Getting rich slowly

[Zarathustra]

Hello all,

I am recovering from a severe arm twisting via certain people who shall remain nameless; in that I find myself in a position where I must now turn my fiery intellectual energies towards a realm in which I have shunned for far too long;

Personal investing and finance.

Thing is, beyond the very basics, I am rather uneducated on the matter.

Would anyone be so kind as to point me in the correct direction on exactly how I may educate myself on how to become fabulously and yet responsibly wealthy?

As payment, I'll name my first born in your hallowed memory.

:D

[Spock Jenkins]

Without detailed information as to where your current position and where you want to go, it's not easy to advise you on how to get there.

Are you looking to build wealth from a clean slate, or do you have a deep hole to dig out of first? Is there are particular goal that you are looking to achieve? There is a big difference between just wanting minimal debt and a decent emergency fund and wanting to retire debt free and live off savings.

As far as self education goes - all sorts of "advisors" will advise you for a fee. Or you can look to individuals like Suzie Ormann or Dave Ramsey - who have both written books on the subject. Ramsey takes a pretty strong religious view and is very opposed to any debt at all. You could look into a local college and enroll in a personal finance course.

[Walk The Line]

What's funny is that there is actually a fairly prominent blog called "Get Rich Slowly" (http://www.getrichslowly.org/blog/). I actually thought you were going to talk about it when I first saw the thread title :)

[Zarathustra]

Are you looking to build wealth from a clean slate,
or do you have a deep hole to dig out of first?


Good question. It's not a clean slate, as I have minimum investments, like CDs, a very small mutual fund contribution, and I save money like Ebenezer Scrooge, so I have a sort of "F-U" fund in the event things ever go sour at work.

I tend to pay cash, I almost never use Credit Cards, So I have very little debt.


Is there are particular goal that you are looking to achieve? There is a big difference between just wanting minimal debt and a decent emergency fund and wanting to retire debt free and live off savings.


Since I've always lived a Spartan sort of life, it would be used primarily to be able to buy a house with a small garden, room for a lab in back and my various mad experiments, and to retire with a reasonably frugal and comfortable life.

Now, If I happen to become obscenely wealthy in the process, it justs mean more creative lab space and perhaps a tad larger house, but I assume I'd donate most of it to a worthy cause after my demise.

Ok..I'll be honest..I'd buy a really large Television and a Jacuzzi.

Ok..and maybe a large trampoline.
:D


You could look into a local college and enroll in a personal finance course.

Thank you for the idea :)

[Zarathustra]

What's funny is that there is actually a fairly prominent blog called "Get Rich Slowly" (http://www.getrichslowly.org/blog/). I actually thought you were going to talk about it when I first saw the thread title :)

Excellent!
Thank you!
I thought I'd check on this forum first though, because you know, brainpower and all.
:)

[balrog666]

Living below your means will always get you rich. The problem is you get rich when you are old and decrepit.

Oh, and diversify.

[Francesca R]

Regarding investing, I believe:

1) Risky investments like equities "should" return (only) about 3.5% more than cash. The longer you hold them for the more likely your annual rate of return should approach that level.

2) Less risky (zero default risk but positive market risk) government bonds should return no more than 1% over cash.

3) Currency risk is uncompensated in the long term. No matter how "certain" it appears (and it is not, obviously) that the dollar is going to depreciate, it will re-appreciate at some point and the real value of foreign currencies will ultimately remain broadly constant.

4) Commodities are not true asset classes and should not return more than cash over the long term. This includes oil.

5) Beating these long term return expectations is possible but difficult and there is no reliable proven way to do this that you can learn about.

6) However the level at which you enter the market matters. Bond yields are very low and bonds are unlikely to deliver their long term expected rate of return in the coming years. The (US) equity market overall is probably "reasonable". Although earnings-per-share, and the price of stocks could fall further in the event of a recession in the developed world, the level of the stock market is no higher than it was eight years ago. Emerging markets (bonds and equities) are very high, still, despite their recent weakness.

