Use access key #2 to skip to page content.

TMFBabo (100.00)

Where should beginners invest?

Recs

58

March 21, 2010 – Comments (35)

I've been asked a couple of times to manage someone else's money.  I don't have the time right now, so the best I can do is suggest resources for learning how to invest or to suggest a couple funds to research.  In my opinion, the know-nothing investor should buy a target retirement fund.  Why? The know-nothing investor knows nothing about market irrationality, how to interpret financial statements or company filings, and much more.  Should this person be investing in individual stocks? The answer should be a resounding "no."

I originally thought the best thing to recommend was a mix of the following:
1. S&P 500 or total market index fund
2. World market index fund
3. Small/mid cap exposure if S&P 500 was chosen in option 1
4. Real estate fund (VNQ/IYR)
5. A basket of commodities and/or metals
6. Treasury bonds, a total bond fund, or other fixed income investments

However, I quickly reasoned that the average investor would need someone to guide him through the process and to be told when to buy and sell.  In essence, someone needs to manage his account.  This isn't really what I was going for, so I decided that you could do a lot worse than the target retirement fund.

I essentially recommend dollar cost averaging into the target retirement fund until retirement. This takes out any notion of the beginner trying to time purchases and sales. Beginners really shouldn't be in the market without some heavy-duty research.  

However, some people can't handle investing even after hours of research.  Why? I believe investors need both the mind and the gut.  The mind is easy; you read as much as you can and learn the right ways to research and evaluate companies.  The hard part? The gut.  Not everyone has it.  You must be able to stomach whatever the market throws at you and make sound decisions most of the time (since nobody's perfect).

So there you have it.  That's what I tell people to buy if they ask my advice.  "Hands off" is the best possible approach.  This person should not have to decide what percentage equities/bonds/real estate/commodities/cash.  This person should also not be deciding how to rebalance and when to "get out" or "get in."  Buy this freaking fund till you retire and that's it.  THAT is the only investment approach that's dumbed down enough for anyone to follow.

If the person insists on an individual stock, I find myself recommending JNJ, PG, KO, CLX, etc.  These are as close to risk-free as you'll get from equities.

Short of not being in the market at all, I believe the target retirement date funds will do sufficiently well compared to the alternative, which is beginners losing their shirts in the market because they don't know anything.

 

35 Comments – Post Your Own

#1) On March 21, 2010 at 7:01 PM, truthisntstupid (89.72) wrote:

I just had a young guy at work ask me this question.  I took advantage of him to reduce the clutter on my bookshelf.  I gave him a 16-inch high stack of books and told him there wasn't really enough information there to make him a good investor but it was a start.

Report this comment
#2) On March 21, 2010 at 9:23 PM, dwot (72.07) wrote:

Lol truthisntstupid...

Report this comment
#3) On March 21, 2010 at 9:30 PM, truthisntstupid (89.72) wrote:

DWOT

I guess it sounded funny but before someone like that could understand anything you could tell him he has to learn the language!

Report this comment
#4) On March 21, 2010 at 9:37 PM, truthisntstupid (89.72) wrote:

BB

I like your individual stock recs!  I saw your comment on sagitarius84's blog.  I like that you're open-minded enough to appreciate investing methods that differ from your own. 

Report this comment
#5) On March 21, 2010 at 9:41 PM, stockju (< 20) wrote:

I would encourage you to visit us at www.stockjupiter.com. We pick top 100 stocks based on three steps - 1) Best sectors (6 criteria) 2) Story stocks (6 criteria) 3) Finally, Best Stocks that fit our 12 point criteria.

I think the three steps and our 12 point analysis is the best way for beginners to start learning how to pick top stocks.

sincerely,

stockjupiter team.

Report this comment
#6) On March 21, 2010 at 10:14 PM, starbucks4ever (97.39) wrote:

Why not just buy SDY?

Report this comment
#7) On March 21, 2010 at 10:17 PM, ozzfan1317 (81.21) wrote:

I agree that a beginner should stick to Large Caps and index funds however if you want to take the time to learn basic accounting and FA. I strongly reccomend adding small caps and mid caps as they offer much better return potential.

