with how to invest your money safely, for higher return, over a long period. Who do you turn to now?
Here is my suggested approach to investing into icap fund or any other funds. We start with a very big assumption, that the fund we invest in will perform reasonably well under a good manager, and over the years, the manager will continues to grow the value of the investment.
For the investors of the fund, it would then be the simple matter of investing into the fund at the time when it was trading at a bargain, usually coinciding with the market at a low point. However, there is still another important factor to consider.
It was Peter Lynch (I think), who wrote that during his tenure of his fund, the majority of investors who bought and sold his fund lost money. This was despite the fund growing in value at a compound annual rate of 30% or so, for almost 30 years.
The inference, even if you have selected the right fund or fund manager, your returns may be negative due to factors unrelated to them, but to yourself.
This is what I do for a portion of my money. But then, you are not me. Your circumstances will definitely be different. So, please follow your own analysis and make your own decision. You are the better judge of yourself, always.
Also read:
Games people play
To be a winner, choose the games one wishes to play in carefully. Investing is likewise not dissimilar. One need to have the investing knowledge before "playing this game" intelligently, lest one ends up not winning but losing.
Tuesday, 30 June 2009
Where is your focus in your investment returns?
Are you focussed on absolute return and capital preservation?
Or, are you more focussed on relative return to a certain benchmark?
Perhaps you are more focussed on one or the other at different market environments. Certainly these are food for thoughts.
But then, it was also ridiculous to an individual investor, for his fund manager to talk about beating a certain market benchmark during the recent severe bear market when the absolute return of the fund was negative and the capital was also down by a large amount!
Or, are you more focussed on relative return to a certain benchmark?
Perhaps you are more focussed on one or the other at different market environments. Certainly these are food for thoughts.
But then, it was also ridiculous to an individual investor, for his fund manager to talk about beating a certain market benchmark during the recent severe bear market when the absolute return of the fund was negative and the capital was also down by a large amount!
How To Raise A Rich Daughter
Brown Heidi,
Forbes.com
06/29/09 19:00:10 GMT
How To Raise A Rich Daughter
Women hold half of the investable wealth in the U.S. and account for 43% of all Americans who have a net worth of $1.5 million or more. Yet only 10% of asset managers are female, says a new report from the National Council for Research on Women.
Recent studies show that, as with other areas of business, women make investment decisions differently from men. They consider contradictory information and study company fundamentals more carefully before investing. Over the long term, funds run by women, who tend to be more risk-averse in general, outperform those of men. The Hedge Fund Research Diversity Index, for example, which has 50% female managers, returned an annual average 8.21% since 2003, while the broader index returned 5.98%.
That's all well and good, until you consider that many women simply aren't going into finance. The NCRW says a major cause of the dearth of women in finance is the "pipeline"--the supply of future finance professionals. Not enough girls and young women even consider finance as a career choice, so there are fewer candidates for finance jobs and even fewer women-run funds. In part, this stems from girls' lack of interest in science and math--even though studies have shown they have the same aptitude as boys.
The problem starts early, explains Barnard College President Debora Spar, who spoke at a NCRW conference earlier this week.
Part of this might be due to computer games used in schools. Math-based games, noted Spar, are almost always of the "shoot-em-up" variety which appeal to boys; whereas games which the girls prefer such as "Dora the Explorer" are not math-based. Multimedia math tools and early learning toys that appeal to girls are needed, said Spar.
Anecdotally, she said, years ago she taught an elementary school math class; both sexes did equally well at the subject. But within eight months, she saw girls' interest in math wane, while boys remained engaged.
Once in high school, most female students "tend to focus on application-based information," she said. "They think, 'How will trigonometry help me in the real world?' A guy, by contrast, might take finance classes because his friend is doing it or his father's golf buddy is on Wall Street."
To engage girls in math, Spar thinks more female math teachers, from elementary school through college, would help enormously. The National Bureau of Economic Research released a study in May that looked at the difference in math and science performance between male and female students at the U.S. Air Force Academy and found that women who have female math professors tend to stick with the subject until graduation.
But many math departments have few, if any, women math teachers.
A brief survey of three schools show this playing out: At Caltech two of 18 math professors are women, at the University of Virginia four of 28 math professors are women and at the University of Chicago zero out of 32 math professors are women.
With so few women in the pipeline, investors are losing out by not benefiting from women's prudence and women are losing out by not gaining access to the basis of power: big money.
Keep reading at ForbesWoman.
http://news.my.msn.com/lifestyle/article.aspx?cp-documentid=3417377
Forbes.com
06/29/09 19:00:10 GMT
How To Raise A Rich Daughter
Women hold half of the investable wealth in the U.S. and account for 43% of all Americans who have a net worth of $1.5 million or more. Yet only 10% of asset managers are female, says a new report from the National Council for Research on Women.
Recent studies show that, as with other areas of business, women make investment decisions differently from men. They consider contradictory information and study company fundamentals more carefully before investing. Over the long term, funds run by women, who tend to be more risk-averse in general, outperform those of men. The Hedge Fund Research Diversity Index, for example, which has 50% female managers, returned an annual average 8.21% since 2003, while the broader index returned 5.98%.
That's all well and good, until you consider that many women simply aren't going into finance. The NCRW says a major cause of the dearth of women in finance is the "pipeline"--the supply of future finance professionals. Not enough girls and young women even consider finance as a career choice, so there are fewer candidates for finance jobs and even fewer women-run funds. In part, this stems from girls' lack of interest in science and math--even though studies have shown they have the same aptitude as boys.
The problem starts early, explains Barnard College President Debora Spar, who spoke at a NCRW conference earlier this week.
Part of this might be due to computer games used in schools. Math-based games, noted Spar, are almost always of the "shoot-em-up" variety which appeal to boys; whereas games which the girls prefer such as "Dora the Explorer" are not math-based. Multimedia math tools and early learning toys that appeal to girls are needed, said Spar.
Anecdotally, she said, years ago she taught an elementary school math class; both sexes did equally well at the subject. But within eight months, she saw girls' interest in math wane, while boys remained engaged.
Once in high school, most female students "tend to focus on application-based information," she said. "They think, 'How will trigonometry help me in the real world?' A guy, by contrast, might take finance classes because his friend is doing it or his father's golf buddy is on Wall Street."
To engage girls in math, Spar thinks more female math teachers, from elementary school through college, would help enormously. The National Bureau of Economic Research released a study in May that looked at the difference in math and science performance between male and female students at the U.S. Air Force Academy and found that women who have female math professors tend to stick with the subject until graduation.
But many math departments have few, if any, women math teachers.
A brief survey of three schools show this playing out: At Caltech two of 18 math professors are women, at the University of Virginia four of 28 math professors are women and at the University of Chicago zero out of 32 math professors are women.
With so few women in the pipeline, investors are losing out by not benefiting from women's prudence and women are losing out by not gaining access to the basis of power: big money.
Keep reading at ForbesWoman.
http://news.my.msn.com/lifestyle/article.aspx?cp-documentid=3417377
Should you hold iCap?
"Always look at the valuation and the price.
Value a company on a long-term basis.
Many companies are still trading below its long-term valuation. "
Would you hold icap as a fund for your investment?
How good are the fund's managers and analysts?
When investing into icap, one is effectively employing ttb and his team to pick securities for you. ttb has a investment newsletter for many years. His philosophy and strategy are known. The few model portfolios in his newsletter have outperformed the market benchmarks. However, for many investors, his truly transparent real life performance will be gauged on his performance in icap closed end fund.
