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outoffocus (24.55)

Lazy Investing is dead, Permabears and Permabulls on life support

Recs

39

August 25, 2010 – Comments (28)

Last year I mentioned briefly that I was going to writh a blog on lazy investing. Rofgile has inspired me to finally write this blog.

Lazy investing, or what others have deemed "buy and hope" and "buy and forget" is dead and has been for at least a decade now.  This is a stock picker's market.  No longer can you "invest in an index fund and earn 8% return a year".  If you want to make any money in these markets, you are much better off investing in individual stocks or sectors of the market. This of course takes knowledge, discipline, and patience.  Traits that normal retail investors lack.  Unfortunately, thanks to the (8% returns a year) propaganda spit out repeatedly over the lack few decades, I highly doubt there are many brokers or financial advisors that understand this concept.

What I think needs to die with along with lazy investing is the idea of the "permabear" and "permabull".  In this stock picker's market, you will not make any money if you are a strict permabear or permabull. In other words, you cannot buy a security and simply assume it will go up forever or short a stock assuming it will go down forever. You have to do you do diligence and periodically examine the fundamentals of each sector or stock.  And if those fundamentals change, you have to have the discipline to know when to pull the trigger.  For this reason, I highly doubt there are any more than a handfull of true permabears or permabulls on this site. I think everyone else falls in the middle, being bearish some sectors and bullish others. Just because someone doesn't agree with you doesnt mean they are a "permabear or permabull" on whatever they dont agree with.  People are going to invest in what works and feels comfortable to them.

If you prefer to invest in dividends rather than precious metals, then good for you.  But don't label me a "goldbug" simply because I choose to invest in pms than dividend stocks.  Why can't it be simply that I know more about PMs than you and you know more about dividend stocks than me?  So you like puts and I like calls.  You like high beta stocks, I like the safe bets.  Potato, Potahto, who cares? Its this diversity that makes the CAPS community worthwhile.

I think all too often we get too emotionally tied to our individual beliefs.  So much so that we tend to lash out at anyone who doesnt agree with us. Such behavior is not conducive to a productive exchange of ideas.

I say all this to say, can we cut all this namecalling crap? Its really beginning to bug me.

28 Comments – Post Your Own

#1) On August 25, 2010 at 11:02 AM, binve (< 20) wrote:

[* THUNDEROUS APPLAUSE!! *]

... (at least from this tiny corner of the internet) :)

Great post! I completely agree. Thanks outoffocus!

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#2) On August 25, 2010 at 11:16 AM, russiangambit (29.94) wrote:

>You have to do you do diligence and periodically examine the fundamentals of each sector or stock.  And if those fundamentals change, you have to have the discipline to know when to pull the trigger. 

Hmm. How many people in the whole US would that be  - 50?  What are the rest supposed to do with all these 401Ks and no interest on CDs? I personally hate 401Ks, I think it is the biggest racket out there and fully supported by the state machine no less. But in the current situation what are people to do? Any realistic recommendations for those average Joes?

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#3) On August 25, 2010 at 11:18 AM, russiangambit (29.94) wrote:

> How many people in the whole US would that be  - 50? 

Here I meant not those who attempt doing it but can actually do it successfully for a number of years.

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#4) On August 25, 2010 at 11:22 AM, catoismymotor (67.50) wrote:

+ 1 Rec.

I'd rather have a tattoo that reads "LTBH" than "Perma Bull/Bear."

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#5) On August 25, 2010 at 11:24 AM, outoffocus (24.55) wrote:

russiangambit

Yea I lightly touched on this in the 2nd paragraph.

If you want to make any money in these markets, you are much better off investing in individual stocks or sectors of the market. This of course takes knowledge, discipline, and patience.  Traits that normal retail investors lack.  Unfortunately, thanks to the (8% returns a year) propaganda spit out repeatedly over the lack few decades, I highly doubt there are many brokers or financial advisors that understand this concept.  

The best thing people can do is educate themselves. You may be limited in your options at work. But you are unlimited at home.  Also, people can do what I did. I knew that I would have multiple jobs during my career.  So I set up a Traditional IRA to serve as one central place for my 401k money when I switch jobs. 401ks are great because even though your investment options are limited, you get the benefit of the employer match.  But once I leave the job, I can move my vested funds wherever I want.  If I move my funds to my IRA, I can invest it however I want. Not only that, I have the simplicity of having all my retirement funds in one central location.