Report this comment
#8) On March 21, 2010 at 10:35 PM, TMFBabo (100.00) wrote:

@truthisntstupid: Lol, I've had many people also ask me for investing book recommendations.  They were fired up about investing and compounding their wealth.  I've sent out several e-mails to younger people I know about what they should read.  I've yet to receive a response, because I think I scared them away.

Yeah, if I'm going to recommend equities to someone who knows nothing, I'm only recommending the highest quality companies I know.  Returns won't be the greatest, but they'll be solid.

@zloj: I like SDY better than SPY, but I think it's irresponsible of me just to recommend a large cap equity fund.  You need to go into bonds too, at least.  After that, you should at least teach annual portfolio rebalancing and when (and when not) to sell.  See my dilemma?? I'm not comfortable recommending one fund and stopping there, unless it's the target retirement fund. 

@ozzfan1317: I'm small caps exclusively myself because I agree with you.  What I like about the target retirement date funds is that it invests in equities of all sizes, foreign equities, different types of bonds, and more.  

Now that I think of it, I should replace the word "beginner" in the title with "know-nothing investor" or "hands-off investor."

Report this comment
#9) On March 21, 2010 at 11:12 PM, BeHappyNOW (< 20) wrote:

Bullishbabo,

 

Nice post.  FYI I am new to the CAPS community, and I tip my cap to you as Top Fool.  Id love to ask you some questions about how you rose to the top (I am a sucker for success stories), but maybe sometime in the future. I also seem to not quite have the hang of this blogging thing, cuz I seem unable to keep any post or comment under tome-length.  So I will try to self-edit. 

 

 I have a few thoughts that I hope will be helpful to you and those beginners seeking your thoughts. Especially since you undoubtedly have lots of people coming to you for advice given your track record. 

 

First, even though you would no longer recommend the 6 part thing (S&P, World, RE, Commodities,  etc), I am glad that you mentioned it, and I think you should mention it to those seeking your advice to show how your thinking has evolved which I always find valuable (But as I just said I seem to err on the side of giving – and wanting – more info than most) . It also shows that you can think out side of US Equities mindset. Which I think makes your counsel that much more valuable.   I think it is a great tragedy* that for so many people in the U.S. investing is synonymous with the investing in US stocks.

 

Second I also think the idea of a Target Ret Fund is a good way to go for many.  However I think you may have defined beginner to broadly.  Beginner (to me) implies that they will be moving beyond beginner-dom eventually.  And, at some point, understand that when using the expression “front-end loader” they are talking about a farm implement not a type of mutual fund.  Target retirement seems more for people who never want to get involved (“beginners” who want to stay beginners).  They should be called something like Non-starters, in that they, like beginners know nothing, but unlike beginners intend to remain clueless. 

 

Another thought I have is that when beginners ask about investing, they should not do so at all until they have a financial plan in place (maybe you are presuming here that they do), since a personal financial strategy would/should encompass an investment strategy.  And one without the other is likely setting oneself up for trouble in the future.  I actually just posted a post (can you say that in the blogging world) to address the issue of which of the top financial  planners are good and which are not – in which I hope the CAPS community will share their insights.  That (finding good advice on how to chart their financial life) may be a good place for beginners to go before jumping into the investing part of personal finance rashly

 

I have some other thoughts but I am trying to learn the wily ways of brevity (Although you would not guess it by this comment).  Thanks again for the post and your picks.

 

BeHappyNOW

 * um … relatively, as I am not sure that would quite rise to the level of “great tragedy” outside the insular world of investing ;) Report this comment
#10) On March 21, 2010 at 11:34 PM, BeHappyNOW (< 20) wrote:

Bullish,

 

I just noticed your comment on my 'Top 10 Financial Advisors" post - nice.

And - oops.  I aslo just noticed the comment you posted immediatly above my comment in which you noticed the same thing I did about beginner vs hands off.  I would not have made my comment had I seen that. Sorry, but as I said, I am still new to this bloggin thing

Cheers,

BeHappyNOW

Report this comment
#11) On March 21, 2010 at 11:38 PM, TMFUltraLong (99.95) wrote:

"Where should I invest?"