What is the strategy and how well is it executed?
Using his philosophy and strategy, ttb has consistently added value to the fund he is managing. By sticking to his approach with conviction, he has delivered excellent returns to date. More importantly, there is consistency in the returns during different environment, in good and in bad times of the investing period.
Is the fund a good value proposition?
The cost is lower for this fund than other open-ended funds in the market. As many stocks are bought and held, there is less transaction costs involved too. Also, there are times when you can invest into this fund at a steep discount to its NAV.
Have the fund and its advisor been shareholder-friendly?
Some bloggers hammered ttb on this. They lament that icap should reveal its portfolio at every quarter. icap should at the least inform the shareholders of some of the transactions. If not, how can these investors make an informed decision?
Value a company on a long-term basis.
Many companies are still trading below its long-term valuation. "
Would you hold icap as a fund for your investment?
Let's take a look at this by seeking answers to the following questions.
How good are the fund's managers and analysts?
When investing into icap, one is effectively employing ttb and his team to pick securities for you. ttb has a investment newsletter for many years. His philosophy and strategy are known. The few model portfolios in his newsletter have outperformed the market benchmarks. However, for many investors, his truly transparent real life performance will be gauged on his performance in icap closed end fund.
What is the strategy and how well is it executed?
Using his philosophy and strategy, ttb has consistently added value to the fund he is managing. By sticking to his approach with conviction, he has delivered excellent returns to date. More importantly, there is consistency in the returns during different environment, in good and in bad times of the investing period.
Is the fund a good value proposition?
The cost is lower for this fund than other open-ended funds in the market. As many stocks are bought and held, there is less transaction costs involved too. Also, there are times when you can invest into this fund at a steep discount to its NAV.
Have the fund and its advisor been shareholder-friendly?
Some bloggers hammered ttb on this. They lament that icap should reveal its portfolio at every quarter. icap should at the least inform the shareholders of some of the transactions. If not, how can these investors make an informed decision?
icap does keep investors up to date on changes to their fund, but only once a year. Those who are subscribers of icap newsletter may get an inkling of the stocks bought or sold indirectly.
- How critical is it for the investors to know what icap bought or sold recently?
- How critical is it for the investors to know what icap bought or sold recently, if they have a long-term horizon?
My take on this, is that those long-term investors into icap will find it more useful and rewarding understanding the philosophy and strategy of ttb and the icap fund, than harping on this issue constantly.
icap is one of the fund with the lowest cost I know. That to me is investor friendly. Of course, being an investor into icap may make my views less objective, but I try to give an honest appraisal of these issues.
Why has the fund performed the way it has?
http://spreadsheets.google.com/ccc?key=roHksSrHHyf0Roi1sJE36Wg
The short-term track record since Oct 2005 has been excellent. Perhaps, we will have a look at this in detail later.
Sunday, 28 June 2009
Ownership of Financial Assets in US
Interesting, abeit old, statistics. The distribution of wealth in the United States was, and probably is, terribly unequal.
Ownership of Financial Assets in US in the 90s.
The Very Rich (1% of the Population)
46%
The Affluent (the Next 9%)
36%
The Rest (90% of Americans)
18%
Share of Income Collected by American Households
The Very Rich (1% of the Population)
1962 9.3%
1992 15.7%
The Affluent (the Next 9%)
1962 21.5%
1992 25.2%
The Rest (90% of Americans)
1962 69.2%
1992 59.1%
Ownership of Financial Assets in US in the 90s.
The Very Rich (1% of the Population)
46%
The Affluent (the Next 9%)
36%
The Rest (90% of Americans)
18%
Share of Income Collected by American Households
The Very Rich (1% of the Population)
1962 9.3%
1992 15.7%
The Affluent (the Next 9%)
1962 21.5%
1992 25.2%
The Rest (90% of Americans)
1962 69.2%
1992 59.1%
iCap Closed End Fund Track Record for last 2 years
Click on this busy spreadsheet.
http://spreadsheets.google.com/ccc?key=roHksSrHHyf0Roi1sJE36Wg
There has been a lot of "cowshit" written on icap closed end fund. I decided to just review the performance of this fund for my personal benefit. Well, not too bad so far.
Related posts:
iCap sold Axiata and bought Astro
Morningstar's Approach to Analyzing Mutual Funds
Always buy, hold or sell based on fundamentals.
http://spreadsheets.google.com/ccc?key=roHksSrHHyf0Roi1sJE36Wg
There has been a lot of "cowshit" written on icap closed end fund. I decided to just review the performance of this fund for my personal benefit. Well, not too bad so far.
Related posts:
iCap sold Axiata and bought Astro
Morningstar's Approach to Analyzing Mutual Funds
Always buy, hold or sell based on fundamentals.
Saturday, 27 June 2009
iCap sold Axiata and bought Astro
The icap portfolio dated 11.6.2008 listed 17 stocks. VADS was taken private, leaving 16 stocks.
Let us make an (unlikely) assumption that the portfolio of 16 stocks has not changed over the last 1 year. Using the share prices of 26.6.2009 revealed some interesting figures.
Click to view:
http://spreadsheets.google.com/ccc?key=rPy-muVrt2cj5PSRqXgtT2A
Let us make an (unlikely) assumption that the portfolio of 16 stocks has not changed over the last 1 year. Using the share prices of 26.6.2009 revealed some interesting figures.
Click to view:
http://spreadsheets.google.com/ccc?key=rPy-muVrt2cj5PSRqXgtT2A
Observations:
1. 8 stocks are showing gains, 8 stocks are showing losses.
2. The winners are: Parkson, PetDag, F&N, Padini, PIE, HaiO, LionDiv, and PohKong, in descending order of gains.
The corresponding percentages of gains for each of these stocks in the same order are: 106.3%, 101.2%, 46.2%, 69.6%, 33.7%, 33.4%, 78.7%, and 2.5%.
Total of these 8 stock gains is: $49,797,470.00
3. The losers are: Boustead, TM, Swee Joo, Mieco, Integrax, Suria, Tongher and TMI, in ascending order of losses.
The corresponding percentages of losses for each of these stocks in the same order are: -5.4%, -7.9%, -46.8%, -76.7%, -23.4%, -43%, -44.1%, and -71.1%.
Total of these 8 stock losses is: $-24,278,277.00
4. The total gains exceed total losses by $25,519,193.00. Gains : Losses = 2.05 : 1.0
5. TMI (Axiata) accounts for 52% of the total losses ($12.7 million). The other 7 losing counters contribute 48% of the total losses.
6. Parkson is the top gainer; it accounts for 44.8% ($22.3m) of the total gains. The top 3 stock gainers (Parkson, PetDag and F&N) contribute 82% ($40.9m) of the total gains. The other 5 winning counters account for 18% of the total gains.
7. Of these 16 stocks, 10 can probably be considered thinly traded most of the time (illiquid).
8. TMI is the second largest stock in icap portfolio, based on cost. Here are the stocks, in descending order, based on cost: Parkson, TMI, F&N, PetDag, PIE, Boustead, Integrax, TM, Tongher, Padini, Suria, Swee Joo, Mieco, HaiO, PohKong, and LionDiv.
9. The biggest gainers are also the bigger stocks in icap, based on cost, namely, Parkson, F&N, PetDag and PIE. TMI is the big stock in icap showing a very big loss. To fathom this, the loss of TMI wipes out all the gains of PetDag.
