Let's talk about investing! Stock market, ETF, etc.

[zoony]

I'm mid 30s and I was trying to figure out how much to have in retirement. A lot of retirement calculators are pretty useless because it assumes the same level of spending I have now (with 2 kids, 2 car payments, and a mortgage). I calculated, as best I could, what a typical budget for a retired couple living to a hundred would need and it's much much less than I expected. My expected social security benefit (if it still exists due to the benevolence of our insect overlords) almost covers the monthly amount I predicted. The kickers will be inflation and the cost of healthcare so I would have to save more to cover that x-factor.

BTW, the number of months between age 65 and 100 is 420 months. 420. Is that a coincidence or what.

Yah I got a social security statement a few weeks ago and my thought was "gee, that seems like a lot of money for someone who has no mortgage or kids, and who has a 401k, and a pension, and a wife with a state retirement and a social security stream of her own"

I choose not to put any more money into my 401k than what is matched. And no other retirement savings either. I think it's a scam

[techboy]

Anyhow.  I'd love other people's advise and perspective on the markets.  I am but a novice.

I just posted a novel (two if you count the link to my previous work) on how the research shows that stock picking and market timing is suboptimal, and the best way to invest is low cost, broadly diversified, index funds allocated to meet your need, ability, and willingness to take risk, so I won't harp on that here.

Rereading your post, though, something set off alarm bells totally seperate from that, and that's your use of leveraged and inverse ETFs, such as DUST and NUGT. That is really dangerous, and I'd advise against it, or at least doing a lot of research to make sure you know exactly what you're getting into with those.

See, for example, These Funds Can Be Hazardous to Your Wealth. The intro:

 

Real estate investment trusts have performed hideously over the past year. The Vanguard REIT Index fund tumbled 50% through April 7. Now, suppose you were smart enough to buy a fund that goes in the opposite direction of the Vanguard fund, namely ProFunds Short Real Estate fund. Its objective is to return the inverse of a REIT index. Your gain: Not 50%. Not even 25%. Instead, you lost 11%.

The problem is that leveraged and inverse ETFs and funds don't deliver the performance most investors expect -- except over a single day. Beyond that, they tend to return much less than you'd expect and often lose gobs of money -- regardless of the direction of the underlying index.

Basically, those funds are set up for big market players to hedge positions for very short periods of time, not really to speculate on the movement of markets. Be very careful.

Edited July 1, 2015 by techboy

[Springfield]

Nothing wrong with cashing in and locking in a profit, either.

There's no fun in that!

[Elessar78]

There's no fun in that!

Sure there is. Lock in your profit and find your next buy low-sell high target.

[Predicto]

Yah I got a social security statement a few weeks ago and my thought was "gee, that seems like a lot of money for someone who has no mortgage or kids, and who has a 401k, and a pension, and a wife with a state retirement and a social security stream of her own"

I choose not to put any more money into my 401k than what is matched. And no other retirement savings either. I think it's a scam

 

 

That math works if you live in Tennessee.

[zoony]

That math works if you live in Tennessee.

So food, clothing, and utilities are that much higher in San Fran?

[Springfield]

Sure there is. Lock in your profit and find your next buy low-sell high target.

I'll stop loss it and go from there.

Techboy, thanks for the info. That was a definitely interesting and helpful article on ETFs. Gives me a different/correct perspective on them.

[chipwhich]

Why people think they can beat the market is an interesting subject, though, and I recently read Don't Blink: The Hazards of Confidence by psychologist Daniel Kahneman (who is a Nobel laureate in economics). It's a fantastic piece, including an interesting story of his time in the Israeli Army, but here's a relevant excerpt:

 

 

Who ever said they can beat the market?  You can't beat it either.  I like to invest because it's what I enjoy.

 

We are in a bull market for 6?  7 years now?  One of the best in the history of the market?  Great, index investing is working out well in the bull market.  You haven't beaten the system either, you just think you have.

 

I have asked you once before, you wont answer.  If you got $1 Million today would you throw it all in an index fund right now?

 

TTYL

 

Edited July 1, 2015 by chipwhich

[GoSkins0721]

Yah I got a social security statement a few weeks ago and my thought was "gee, that seems like a lot of money for someone who has no mortgage or kids, and who has a 401k, and a pension, and a wife with a state retirement and a social security stream of her own"

I choose not to put any more money into my 401k than what is matched. And no other retirement savings either. I think it's a scam

 

I do the same on my 401k. But I opened a Roth IRA last year for this reason: I can pump money into it for the next 5 years. So any interest, gains, or losses for the next 5 years will occur tax free. Then I can take it out without any tax hit. And I can roll my 401k money into it when I quit/get fired/laid off from my current job (yeah, I know taxes would have to be paid on that money to do that). But every penny gain in that account is free of tax and it's tax free when I withdraw it.

