Eat That, You Average Fund Manager!

The numbers are in, and in 2008 my total portfolio return was...
+2.5%!
Yes, I beat the SP500 by some forty percent, and had a positive return in the second worst year in American stock market history. All my sitting on my hands, carrying stupid amounts of cash and patiently waiting finally paid off. I didn't escape all the volatility, what with the buying frenzy during October and November. I simply refused to look at the numbers on the worst days.

Did your manager do this for you?

Technorati Tags: investing, money management

The Biggest Mistake Nearly All 401k Holders Make

So it is this time again - there's talk about people dreading the moment they look at their 401k statements. You know - log in or open the envelope, look at the Big Number getting smaller, and weep.
This is probably the single worst investment mistake you can make.
Why on Earth would you do this? What information does the total value of your account on a given day conveys? Do you have any control over it? Let me tell you - 0 - is how much control you have over the number appearing at the bottom of your statement. None whatsoever. So why waste time and energy looking at it? Fretting about it?
What you should really be looking at is this: is my investment strategy sound? Do I even have a strategy? How is my asset allocation doing, does my portfolio require rebalancing? These are the things you do have control over. So worry about them, learn about them, fix them - and stop looking at the silly number.

Technorati Tags: investing; 401k

Stocks Are On Sale!

For the first time since 2004 I am excited about the stock market. I have been holding on and on, keeping most of my savings in cash, for the last almost four years. Stocks were simply too expensive. I dubbed in some trading with mixed results, I have never been good at it. Finally, I have a good reason to start deploying the precious capital. Stocks everywhere are cheap, I almost feel like a kid in a candy store!
Now, don't get me wrong. First of all, stocks are still not "bottom of a secular bear" kind of cheap. Second, I have no clue if we going to go 30% up or 30% down from here. Still, when stocks feature prices last seen a decade or more ago, with most indexes at least back to their long-term trend lines and widespread panic everywhere, one buys. One holds tight. One provides the now-scarce dollars that were held ready just for this kind of opportunity.
By the way, it gives me an enormous pleasure to confirm that my basic understanding of supply-demand laws as applied to money was correct. I did anticipate the rise of the US dollar once the credit crunch hit (I mean, was it that difficult to predict?), and consequently had no overseas exposure for quite some time now. When USD gets back to parity with the Euro, I'll take another look at establishing exposure to overseas markets. For now, I'll buy American.

Technorati Tags: investing, stocks, dollar

Capital Preservation? Panic! Before Everyone Else Does.

And so this promising fund comes to a sad end: liquidated, and a law suit pending. However, yours truly thinks that the poor suckers who are left to hold this bag of smelly matter have no one but themselves to blame. I hate to be saying "I told you so", but yours truly identified this fund as highly suspicious back in March 2007 (yes, back when there wasn't a cloud on the horizon and the future of the markets and the economy was bright and sunny; or so we were told), and promptly sold off. Was it that difficult to predict that a fund holding, among its top ten "investments", "Adjustable Rate Mtg 2006-3 CMO" or "Structured Asset Secs 2003-15a CMO" was going to hit the fan? I don't think so.
By the way, there's more to come, and my cautious question into financials back in January was indeed a case of wishful thinking. Expect more of this:


Technorati Tags: investing, financials, EUBIX

Want To Help The Economy? Save Your Tax Refund!

...and the "stimulus" handout, too.
Our fearless leaders keep spouting the same old nonsense that consumer spending is what will save our collective hides in the current situation, and keep begging you to go and spend the shameful handout they are giving us (borrowed from the Chinese and the Japanese, but don't let this bother you). Well, I have a news flash: no amount of consumer spending is going to prevent another bear sterns from going bust. No amount of consumer spending will get this credit mess we're in resolved. No amount of consumer spending is going to help the borrowers who owe more money that "their" house is worth.
If you really want to do good for this economy of ours AND help yourself in the process, go and open a CD in a bank of your choice. Put all this stimulus-shmimulus money there, add you tax refund to it, and pray that banks will finally start trusting each other and put your money to a good use. Of course, you won't get paid much for your money, courtesy Bernanke and Co., but it is still better than buying junk you don't need anyway.
The problems we face now clearly stem from too much spending, and too little saving. More of the same old will only prolong the agony and make the eventual necessary adjustment all the harder. Start now, and help both yourself and the economy in the process.

