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Investment advice thread

C

Craig234

Lifer
We have some members with some expertise in finance and investing.

This thread is for them to share their views and tips for what to do in investing now.

I'd like to ask for two comments:

1. What to do now, in the midst of the crisis, where it's an open question whether this huge government reaction will stabilize things, or things will go down.

2. What to do if we see big inflation coming.

I'm not posting an opinion on this now; I'll toss out the types of options that might be good to comment on:

- Cash investments/bonds
- Foreign Currency (including currency mutual funds)
- Metals
- US Stock Market - any part or indexes
- Real Estate
- Contrarian funds (e.g. designed to go up when the dollar goes down)
- Foreign company mutual funds (Europe, emerging markets)
- Sector funds

- Relocation to Canada
 
Honesty, no one knows WTF to do, if you go defensive, the government comes up with a plan to prop up their cronies, if you go long, the market looks like shit if it's not bailed out.

Hell, they had to prop up the money market...
 
You might add investing in your neighbor because very soon he might be at your door with an ax looking for something to eat.
 
Money market funds: Are they safe?

This morning Treasury came out saying it would backstop money market mutual funds, shoring up investor confidence to prevent a mass exodus. As I wrote yesterday, that's the much bigger threat to money markets right now?mass redemptions, not funds marking down the value of bad assets (e.g., commercial paper from the now-bankrupt Lehman Brothers).

You can read my entire story here, but if you want to cut to the chase, just read this part:

So what should you do now? Nothing, right? Okay, maybe there are a few small things. For starters, look at the yield on your money market fund and compare it to the sector. Naturally, you want the highest return on your money. Except that maybe you don't. Higher yields usually mean riskier investments ? more commercial paper, say, as opposed to Treasuries.

Last Friday, before the Lehman implosion, Reserve Primary Fund was the second highest-yielding fund of the 100 largest tracked by Crane Data. For months before that, it was in the No. 1 slot. "You want to act like the smart caribous and stand in the middle of the pack," says Crane. And, of course, make sure your fund is at a big firm that has the wherewithal to back it up, should it come to that.
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Originally posted by: Moonbeam
You might add investing in your neighbor because very soon he might be at your door with an ax looking for something to eat.
Click to expand...
So more accurately, invest in weapons and bulletproof glass for your house. Perhaps even a ditch digger to create an escape tunnel by the house.
 
It all depends on what your timeline is. You should not have significant exposure to the market if you need access to your money in 3 or 4 years, this is true in good times and bad. If you have a long timeframe you need to stay in the market right now. Asset prices are falling and probably will fall further, but if you have a diversified portfolio, you should look at this as a good thing - you are getting your stocks at a bargain price.

Right now is a brilliant time to buy. some of the valuations out there are just rediculous: Goldman Sachs is trading at a P/E of under 8. That's an insane price for the best investment bank in the world. I wouldn't specifically recommend buying the stock because I haven't done any due diligance on it, but this is probably the cheapest it's been in the last 20 years. If you really want to know how to take advantage of a down market like this, read Benjamin Graham. That's where Warren Buffet got his start.
 
Originally posted by: Blackjack200
It all depends on what your timeline is. You should not have significant exposure to the market if you need access to your money in 3 or 4 years, this is true in good times and bad. If you have a long timeframe you need to stay in the market right now. Asset prices are falling and probably will fall further, but if you have a diversified portfolio, you should look at this as a good thing - you are getting your stocks at a bargain price.

Right now is a brilliant time to buy. some of the valuations out there are just rediculous: Goldman Sachs is trading at a P/E of under 8. That's an insane price for the best investment bank in the world. I wouldn't specifically recommend buying the stock because I haven't done any due diligance on it, but this is probably the cheapest it's been in the last 20 years. If you really want to know how to take advantage of a down market like this, read Benjamin Graham. That's where Warren Buffet got his start.
Click to expand...

LOL @ Goldman Sachs

They (purportedly) have $29 billion is cash and $1 trillion in liabilities. No one (except Hank Paulson and his Golden Bucket of Taxpayer Cash) will provide capital.

Goldman Sachs? quarterly earnings plummet 70%
 
Unless OP is running an endowment or pension fund, I'd say a lot of those positions should be no more than 5% each (if at all), and be funded by mad money you can easily afford to lose.

For an individual investor, I'd say strategic asset allocation is as simple as it always has been: what balance of stocks / bonds / cash / +- international are you comfortable with and will provide a total return to meet your projected retirement needs down the road?