 

Last but not least, I read somewhere the greatest gift to your heirs is to have a bag full of money in a Roth IRA to leave to them. It's already been taxed so they can withdraw it free of taxes... 

 

Over the next 6-7 years my plan is to move all my money from my IRA to my Roth IRA, paying the taxes along the way but earning money on it tax free. Same thing for my wife's IRA & Roth. 

[chipwhich]

I'm somewhat convinced that the financial industry has found that paranoia around retirement saving is good business. Start paying attention to how much media bombardment there is on the subject

And, I'm also convinced the "amount needed" is being artificially inflated in the interest of selling financial instruments to people who don't think they have enough money saved

 

 

The only unknown in retirement is health care.  All the other dribble about what you need is nonsense.

 

Thank god for obamacare that has been addressed

 

But seriously, my only concern is doctor bills.

 

In the Caribbean right now because I might die at 65, wont go out like that and say I forgot to live.

[Predicto]

So food, clothing, and utilities are that much higher in San Fran?

 

 

Not really.   Utilities are probably lower.

 

But very few people here have a paid off house.   That's what kills the finances.

[techboy]

Techboy, thanks for the info.

No problem.

 

Who ever said they can beat the market?

Explicitly, lots of people. McD5 is a prominent (and hilarious) example. Every active fund manager touts his or her ability (and possibly history) to beat the market.

Implicitly, every person that does something other than purchasing a broadly diversified, low cost portfolio of index funds tailored to the need, ability, and willingness to take risk.

Which is most people, sadly, either due to ignorance or the mental errors discussed by Kahneman.

You can't beat it either.

I don't even try. I just accept my fair share of market returns, minus a tiny (about .1% on average) expense ratio, which is the choice with the highest expected value return. 

I like to invest because it's what I enjoy.

Fine by me. Just understand that it's both suboptimal and riskier. Who knows... you might be one of the lucky ones that ends up above the market average. Someone has to... that's how averages work.

 

Great, index investing is working out well in the bull market.

Common myth about indexing. Passive investing (indexing), on average, will ALWAYS beat active investing, on average, no matter what the market conditions are.

That's not theory, that's basic math. Math doesn't change based on market conditions.

In case you missed it,The Arithmetic of Active Management by Nobel Laureate William Sharpe lays it out for you.

 

I have asked you once before, you wont answer.  If you got $1 Million today would you throw it all in an index fund right now?

The short answer is yes, of course.

The more detailed answer is that my portfolio is made up of a variety of passive, low cost funds covering stocks, bonds, and real estate, and I would plunk the money into those investments in percentages appropriate to maintain my asset allocation, though I would probably reduce the amount of stocks and increase bonds, as a million extra dollars would reduce my need to take risk.

Why wouldn't I follow the research? You might find it entertaining, but I don't like negative expected value plays.

It's the same reason I don't enjoy gambling at casinos (except for very specific cases) or lottery tickets. I understand math.

[techboy]

I'll stop loss it and go from there.

While I'm issuing warnings, I'd caution you about stop losses, too. They're not in the same league as leveraged and inverse ETFs, but people have definitely lost a lot of money due to how they work.

See, for example, When 'Stop Loss' Trades Backfire on Investors

Mr. Pinder decided to set a stop loss of 20% below the latest high price of his ETF shares. He updated the stop-loss point whenever the market made a major upward move. On May 5, Mr. Pinder logged on to his account with Charles Schwab and raised his stop-loss on VTI from "the $46 range" to $49.17.

The next day, Thursday, was the flash crash. At exactly 2:48 p.m. EDT, according to Mr. Pinder, his shares fell through the floor. But Mr. Pinder wasn't "stopped out" at $49.17. Instead, with the market in free fall, his instructions automatically converted to a market order that sold his shares at prices far below his trigger price—at an average of $41.15.

"Within minutes," says Mr. Pinder, he "had lost all my gains from remaining steadfast in the market throughout the previous 18 months." His net worth, Mr. Pinder estimates, declined by 10% solely as a result of the failed stop-loss.

To top it all off, as the market rebounded from the flash crash, VTI quickly roared back to close the day at $57.71.

Definitely an extreme example, but a useful cautionary tale.

[Kurd Cudins]

Too bad McD5 isn't here to guide us in what NOT to do!

 

 

The wisdom of O.D.B.

 

[chipwhich]

The short answer is yes, of course.

The more detailed answer is that my portfolio is made up of a variety of passive, low cost funds covering stocks, bonds, and real estate, and I would plunk the money into those investments in percentages appropriate to maintain my asset allocation, though I would probably reduce the amount of stocks and increase bonds, as a million extra dollars would reduce my need to take risk.