In a one-way plane ticket to Canada, run far far away from healthcare reform.

UltraLong

Report this comment
#12) On March 22, 2010 at 1:23 AM, fbiwildman (< 20) wrote:

Bullishbabo,

I am surprised that the number one fool would suggest that the "beginning investor" or anyone should invest in a target fund of any sort.  These types of investments have the right idea in mind by automatically changing allocations over time, but what if it happens during a time of a recession or a down time in the markets.  By blindly moving assets into different asset classes in a down market, the investor could be potentially locking in huge lossses, when the right thing the investor should be doing is the exact opposite.  It is important over time that an investor be moving into less risky assets as one nears retirement, but it should be done with at least with an acknowledgement of current market conditions.  

I think it depends on the situation on what I would reccomend, but either do some research and find a legitimate manager, or start reading about investing A LOT!

Report this comment
#13) On March 22, 2010 at 3:17 AM, TMFUltraLong (99.95) wrote:

Congrats BB... you've officially been hit by spammers in #12 & # 13... I think that means you've officially made it!

UltraLong

Report this comment
#14) On March 22, 2010 at 7:35 AM, TMFBabo (100.00) wrote:

I have some other thoughts but I am trying to learn the wily ways of brevity

@BeHappyNOW: Yeah, I'm sorry to say I don't see the brevity right now.  You've only commented once, so I'm sure I'll see it later on.  I agree that one's personal finances must be in order before attempting to invest and compound money.  I try not to talk too much personal finance since this is more of an investing website, but I find it creeping into my posts.

@fbiwildman: Let me give you some perspective: I know of several people who not only sold everything in their 401ks near the bottom, but cashed out, paid taxes for cashing out early, and lost the tax-deferred advantage forever.  I recommend dollar cost averaging into a target retirement fund as the most "hands-off" approach possible.  It is obviously far from optimal, but I've seen people do a lot worse and I think hands-off is the way to go.

@UltraLong: Lol, I was thinking the same thing. 

Report this comment
#15) On March 22, 2010 at 4:41 PM, EnigmaDude (94.27) wrote:

I've been asked a couple of times to manage someone else's money.  

If you don't have the time to manage someone else's money, send 'em over to me!  I can allocate assets like a pro and smile all the way to the bank (or credit union) while doing it!!

Unless of course, you consider these people to be your friends...

Report this comment
#16) On March 23, 2010 at 12:12 AM, rhallbick (99.65) wrote:

I've seen these target retirement funds pop up and in theory they seem to have promise for a know-nothing and not-really-interested-in-learning investor.  To me, the requirements would be low administrative costs, periodic rebalancing, maybe 8-10 asset classes, a low turnover of investments and a gradual shift to more conservative investments based on the age of the investor; essentially what you might do if someone you really cared about asked you to manage their retirement money for them.  Since I have no interest in them, I don't know if any of them actually deliver on the promise.  Given human nature, I suspect some do not.

If someone asks you for your opinion of a company or other asset, I think its fair to give your honest appraisal.  However, if you care about the financial well-being of someone and you give them one of your own investing ideas, you may then feel obligated to follow the soundness of that idea yourself, knowing that they won't be able to.

On that note, in my workplace there was much discussion of stocks during the 1990's.  For fun, I would submit my picks for the year to everyone who I knew was actively investing, including the president and vice-president, in sort of a competition.  After my mini-portfolio of about five stocks delivered a 108% gain in 1999 (I remember the per cent gain only because the president complimented me on it), my advice in January 2000 was to sell any and all of the previous decade’s high-fliers.  Although I’d had never seen it before, the chart of the NASDAQ was going parabolic like a Fourth of July rocket and it just screamed at me to get out.  I announced that I had ZERO stock picks for 2000 and strongly said that it was time to move into “real things”, like gold, industrial metals, lumber, land, and oil, all the things that had been dead money for twenty years.  I don’t recall now exactly why I liked commodities at that point, but I do clearly remember how I tried to argue for them.  Well, the number of people that listened to me ended up to be a grand total of zero.  Then sadly, over the next three years, I listened through endless stories of sorrow; investments for retirement, daughters’ weddings, and children’s college were lost.