10. The total cost of these 16 stocks is $127,425,010.00. The total market value of these 16 stocks is $145,453,495.00. Other gains not taken into account in this observation are the capital gains from stocks sold and dividends received by icap portfolio.
What are your conclusions on these observations?
In the latest report by icap, Axiata (previous TMI) was sold and Astro was bought.
Among the reasons for selling stocks would be:
- If you need cash urgently for various reasons.
- When the fundamental of the stock has deteriorated.
- When you need to raise cash to invest into another stock with better potential.
- When your stock is overpriced, reducing the potential of gain.
Why did icap sell Axiata, probably at a low price?
Well, it should be interesting to find out at the next icap AGM.
Meantime, please continue with your good work, Mr. ttb.
Related posts:
iCap Closed End Fund Track Record for last 2 years
Morningstar's Approach to Analyzing Mutual Funds
Why Invest in Stocks? An Example in Practice
If you are a newcomer to investing, you may still doubt that you are capable of building a portfolio of stocks that will make you rich.
Not all stocks are going to live up to their early promise, no matter how much time you devote to making a selection.
In the other hand, even if you pick your stocks blindfolded, you will have some winners.
10 years - $118,368
20 years - $280,221
10 years - $66,172
20 years - $291,911
10 years - $70,986
20 years - $201,558
20 years - $265,330
One final note. If you figure in taxes, you look even better, since the capital gains (on your stocks ) are taxed at a much lower rate than ordinary income (which applies to CDs). And, you wouldn't even have to worry about capital gains on your stocks if you elected not to sell them.
(Comment: My personal guideline is this. Of 5 stocks you buy, expect 1 to do very well, 3 to be average, and 1 to do poorly.)
Read also:
Why Invest in Stocks?
Why Invest in Stocks? Look at the Facts
Why Invest in Stocks? Investing for the Long Term
Why Invest in Stocks? Some Profitable Comparisons
Why Invest in Stocks? Why Doesn't Everyone Buy Common Stocks?
Why Invest in Stocks? An Example in Practice
Not all stocks are going to live up to their early promise, no matter how much time you devote to making a selection.
In the other hand, even if you pick your stocks blindfolded, you will have some winners.
An Example
Investing into Common Stocks
Let's suppose that you want to invest $100,000 in 20 stocks, or $5,000 in each. Some will work out and some won't.
So so news - 10 of 20 stocks will just plug along
Hypothetically, it does not seem unreasonable to project that 10 of these stocks will just plug along, making you neither rich nor poor. Suppose we assume that these 10 stocks will appreciate (rise in value) an average of only 7% per year over the next 10 or 20 years. Toss in a 2% annual dividend and the total return adds up to 9% per year. That is not exactly riches, since stocks over the last 75 years have averaged about 11%.
At any rate, here is what your $50,000 will be worth at the end of:10 years - $118,368
20 years - $280,221
Good news - 3 of 20 stocks performed above your wildest dreams
Next, let's look at the 3 stocks that performed above your wildest dreams. They appreciated an average of 15% per year. Add in a modest annual dividend of only 1%, and you have a total return of 16%.
Assuming you invest $5,000 in each of these stocks, that $15,000 will be worth over the next:10 years - $66,172
20 years - $291,911
Bad news - 2 of 20 stocks skid and never recovered
So far, so good. Now, for the bad news. Two of your stocks hit the skids and never recovered. Total results for the $10,000 invested in these losers is: zero
10 years - $00,000
20 years - $00,000
Fair news - 5 of 20 stocks performed about average
Finally, 5 of your 20 stocks do about average. They appreciate an average of 9% per year and I have an average yearly dividend of 2%. That's a total return of 11%. Since you have 5 stocks in this category, your total investment is $25,000. Here is what you end up with in the next:10 years - $70,986
20 years - $201,558
Adding Up these Returns
If we add up these various results, the final figures make you look reasonably rich:
10 years - $255,525
20 years - $ 773,690
Investing into CDs
By contrast, had you acted in a cowardly manner and invested exclusively in CDs that gave an annual return of 4%, you would have only the following at the end of the two periods:
10 years - $162,88920 years - $265,330
One final note. If you figure in taxes, you look even better, since the capital gains (on your stocks ) are taxed at a much lower rate than ordinary income (which applies to CDs). And, you wouldn't even have to worry about capital gains on your stocks if you elected not to sell them.
(Comment: My personal guideline is this. Of 5 stocks you buy, expect 1 to do very well, 3 to be average, and 1 to do poorly.)
Read also:
Why Invest in Stocks?
Why Invest in Stocks? Look at the Facts
Why Invest in Stocks? Investing for the Long Term
Why Invest in Stocks? Some Profitable Comparisons
Why Invest in Stocks? Why Doesn't Everyone Buy Common Stocks?
Why Invest in Stocks? An Example in Practice
Why Invest in Stocks? Why Doesn't Everyone Buy Common Stocks?
Why doesn't everyone buy common stocks?
That's a good question. Let try to find some satisfactory answers.
Part of the reason may be ignorance.
Not everyone is willing to investigate the field of common stocks.
These noninvestors may be too preoccupied with their jobs, sports, reading, gardening, travel, or whatever.
Then, there are those who are heavily influenced by family members who have told them that stocks are too speculative and better left to millionaires. (Of course, that's how many of those millionaires become millionaires.)
Even if you are convinced about the potential of stocks, you are probably wondering how anyone can possibly figure out which stocks to buy, since there are tens of thousands to choose from.
That, in essence, is the purpose of all my postings in this blog - to get you excited in pursuing financial education to benefit from your investing into common stocks.
Read also:
Why Invest in Stocks?
Why Invest in Stocks? Look at the Facts
Why Invest in Stocks? Investing for the Long Term
Why Invest in Stocks? Some Profitable Comparisons
Why Invest in Stocks? Why Doesn't Everyone Buy Common Stocks?
Why Invest in Stocks? An Example in Practice
That's a good question. Let try to find some satisfactory answers.
Part of the reason may be ignorance.
Not everyone is willing to investigate the field of common stocks.
These noninvestors may be too preoccupied with their jobs, sports, reading, gardening, travel, or whatever.
Then, there are those who are heavily influenced by family members who have told them that stocks are too speculative and better left to millionaires. (Of course, that's how many of those millionaires become millionaires.)
Even if you are convinced about the potential of stocks, you are probably wondering how anyone can possibly figure out which stocks to buy, since there are tens of thousands to choose from.
That, in essence, is the purpose of all my postings in this blog - to get you excited in pursuing financial education to benefit from your investing into common stocks.
Read also:
Why Invest in Stocks?
Why Invest in Stocks? Look at the Facts
Why Invest in Stocks? Investing for the Long Term
Why Invest in Stocks? Some Profitable Comparisons
Why Invest in Stocks? Why Doesn't Everyone Buy Common Stocks?
Why Invest in Stocks? An Example in Practice
Why Invest in Stocks? Some Profitable Comparisons
Based on this study, we can say with confidence that over a lifetime of investing, an investor will reap a total annual return of 10% or more.
If you compare this with the amount you could earn by owning CDs, annuities, government bonds, or any other conservative investment, the difference is considerable.
Let's see how that difference adds up.
Suppose you invested $25,000 in a list of common stocks at the age of 40, and your portfolio built up at a 10% compound annual rate. By the time you reached 65, your common stock nest egg would be worth $270,868.