Why wouldn't I follow the research? You might find it entertaining, but I don't like negative expected value plays.

It's the same reason I don't enjoy gambling at casinos (except for very specific cases) or lottery tickets. I understand math.

 

You sound like a robot, like you're churning out data from a site you frequent.

 

As I said before, and always willing to do.  I will throw my portfolio up against yours anytime.  It's not about being arrogant on my part.  I don't do anything sub-optimum or even risky for the most part other than when I have made an emotional decision or two.  I also think you misrepresent what your preaching and what you do in real life.  In your sub optimum babbling your investment approach isn't one I would follow as what you have identified as your investment strategies before has been 100% in the market with what you call real estate investing which isn't in actual real estate but REIT's and all market.

 

Anyways, I wont drag this thread into another robotics thread about optimization, gambling, and market timing.  It's not what I do, and it's not what you want to discuss.  If you want to start a thread on investing in indexes, you ought to start one    This thread is for another topic than what you choose to drive home about.  Now back on topic. 

Edited July 1, 2015 by chipwhich

[Springfield]

Again, thanks for the heads up techboy. I like the warnings and precautions, as well as education. I probably won't listen to everything you say and will still flirt with the EFTs, although more cautiously.

Chip, I do appreciate your more emotional take on the market as well.

In the end, in sure I will take some lumps learning about what works for me. I don't want to do something that doesn't involve some sort of risk, because that's the fun of investing to me.

Today FIT was up $4.15 and DUST was up $1.34 to close at $19.67. I have a stop loss on DUST at $19 in the case it drops considerably. I actually did that before with DUST but then I bought back in again.

[chipwhich]

Chip, I do appreciate your more emotional take on the market as well.

 

BTW, I normally don't buy on emotion, I buy on price.  Probably the risks I took were on potential bankruptcy.  Buying Ford in the $2 price range, SIRI sub .50.  I am a thrift shopper, I love bargains.  I don't do research.

 

I do have some method to my madness.  When I bought Rite Aid for $1, it's because Americans have a thirst for prescription drug medications.  I literally have CVS, Walgreens, and Rite Aids in all directions with 2 or 3 on corners across from each other.  While Rite Aid was in the toilet, I figure the spending on prescriptions medications is enough to make Rite Aid survive.  Ford was the only company balking at US government loans during the auto crisis.  SIRI was being rolled out in almost every new automobile.

 

I casually watch the market, watch for stuff I know, and pick it up for a bargain.

 

The best thing about buying using etrade or ameritrade or the like is you can buy your bargain stocks using limit orders.  So you can hopefully get it even cheaper on a daily dip.  I sometimes want a stock, want it on the cheap, set up a 30 day limit order, and wait for it to dip to my desired price to pick it up for the maximum bargain.

 

Good luck in your investing.

Edited July 1, 2015 by chipwhich

[Corcaigh]

Not really.   Utilities are probably lower.

 

But very few people here have a paid off house.   That's what kills the finances.

 

And there's property tax.

[techboy]

You sound like a robot, like you're churning out data from a site you frequent.

In my view, it's rather telling that your only response to vast amounts of the best research available on the subject is ad hominem and personal stories. You really should read the Kahneman article I linked to earlier. You might recognize someone you know.

 

As I said before, and always willing to do.  I will throw my portfolio up against yours anytime.

And as I have told you many times, the plural of anecdote is not data. I am investing for maximum expected return. Any one individual portfolio's result is meaningless. I really do hope you end up above the average, as someone has to. I just don't want to take that chance myself when I recognize that the odds are stacked against it.

 

I also think you misrepresent what your preaching and what you do in real life.

Nope. I really do invest entirely in low cost, passive funds. It's boring but it works.

 

This thread is for another topic than what you choose to drive home about.

Two points here:

1. YOU basically begged me to post, so I did. Next time maybe don't call me if you don't want my input.

2. The topic is investing, so I shared the optimal method of doing so, as indicated by the research. I have no intention of belaboring the point, but it's very much on topic. The topic isn't "stock picking" or "market timing", even if that's what the OP is doing.

The stakes on this issue are rather high. See, for example: How to lose $9 trillion in a bull market. A couple of excerpts:

 

An inconvenient truth

An accounting professor at the University of Michigan named Ilia Dichev has cracked the case, and his findings, published recently in the prestigious American Economic Review, have huge implications for how you should invest.

I've written before about the gap between the returns reported by mutual funds and the money earned by their investors. Reported returns almost always look better than investor returns because people pile in after a fund gets hot and then sell or freeze after it's gone cold.

What Dichev's research shows is that the same thing holds true for the stock market as a whole.