The point of this little story is that, even if you take it upon yourself to monitor the investment advice that you have dispersed, you may well be ignored when it’s clear to you that the situation has changed.  I have since refused any requests for individual stock tips and I am even generally reluctant to post pitches on CAPS for fear of leading a newbie into a bad investment with real money.

Report this comment
#17) On March 23, 2010 at 12:35 AM, truthisntstupid (89.72) wrote:

rhalbick

Precisely why I simply loaded the guy down with books. 

Report this comment
#18) On March 23, 2010 at 12:40 AM, BurntTiger (< 20) wrote:

im pretty new but would it be the wrong time get a bond fund?  Im not bearish on stocks or anything like that but i would like to move toward a 25-75 bond/stock mix (currently 100% stock) as recommended by intelligent investor.  I know market timings a losing game but i figure i can hope to at least not buy at tops or sell at bottoms.  0% rate is a bad time to buy bonds right? 

Report this comment
#19) On March 23, 2010 at 1:42 AM, TMFBabo (100.00) wrote:

@rhallbick: I agree, target retirement funds are good in theory for the know-nothing and not-interested-in-learning investor.  I'm with Fidelity, so I've briefly checked out the ones at Fidelity.  They seem to have an expense ratio around 0.75%, which is decent for the number of different funds in which they invest (domestic small/mid/large caps, different size foreign funds, and different bond funds).

For the young investor who aspires to compound money over decades, I tend toward loading them up with a quality reading list.  It usually discourages them, which means they weren't as serious as they thought they were (making money isn't easy, sheesh).   For older investors who already have money in the game, I also sometimes mention the quality dividend growers.  

I've had many of the concerns that you've had about people following your advice despite the warnings.  I've tried repeatedly to advocate learning how to do your own due diligence, but I'm sure the message is lost for some.  I'm absolutely against people blindly buying my CAPS picks, which I'm sure some people are doing now that more people are viewing my picks than before.  All I can do is to continue to recommend furthering one's investing education.

@truthisntstupid: All kidding aside, I think that's a great way to go.

@BurntTiger: I'm glad to hear you're reading that book.  I've read it twice in the past year and a half and I'll probably read it again in the next year.  I picked up a lot the 2nd time around and am sure I'll pick up more the 3rd time.

I do believe 0% isn't a good time to buy bonds, but I believe that gaining some guaranteed yield and lowering your volatility is never a bad idea. 

Report this comment
#20) On March 23, 2010 at 2:07 AM, truthisntstupid (89.72) wrote:

I have only one thought about bonds.  At zero%, interest rates can only go up from here.  When they do...what happens to the value of your bond if you need to sell before maturity?  Are there bonds with built-in protection against this?  If not, there can't possibly be any worst long-term investment than bonds right now.  Add to the inevitability of rising interest rates the specter of inflation which nobody doubts is coming either, and both will drive down the market value of any bond you buy any time soon.  Inflation's effect is a double-whammy, because even if you do hold a bond to maturity in the face of both of these forces, when you receive the face value of your bond back at maturity it'll be in dollars that are worth less than they were when you bought the bond. 

That is the extent of what I know about bonds...which isn't much...so maybe I'm wrong.  I like rising dividends much better myself.

Report this comment
#21) On March 23, 2010 at 6:12 PM, smyrna1978 (< 20) wrote:

@BB,

What does the reading list for young investors look like? Can you please post it here? Thanks. 

 

Report this comment
#22) On March 24, 2010 at 3:22 PM, TigerPackFund (< 20) wrote:

Nice job in CAPS today with an up point day...

You are going to make it difficult for me to track you down!!!

Don't forget the live chat tomorrow, with bullishbabo and many of your favorite CAPS players at 6 p.m. Eastern at:

http://caps.fool.com/player/tmfjake.aspx

Report this comment
#23) On March 25, 2010 at 8:56 PM, TMFBabo (100.00) wrote:

@truthisntstupid: You know, I don't like bonds now either.  Rates will go up in the future, and there are common stocks with yields equal to or greater than bond funds' yields.  What's nice about bonds though? They won't quite crash as much as equities if there's a major fall. 