Technorati Tags: investing, saving

Nassim Taleb and the Bear Sterns

Which part of this:

predicted the following:
?!
Bear (subject to bad puns) closed at 30 on Friday. Yes, you'd have to go back more than a decade to find this price. Somebody somewhere is short puts on this baby. If the puts are naked, it is a classic blowup. Hey, the models tell us this can't happen, right?

P.S. This just in: JPMorgan Chase has said it is to acquire ailing US bank Bear Stearns for $2 a share. Did I read this right - TWO DOLLARS?

Technorati Tags: investing, bear, blowup

Shopping Mall Recession

Yours Truly visited a shopping mall yesterday. It's been awhile since I have been there, two months at least. It was eerie. The mall was half-empty. I am not just talking about customers, who were few and far in between. No - it was the stores, or rather, boarded-up store locations. I cannot recall seeing that many in all my years here. I mean, Haagen-Daz was gone! Whether economists will call this an official "recession" is a moot point.As far as this mall's operator is concerned, the recession is here.

Technorati Tags: investing, recession

Hold Stocks Forever, Just Don't Expect Returns

One of the most dangerous ideas that sometimes captivate small investors is that stocks become less risky over longer time horizons. This piece of conventional wisdom holds that the longer one holds the stock, the less chance there is to lose money.
As I have written before, this proposition is flatly wrong in general. It is wrong from mathematical standpoint, because a random process is more likely to produce wider range of values over the longer period; it is also recognized as wrong by options traders. While there are some stocks (and some stock markets) that indeed have provided spectacular long-term returns, many more have gone to zero. That's right, zero, as in: 0. Zeros don't make glossy magazine cover stories, with few juicy Enron-like exceptions.
I have a sentimental habit of looking up stocks I held in the past, to see how my "sell" decision have panned out over the years. Recently I am noticing some old familiars sporting ridiculously low prices. I looked further, and would like to share an amusing chart:

The companies are Indymac Bank, Sprint, and Friedman, Billings, and Ramsey. And yes, the chart does start in 1995; and yes, it sometimes takes a few short weeks to undo years of appreciation.

Technorati Tags: investing, risk

Two More Books

Two eagerly anticipated additions to my growing investment library arrived today. One is a real investment classic, Michael Edleson's Value Averaging. First printed in 1993, it quickly went out of print and became a coveted rarity. I was trying to buy it in 2003, but balked at the three-digit prices the rare copies went for on eBay.
The other one is a new book by Vitaliy Katsenelson, Active Value Investing. Vitaliy's blog has been an excellent source of information over the years, and I am looking forward to reading his book.
As I keep repeating, I consider reading to be the single most important thing small investors can do to improve long-term returns of their portfolios.

Technorati Tags: investing

Small Investor Chronicles™ Featured At DebtConsolidationCare.com

I have a distinct aversion to debt. There is an interesting Russian saying about debt: "Borrow someone else's money - repay your own. Borrow for a time - give back forever." While a bit tongue-in-cheek, it's a good start. The biggest problem with debt is that most people have little disposable income to begin with, and debt repayments can quickly eat it up. By the way, looking at debt as a burden on disposable income shows that our own Government (and most Western ones, for that matter) is bankrupt. Our national debt is several times bigger than our whole national budget. As for disposable income, the Government manages to run deficits even during good economic times. This is a bad example to follow. While governments manage to get away with this, things are not that easy for ordinary people.

Technorati Tags: investing, Technorati Tags: debt