7) Leverage is fine; it should increase your return (and your risk)

8) Your most valuable asset is your human capital not your financial capital. Earn the best rent value for it that you can; it is the best candidate for what can make you "rich".

Hope that helps.

[Zarathustra]

Regarding investing, I believe:


8) Your most valuable asset is your human capital not your financial capital. Earn the best rent value for it that you can; it is the best candidate for what can make you "rich".

Hope that helps.

Could you possibly elaborate on what you mean by "Human Capitol" and "rent"?

So it would appear that there's not much more than what I'm already doing as far as larger yields are concerned.

CDs seem a pretty decent bet (around 3.5% some places) and Mutual Funds.
I assume that stocks are the same as gambling?

Thank you again for replying.

[Jaggy Bunnet]

Could you possibly elaborate on what you mean by "Human Capitol" and "rent"?

My understanding is that they mean your ability to get the best possible return for the work you are willing to do. Get better qualified to get a better job, work longer hours, play the corporate game to get promoted etc, etc.

Rent in that context being the salary/payment you receive for the work you do.

[Francesca R]

My understanding is that they mean your ability to get the best possible return for the work you are willing to do. Get better qualified to get a better job, work longer hours, play the corporate game to get promoted etc, etc.

Rent in that context being the salary/payment you receive for the work you do.Yes that's what I meant. http://en.wikipedia.org/wiki/Human_capital

[Segnosaur]

Could you possibly elaborate on what you mean by "Human Capitol" and "rent"?

So it would appear that there's not much more than what I'm already doing as far as larger yields are concerned.

CDs seem a pretty decent bet (around 3.5% some places) and Mutual Funds.

You're investing in CDs? Hmmm... you must have quite a music collection.

Oh, wait, you mean certificate of deposit. Never mind.


I assume that stocks are the same as gambling?


Well, investing everything in a SINGLE stock is a gamble, but investing in multiple stocks is a good idea.

Mutual funds are OK (although they do have fees that cut into your returns.) CDs are usually safer, but even a 'good' CD may not get you anywhere near the returns of a good collection of stocks.

The advice I've heard is when you are far from retirement, invest heavily in stocks and other higher risk/higher return items. (Even if the stock market goes down for a few months, it will EVENTUALLY come back.) Then, as you get closer to retirement, start shifting things into bonds and CDs.

My advice... if its going to be at least a decade until you retire, look into 'Index funds'... they automatically invest in a collection of the top stocks in the stock market (giving automatic diversification), but have lower fees than typical mutual funds. And be prepared to hold on to things for years. Don't panic if the market goes down for a month or even a year. It WILL come back.

http://en.wikipedia.org/wiki/Index_fund

[The Central Scrutinizer]

Would anyone be so kind as to point me in the correct direction on exactly how I may educate myself on how to become fabulously and yet responsibly wealthy?

First, read this: http://www.amazon.com/Intelligent-Investor-Book-Practical-Counsel/dp/0060155477 (http://www.amazon.com/Intelligent-Investor-Book-Practical-Counsel/dp/0060155477) That's where Buffett got it from.

Then, read this: http://www.berkshirehathaway.com/ownman.pdf

Then work your way through these: http://www.berkshirehathaway.com/letters/letters.html

Ignore 99% of investment advice you get on TV or in magazines. 99.9% of what you read on the Internet (this post is the .1% you should not ignore).

Suzy Orman, James Cramer? Ignore.

Anyone using terms like "beta", "momentum", "value investing"? Ignore.

"Asset allocation" (i.e. - 50% US Stocks, 30% Foreign, 10% Bonds, 10% Cash)? Ignore.

Can't think of anything else right now.

[Walk The Line]

Anyone using terms like..."value investing"? Ignore.


So you want him to ignore the links you posted?

After all, Graham's book is all about value investing.

[The Central Scrutinizer]

So you want him to ignore the links you posted?

After all, Graham's book is all about value investing.

But as Mr Buffett always says, "why would you ever buy a stock that wasn't a value"?

[roger]

First, read this: http://www.amazon.com/Intelligent-Investor-Book-Practical-Counsel/dp/0060155477 (http://www.amazon.com/Intelligent-Investor-Book-Practical-Counsel/dp/0060155477) That's where Buffett got it from.