@BurntTiger: I told you I don't think bonds are ever a bad idea for the volatility and fixed-income aspect, but it is definitely true that bond prices will go down in the face of higher rates. 

I like the idea of quality dividend growers better than bonds, because companies have CAGR -- they will grow earnings, increase dividends, and more.  The problem with replacing bonds with dividend paying equities is that you might be stuck with 100% equities in your portfolio.  The choice is yours, of course.

@smyrna1978: Below are the books I recommended in June:

The Intelligent Investor by Benjamin Graham
Security Analysis by Benjamin Graham
Contrarian Investment Strategies: The Next Generation by David Dreman
What Works on Wall Street by James O'shaughnessy
Common Stocks and Uncommon Profits by Philip Fisher
One Up on Wall Street by Peter Lynch
The 5 Rules for Successful Stock Picking by Pat Dorsey
The Rediscovered Benjamin Graham: Selected Writings of the Wall Street Legend by Janet Lowe 

Another I read that I liked is Market Neutral Investing by Eric Stokes.  It was a pretty good read and is actually helping with the TigerPackFund experiment right now.

Books I intend to read:

The Bond Book by Annette Thau (Bought this based on Amazon reviews.  Sounds like a solid tome on bonds)
Understanding Options by Michael Sincere (Also bought based on Amazon reviews)
Quality of Earnings by Thornton L. O'glove (Recommended to me by leohaas)

 

Report this comment
#24) On March 26, 2010 at 6:49 AM, Hellacious13 (< 20) wrote:

I'm a know nothing ;-)  But I am reading up on it and practicing in virtual stock market contests!

 I'm one that learns best by doing!  Everything I've accomplished in life has been done by the seat of my pants method ;-)

I'm also not foolish enough to invest real money until I feel confident I have a firm grasp on it!

I can see why peeps seeking you out for advice and asking you to manage their money could be irksome... afterall you earned your battle scars and they're just trying to find a shortcut to avoid going into battle themselves.

I bet they'd never ever approach you to take over for them on their wedding night so what makes them think you're going to do their due diligence for them!

BTW Congrats! For being #1

Report this comment
#25) On March 26, 2010 at 6:52 AM, Hellacious13 (< 20) wrote:

I'm a know nothing ;-)  But I am reading up on it and practicing in virtual stock market contests!

 I'm one that learns best by doing!  Everything I've accomplished in life has been done by the seat of my pants method ;-)

I'm also not foolish enough to invest real money until I feel confident I have a firm grasp on it!

I can see why peeps seeking you out for advice and asking you to manage their money could be irksome... afterall you earned your battle scars and they're just trying to find a shortcut to avoid going into battle themselves.

I bet they'd never ever approach you to take over for them on their wedding night so what makes them think you're going to do their due diligence for them!

BTW Congrats! For being #1

Report this comment
#26) On March 26, 2010 at 8:13 PM, ikkyu2 (99.32) wrote:

The Fidelity target-date retirement funds are good, but they do charge about 1% annually in fees all together; they are funds-of-funds and their component funds have management fees in addition to the overall fee.

All of the target date funds I have seen have overweighted U.S. stocks and bonds relative to the rest of the world.  In my opinion, U.S. assets should form no more than 50% of the prudent investor's portfolio weighting, at least in 2010 when the next few decades of expected worldwide growth are mostly expected to be elsewhere.

I love going over balance sheets and picking individual stock, but I save that for my taxable "mad money" investment fund, which at this point in my life has a balance of zero and won't be growing for a year or two.  My retirement money is in a weighted group of funds, as bullishbabo suggested, and I rebalance it periodically.  My main criterion for picking the funds that I use is low management fees - the highest is my small cap overseas fund at 0.62% per annum - and they all have zero transaction fees.

Report this comment
#27) On March 29, 2010 at 10:39 AM, edyboom223 (96.23) wrote:

off the topic, why babo?  i'm curious if you're korean, because babo means crazy in korean!