Now, let's say you had invested your money in government bonds, yielding 6%. The same $25,000 would be worth only $107,297, which is a difference of $163,571. Neither of these calculations has accounted for income taxes or brokerage commissions.
Now, let's look at the timid soul who invested $25,000 in CDs at age 40 and averaged a return of 4%. By age 65, that investment would be worth a paltry $66,646.
Read also:
Why Invest in Stocks?
Why Invest in Stocks? Look at the Facts
Why Invest in Stocks? Investing for the Long Term
Why Invest in Stocks? Some Profitable Comparisons
Why Invest in Stocks? Why Doesn't Everyone Buy Common Stocks?
Why Invest in Stocks? An Example in Practice
If you compare this with the amount you could earn by owning CDs, annuities, government bonds, or any other conservative investment, the difference is considerable.
Let's see how that difference adds up.
Suppose you invested $25,000 in a list of common stocks at the age of 40, and your portfolio built up at a 10% compound annual rate. By the time you reached 65, your common stock nest egg would be worth $270,868.
Now, let's say you had invested your money in government bonds, yielding 6%. The same $25,000 would be worth only $107,297, which is a difference of $163,571. Neither of these calculations has accounted for income taxes or brokerage commissions.
Now, let's look at the timid soul who invested $25,000 in CDs at age 40 and averaged a return of 4%. By age 65, that investment would be worth a paltry $66,646.
Read also:
Why Invest in Stocks?
Why Invest in Stocks? Look at the Facts
Why Invest in Stocks? Investing for the Long Term
Why Invest in Stocks? Some Profitable Comparisons
Why Invest in Stocks? Why Doesn't Everyone Buy Common Stocks?
Why Invest in Stocks? An Example in Practice
Why Invest in Stocks? Investing for the Long Term
Investing, however, is not a one-year endeavor.
Most investors start their programs in their 40s and 50s, which means they could be investing over a 20, 30, or 40-year period.
5-year periods
If we look at the relative returns of different investments over 5-year periods - rather than 1-year periods - the results are even more encouraging.
During the years from 1960 through 1994, there were 31 such periods.
In only 2 of 31 of those 5-year periods did the total return of the Standard & Poor's based portfolio become negative.
29 of 31 such 5-year periods gave positive total returns.
10-year periods
Let's move ahead to all 10-year holding periods.
There are 26 in that span.
Exactly 100% worked out profitably.
Average annual total returns
Equally important, the returns to the investor were impressive in all of these 1, 5, and 10-year periods.
For instance, the average annual total return:
If you compare this with the amount you could earn by owning CDs, annuities, government bonds, or any other conservative investment, the difference is considerable.
Read also:
Why Invest in Stocks?
Why Invest in Stocks? Look at the Facts
Why Invest in Stocks? Investing for the Long Term
Why Invest in Stocks? Some Profitable Comparisons
Why Invest in Stocks? Why Doesn't Everyone Buy Common Stocks?
Why Invest in Stocks? An Example in Practice
Most investors start their programs in their 40s and 50s, which means they could be investing over a 20, 30, or 40-year period.
5-year periods
If we look at the relative returns of different investments over 5-year periods - rather than 1-year periods - the results are even more encouraging.
During the years from 1960 through 1994, there were 31 such periods.
In only 2 of 31 of those 5-year periods did the total return of the Standard & Poor's based portfolio become negative.
29 of 31 such 5-year periods gave positive total returns.
10-year periods
Let's move ahead to all 10-year holding periods.
There are 26 in that span.
Exactly 100% worked out profitably.
Average annual total returns
Equally important, the returns to the investor were impressive in all of these 1, 5, and 10-year periods.
For instance, the average annual total return:
- for 1-year periods was 11.1%;
- for 5-year periods, it was 10.5%, and
- for 10-year periods, it was 10.2%.
If you compare this with the amount you could earn by owning CDs, annuities, government bonds, or any other conservative investment, the difference is considerable.
Read also:
Why Invest in Stocks?
Why Invest in Stocks? Look at the Facts
Why Invest in Stocks? Investing for the Long Term
Why Invest in Stocks? Some Profitable Comparisons
Why Invest in Stocks? Why Doesn't Everyone Buy Common Stocks?
Why Invest in Stocks? An Example in Practice
Why Invest in Stocks? Look at the Facts
One persuasive study contends that common stocks will make money for you in most years.
1-year periods
This study, done by the brokerage firm Smith Barney, looked at the 35 one-year periods between 1960 and 1995.
The study computed total return, which adds capital gains and dividends.
Over that span, stocks (as represented by the Standard & Poor's 500 index) performed unsatisfactorily in only 8 of those 35 years.
In other words, you would have been better off in money-market funds during those 8 years.
Common stocks would ahve been more successful in 27 of those 35 years.
(Comment: You can expect to have 1 down year for every 5 years of your investing.)
Read also:
Why Invest in Stocks?
Why Invest in Stocks? Look at the Facts
Why Invest in Stocks? Investing for the Long Term
Why Invest in Stocks? Some Profitable Comparisons
Why Invest in Stocks? Why Doesn't Everyone Buy Common Stocks?
Why Invest in Stocks? An Example in Practice
1-year periods
This study, done by the brokerage firm Smith Barney, looked at the 35 one-year periods between 1960 and 1995.
The study computed total return, which adds capital gains and dividends.
Over that span, stocks (as represented by the Standard & Poor's 500 index) performed unsatisfactorily in only 8 of those 35 years.
In other words, you would have been better off in money-market funds during those 8 years.
Common stocks would ahve been more successful in 27 of those 35 years.
(Comment: You can expect to have 1 down year for every 5 years of your investing.)
Read also:
Why Invest in Stocks?
Why Invest in Stocks? Look at the Facts
Why Invest in Stocks? Investing for the Long Term
Why Invest in Stocks? Some Profitable Comparisons
Why Invest in Stocks? Why Doesn't Everyone Buy Common Stocks?
Why Invest in Stocks? An Example in Practice
Why Invest in Stocks?
Investing is a complex business.
But, then, so is medicine, engineering, chemistry, geology, law, philosophy, photography, history, accounting - you name it.
In fact, investing is so intimidating that many intelligent individuals avoid it.
Instead, they stash their money in CDs, annuitites, bonds, or mutual funds.
Apparently, they can't face buying common stocks.
This is too bad, because that's precisely where the money is made.
You don't make money every day, every week, or even every year.
But over the long term, you will make the most out of your investment dollars.
Read also:
Why Invest in Stocks?
Why Invest in Stocks? Look at the Facts
Why Invest in Stocks? Investing for the Long Term
Why Invest in Stocks? Some Profitable Comparisons
Why Invest in Stocks? Why Doesn't Everyone Buy Common Stocks?
Why Invest in Stocks? An Example in Practice
But, then, so is medicine, engineering, chemistry, geology, law, philosophy, photography, history, accounting - you name it.
In fact, investing is so intimidating that many intelligent individuals avoid it.
Instead, they stash their money in CDs, annuitites, bonds, or mutual funds.
Apparently, they can't face buying common stocks.
This is too bad, because that's precisely where the money is made.
You don't make money every day, every week, or even every year.
But over the long term, you will make the most out of your investment dollars.
Read also:
Why Invest in Stocks?
Why Invest in Stocks? Look at the Facts
Why Invest in Stocks? Investing for the Long Term
Why Invest in Stocks? Some Profitable Comparisons
Why Invest in Stocks? Why Doesn't Everyone Buy Common Stocks?
