Sunday Morning Coffee

James Altucher had another entertaining post, this one titled 10 Reasons You Should Never Own Stocks Again. Most of the reasons center on your (really he means just about everybody) inability to compete in the market as it trades and to a lesser extent not being wired for stock picking (emotionally and analytically).

The post drew a lot of comments with plenty expressing some form of agreement, others sharing what they do including some mention of mutual funds.

I'm not sure how literally this post should be taken as Altucher says he is "incredibly bullish on stocks." Clearly he points out serious issues that confront equity market participants. It is not clear to whether he is saying don't buy individual stocks or if he is saying not to invest in equities at all.

There are all sorts of considerations with this article and so I think the utility is not so much changing what you do based on this article but making sure you understand the drawbacks of what you do.

The competition angle of the article is IMO more for people who trade very actively on a short term basis. If you bought Johnson Controls (JCI) on March 6, 2009 and you still own it then it doesn't really matter whether you paid $9.18 or you got hosed based on what appeared to be the prevailing quote and paid $9.23 as the stock is now $41.00. If you bought at 11:15 that day and were out at 11:50 then the nickel becomes very important. This is not to say that investors don't get disadvantaged on some portion of their executions but it is less of a worry in my opinion when the objective is long term.

The drawbacks of picking stocks mostly center on being wrong either with the analysis or understanding something that knocks it down after you bought. Recently, American Tower (AMT) got hit very hard because of consolidation elsewhere in the industry that might lead to less tower demand; the stock took back that dip in ten days. While it seems obvious now (notwithstanding a little hindsight bias) someone who thought they knew the stock sold on March 21 at $45.85 (the low print). This is a name we own for clients and did not sell into the March news.

The drawbacks for only using mutual funds include yields usually being smaller and a lack of precision which can lead to owning too much of the "wrong" thing although certain parts of the ETF space help to mitigate this. There are other drawbacks too to funds but I write about them frequently so won't repeat the entire spiel here.

One point I will repeat again is that if you take Altucher to be saying no equity exposure and you want to follow that advice then make sure you save a lot of money relative to your income and your needs.

The first picture is from the Whiskey Off Road Bicycle races that are going on in Prescott this weekend. This is the start of one of the amateur races, the pro race is this morning but we'll be hiking. The other picture is of a baseball player name Darren Ford (obviously) who oddly enough got a world series ring before getting his first major league hit which apparently is not unprecedented for a position player.