Report this comment
#28) On March 30, 2010 at 12:00 PM, TMFBabo (100.00) wrote:

@Hellacious13: There's no better way to learn than to do it yourself.  I learned a lot before finally buying my first individual stock in Oct. 2008, but I was about ten times more motivated when I actually had real money invested.  I do recommend starting up a small account and having some skin in the game, even if it's just $500.  It will do wonders for your motivation to learn.

I do manage some accounts for family and a few very close friends, but I often get people asking me who I barely know.  Family and my best friends obviously come first.

@ikkyu2: You make good points and I think the way you do it is the more ideal way to go.  I'm guessing it's okay for a know-nothing or hands-off investor to be overweight US assets as long as he is dollar cost averaging into those positions regularly and putting aside money so that it'll have some time to compound. 

You did mention that a prudent investor would look worldwide more.  I agree, but my point is that asking a know-nothing (or just a novice) to maximize asset allocation prudently is asking a lot.  I highly regret not putting "know-nothing" and "hands-off" instead of beginner in my post.

@edyboom223: I'm Korean and yes, I chose the name on purpose.

Report this comment
#29) On March 30, 2010 at 12:03 PM, ImpetuousFool (< 20) wrote:

Greetings, all.

I am the beginner/novice/foolish investor of whom you speak. Since people come on this site in part to learn, I thought I would share my perspective.

I know I am not good at this, so I am trying to study as much as time allows with some of the aforementioned literature, and to read and follow the sites of all-star investors.

I did know about dollar-cost averaging, and when the market went south, I increased all my contributions to retirement accounts and when I maxed out on them, opened an extra IRA and an after-tax account.  

I know enough to have kept most of my money in the index funds to which bullishbabo refers, and therefore come out of the lows with new highs. (I had a CFA for a while and that was all he was doing, so I fired him and pocketed his 2% fee.)

Learning by doing has worked for me in other areas of my life, so I have allowed myself a tiny amount of money that I can afford to lose, with which I try to experiment with what I've learned. It's a little bit like going to Vegas with a certain amount in your pocket and no credit cards.

I have three novice accounts with three different strategies. One, which relies heavily on what I read in Peter Lynch, is doing better than my index funds. The two with which I am an impetuous fool have underperformed, but I believe I learn something new with each mistake. I apologize for going on so long, and for making a Vegas game out of what you all do for a living, but this approach gives me a chance to be make beginners' mistakes and not get cleaned out as I learn. 

ps -- don't try this at home unless you can afford to lose.

pps -- my wife asked me to manage her IRA and I put it in a targeted retirement fund. I may be an idiot, but not that much of an idiot. 

Report this comment
#30) On March 31, 2010 at 11:49 PM, JestYourFool (< 20) wrote:

Thank you, BB.  I think you give sound advice.  I am "buy and hold" investor, but would have done much better had I gotten out of some stocks before they crashed and burned. 

My company has a similar philosophy concerning their 401(k) program.  If someone does not choose a 401(k) plan (or does not choose not to participate), the company takes out 6 percent of wages for the fund (so that the employee gets the maximum match) and invests in a targeted retirement fund based on the person's age. 

Simple, no-touch, and more people actually have 401(k) plans to use when they retire!

Jest

P.S. Congratulations on your streak of days at the number 1 position!

 

BeHappyNOW,

I too have not learned how to be brief and concise with my comments.  I am also hoping to do better in the future.  Unfortunately, you cannot "unpost" comments!  ;)

Jest

Report this comment
#31) On April 05, 2010 at 8:16 PM, detroitigerz (< 20) wrote:

Question,

      I'm 22 and about to graduate college, I've got a roth IRA opened up and am invested in a vanguard STAR fund. I've become very interested in financials and investing over the last year or so and have been participating in virtualstockexchange.com for the last few years with a few of my friends. I recently picked up your first recommendation (Intelligent Investor) and am about halfway through it. I have to say I'm not usually much of a reader but that is one book I just can't seem to put down. On to my question, I'm noticing that Graham takes more of a kind of macro investing point of view in my opinion (so far) in the book. Is one of the books you've recommended a good book on actual analysis of companies such as knowing what to look for on balance sheets/income statements and such? I'm taking a shot into the dark and saying the Intelligent Investor gets more into actual analysis, and that "Security Analysis," (duh) is a good book for knowing what to look for in investments but I just figured I'd ask you if there is any other one in particular that would be good for a brand new investor who is looking for techniques or methods of grading companies.