Why Invest in Stocks? An Example in Practice
The Danger Lurking in Your Portfolio
I like the title of this article. It reminds us to always be aware of the danger(s) that may be overlooked in our portfolio. Therefore, in our regular rebalancing and reweighting of our stocks in our portfolio, always keep this in mind.
This article touches on investing through mutual funds. What I usually will do is to look at the stocks that are in these funds. This is very important, as the performance of the fund will be dependent on what stocks are within these funds. For the less knowledgeable investors, this may be a another hurdle for them to cross. There is no better way than to start getting financially educated early in your investing career.
Another point in this article, is that having all your money in one fund or in many funds holding almost similar stocks may not ensure that you are well diversified.
----
The Danger Lurking in Your Portfolio
By Dan Caplinger
June 26, 2009
For years, financial experts have repeated the mantra of diversification as a way to smooth out the ups and downs of your portfolio. Yet, many people who believe that they have a diversified set of investments couldn't be more wrong -- and they're carrying much greater risk than they may think.
The benefits of mutual funds
Mutual funds have helped millions of investors diversify their holdings even with relatively small amounts of money. By pooling your money together with other investors, a typical mutual fund gives you a small piece of dozens or even hundreds of different stocks. With minimum investments as low as a few hundred dollars, you can create a portfolio that would require huge amounts of money to duplicate using 100-share lots of individual stocks.
But as useful as a single mutual fund is in helping you diversify, combining a bunch of funds into your overall portfolio won't automatically make you more diversified. If you own too many of the same general type of mutual fund, then you're going to have a more concentrated portfolio than you think -- and you could have some big gaps in your asset allocation.
Different funds, same stocks
To illustrate the point, take a look at these three different funds:
- The Vanguard US Growth Fund (VWUSX) invests in U.S. companies with promising growth prospects.
- The Fidelity Select Technology Fund (FSPTX) focuses on companies within the technology sector.
- The California Investment Nasdaq 100 Index (NASDX) is an index fund that seeks to track the performance of the Nasdaq 100.
Especially to those just starting out investing, each of these three funds looks like it has a different purpose in a fund portfolio. But when you look closely at the top five holdings of each of these funds, you'll notice something peculiar:
Fund (Top 5 Holdings)
Vanguard US Growth
Google (Nasdaq: GOOG), Hewlett-Packard (NYSE: HPQ), Apple (Nasdaq: AAPL), Gilead Sciences (Nasdaq: GILD), Qualcomm (Nasdaq: QCOM)
Fidelity Select Technology
Microsoft (Nasdaq: MSFT), Hewlett-Packard, Apple, Google, Qualcomm
California Nasdaq 100
Apple, Qualcomm, Microsoft, Google, Gilead Sciences
Source: Morningstar.
Of course, more experienced investors might realize that the Nasdaq is made up largely of technology stocks, and that most tech stocks fall into the growth category. And of course, the Vanguard fund has plenty of non-tech companies further down the list, including Wal-Mart (NYSE: WMT). But without checking your holdings, you may end up with a false sense of security -- when in reality, you're dangerously overinvested in technology or some other sectors.
What to do
Luckily, once you start looking, it's not difficult to get plenty of information about mutual funds. Here are some tools you can use to make sure you're properly diversified:
Look for different asset classes. If you own several different funds, but they all concentrate on large-cap U.S. stocks, then the odds are good that you'll have a lot of overlap. Make sure you have at least one fund that covers other asset classes, including small caps and international stocks.
Use different fund companies. Sometimes, a given manager will share his stock picks and research across different funds within the same fund family. To increase the chance that you'll get a diverse set of investing ideas, seek out funds from different managers across a range of fund families.
Fill in the gaps. By looking at your fund's periodic reports, you can determine what areas a fund focuses on and which sectors it tends to avoid. If a fund is light in one particular sector, then you can get exposure either through a sector-specific fund or with a more general fund that has a focus in that sector.
Diversification is important, but just because you own a long list of funds doesn't necessarily mean you're diversified. In order to avoid the risk of owning a more concentrated portfolio than you think, be sure to look at your fund's holdings on a regular basis and make sure there's not too much overlap.
For more on smart fund investing, read about:
Could a recovery be right around the corner?
Why should you bother buying mutual funds at all?
Can "set it and forget it" investing really work?
http://www.fool.com/investing/mutual-funds/2009/06/26/the-danger-lurking-in-your-portfolio.aspx
Singapore’s rich list takes a beating
Singapore’s rich list takes a beating
SINGAPORE, June 26 — Singapore’s rich were not spared the effects of the global financial meltdown last year, with the number of millionaires here shrinking 22 per cent to 61,000 people.
A year earlier, Singapore boasted one of the world’s top 10 fastest-growing millionaires’ clubs, with a 15.3 per cent expansion to 78,000.
A millionaire is defined as a person having net assets of at least US$1 million (RM3.52 million), excluding his main residence and everyday possessions.
Observers say the sharp drop is probably because the well-heeled here were invested heavily in equities and real estate, both of which have suffered in the crisis.
The figures emerged in the 13th annual World Wealth Report released yesterday by banking group Merrill Lynch and research firm Capgemini.
On average, Singapore’s ‘high net worth individuals’ were worth about US$3 million each, said Kong Eng Huat, managing director and head of South Asia advisory at Merrill Lynch Global Wealth Management.
“A lot of these (individuals) are in the US$1 million to US$5 million range. So that’s why you find a greater drop in terms of the high net worth population because...when the market comes down and they have invested heavily in equities then they would not be a high net worth individual any more,’ he added.
Globally, the number of people in the millionaires’ club fell by about 15 per cent to 8.6 million, which is below the figure in 2005. North America, Europe and the Asia-Pacific registered the largest declines.
The total wealth of these individuals fell to US$32.8 trillion, also below the levels in 2005. However, this is forecast to recover in all regions by 2013, with Asia-Pacific leading the growth.
More than half of the world’s millionaires last year came from three countries — the United States, Japan and Germany. The proportion is a slight increase from the year before.
China climbed one rung to become the country with the fourth largest millionaires’ population of 364,000.
The World Wealth Report also indicated that the millionaires have reacted to the crisis by moving more of their assets into cash and fixed-income securities — and away from equities.
A larger proportion of wealth was allocated to art collections and jewellery, gems and watches. This category hit 47 per cent last year, up from 38 per cent in 2006.
Bhalaji Raghavan, Capgemini’s banking solutions leader for Asia-Pacific, said: “One of the reasons is that people believe that (these items) over a long period of time increase in value, so it’s a lot safer than putting their money in financial markets.”
Giving to charity was forecast to be on the decrease on average across the globe this year, especially in North America, but increasing in the Asia-Pacific region.
Private banks contacted by The Straits Times said their clients are now staying away from high-risk investment products.
“Currently, it is back to basics of investment, and we have seen that cash positions in portfolios are high,” said Rajesh Malkani, Standard Chartered Private Bank’s head of Southeast Asia.
Raj Sriram, RBS Coutts’ head of private banking in Singapore, agreed: “From a private bank perspective, the main challenge is that clients have become more risk averse due to volatility in the markets...Clients today largely prefer simpler, liquid investments.” — The Straits Times
http://www.themalaysianinsider.com/index.php/business/30586-singapores-rich-list-takes-a-beating
SINGAPORE, June 26 — Singapore’s rich were not spared the effects of the global financial meltdown last year, with the number of millionaires here shrinking 22 per cent to 61,000 people.