Someday I will be a financial advisor. Then I can add myself to the ranks of the few people out there that actually know what they are talking about.

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#6) On August 25, 2010 at 11:28 AM, truthisntstupid (95.85) wrote:

You're definition of lazy investing is one I can agree with.  I do think that people that buy any kind of funds vs individual stocks are at a huge disadvantage. 

They're just investing in a "level" and when that "level"  starts to go the wrong direction and keeps going, it's really uncomfortable for them. 

Whereas someone who does the work and believes strongly in their picks might watch the price plunge with pleasure, because they will see it for the buying opportunity it is.

I hate it when my stocks go up, and love it when they go down...and people at work just can't get a handle on that...

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#7) On August 25, 2010 at 11:40 AM, lorteungen (99.55) wrote:

I think you're a decade late on that call. In fact, I don't think 8% annually is too far off what you could expect to earn on a ten year basis from buying into an equity index fund right now. Ironically, only a minority of people will actually do that, you know with buy and hold being dead and everything. They're piling into bonds instead.

As for permabears - if you were bearish in 2007 and still bearish in march of 2009, you're probably a permabear.

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#8) On August 25, 2010 at 11:42 AM, catoismymotor (67.50) wrote:

Truth,

I understand! One of my favorites has dropped 13% over the last month. I'm hoping it drops more so I can scoop up more shares on sale when I have the money to make some purchases at the end of the month.

Cato

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#9) On August 25, 2010 at 11:44 AM, cbwang888 (26.62) wrote:

Lazy investors can still sleep on Gold.

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#10) On August 25, 2010 at 11:44 AM, outoffocus (24.55) wrote:

lorteungen

Please go back and reread my post because I think you missed my point.

Lazy investing, or what others have deemed "buy and hope" and "buy and forget" is dead and has been for at least a decade now.

For this reason, I highly doubt there are any more than a handfull of true permabears or permabulls on this site. I think everyone else falls in the middle, being bearish some sectors and bullish others. Just because someone doesn't agree with you doesnt mean they are a "permabear or permabull" on whatever they dont agree with.  People are going to invest in what works and feels comfortable to them.

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#11) On August 25, 2010 at 11:52 AM, truthisntstupid (95.85) wrote:

Hehe

I think Lorteungen is probably right...but I just enjoy doing my own stockpicking too much to buy any kind of index. 

The last year or so would probably be a very good time for lazy investors...but being lazy and unmotivated to ever pick up a book and learn something, they'll just stay away.

A girl at work got burned during the downturn.  She watched her 401K go from $10,000 down to $4,000. 

She's done.  Never again, she says...

 

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#12) On August 25, 2010 at 11:57 AM, lorteungen (99.55) wrote:

outoffocus,

I didn't mean to call you a permabear or offend you (if you were). I do agree that actual permabears are probably rather rare, a lot of people who are bearish now would probably be bullish during good times (to their detriment). But a lot of people that were correctly bearish in 2007 failed to turn bullish at the depth of the crisis. Even notable investors like Jeremy Grantham and John Hussman.

I don't think I misunderstood the first part though. Buy and hold certainly has been dead for more than a decade, but I don't think it's dead now (or at least it shouldn't be). 

The problem with doing what you and Truth advocate is that it doesn't work for the majority of investors. If it did, it wouldn't work at all. Beyond the overall return of the market, investing really is a zero sum game.

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#13) On August 25, 2010 at 11:57 AM, truthisntstupid (95.85) wrote:

Cato

Isn't it funny?  Well, I've said it before and I'll say it again...danged unsustainable crash...wish it had lasted a lot longer...

I root for the bears to be right even while I think they're silly....

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#14) On August 25, 2010 at 12:00 PM, russiangambit (29.94) wrote:

> The problem with doing what you and Truth advocate is that it doesn't work for the majority of investors. If it did, it wouldn't work at all. Beyond the overall return of the market, investing really is a zero sum game.

Bingo. It would do a lot of good if all the pension fund investors understood that.

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#15) On August 25, 2010 at 12:09 PM, outoffocus (24.55) wrote:

lorteungen

Fair enough.  Unfortunately this doesn't change the condition of the market. I wasn't really advocating stockpicking more than just stating the current condition of the market.  I wish it was just a buy and hold market, but thanks to politicians, the Fed, HFT, etc, Wall Street represents more of a casino than place to grow your money.