Then, read this: http://www.berkshirehathaway.com/ownman.pdf

Then work your way through these: http://www.berkshirehathaway.com/letters/letters.html

Ignore 99% of investment advice you get on TV or in magazines. 99.9% of what you read on the Internet (this post is the .1% you should not ignore).

Suzy Orman, James Cramer? Ignore.

Anyone using terms like "beta", "momentum", "value investing"? Ignore.

"Asset allocation" (i.e. - 50% US Stocks, 30% Foreign, 10% Bonds, 10% Cash)? Ignore.

Can't think of anything else right now.That's a great education. I'd also point out that Buffett states that index funds are the best investment for 99% of people, even though he would never put a penny in one.

While you're reading Scrut's excellent links, I recommend anything by John Bogle (which will lead you to index investing, pretty much the best way to make money unless you are in the 1%), and the book "A Random Walk Down Wall Street".

If after reading all of that (and make no mistake, reading Graham and Buffett is an intellectual workout), you think you are still in the 1% who should buy individual stocks, come back and we can chat. Don't buy single stocks until you have read and digested all of the above at the minimum. We can point you to some heavy hitters, but if you don't have the apparatus to understand the recommendations, you are probably a fool about to be parted with his money.

Oh, and get all of this from the library. Take the money and put it in a cozy index fund. :) Later on that money will be useful when you build your portfolio.

[The Central Scrutinizer]

That's a great education. I'd also point out that Buffett states that index funds are the best investment for 99% of people, even though he would never put a penny in one.

Yeah, thanks. I failed to mention that.

Mr Buffett, as you said, has repeatedly recommended index funds for those who don't think they can out perform the market, or who just don't have the time to put into it.

Or buy Berkshire shares. ;)

[Walk The Line]

Here (http://www.getrichslowly.org/blog/2007/08/26/questions-and-answers-with-warren-buffett/) are some videos of Warren Buffett if you want to hear it from the horse's mouth.

[Antiquehunter]

Zarathustra,

What has worked for me:

- No (or next to no) 'bad' debt. Bad debt means spending more today on frivolous things that depreciate (like jacuzzis and TVs) which you have to pay down over time. This doesn't mean I live like an ascetic, but it does mean that if I had a specific goal (like a $2000 TV) that I saved specifically for it & made sure I didn't buy it on a credit card & continue paying for that TV over years at high interest rates.

- LOTS of 'good' debt. Once I was in the real estate market & making money, I used other people's money to generate more money. Yes - this is risky and isn't for everyone, but its a strategy that worked well for me.

- I am a TERRIBLE stock picker & a terrible selector of mutual funds. I keep most of my non real estate assets in very safe blue-chip stocks & fixed income investments like bonds & CDs. No secret formula about how much is where. Adding stocks to your investment portfolio is important, and I advocate a buy and hold mentality.

- Set a flexible goal. WHY do you want to be rich, and what does 'being rich' mean to you? This has changed meaning for me several times throughout my life - right now it means semi-retirement. But it SHOULDN'T be about a specific number.

How is this working for me? Well, I'm almost 36 and while I choose to work (because my 'human capital' is generating a lot of money right now) I don't have to. We have enough that if we live moderately in a place with a low cost of living, we probably never 'have' to work again (can live off our investments). Its not a lifestyle that works for everyone, but we're happy with it.

[rjh01]

How to get rich, slowly:-
1. Get a good, well paying job (a good education may help here).

2. Do not have any of these
- Children
- Mistresses who demand (or receive) money or other material goods
- Car

3. Buy a house. Pay off the mortgage quickly (How many other investments pay that much interest after tax?)

4. Marry a woman that looks after herself economically as well as providing you with entertainment and good health (This assumes you are a male. If you are a female then this does not apply).

5. Make a few good investment decisions.

6. Wait a few decades (er, you did say get wealthy slowly)

7. Find you have enough to retire on early.

[Zarathustra]

First, read this: http://www.amazon.com/Intelligent-Investor-Book-Practical-Counsel/dp/0060155477 (http://www.amazon.com/Intelligent-Investor-Book-Practical-Counsel/dp/0060155477) That's where Buffett got it from.