A year earlier, Singapore boasted one of the world’s top 10 fastest-growing millionaires’ clubs, with a 15.3 per cent expansion to 78,000.
A millionaire is defined as a person having net assets of at least US$1 million (RM3.52 million), excluding his main residence and everyday possessions.
Observers say the sharp drop is probably because the well-heeled here were invested heavily in equities and real estate, both of which have suffered in the crisis.
The figures emerged in the 13th annual World Wealth Report released yesterday by banking group Merrill Lynch and research firm Capgemini.
On average, Singapore’s ‘high net worth individuals’ were worth about US$3 million each, said Kong Eng Huat, managing director and head of South Asia advisory at Merrill Lynch Global Wealth Management.
“A lot of these (individuals) are in the US$1 million to US$5 million range. So that’s why you find a greater drop in terms of the high net worth population because...when the market comes down and they have invested heavily in equities then they would not be a high net worth individual any more,’ he added.
Globally, the number of people in the millionaires’ club fell by about 15 per cent to 8.6 million, which is below the figure in 2005. North America, Europe and the Asia-Pacific registered the largest declines.
The total wealth of these individuals fell to US$32.8 trillion, also below the levels in 2005. However, this is forecast to recover in all regions by 2013, with Asia-Pacific leading the growth.
More than half of the world’s millionaires last year came from three countries — the United States, Japan and Germany. The proportion is a slight increase from the year before.
China climbed one rung to become the country with the fourth largest millionaires’ population of 364,000.
The World Wealth Report also indicated that the millionaires have reacted to the crisis by moving more of their assets into cash and fixed-income securities — and away from equities.
A larger proportion of wealth was allocated to art collections and jewellery, gems and watches. This category hit 47 per cent last year, up from 38 per cent in 2006.
Bhalaji Raghavan, Capgemini’s banking solutions leader for Asia-Pacific, said: “One of the reasons is that people believe that (these items) over a long period of time increase in value, so it’s a lot safer than putting their money in financial markets.”
Giving to charity was forecast to be on the decrease on average across the globe this year, especially in North America, but increasing in the Asia-Pacific region.
Private banks contacted by The Straits Times said their clients are now staying away from high-risk investment products.
“Currently, it is back to basics of investment, and we have seen that cash positions in portfolios are high,” said Rajesh Malkani, Standard Chartered Private Bank’s head of Southeast Asia.
Raj Sriram, RBS Coutts’ head of private banking in Singapore, agreed: “From a private bank perspective, the main challenge is that clients have become more risk averse due to volatility in the markets...Clients today largely prefer simpler, liquid investments.” — The Straits Times
http://www.themalaysianinsider.com/index.php/business/30586-singapores-rich-list-takes-a-beating
Friday, 26 June 2009
The Four Essentials of Successful Investing
In brief, here are the four rules:
3. Be thrifty (Don't be a Spendthrift)
An important ingredient of successful investing is discipline.
Of course, it pays to earn an above-average salary.
If you make $30,000 a year and have 4 children, you are not likely to end up rich. Sorry about that.
On the other hand, there are plenty of people who make great incomes and still don't own any stocks. The reason: They can always find things to buy.
Successful investors not only make a good income, but they are thrifty shoppers.
For instance, do you need a new car every 2 years? I happen to be rich and I buy used cars. Not rusted-out jalopies - normally, I buy Buicks that are 3 years old.
If you want to find out how people get rich, you should get The Millionaire Next Door by Thomas J. Stanley and William D. Danko. Typically, millionaires are extremely careful how they spend their money and they invest in good-quality common stocks with very infrequent trading.
Invest enough to make it worthwhile, such as 10% of your income. You can do this if you are thrifty.
4. Picking the Right Investments
The final factor is picking the right stocks or mutual funds.
Surprisingly, this is the least important factor. That is because no one knows how to do it consistenly.
There are mutual funds with good records, but those managers are rarely able to duplicate their performance year after year. However, that shouldn't deter you from trying. You will pick your share of winners if you do your homework and exercise patience.
Finally, make sure you don't make any big bets. Diversify over a few stocks in different sectors or industries.
You will need to be financially educated and do enough reading to ensure you pick stocks that have the potential to make you rich.
- Start early in life to invest.
- Invest in common stocks.
- Be thrifty.
- Pick the right investment.
1. Start early in life to invest
Start young. Many people wait until age 50 before they realize what has happened.
Let's assume you want to have $1 million by age 65. That may not be enough , but it is a lot more than most people ahve when they decide to retire from the world of commerce and frustration.
- If you start at age 35 and can realize an annual return of 10% compounded, you will have to put aside $6,079 each year.
- If you delay until you are 45, it will mean you have to set aside $17,460 each year.
- If you start at age 55, the amount gets a little steep - $62,746!
2. Invest Mostly in Stocks, not Bonds
It takes commitment, even if you start early, to save for the future.
But if you buy bonds, CDs, or a money market fund, the task is even tougher.Let's try the different ages again, but this time assuming a compound annual return of 6, instead of 10%.
Also, let's assume you want to have $1 million by age 65.
- If you start at age 35 and can realize an annual return of 6% compounded, you will have to put aside $12,649 into CD each year. - that is a lot more than the first illustration.
- If you delay until you are 45, it will mean you have to set aside $27,185 each year.
- If you start at age 55, the amount you will forced to set aside for fixed-income vehicles will be $75,869 each year.
3. Be thrifty (Don't be a Spendthrift)
An important ingredient of successful investing is discipline.
Of course, it pays to earn an above-average salary.
If you make $30,000 a year and have 4 children, you are not likely to end up rich. Sorry about that.
On the other hand, there are plenty of people who make great incomes and still don't own any stocks. The reason: They can always find things to buy.
Successful investors not only make a good income, but they are thrifty shoppers.
For instance, do you need a new car every 2 years? I happen to be rich and I buy used cars. Not rusted-out jalopies - normally, I buy Buicks that are 3 years old.
If you want to find out how people get rich, you should get The Millionaire Next Door by Thomas J. Stanley and William D. Danko. Typically, millionaires are extremely careful how they spend their money and they invest in good-quality common stocks with very infrequent trading.
Invest enough to make it worthwhile, such as 10% of your income. You can do this if you are thrifty.
4. Picking the Right Investments
The final factor is picking the right stocks or mutual funds.
Surprisingly, this is the least important factor. That is because no one knows how to do it consistenly.
There are mutual funds with good records, but those managers are rarely able to duplicate their performance year after year. However, that shouldn't deter you from trying. You will pick your share of winners if you do your homework and exercise patience.
Finally, make sure you don't make any big bets. Diversify over a few stocks in different sectors or industries.
You will need to be financially educated and do enough reading to ensure you pick stocks that have the potential to make you rich.
Some thoughts on Analysing Stocks
Ideally, a stock you plan to purchase should have all of the following charateristics:
- A rising trend of earnings, dividends, and book value per share.
- A balance sheet with less debt than other companies in its particular industry.
- A P/E ratio no higher than average.
- A dividend yield that suits your particular needs.
- A below-average dividend pay-out ratio.
- A history of earnings and dividends not pockmarked by erratic ups and downs.
- Companies whose ROE is 15 or better.
- A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.
Keep It Simple and Safe.
Nine Mistakes that Investors Make
Nine mistakes that investors make
1. Failure to diversify
2. Paying too much for a stock
3. Buying a stock with a high payout ratio*
4. Too much trading
5. Failure to read the company's quarterly and annual reports
6. Failure to invest in stocks after a long decline
7. Failure to keep adequate records (recordkeeping)**
*Stock with high payout ratio
Most companies need to invest their retained earnings to grow their business.