By looking at how much money was flowing into publicly traded companies through initial and secondary stock sales and how much was flowing out via dividends, buybacks and buyouts, Dichev was able to measure the return on the typical invested dollar.

and

 

So what about that $9.5 trillion? "The money did not disappear," says Dichev. "It was never there in the first place." In other words, reported long-term returns aren't historical, they're hypothetical.

The U.S. stock market was never worth $28 trillion. That 13.3 percent "average" return was only for a strict buy-and-hold investor, a description that hardly applies to the big institutional players that move the stock market.

Consider that between 1973 and 2002, Nasdaq stocks gained an annual average of 9.6 percent. But that assumes money was invested on Jan. 2, 1973 and stayed put until Dec. 31, 2002 (with no taxes paid on the gains).

In reality, because investors pumped $1.1 trillion into Nasdaq stock offerings between 1998 and 2000 - just before the worst crash in modern history - the typical dollar invested in the Nasdaq earned only 4.3 percent a year, less than half the historical return.

So forgive me, but I'll continue to share the research with those who are interested.

[Elessar78]

2. The topic is investing, 

 

It might be in the title, but it really is more about "speculation". 

I bought a fitbit, wore it for 2 months and I don't even know where it is anymore. I couldn't justify the real estate on my body for such a limited device. Now they have the fitbit HR, which has a HR monitor as well as well as a watch. That's more functional, but how soon until Apple rolls that all into the iWatch (if it hasn't already)?

[Springfield]

It might be in the title, but it really is more about "speculation".

I bought a fitbit, wore it for 2 months and I don't even know where it is anymore. I couldn't justify the real estate on my body for such a limited device. Now they have the fitbit HR, which has a HR monitor as well as well as a watch. That's more functional, but how soon until Apple rolls that all into the iWatch (if it hasn't already)?

Or perhaps Apple buys out Fitbit.

I have no idea how that works for the stock holder. Buyouts, merger, etc.

[Elessar78]

Nada. Stock holders vote with their feet, so to speak. 

 

I don't think there's anything special (i.e. "proprietary") about fitbit's software. I think apple probably has reversed engineered and will add it eentually.

[Springfield]

Nada. Stock holders vote with their feet, so to speak.

I don't think there's anything special (i.e. "proprietary") about fitbit's software. I think apple probably has reversed engineered and will add it eentually.

So say a company buys out Fitbit, or any other company. What happens to the shares of Fitbit that were already out there?

Say I have 100 shares of FIT and they get bought out? Does it cash out?

I don't anticipate that necessarily happening but was curious.

[Elessar78]

Here are three individual stocks I would consider buying because I believe the underlying product is something I completely respect . . . and some inherent problems within.

 

What do they produce again? How have they monetized that exactly?

Amazon has had big run up in it's 20 year existence but doesn't turn a reliable profit. So what is it really? Why am I buying a company that doesn't turn a consistent profit?

 

The "second" point is that all these companies have had a big increase in their value 15–50 years down the road. But given any small segment of that time span you could've gotten out too early. (and bought back in at a higher price). 

 

Then looking at the SP500 over the past 45 years, you can see it matches a similar upward trajectory as Honda that's been around longer. 

 

For every person that it works for, there are probably 99 or 999 who it doesn't work for. I think even chip admitted that his process relies a lot on intuition, although I don't discount intuition because I think our brains process information in ways we don't consciously understand. And like you two said, the chase is fun for y'all. I do other things for fun—this is just "buying a groceries" for me. 

 

I sat behind across from some guys at breakfast last weekend. Spouting off what Jim Kramer on Mad Money was saying. I wouldn't take advice from that hack. 

So say a company buys out Fitbit, or any other company. What happens to the shares of Fitbit that were already out there?

Say I have 100 shares of FIT and they get bought out? Does it cash out?

I don't anticipate that necessarily happening but was curious.

There's an agreement in place when it happens, that say Apple buys out fitbit, fitbit shareholders now will get apple stock in exchange. I don't know/don't think if it's a 1 for 1 swap though. 

[techboy]

So say a company buys out Fitbit, or any other company. What happens to the shares of Fitbit that were already out there?

Generally speaking, the way a company buys another publically traded company is to buy up a controlling share of the stock, often at a premium. So if fitbit is trading at 20 dollars a share (I have no idea what it's actually trading at and I don't care to check), Apple hypothetically might offer 25 dollars per share to shareholders, to entice them to sell.

The practical effect of this is that when a company is rumored to be targeted by another big company (like an Apple or Microsoft or whatever), the stock goes up.

What happens to the stock after the sale depends on what the new company decides to do with it. It's either converted to an equivalent value of the purchasing company (usual), or sometimes it's left alone if the purchasing company wants to leave it as a separate entity.

You could read this for a little more:What Happens to Stocks When One Public Company Buys Another?, but that's the gist of it.

Edited July 2, 2015 by techboy