Then, read this: http://www.berkshirehathaway.com/ownman.pdf
Then work your way through these: http://www.berkshirehathaway.com/letters/letters.html


Awesome. Thank you! :)



Suzy Orman, James Cramer? Ignore.


Why ignore Suzy Orman? She seems pretty reasonable.....or is she full of it?



How to get rich, slowly:-
2. Do not have any of these
- Children
- Mistresses who demand (or receive) money or other material goods
- Car


Children actually have lowered my taxes due the credit I've found.
Of course, once you get to a certain bracket it's not all that lucrative.



3. Buy a house. Pay off the mortgage quickly (How many other investments pay that much interest after tax?)


I live in California, so I'm going to have to say that even though I have an above average income, it's sadly pretty much out of my (and most folks) grasp at present.


4. Marry a woman that looks after herself economically as well as providing you with entertainment and good health (This assumes you are a male. If you are a female then this does not apply).


I was lucky enough to marry a woman who was both a professional accountant AND a professional chef in her past. :D

Now you know where my impetus to get educated in financial matters is coming from. :D

[MilwaukeeMike]

Zarathustra,

What has worked for me:

- No (or next to no) 'bad' debt. Bad debt means spending more today on frivolous things that depreciate (like jacuzzis and TVs) which you have to pay down over time. This doesn't mean I live like an ascetic, but it does mean that if I had a specific goal (like a $2000 TV) that I saved specifically for it & made sure I didn't buy it on a credit card & continue paying for that TV over years at high interest rates.

I don't know. Circuit City is offering 36 months no interest on purchases $1000 or more. You could buy a $2500 TV, only pay about $70 a month, invest the rest, and when the 36 months (3 years) are over, you will have the TV paid off and more money from your investments. :)

[The Central Scrutinizer]

Why ignore Suzy Orman? She seems pretty reasonable.....or is she full of it?

From what I have seen she pretty much falls into the trap of thinking that the daily machinations of the market are meaningful. And I believe she subscribes to modern portfolio theory (i.e, you should have X% in US stocks, Y% in Bonds, Z% in foreign stocks, etc)

Basically she talks a lot and doesn't say anything.

[Francesca R]

(i.e, you should have X% in US stocks, Y% in Bonds, Z% in foreign stocks, etc)Please argue why this is not wise. And not by appealing to Mr Buffett.

[The Central Scrutinizer]

Please argue why this is not wise. And not by appealing to Mr Buffett.

"Modern portfolio theory is asinine" - Charles T. Munger

[Antiquehunter]

I don't know. Circuit City is offering 36 months no interest on purchases $1000 or more. You could buy a $2500 TV, only pay about $70 a month, invest the rest, and when the 36 months (3 years) are over, you will have the TV paid off and more money from your investments. :)

If you are sufficiently disciplined to take advantage of such an offer, and the price on the item hasn't been inflated to include a significant implied financing cost - then I agree, it looks like a pretty good deal, and could make sense. (Best Buy may not be the best example, but I wonder if one could get a 'cash discount' on the same TV for NOT taking advantage of the 0% interest offer).

I know that in Canada, many of these '0 interest' deals fall apart the moment someone is even just a day late on a payment, and then the accrued interest (at 28% or something equally disgusting) is immediately payable. Also note that one would have to be sufficiently disciplined to not only always make the payments, but also to actually invest the rest of the purchase price, rather than just keep the $2500 (in the example) as part of day to day expenses / spend on something else (like a cool sound system to go with the cool TV - since its only costing $70 a month anyway etc...)

I'd say that someone just starting to think about finances & where they are headed financially is unlikely to be so disciplined, but to each their own.

[Francesca R]

"Modern portfolio theory is asinine" - Charles T. MungerYou have no reasoned arguments of your own then? Just things you can remember to quote from the BRK folks? Right.