Historically stocks >> bonds > cash, with stocks zigging when say intermediate term bonds zag (OAKBX), and cash acting as a cushion you can temporarily draw down from in times like these. I always thought of international more as a way of diversifying risk, rather than turbocharging portfolio returns. All the other stuff to me is just gambling, unless you are running a multi-billion dollar endowment or pension fund utilizing modern portfolio theory (I believe they have to both preserve capital and grow at a reasonable rate, all in the face of steady stream of outflows to fund whatever their purpose is; young individual retirement investor is just in accumulation phase only and will probably be so until say about 50 years old, which is general point that introduction of bonds into portfolio is recommended). For this young retirement investor still in that accumulation phase, there is a significant opportunity cost to being too conservative from a strategic asset allocation point of view (compare cumulative return of that 60% stock / 40% bonds balanced fund linked above with a quality typically 95%+ stock mutual fund such as VHCOX; you're leaving a lot of money on the table even if you don't realize it now...)

As for any individual position, if it used to be a dog, is still currently a dog, and mostly likely will be a relative dog when market eventually lifts in a sustained manner, why not tax loss sell and rotate (trade up) into an investment that should provide better returns going forward, helps bring your whole portfolio strategic asset allocation closer to what it should be, and will allow you to sleep better at night?

 
Because Im not withdrawing in at least 10 years, I have about 15% in small cap funds, 45% in large cap/Fortune 500 funds, 20% in foreign investments (S America and now most of that in Dubai), 15% in bonds, and 5% in whatever I feel like at a given time. A slush fund if you will. Approx 50% of it is in 401k, 25% in IRA, and 25% in regular vehicles.
 
"According to Ibbotson & Associates, asset allocation accounts for nearly 92% of your overall portfolio performance, with investment selection accounting for only 4% and market timing accounting for less than 2%. All other factors account for less than 2%. This clearly shows that how you allocate your money may actually be more important than the individual investments you choose." Link

Probably more valid for someone with a 10 - 20 year + time horizon, rather than someone gaming the market over the next year or two, but nonetheless avery, very valid insight...

If you a trader who can consistently shift to cash equivalents before every significant market downturn, then be fully in stocks before every significant upturn, more power to you.


For the rest of us, there is tremendous opportunity cost ot pursuing such a radical tactical asset allocation plan:

"From 1982 to 2001, the S&P 500 gained a 11.8% per year. Had you invested $10,000 at the beginning of this timeframe, you?d have $93,075 if you keep your nerve through the ups and downs and stayed in the market. In contrast, these are the returns if you jumped in and out and even slightly mis-timed the sometimes dramatic recoveries from the bottom:

If you missed the 10 best days, you?d have $56,044
If you missed the 30 best days, you?d have $28,144
If you missed the 50 best days, you?d have $15,780

Considering that there are roughly 250 trading days in a year, this means that missing out on the best 0.02% of the investing days over this 20 year period (i.e., the best 10 of 5000 days) would?ve reduced your total return by nearly 40%! In contrast, if you?d sat tight throughout, you?d be sitting pretty right now.

And keep in mind that this time frame extends halfway into the 2000-2002 burst of the dot com bubble, and also includes the Black Monday crash of 1987 when the Dow Jones Industrial Average dropped by nearly 23% in a single day. Thus, while it covers and overall strong period for stocks, it?s not an especially atypical timeframe."
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Obviously doesn't mean you don't have to pay attention to details of every individual investment (quality mutual fund with average annual returns of just 1 - 2 % over the market as a whole is going to create a lot more wealth, i. e. actual dollars, than the stock market as a whole), but just don't miss the forest while tunnel visioning in on a particular tree.


 
Originally posted by: Dissipate
Right now there are only two symbols in my portfolio: GLD and SLV.
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Smart man. I believe that is the only place to be for the foreseeable future. Paper money is going down the tubes. Hard assets are the only safe haven.
 
Originally posted by: Capitalizt
Originally posted by: Dissipate
Right now there are only two symbols in my portfolio: GLD and SLV.
Click to expand...

Smart man. I believe that is the only place to be for the foreseeable future. Paper money is going down the tubes. Hard assets are the only safe haven.
Click to expand...

That sounds like a terrible idea. Hard assets are not as much of a safe haven if the world economy slows (gets dragged down by the US economy). It might be safer than some equities, but it's not going to be a real safe haven. If you think inflation is going to be the big problem, you should invest in inflation adjusted notes / bills. I personally think the dropping price of oil will keep inflation in check, I'm more concerned with the health of the economy overall.
 