A low payout ratio is preferred, since it means that the company is plowing back its profits into future growth.
Examine what percentage of earnings per share are paid out in dividend. For instance:
1. Failure to diversify
2. Paying too much for a stock
3. Buying a stock with a high payout ratio*
4. Too much trading
5. Failure to read the company's quarterly and annual reports
6. Failure to invest in stocks after a long decline
7. Failure to keep adequate records (recordkeeping)**
*Stock with high payout ratio
Most companies need to invest their retained earnings to grow their business.
A low payout ratio is preferred, since it means that the company is plowing back its profits into future growth.
Examine what percentage of earnings per share are paid out in dividend. For instance:
- if the company earns $4 a share and pays out $3, that's too much.
- most would much prefer a company that paid out less than 50% - 30 or 40% would be even better.
Companies that don't pay a dividend at all are often very speculative. They can be extremely volatile.
Recordkeeping**
This is a common blunder. You should have a filing cabinet that holds a folder for each stock.
The first thing you should put in that file is the confirmation slip for the purchase of the stock, which should have been sent to you by your broker.
Then when you sell the stock, you will know what you paid for it so that you can tell your accountant. He will in turn tell the IRS.
The Buy-and-Hold Strategy Is Going, Going, Gone ...
The Buy-and-Hold Strategy Is Going, Going, Gone ...
By Peter Khanahmadi
June 25, 2009
It's been interesting to observe the zeal with which people have taken part in the Fool's debate about buy-and-hold investing. There have been many arguments in favor of buy and hold, some against, and some in between.
My view is that the buy-and-hold strategy is fading fast, right before our eyes. The days of holding onto a stock for 20 or 30 years and forgetting about it until retirement are over.
Thanks to technological advancements that enable far greater competition, as well as global economic uncertainty, the buy-and-hold approach just isn't effective in today's market.
For example, consider a company like Sun Microsystems (Nasdaq: JAVA), which was riding high during the tech boom of the late 1990s. Investors at the time felt Sun would be a long-term buy given its significant tailwinds -- it was providing software and Internet equipment for the ever-growing World Wide Web.
But the tech bust, along with furious competition from IBM (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ), dismantled Sun and its stock price. Although this is just one admittedly extreme example (Sun is down 85% over the past decade), it serves to remind us how critical it is to actively monitor stock investments to gauge when to make appropriate decisions to sell.
Several comments from our Foolish members support the view that buy and hold is rapidly fading. Here are a few interesting ones:
"Holding anything for a long period of time has never been a good idea, and even less so today. In our economic system, money moves rapidly and constantly, so while you're sitting on your money for a long period of time, a lot of people are using/moving your money and making big profits, and in the end you'll get a few scraps back after sitting on it for ten years. If a 8-12% return on your investment after several years seems good to you, then fine, but in reality it's a very paltry sum compared to what other made with your money in the same time period. And as many of you know, after ten years you may be even be down, not up." -- IMHarvey
"I vote YES. When I became a cognizant being in the 60's and 70's, BAH had a rather concrete meaning. You bought a stalwart American company, an engine of capitalism, like AT&T or GM or a utility. You held it forever; the rest of your life; until you die. When you retire, you harvest your crop.TMF seems to quote 10 years as a horizon, but I wonder if many journalists and everyday investors are thinking of 5 years; I know I do." -- jerryguru69
"In my opinion, the buy and hold days are over. That does not mean you should become a day trader, but modern technology is changing so fast that the probability that any one company is going to be the top dog forever is very low. I now set stop losses on every stock I buy and if it drops significantly it automatically sells. If it turns out I should have kept the stock, I can buy it back again for $7 on many on line sites. I will never again let my portfolio drop significantly based on predictions from so called stock experts, that on reality don't know any more than I do." -- harry1n
As with all great debates, both sides must be heard. Although I strongly hold the view that buy and hold is fading fast, some members provided evidence to the contrary:
"Coca-Cola (NYSE: KO), a blue-chip stock anyone with a 5th grade education can understand, is up over 9,000% over the last 35 years, yet more than 97% of the population missed the run. As recently as March 2009, this simple, yet very powerful stock was trading at a very reasonable 14 times earnings, yielding 4% in dividend income. This is the same PRICE Warren Buffett paid for it in 1989! (adjusted to 4 bucks a share, post splits). Yet, there were with NO takers!!!
Truth be told, most people do NOT have the stomach, nor the patience for the stock market. You need both.
If you are reading this post, are less than 45 years old, and do not smoke, then you are likely going to live for another 30-40 years. If history has taught us anything, over that kind of time horizon, a 50-60,000 handle on the DJIA is simply inevitable.
Thus, the one thing all LONG TERM equity investors have in common is FAITH.
For without faith, I would have tossed my Dow Chemical, General Electric, Harley Davidson (NYSE: HOG), McDonald's (NYSE: MCD), and Pfizer (NYSE: PFE) stock overboard a long time ago." -- daveandrae
Wherever you fall in the debate, you cannot ignore the fact that today's market is filled with volatility and uncertainty. Knowing this, investors must stay on top of their portfolios and actively track, follow, and yes, even manage, their holdings.
What's your take? Is buy and hold quickly fading or not? Leave us a comment below and let us know!
For all our buy-and-hold coverage:
Long-Term Investing Doesn't Work
Blog: The Life and Subsequent Death of Buy-and-Hold Investing
Buy and Hold Isn't Dead. It's Just Wounded.
The Most Certain Way to Wealth in Our Uncertain World?
http://www.fool.com/investing/general/2009/06/25/the-buy-and-hold-strategy-is-going-going-gone.aspx
By Peter Khanahmadi
June 25, 2009
It's been interesting to observe the zeal with which people have taken part in the Fool's debate about buy-and-hold investing. There have been many arguments in favor of buy and hold, some against, and some in between.
My view is that the buy-and-hold strategy is fading fast, right before our eyes. The days of holding onto a stock for 20 or 30 years and forgetting about it until retirement are over.
Thanks to technological advancements that enable far greater competition, as well as global economic uncertainty, the buy-and-hold approach just isn't effective in today's market.
For example, consider a company like Sun Microsystems (Nasdaq: JAVA), which was riding high during the tech boom of the late 1990s. Investors at the time felt Sun would be a long-term buy given its significant tailwinds -- it was providing software and Internet equipment for the ever-growing World Wide Web.
But the tech bust, along with furious competition from IBM (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ), dismantled Sun and its stock price. Although this is just one admittedly extreme example (Sun is down 85% over the past decade), it serves to remind us how critical it is to actively monitor stock investments to gauge when to make appropriate decisions to sell.