[Jaggy Bunnet]

If you are sufficiently disciplined to take advantage of such an offer, and the price on the item hasn't been inflated to include a significant implied financing cost - then I agree, it looks like a pretty good deal, and could make sense. (Best Buy may not be the best example, but I wonder if one could get a 'cash discount' on the same TV for NOT taking advantage of the 0% interest offer).

I know that in Canada, many of these '0 interest' deals fall apart the moment someone is even just a day late on a payment, and then the accrued interest (at 28% or something equally disgusting) is immediately payable. Also note that one would have to be sufficiently disciplined to not only always make the payments, but also to actually invest the rest of the purchase price, rather than just keep the $2500 (in the example) as part of day to day expenses / spend on something else (like a cool sound system to go with the cool TV - since its only costing $70 a month anyway etc...)

I'd say that someone just starting to think about finances & where they are headed financially is unlikely to be so disciplined, but to each their own.

I agree that you need to be disciplined, but surely it is not that difficult as any have decent internet banking product enables you to automate all the necessary payments from the outset.

Of course such deals do not violate the original post as his point was that he did not buy on credit at high interest rates (example given of a credit card), not that he never bought on credit.

[The Central Scrutinizer]

You have no reasoned arguments of your own then? Just things you can remember to quote from the BRK folks? Right.

When the greatest investor in history and his partner agree that portfolio theory is asinine, that is the argument.

The question isn't why do I agree. The more interesting question is, how on earth can you disagree?

[ZouPrime]

I don't know. Circuit City is offering 36 months no interest on purchases $1000 or more. You could buy a $2500 TV, only pay about $70 a month, invest the rest, and when the 36 months (3 years) are over, you will have the TV paid off and more money from your investments. :)

Here's another (potential) option: go to Circuit City. Select the TV you want. When you are ready to buy it, ask the meet the manager. Tell him that you are ready to pay cash if he agree to lower the price a little bit. With a bit of luck, he'll accept. You'll get your TV for, say, 2300$ and won't have to bother with investing and making sure you pay your monthly payment.

edit: I see that someone else already answered with something similar...

[Francesca R]

When the greatest investor in history and his partner agree that portfolio theory is asinine, that is the argument. Unsupported assertion considered withdrawn

[The Central Scrutinizer]

Unsupported assertion considered withdrawn

So you have abandonded your position.

For the OP, you can ignore all advice from Acuity. He/she is not an investor.

[Francesca R]

My position is captured in reply 7. Contest it as you wish. You have not done so.

Your response is recognised for the retreat that it is.

[Hamradioguy]

I've done well by rather conservative investing with an older and well experienced broker. No "hot stock tips", or churning. 6-7 percent annual growth rate for the long term is about as well as you can expect, but that adds up over 10-20-30 years.

You might also want to read "The Millionaire Next Door". It's a somewhat dry study of the wealthy and how they got that way. You may not make it into the Millionaire's Club, but it's fascinating to see how it can be done. (Hint: Most of the millionaires studied did not drive high end automobiles, own Rolex watches, or dozens of $200 shoes.)

[The Central Scrutinizer]

My position is captured in reply 7. Contest it as you wish. You have not done so.

My position is captured in reply 28. Contest it as you wish. You have not done so.

Your response is recognised for the retreat that it is.

pwn3d

[The Central Scrutinizer]

I've done well by rather conservative investing with an older and well experienced broker. No "hot stock tips", or churning. 6-7 percent annual growth rate for the long term is about as well as you can expect, but that adds up over 10-20-30 years.

Same here. My broker and his dad have done very well for themselves and for me over the years. Both are disciples of Buffett.

You might also want to read "The Millionaire Next Door". It's a somewhat dry study of the wealthy and how they got that way. You may not make it into the Millionaire's Club, but it's fascinating to see how it can be done. (Hint: Most of the millionaires studied did not drive high end automobiles, own Rolex watches, or dozens of $200 shoes.)

I've not read it, but have read enough excerpts to get the feel for what it is about.