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#16) On August 25, 2010 at 12:09 PM, lorteungen (99.55) wrote:

unfortunately, the market is not a zero sum game for pension fund managers :)

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#17) On August 25, 2010 at 12:09 PM, truthisntstupid (95.85) wrote:

lorteungen,

I agree that nothing will ever work for the majority of investors.  The majority of investors will never read a book...much less a large stack of books. 

This has to be a hobby that one enjoys...people that won't pay the price and put in the time have done nothing to significantly sway the odds in their favor.

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#18) On August 25, 2010 at 12:57 PM, dragonLZ (99.34) wrote:

OOF, I think you are very wrong.

From Nov. 2007 to March of 2009, market was going down like nobody's business (let's say 90-95% of the time) so that was a great time for PermaBears.

From March of 2009 to April of 2010, market was consistently going up (90% of the time) so that was a great time for PermaBulls.

(Same picyure as 2000-2002 and 2004-2007)

Last few months the market's been acting kinda crazy (I very much agree with that), and people are already coming up with "new theories" about the market. WOW (like 2004 was much more predictable).

IMO, PermaBulls and PermaBeras are not dead.

I think chickens are dead. People who shouldn't be investing in the first place because they start screaming and crying every time market doesn't behave the way they expect it (And it almost never does).

Btw., that's exactly what I predicted will happen in 2010 in my post from Sept. of 2009:

And that will be it for this year. At that time, media (same media that was sceptic all this year) will be celebrating a great year for the stocks, will be listing this year's winners with huge returns,... basically will be doing everything (but not on purpose) that will entice the average small investor (also called: show-me-good-news-investor) back into the market.

Of course, a frustrated small investor (who will be kicking himself/herself for missing this year's rally) will jump back in with both feet.

Unfortunately, 2010 will not be near as good to the stocks (and brave investors) as 2009 was...

There will be plenty of opportunities for skillful traders, but the small investor will once again be aking herself/himself: "Remind me, why do I invest in stocks...?" 

p.s.

Sorry everybody if I wasn't too nice. I do agree with OOF CAPS members should be nice to each other and not calling each other names... :) 

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#19) On August 25, 2010 at 1:05 PM, Tastylunch (29.93) wrote:

I think all too often we get too emotionally tied to our individual beliefs.  So much so that we tend to lash out at anyone who doesnt agree with us. Such behavior is not conducive to a productive exchange of ideas.

I say all this to say, can we cut all this namecalling crap? Its really beginning to bug me.

+1 to that.

Very Nice post.

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#20) On August 25, 2010 at 1:06 PM, outoffocus (24.55) wrote:

dragonLZ

I'm trying to figure out where we disagree.

In this stock picker's market, you will not make any money if you are a strict permabear or permabull. In other words, you cannot buy a security and simply assume it will go up forever or short a stock assuming it will go down forever.

What you point out is during those times periods, it was good to be a "permabull" or "permabear", but as I pointed out, if you had stayed in either of those positions, you would have either lost money or broke even at best.

I'm actually surprised to hear this from you because I find you more of a stock picker than anything.

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#21) On August 25, 2010 at 1:07 PM, dragonLZ (99.34) wrote:

Was 2004 any easier for small investors?

 

But it still was a part of the great 2003-2007 bull run...

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#22) On August 25, 2010 at 1:19 PM, dragonLZ (99.34) wrote:

OOF, my #21 wasn't a reply to your #20 (probably written at the same time).

We both agree right now the times are not good for either PermaBulls or PermaBears. But I disagree they are dead. IMO, there will be times (maybe soon) when these 2 will thrive again (not at the same time, of course).

Sorry if your point wasn't that this market will stay this way forever (being a stock-picker's market). That's how I took it.

Btw., very good post. +1

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#23) On August 25, 2010 at 1:37 PM, rofgile (98.99) wrote:

outoffocus:

 I hope I am not being labelled a permabull (because I am not!!).  I may be among in the top 5% of optimism on CAPS blogs though probably.   

 I started investing when the crash was beginning in 2008.  I was a bit early, thinking that the spring of 2008 WAS the crash, but I kept putting money into stocks throughout 2008-2009 and 2010.  And that has rewarded me so far.  If we drop below S&P 950, I think I will be even - or a net loser again.

