Barry has a post up that gives some highlights of his most recent RealMoney article. He provides 13 bullet points for investors and I thought I would add my spin to a couple of them.First let me say that the utility from this sort of post from someone who clearly knows and understands more than the average guy is very beneficial. Why Billy Mays you ask? No reason at all.
The first one is Simple is Better Than Complex. Trying to keep things simple is one of the major themes for my site and strategy. Simple means different things to different people. For some it might mean three index funds and for some others it might mean 100 stocks.
My starting point is a diversified portfolio with no big bets and no black box concepts that rely on what should work. I tend to agree with whoever said (I think it was Peter Lynch) that you should be able explain the thesis for what you own to a child, or words to that effect. Sounds good to me.
P/E matters less than you think. Amen. This is a point I have been making for a while (here is one post from a year and a half ago). I tend to fall in to the camp that says P/Es help with valuation but are not predictive. Stocks can stay cheap or expensive for years, check out a long term chart of Walmart as an example of this.
Nothing is more costly than chasing yield. Adding yield to a portfolio is not chasing yield. I think of chasing yield, for example, as adding 15-20% into the royalty trusts because of the yield. "If they drop 10 or 15% it'll be ok because of the yield." A year ago they got crushed on news of tax changes. The person who owned one at a moderate weight had a bad day or two, the person with 20% of his portfolio in them may have undone more than a year's worth of gains. Check out PWE and PGH as examples.
Risk management matters. Hello! It might be correct to say I have bludgeoned readers over the head with this point in 2007. Barry's meaning might be a tad more trading oriented than mine but whatever you do in your portfolio you take some sort of risk--that is to say you are vulnerable to certain things. Know what you are exposed to, have something planned out ahead of time to address that risk and then stick to it.
Good stuff Barry, thanks.
Did I hear correctly that service jobs in the ADP report was up 71,000? Anyone know if they breakout seasonal hires at retail stores from that number?
11 comments:
Sorry to sound bitter, but the only joy that I'll take from the jobs report is when layoffs at the big finanacial firms hit. Of course, their well-padded bonuses will cushion the blow for them.
In the real world, the employees who get fat performance bonuses aren't the ones who get laid off.
having been laid off once (in 2001) i believe the reasons can be much more sinister than fat bonuses.
however it was the best thing that, professionally, that has ever happened to me.
Speaking of risk-adjusted returns, for the past 1,3 and 5 years, the non-US index(VGTSX for example) has better Sharpe ratios than US index(VFINX). 1.45, 1.53 and 1.62 for VGTSX vs 0.31, 0.71,0.91 for VFINX. Returns for the past 1, 3 and 5 years for VGTSX are 15, 19 and 23%, respectively. Therefore, both from risk-adjusted returns and absolute returns, VGTSX beats VFINX. Of course, you can get pretty decent returns if you are overweighing commodity or gold or good at trading stocks. For indexers or non-indexers, selecting a core portfolio based on risk-adjusted broad based index seems to be an excellent starting point.
in a period where foreign has beaten domestic, I'm not sure that simply declaring the total world better is the right idea.
as was left in the comments last night there will be periods where US does better.
that over the last 1,3 and 5 years yada yada...that does not look forward. risk adjusted stats are an important piece of the puzzle, yes, but where they are going is more important than where they have been.
Thanks for the kind words, Roger.
The full column made its way to the free site -- its at:
13 Things You Wish You'd Known in 2007
http://www.thestreet.com/s/13-things-you-wish-youd-known-in-2007/newsanalysis/investing/10396669.html
Roger, your comment on the importance of looking forward is fair. This is why we use moving averages to calibrate if the past trend has changed. For example, we take progressively more defensive postions if S&P 500 dips below its 200-day moving average.
In the case of VGTSX vs VFINX, both the daily and monthly charts suggest the advantage of VGTSX will continue. Of course, if the trend reverses, some of the bets will be taken off the table. Is this called TAA?
http://stockcharts.com/charts/gallery.html?vgtsx:vfinx
very helpful stuff Barry.
if it is unclear from Barry's comment the article is now on the free site and you can click here to get to it.
anon, of course it is all fair game, i certainly do some technical work but advocate pulling in different types of study to try to decide; TA, sure but also top down, normal cyclical ideas and so on.
All i can think to say, is this, "scalping all day long is not the way people like to trade",
however with the market running the old saw,,,,i guess day trading is one way to get it done for now.
What happened to your bloggers Roger? Looks like holiday people
of sorts..LOL
Rest Well People
Mac
it is a holiday--bowl week!
Here's something else to brighten up your holiday. A no good pump-and-dumper goes down:
http://tinyurl.com/2qrtva
Never buy a penny stock that is touted through a bulk mailing. Or a subscription news letter for that matter.
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