Thanks 

Report this comment
#32) On April 07, 2010 at 5:51 PM, bullsHorn (57.87) wrote:

detroitigerz,

Remember that looking at one company's balance sheet will never tell you the whole story about a individual stock valuation. You've got to compare it to that of it's industry peers. There's no such thing as a good P/E ratio, % DEBT to Capitalization, or % return on investments.  It's all relative to that specific company's competition.  Every indurstry has different definitions of what is good and what is not.

As far as a good book to expose you to the world of building a portfolio, I like "Cocktail Economics".  It will give you a good base model to build up from.

I'm not assuming you care to hear my advice, but if I were you, I would load that Roth up with some dividend stocks and enjoy those easy paydays tax free.  Dividends are going to get more popular moving forward.

Report this comment
#33) On April 09, 2010 at 6:13 PM, abcxxyz (< 20) wrote:

I accidentally  ran across the site of #1, so of course I decided to see how the Pro does it. I was very surprised.1. Most of thehigh rating seems to be generated by shorts rather than longs. Given the ease of entering shorts in CAPS and the psychological and practical difficulties in the real world, this makes the stock selection less useful. 2. Shorts are very likely to have low numbers of stars; longs to have high numbers of stars. Either bullishbabo thinks like the average CAP user, or ore likely, bullishbabo uses the CAPS results to good effect. 3.

Of the actives 101/176 are shorts. All the shorts are 1* except one no rating. Among the longs 5* is most common with almost all 4* or 5*, Among the longs only 4 are 1* and about 20 2* or below, 26 4* and 18 5*.

Turning to the ended stocks, about half are long and half short. The vast majority of longs are 3*-5* Most of the shorts are 1*-3*, although there are a surprising number of 4* and 5*. 

 Among the ended, almost all the shorts give positive scores (helped out by the upward trend of the market), but longs longs are closer to 50:50. Among current picks, more longs have more negative scores; among shorts about 2/3 have positive scores. 

Perhaps the most interesting conclusion is that the last 17 picks have been shorts. Also surprising, since the Feb low there have been only 13 longs and 57 shorts. Although it is a little surprising that bullishbabo didn't buy the dip, nevertheless the general message seems to be that the stock market is much more dangerous recently, according to the number 1 guru. Report this comment
#34) On April 10, 2010 at 6:13 AM, TMFBabo (100.00) wrote:

@JestYourFool: Thanks! People like to bash buy and hold, but I believe it definitely has its merits.  It's a lot better than incorrectly timing the market, such as going heavily short and having the market never crash.

@detroitigerz: While I love Graham's works, I'm quickly realizing they're not so great for people reading their first book.  You're right in saying that you will have a much more complete picture after Security Analysis. If you want beginner level books to check out, refer to the Peter Lynch and Pat Dorsey books from comment #23.

@abcxxyz:

Either bullishbabo thinks like the average CAP user, or ore likely, bullishbabo uses the CAPS results to good effect.

Neither.  I don't pay much attention to the star system much when rating stocks, just the numbers from the financial statements.  

Report this comment
#35) On August 08, 2010 at 12:04 PM, rhallbick (99.65) wrote:

“Target date funds have produced some troubling investment results,” said SEC Chairman Mary Schapiro in a June 18, 2009 speech. “[The] varying strategies among these funds produced widely varying results. Returns of 2010 target date funds ranged from minus 3.6 % to minus 41%.”  “…the average loss in 2008 among 31 funds with a 2010 target date was almost 25 percent.”

Losing 41% of your savings one year before your retirement must have been devastating to those who chose poorly managed funds.  With the S&P down 35% in 2008, some funds were clearly taking on too much risk for the expected retirement date.

Report this comment

Featured Broker Partners


Advertisement