Several comments from our Foolish members support the view that buy and hold is rapidly fading. Here are a few interesting ones:
"Holding anything for a long period of time has never been a good idea, and even less so today. In our economic system, money moves rapidly and constantly, so while you're sitting on your money for a long period of time, a lot of people are using/moving your money and making big profits, and in the end you'll get a few scraps back after sitting on it for ten years. If a 8-12% return on your investment after several years seems good to you, then fine, but in reality it's a very paltry sum compared to what other made with your money in the same time period. And as many of you know, after ten years you may be even be down, not up." -- IMHarvey
"I vote YES. When I became a cognizant being in the 60's and 70's, BAH had a rather concrete meaning. You bought a stalwart American company, an engine of capitalism, like AT&T or GM or a utility. You held it forever; the rest of your life; until you die. When you retire, you harvest your crop.TMF seems to quote 10 years as a horizon, but I wonder if many journalists and everyday investors are thinking of 5 years; I know I do." -- jerryguru69
"In my opinion, the buy and hold days are over. That does not mean you should become a day trader, but modern technology is changing so fast that the probability that any one company is going to be the top dog forever is very low. I now set stop losses on every stock I buy and if it drops significantly it automatically sells. If it turns out I should have kept the stock, I can buy it back again for $7 on many on line sites. I will never again let my portfolio drop significantly based on predictions from so called stock experts, that on reality don't know any more than I do." -- harry1n
As with all great debates, both sides must be heard. Although I strongly hold the view that buy and hold is fading fast, some members provided evidence to the contrary:
"Coca-Cola (NYSE: KO), a blue-chip stock anyone with a 5th grade education can understand, is up over 9,000% over the last 35 years, yet more than 97% of the population missed the run. As recently as March 2009, this simple, yet very powerful stock was trading at a very reasonable 14 times earnings, yielding 4% in dividend income. This is the same PRICE Warren Buffett paid for it in 1989! (adjusted to 4 bucks a share, post splits). Yet, there were with NO takers!!!
Truth be told, most people do NOT have the stomach, nor the patience for the stock market. You need both.
If you are reading this post, are less than 45 years old, and do not smoke, then you are likely going to live for another 30-40 years. If history has taught us anything, over that kind of time horizon, a 50-60,000 handle on the DJIA is simply inevitable.
Thus, the one thing all LONG TERM equity investors have in common is FAITH.
For without faith, I would have tossed my Dow Chemical, General Electric, Harley Davidson (NYSE: HOG), McDonald's (NYSE: MCD), and Pfizer (NYSE: PFE) stock overboard a long time ago." -- daveandrae
Wherever you fall in the debate, you cannot ignore the fact that today's market is filled with volatility and uncertainty. Knowing this, investors must stay on top of their portfolios and actively track, follow, and yes, even manage, their holdings.
What's your take? Is buy and hold quickly fading or not? Leave us a comment below and let us know!
For all our buy-and-hold coverage:
Long-Term Investing Doesn't Work
Blog: The Life and Subsequent Death of Buy-and-Hold Investing
Buy and Hold Isn't Dead. It's Just Wounded.
The Most Certain Way to Wealth in Our Uncertain World?
http://www.fool.com/investing/general/2009/06/25/the-buy-and-hold-strategy-is-going-going-gone.aspx
Know Yourself and Make More Money
Know Yourself and Make More Money
By Selena Maranjian
June 25, 2009
If you want to be a better investor, you have to know how your mind works. Not everyone thinks the same way about investing, and if you don't know your own particular quirks -- and weaknesses -- then it'll show in your results.
In particular, think about some of your not-so-wonderful investing habits. Even if they don't come to mind right away, odds are that you'll find a whole host of examples if you dig out some of your old brokerage statements and review some of your bone-headed investments. Try to figure out what led you to make those mistakes. Here are some possibilities:
Do you get swayed by an exciting detail or two? For instance, both Google (Nasdaq: GOOG) and Intuitive Surgical (Nasdaq: ISRG) have had amazing revenue growth in recent years, with average annual rates of 72% and 57%, respectively. But don't invest without filling out the picture much more. There's simply no way those growth rates are sustainable in the long run. In the current recession, demand for Intuitive's expensive robotic surgery equipment has slowed. Even companies that enter a slower-growth phase can make profitable investments, though, as Wal-Mart (NYSE: WMT) shareholders can attest.
Do you get too impatient? Did you maybe invest in Diamond Offshore (NYSE: DO) or Adobe Systems (Nasdaq: ADBE) a year ago, based partly on their robust margins, revenue growth, and return on equity? Are you thinking of selling them just because they're down over 30% in the past year? Well, next time you look at them and your trigger finger starts itching, be patient -- that's a key trait of great investors. As long as you remain confident of their strength and promise, holding can be the best thing to do.
Conversely, are you sometimes pigheaded? If you're holding on to companies just because they're down, even though you've lost faith in them, that's not such a good idea. Maybe, for example, you lost money on Capital One Financial (NYSE: COF) or Bank of America (NYSE: BAC), and are worried about new regulations in the credit card industry and the chance of increased loan defaults in the recession. If so, at least think about moving your money into a company you feel more confident about.
Do you focus much more on a stock's positives than its negatives? Are you eager to buy a stock after hearing someone on TV rave about it, without looking into his track record or the stock itself? If those traits haven't gotten you in trouble already, they certainly will in the future.
Discover your unproductive tendencies, so that you can notice and avoid them when they rear their ugly heads. Your portfolio might thank you for it.
http://www.fool.com/investing/general/2009/06/25/know-yourself-and-make-more-money.aspx
Learn more:
Mr. Market's 3 Biggest Weaknesses
4 Ways to Destroy Your Retirement
8 Common Investing Mistakes
Not-so-wonderful investing habits
By Selena Maranjian
June 25, 2009
If you want to be a better investor, you have to know how your mind works. Not everyone thinks the same way about investing, and if you don't know your own particular quirks -- and weaknesses -- then it'll show in your results.
In particular, think about some of your not-so-wonderful investing habits. Even if they don't come to mind right away, odds are that you'll find a whole host of examples if you dig out some of your old brokerage statements and review some of your bone-headed investments. Try to figure out what led you to make those mistakes. Here are some possibilities:
Do you get swayed by an exciting detail or two? For instance, both Google (Nasdaq: GOOG) and Intuitive Surgical (Nasdaq: ISRG) have had amazing revenue growth in recent years, with average annual rates of 72% and 57%, respectively. But don't invest without filling out the picture much more. There's simply no way those growth rates are sustainable in the long run. In the current recession, demand for Intuitive's expensive robotic surgery equipment has slowed. Even companies that enter a slower-growth phase can make profitable investments, though, as Wal-Mart (NYSE: WMT) shareholders can attest.
Do you get too impatient? Did you maybe invest in Diamond Offshore (NYSE: DO) or Adobe Systems (Nasdaq: ADBE) a year ago, based partly on their robust margins, revenue growth, and return on equity? Are you thinking of selling them just because they're down over 30% in the past year? Well, next time you look at them and your trigger finger starts itching, be patient -- that's a key trait of great investors. As long as you remain confident of their strength and promise, holding can be the best thing to do.
Conversely, are you sometimes pigheaded? If you're holding on to companies just because they're down, even though you've lost faith in them, that's not such a good idea. Maybe, for example, you lost money on Capital One Financial (NYSE: COF) or Bank of America (NYSE: BAC), and are worried about new regulations in the credit card industry and the chance of increased loan defaults in the recession. If so, at least think about moving your money into a company you feel more confident about.
Do you focus much more on a stock's positives than its negatives? Are you eager to buy a stock after hearing someone on TV rave about it, without looking into his track record or the stock itself? If those traits haven't gotten you in trouble already, they certainly will in the future.
Discover your unproductive tendencies, so that you can notice and avoid them when they rear their ugly heads. Your portfolio might thank you for it.
http://www.fool.com/investing/general/2009/06/25/know-yourself-and-make-more-money.aspx
Learn more:
Mr. Market's 3 Biggest Weaknesses
4 Ways to Destroy Your Retirement
8 Common Investing Mistakes
Not-so-wonderful investing habits
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