[Francesca R]

My position is captured in reply 28. Contest it as you wish. You have not done so.Incorrect. I have challenged you:

TCS: "Ignore asset allocation"

A: "Please explain why"

TCS: "Appeal to authority"

You cannot respond to the challenge in a way that is not fallacious. You can't even represent Buffet's view, can you? You probably don't understand it yourself. That you write "pwn3d" reveals that you do not have arguments, though why you think that would compensate for the lack of them somewhat beggars belief.

[roger]

Acuity,

Obviously scrut doesn't feel like picking up the baton, and to be honest neither do I, but look at all the failed and failing hedge funds recently. They claim to be immune to 6 or more sigma events, yet routinely crash and burn. Recent research backs this up: previously uncorrelated asset classes become correlated (source (http://money.cnn.com/magazines/fortune/fortune_archive/2006/05/15/8376864/index.htm)).

More importantly, and rather simply, the intellectual premise of value investing a la Graham&Dodd (& Fisher & Munger to add the more modern innovators) is that you can identify value. Diversifying away that advantage is not logical. The Kelly formula is now widely used by modern practitioners. This formula, originally designed to make bets in blackjack, is used to compute how big a bet to make based on odds of success and failure, to maximize success while avoiding total loss of capital. Mathematically, an investment of 2% is a statement that you think your investment has a 51% chance of winning, and 49% of losing. You ain't investing at that point, you are speculating.

Furthermore, MPT is data mining, which is implied by the link above. Past results is no guarantee of future performance is not just legalese boilerplate; it's one of the truest maxims of financial performance. I believe Fisher's "Uncommon Profits" book covered this very well in the 50's, but apparently the lessons went unheeded.

However, as you pointed out, identifying value is not easy. Hence, the Buffett recommendation of buying indexes for 99% of people. But if you are going to actively pick, diversification makes no sense from an intellectual or mathematical point of view. In that sense, MPT is asinine. It would be asinine for them to follow it, when they can reliably identify stocks like KO, WPO, buy businesses like Dairy Queen, Florsheims, etc. MPT is a path to market performance, not superior performance. As such, it probably belongs in the quiver of an individual investor who is not picking stocks, but not a tool of a professional capital allocator like Buffett, Lou Simpson etc.

Here (http://64.233.169.104/search?q=cache:TiKuMQXzx5oJ:www.leggmason.com/funds/knowledge/mauboussin/Mauboussin_on_Strategy_020106.pdf+kelly+formula+di versification&hl=en&ct=clnk&cd=8&gl=us&client=firefox-a) is a paper covering the Kelly criterion in more detail. I particularly point you to the bibliography; while it is not necessarily what I would consider a perfect list of what to read next should this interest you, it certainly is a good start.

[The Central Scrutinizer]

TCS: "Appeal to authority"

Ummm....it's not an appeal to authority of the person you are appealing to is an authority. Or in this case, the authority.

Wow, that's embarrassing.

[Francesca R]

look at all the failed and failing hedge funds recently. They claim to be immune to 6 or more sigma events, yet routinely crash and burn. Recent research backs this up: previously uncorrelated asset classes become correlated (source (http://money.cnn.com/magazines/fortune/fortune_archive/2006/05/15/8376864/index.htm)).

This does not address the assertion "ignore asset allocation". Hedge funds typically claim to exploit "pure alpha"--that is, security-specific risks and opportunties that are allegedly insulated from the market direction. That they turn out to be exposed to market movements reveals that they have not been successful in isolating investment opportunities that are free of market risk, and that furthermore, market risk is not something you can ignore.

Ignoring asset allocation (which seems to be to deny the existence of sensitivity to market risk, or to believe you have eliminated it when you have not) is--therefore--one interpretation of what hedge funds have claimed or attempted to do, to their cost and demise in some cases. I assert that the tribulations of much of the hedge fund business are evidence against the denial of the importance of asset allocation and this thing called market risk (or factor risk, or beta). (For the most part, a hedge fund manager does not "ignore" market risk--they almost universally simply believe they can hedge it away.

The rest of your response (thank you) concerns stock picking under the assumption of superior assymmetric information. This is not the same matter, and indeed my position as stated is: "Beating these long term return expectations is possible but difficult and there is no reliable proven way to do this that you can learn about." Hence your reference's premise that starts from an assumption that is highly questionable (and not justified but taken as a given) and goes on to examine an optimal trading rule, is of little use to investment practice.