For those of you who think that the current crisis is not going away anytime soon, one worry free way of investing is paying off your loans and credit cards. This will give you guaranteed returns and you'll sleep well at night. Mortgage counts too, assuming you didn't buy it during the bubble period.
 
Originally posted by: gevorg
For those of you who think that the current crisis is not going away anytime soon, one worry free way of investing is paying off your loans and credit cards. This will give you guaranteed returns and you'll sleep well at night. Mortgage counts too, assuming you didn't buy it during the bubble period.
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Bingo!

Paying off 12-21% interest debt > return that earning 10% in the market
 
Originally posted by: heyheybooboo
Originally posted by: Blackjack200
It all depends on what your timeline is. You should not have significant exposure to the market if you need access to your money in 3 or 4 years, this is true in good times and bad. If you have a long timeframe you need to stay in the market right now. Asset prices are falling and probably will fall further, but if you have a diversified portfolio, you should look at this as a good thing - you are getting your stocks at a bargain price.

Right now is a brilliant time to buy. some of the valuations out there are just rediculous: Goldman Sachs is trading at a P/E of under 8. That's an insane price for the best investment bank in the world. I wouldn't specifically recommend buying the stock because I haven't done any due diligance on it, but this is probably the cheapest it's been in the last 20 years. If you really want to know how to take advantage of a down market like this, read Benjamin Graham. That's where Warren Buffet got his start.
Click to expand...

LOL @ Goldman Sachs

They (purportedly) have $29 billion is cash and $1 trillion in liabilities. No one (except Hank Paulson and his Golden Bucket of Taxpayer Cash) will provide capital.

Goldman Sachs? quarterly earnings plummet 70%
Click to expand...

Here's your fucking crow: Warren Buffett, widely regarded as the best investor in the world, just made a $5 billion bet on Goldman.

Now eat up.
 
The SS ban has really limited some of the trades I had on so I covered. I still have an investment in a friends hedge fund but that is the minimum most of the money I run myself.

I have somewhat run out of easy trades, I bought some GS limit 114 which I got rid of fairly quickly this week, otherwise I have some long standing positions in USB, and JPM (may get rid of this on Monday) and kept on a short position in C from before the ban as a hedge against the bailout not passing. Otherwise the remainder of my money around 90% is still sitting in mm.

In the end I am incredibly small and the Institutional money market fund I am in is strictly 31, 90 day t-bills. I also shorted the LIBOR spot on Thursday in case the bailout doesn't pass. I may buy the Eurodollar futures on Monday depending on how things look as this bailout is definitely going to increase the amount of dollars outside the country and peoples ability to borrow them. But in the end being small in this environment is not that bad of an idea.

Also, I have owned heyheybooboo over and over in his own thread. My guess is he is short GS and wants the price to go down. He is talking his book more than anyone, at least I give disclosure.
 
Originally posted by: Blackjack200
Originally posted by: heyheybooboo
Originally posted by: Blackjack200
It all depends on what your timeline is. You should not have significant exposure to the market if you need access to your money in 3 or 4 years, this is true in good times and bad. If you have a long timeframe you need to stay in the market right now. Asset prices are falling and probably will fall further, but if you have a diversified portfolio, you should look at this as a good thing - you are getting your stocks at a bargain price.

Right now is a brilliant time to buy. some of the valuations out there are just rediculous: Goldman Sachs is trading at a P/E of under 8. That's an insane price for the best investment bank in the world. I wouldn't specifically recommend buying the stock because I haven't done any due diligance on it, but this is probably the cheapest it's been in the last 20 years. If you really want to know how to take advantage of a down market like this, read Benjamin Graham. That's where Warren Buffet got his start.
Click to expand...

LOL @ Goldman Sachs

They (purportedly) have $29 billion is cash and $1 trillion in liabilities. No one (except Hank Paulson and his Golden Bucket of Taxpayer Cash) will provide capital.

Goldman Sachs? quarterly earnings plummet 70%
Click to expand...

Here's your fucking crow: Warren Buffett, widely regarded as the best investor in the world, just made a $5 billion bet on Goldman.

Now eat up.
Click to expand...

Every time I hear this I want to puke, he bought preferred stock, we get to buy common stock, there's a massive difference
 
Originally posted by: Blackjack200
Originally posted by: heyheybooboo
Originally posted by: Blackjack200
It all depends on what your timeline is. You should not have significant exposure to the market if you need access to your money in 3 or 4 years, this is true in good times and bad. If you have a long timeframe you need to stay in the market right now. Asset prices are falling and probably will fall further, but if you have a diversified portfolio, you should look at this as a good thing - you are getting your stocks at a bargain price.