  However, my take is that while things look bad, in many sectors the fundamentals have kept improving.  There is pent up consumer purchases for TVs, cars, etc that is starting to flow.  The return of positive savings/debt pay-down among average people is a GOOD thing - and is building a better foundation for the future.  The initiatives from the Obama administration to push export growth in 99% of businesses without a global component is a GOOD thing.  The savings of the auto industry by the administration was a GOOD thing (that IS what the GM bailout did.  It saved GM, it saved a WHOLE ton of supply chain that also would have died.  Thank god for the administration that time).

 We've been blessed by not having a major hurricane that would have made the BP spill 200 times worse of a crisis.  We've been blessed that New Orleans hasn't been destroyed again.  I'm going to go to the Gulf this fall - the tourism there will recover.

  So, to summarize -

 Things are not as bad in the United States as the media is currently broadcasting.  I saw a much different perspective of the US when I got out of our media in Spain in July.  Things are terribly pessimistic right now - and so mispriced...

 -Rof 

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#24) On August 25, 2010 at 3:06 PM, outoffocus (24.55) wrote:

dragonLZ

I didnt say permabulls and permabears were dead. What I was getting at is that we need to get off this labeling of people of perma-whatever, simply because they don't believe what we believe.

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#25) On August 26, 2010 at 2:09 AM, DarthMaul09 (30.41) wrote:

You can probably be a lazy gold investor and have your dividend too.  They may not grow as fast as AZK, SLW or TGB but their improving profits and a secure dividend make them a better option than Treasuries.

 

Example 1:  GG  P/E 32.71, Div/yield 0.01/0.43

Key stats and ratios
                                  Q2 (Jun '10)                   2009

Net profit margin       97.92%                          8.75%

Operating margin     35.91%                         29.96%

Return on average assets 14.84%                 1.19%

Return on average equity  20.87%                 0.67%

 

Example 2:  AEM  P/E 66.35 Div/yield 0.18/0.28

Key stats and ratios
                                         Q2 (Jun '10)            2009

Net profit margin              28.82%                  13.74%

Operating margin             31.17%                  17.15%

Return on average assets 9.14%                    2.27%

Return on average equity 13.99%                   3.28%

 

Example 3:  IAG  P/E 60.31 Div/yield 0.06/0.33

Key stats and ratios
                                           Q2 (Jun '10)           2009

Net profit margin                16.69%                 12.48%

Operating margin               26.18%                 24.29%

Return on average assets  4.66%                    4.43%

Return on average equity  5.66%                     3.70%

 

Given the recent fall in the price of oil and gold returning to its recent high, you might guess that these miners will again exceed expectations in the third quarter.

So it may be possible to be a PermaBull in the gold market for at least the next few years until a real economic recovery makes other investments more attractive.

 

 

 

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#26) On August 27, 2010 at 9:11 PM, guiron (21.61) wrote:

There will be plenty of opportunities for skillful traders, but the small investor will once again be aking herself/himself: "Remind me, why do I invest in stocks...?"

2010 has been a difficult market for most skilled traders, too. Too much unpredictable govt. action and odd market behavior like the "flash crash." Throws all the charts out of whack. I'm getting my bearings again after the last few months, but this rangebound market has been more tricky than usual. Even so, I'm not on the sidelines - too many great opportunities along the way.

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#27) On August 30, 2010 at 2:23 PM, FreeMortal (29.96) wrote:

#1  "...all too often we get too emotionally tied to our individual beliefs.  So much so that we tend to lash out at anyone who doesnt agree with us. Such behavior is not conducive to a productive exchange of ideas.

I say all this to say, can we cut all this namecalling crap? Its really beginning to bug me."

It would be nice to have less namecalling.  But it is also nice that those who see only what they wish to believe so clumsily identify themselves as such. That way I don't have to waste much time on them. 

My only exceptions to this rule are the few talented enough to consistantly type up an entertaining pile of ornate BS. With so much boring BS abound, its a relief that some still take care to make it art.

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#28) On September 09, 2010 at 4:01 PM, outoffocus (24.55) wrote:

A girl at work got burned during the downturn.  She watched her 401K go from $10,000 down to $4,000. 

She's done.  Never again, she says...

Lol its a shame I just caught this. Talk about shaking out the weaklings. I saw my IRA go from $16000 down to $2000 and some change. Its now almost up to $22000. If she can't take the heat, she should definitely stay out the kitchen.

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