[Francesca R]

Ummm....it's not an appeal to authority of the person you are appealing to is an authority. Or in this case, the authority.You sound exactly like a good Christian appealing to the bible. How much of your life is based on faith, the way your beliefs about investing are?

[roger]

The rest of your response (thank you) concerns stock picking under the assumption of superior assymmetric information. This is not the same matter, and indeed my position as stated is: "Beating these long term return expectations is possible but difficult and there is no reliable proven way to do this that you can learn about." Hence your reference's premise that starts from an assumption that is highly questionable (and not justified but taken as a given) and goes on to examine an optimal trading rule, is of little use to investment practice.I don't understand. Why should I, or Buffett, work from your assumptions? Fact is, value investors a la Graham have handily outperformed the market for decades. No one else has done this. The evidence for my assumption is very compelling. I don't find it particularly hard to find stocks that are mispriced. A grind, yes, but not hard. Finally, the assumption is not so much assymmetric information, but of assymmetric market behavior. But this is all documented very well in the links that Scrut and I provided - no point in arguing about it. I have stocks to research, you have betas to calculate :)

[Francesca R]

I don't understand. Why should I, or Buffett, work from your assumptions? Fact is, value investors a la Graham have handily outperformed the market for decades. No one else has done this. The evidence for my assumption is very compelling. I don't find it particularly hard to find stocks that are mispriced. A grind, yes, but not hard. Finally, the assumption is not so much assymmetric information, but of assymmetric market behavior. But this is all documented very well in the links that Scrut and I provided - no point in arguing about it. I have stocks to research, you have betas to calculate :)I don't understand why you are writing what you are writing. Where do I challenge or make a statement about "value investing"?

I challenge the assertion that asset allocation (the identification and investment exposure to distinct market factors, such as equity (base currency and global), fixed income (base currency and global), emerging market, real estate, infrastructure, private markets, insurance, others) is unimportant, irrelevant, or should be ignored.

I am not speaking of stock picking. The part you quoted from me was saying so. Do you have a position on asset allocation? If you don't--fine--but you and I are talking past each other.

[The Central Scrutinizer]

You sound exactly like a good Christian appealing to the bible. How much of your life is based on faith, the way your beliefs about investing are?

Your unsupported assertions are considered withdrawn.

[Huh-What?]

First, read this: http://www.amazon.com/Intelligent-Investor-Book-Practical-Counsel/dp/0060155477 (http://www.amazon.com/Intelligent-Investor-Book-Practical-Counsel/dp/0060155477) That's where Buffett got it from.

Then, read this: http://www.berkshirehathaway.com/ownman.pdf

Then work your way through these: http://www.berkshirehathaway.com/letters/letters.html

Ignore 99% of investment advice you get on TV or in magazines. 99.9% of what you read on the Internet (this post is the .1% you should not ignore).

Suzy Orman, James Cramer? Ignore.

Anyone using terms like "beta", "momentum", "value investing"? Ignore.

"Asset allocation" (i.e. - 50% US Stocks, 30% Foreign, 10% Bonds, 10% Cash)? Ignore.

Can't think of anything else right now.

Second, I would add the following to your education:

Rule #1 by Phil Town - He is a student of Mr. Buffet's investing Philosophy and breaks down an analysis method that anyone can follow.

www.fwallstreet.com a blog by Joe Ponzio - I work as an investment adviser in Joe's company and he is very knowledgeable. His investing philosophy is very much influenced by Mr. Buffet as well.

[Huh-What?]

From what I have seen she pretty much falls into the trap of thinking that the daily machinations of the market are meaningful. And I believe she subscribes to modern portfolio theory (i.e, you should have X% in US stocks, Y% in Bonds, Z% in foreign stocks, etc)

Basically she talks a lot and doesn't say anything.

If you know enough to be frugal then Suzy has nothing to teach you.

[Huh-What?]

Oh-oh I almost forgot. Read Ric Edelman's 'The Lies about money' and you will never look at a mutual fund the same again.