Right now is a brilliant time to buy. some of the valuations out there are just rediculous: Goldman Sachs is trading at a P/E of under 8. That's an insane price for the best investment bank in the world. I wouldn't specifically recommend buying the stock because I haven't done any due diligance on it, but this is probably the cheapest it's been in the last 20 years. If you really want to know how to take advantage of a down market like this, read Benjamin Graham. That's where Warren Buffet got his start.
Click to expand...

LOL @ Goldman Sachs

They (purportedly) have $29 billion is cash and $1 trillion in liabilities. No one (except Hank Paulson and his Golden Bucket of Taxpayer Cash) will provide capital.

Goldman Sachs? quarterly earnings plummet 70%
Click to expand...

Here's your fucking crow: Warren Buffett, widely regarded as the best investor in the world, just made a $5 billion bet on Goldman.

Now eat up.
Click to expand...

He made that investment using preferred shares that pay a 10% dividend yield and the ability to purchase more shares in the next 5 years at $115.

If I don't get the same 10% dividend yield that Buffett got, I consider Goldman to be a horrible investment choice.
There are much better finance companies to pick from than Goldman.

I'm pretty sure both Buffett and Benjamin Graham don't use P/E ratios in buying stocks.
P/E ratios, PEG ratios, and Forward P/E are generally useless statistics to go by in picking stocks.
 
Originally posted by: Pliablemoose
Originally posted by: Blackjack200
Originally posted by: heyheybooboo
Originally posted by: Blackjack200
It all depends on what your timeline is. You should not have significant exposure to the market if you need access to your money in 3 or 4 years, this is true in good times and bad. If you have a long timeframe you need to stay in the market right now. Asset prices are falling and probably will fall further, but if you have a diversified portfolio, you should look at this as a good thing - you are getting your stocks at a bargain price.

Right now is a brilliant time to buy. some of the valuations out there are just rediculous: Goldman Sachs is trading at a P/E of under 8. That's an insane price for the best investment bank in the world. I wouldn't specifically recommend buying the stock because I haven't done any due diligance on it, but this is probably the cheapest it's been in the last 20 years. If you really want to know how to take advantage of a down market like this, read Benjamin Graham. That's where Warren Buffet got his start.
Click to expand...

LOL @ Goldman Sachs

They (purportedly) have $29 billion is cash and $1 trillion in liabilities. No one (except Hank Paulson and his Golden Bucket of Taxpayer Cash) will provide capital.

Goldman Sachs? quarterly earnings plummet 70%
Click to expand...

Here's your fucking crow: Warren Buffett, widely regarded as the best investor in the world, just made a $5 billion bet on Goldman.

Now eat up.
Click to expand...

Every time I hear this I want to puke, he bought preferred stock, we get to buy common stock, there's a massive difference
Click to expand...

Yep.
Exactly what I was typing when you posted as well.
 
I am 2/3 cash in my trading account with the balance in stocks I've had for years and not likely going to sell for years -- JNJ, MSFT, PFE (dog), COV, TEL and a few others. My big winner has been GLD which I've owned since the ETF was launched. My big loss has been LEH which I worked for (past tense).

My 401k is ~ 45% stable value (cash surrogate), 25% international equities, 25% bonds (Pimco total return fund), and only 5% domestic large cap equities. I'm down about 15% YTD but 11% of that loss was due to LEH company matching stock which is now worthless. Overall except for the LEH sitch, I'm happy in terms of the allocation.
 
Berkshire Hathaway is interested in one thing - making money - Charlie Munger thinks the culture of investment banks are evil and counter-productive so without Goldman coming under regulation of the Fed and reducing leverage the deal never gets done.

Yoxxy & Blackjack live in some type of fantasy world thinking Buffett is a shinning altruistic knight riding to the rescue and endorsing the corrupt practices of Goldman marketing crap and selling it short. They simply Fail.

The art of the deal ......

$999,565,217.39 profit on common stock options to date
$500,000,000.00 profit on preferred stock

Berkshire can walk away at this very moment with $1 billion on the common stock and collect the additional $500 million. $1.5 billion. Not bad. A 30% return for a few days work. That's the deal.

Originally posted by: Blackjack200
Here's your fucking crow: Warren Buffett, widely regarded as the best investor in the world, just made a $5 billion bet on Goldman.

Now eat up.
Click to expand...

You are an idiot.
 
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