[Huh-What?]

Could you possibly elaborate on what you mean by "Human Capitol" and "rent"?

So it would appear that there's not much more than what I'm already doing as far as larger yields are concerned.

CDs seem a pretty decent bet (around 3.5% some places) and Mutual Funds.
I assume that stocks are the same as gambling?

Thank you again for replying.

Picking stocks is a gamble. Researching a good business that is priced at a bargain is sound investing.

In other words; buying a stock you hope will go up is speculating not investing. Only buy stocks of sound companies that are under priced. Not very romantic or exciting, but in the long run much more rewarding.

[Francesca R]

Your unsupported assertions are considered withdrawn.Why should an investor ignore asset allocation?

You have no argument behind this assertion, do you?

You are the least informed kind of believer. A cultist.

[Francesca R]

In other words; buying a stock you hope will go up is speculating not investing. Only buy stocks of sound companiesWhat is a "sound" company. Is Citigroup, or UBS a sound company, for example?

that are under pricedWhat is "under priced"? Citigroup and UBS have both fallen almost 50% in the last 7 months . . . are they underpriced now?

[The Central Scrutinizer]

Picking stocks is a gamble. Researching a good business that is priced at a bargain is sound investing.

In other words; buying a stock you hope will go up is speculating not investing. Only buy stocks of sound companies that are under priced. Not very romantic or exciting, but in the long run much more rewarding.

Exactly.

Some people will never get that (one in this thread especially). They are so wrapped up in their charts, and tracking trading volume, and calculating beta, that they can't see the forest for the trees.

[The Central Scrutinizer]

I don't understand. Why should I, or Buffett, work from your assumptions? Fact is, value investors a la Graham have handily outperformed the market for decades. No one else has done this. The evidence for my assumption is very compelling. I don't find it particularly hard to find stocks that are mispriced. A grind, yes, but not hard. Finally, the assumption is not so much assymmetric information, but of assymmetric market behavior. But this is all documented very well in the links that Scrut and I provided - no point in arguing about it. I have stocks to research, you have betas to calculate :)

Like Mr. Buffett always says, "Investing is simple, but it isn't easy".

If people (one posting in this forum, for example) would put as much effort into investing as they do into calculating beta, they would actually be successful.

[Huh-What?]

What is a "sound" company. Is Citigroup, or UBS a sound company, for example?

What is "under priced"? Citigroup and UBS have both fallen almost 50% in the last 7 months . . . are they underpriced now?

Generally a "sound" company is one that delivers steady cash flow on a regular basis. Like a Johnson and Johnson or McDonalds. A "sound" company continues to do business regardless of the economic climate. No one stops buying hamburgers at McDonalds because the stock dropped 5%. In the long run the markets get the general value of companies like this correct. However, day to day the markets are fickle and dominated by fear and greed. When this fear drives a company like Johnson and Johnson well below its value then it is a good investment.

I haven't done an analysis on Citigroup, it could be under-priced or it could now be closer to its value then it was 7 months ago.

Determining a company's value takes a bit of research into their balance sheets and cash flow analysis. Examine it as if you were buying the business itself and disregard the technical analysis of its stock price ( p/e ratio, 52 week highs and lows, etc..).

[roger]

I don't understand why you are writing what you are writing. Where do I challenge or make a statement about "value investing"?

I challenge the assertion that asset allocation (the identification and investment exposure to distinct market factors, such as equity (base currency and global), fixed income (base currency and global), emerging market, real estate, infrastructure, private markets, insurance, others) is unimportant, irrelevant, or should be ignored.

I am not speaking of stock picking. The part you quoted from me was saying so. Do you have a position on asset allocation? If you don't--fine--but you and I are talking past each other.In post #23 you questioned why " (i.e, you should have X% in US stocks, Y% in Bonds, Z% in foreign stocks, etc)" is unwise. I was responding to that.

[Huh-What?]

Acuity, your avatar got raunchier...thank you.

[Francesca R]

Acuity, your avatar got raunchier...thank you.(Thank you :) . . . It's me, as my previous ones have been)