I re-read the original edition of Malkiel's A Random Walk. Its amazing to me that after decades of evidence which support his findings, Wall Street is still drinking the Cool Aid. Worst of all are the chart technicians. They just don't get it, no matter how many times they are convincingly wrong. They will tell you that conditions changed. Do they believe that they wouldn't?
Great job Jonathan. Much appreciated. I enjoy reading. My investing philosophy matches yours very closely. I note that stock pickers keep saying that THIS is [finally] a stock pickers market, but alas, every year, it isn't. I shudder to think of what happened to those heavily over weighted in, for example, Moderna. One holding like that and all of your correct gains in other stocks wiped out.
I'm glad I don't fly anymore, as I did monthly as a commercial banker. It's an unpleasant experience. Most people I know feel the same way. Way too much of a hassle. So then, has air travel gone in the right direction? No. Just because it's cheap doesn't make it worth the while. So now it's something you do only when you have to. Sad. Like a bus, only you probably won't get there on time.
Thanks Jonathan, interesting, but it seems to me that from a practical point of view, the amount of the return is of no consequence. Its kind of like how will the Mets do next year. From an asset choice perspective, it is always equities having the best return, and owning very low returning bonds only to reduce volatility and/or act as a source of funds in a down market. TINA, there is no alternative, trumps everything else. What interests me is which market segment to overweight, and vice versa.
For example, commodities do well in periods of inflation, but not so well if central banks are restricting economic growth to control that inflation. Higher interest rates help financials, however the yield curve is actually flattening, which is worse.
There is something to be said for the enjoyment to be gained by investing successfully as a retired person. I enjoy it. If I had two or three Vanguard index funds I'd have to figure out something else to do.
All of the target date funds I have seen include very significant bond positions, even at a relatively young age. We live a lot longer now. Worse, your bonds will return the lowest projected yield in our lifetime because of the Fed, meaning if you are successful in your equity investments, you can be guaranteed your bonds will drag down your return significantly. How can you call something an investment if it's projected return is below zero in real terms? Is the substantial price of the reduced volatility gained by buying low yielding bonds worth the price? I say no. 100% equities for me until bonds have a positive real return. Age 77.
To have cash for purchases "at the bottom" means you have to put a percentage of your portfolio in cash, since everyone agrees that no one can time the market. Holding cash means your return will underperform the market, 100% of the time, during any long term period when the market average is rising. Seeking alpha is a fools errand. Hold cash, not for dry powder for purchases, but to avoid ever, ever, having to sell to raise cash in a down market, for say unplanned expenses or margin calls.
I'm reading A Random Walk again, and it all comes to rest on the one principal that everyone agrees on - you cannot predict the future - and yet everyone keeps trying.
I stopped investing in bonds after I understood that holding bonds reduces your total real return, always, and this effect was exaggerated when bond yields fell below the rate of inflation, because of the Feds QE. I believe that the popularity of holding US bonds (excluding those in foreign countries with negative yields) is because most people have been told all their lives that bonds are safe, and safe is what they want most for their life savings, and also there are those who admit they have no stomach for stock market volatility. I also would wager that the vast majority of the public does not understand that bond principal decreases when rates rise. They are about to learn this relationship very soon, as their 401k quarterly report shows a decrease in value when Fed tightening begins. I am 77, own zero bonds, sit out market downturns, and have maximum return as my objective. I use ETFs exclusively, to reduce risk and volatility.
Comments:
Jonathan, Is there a way for us to view comments from past articles?
Post: Project Mickey
Link to comment from January 22, 2022
I re-read the original edition of Malkiel's A Random Walk. Its amazing to me that after decades of evidence which support his findings, Wall Street is still drinking the Cool Aid. Worst of all are the chart technicians. They just don't get it, no matter how many times they are convincingly wrong. They will tell you that conditions changed. Do they believe that they wouldn't?
Post: How We’re Doing
Link to comment from January 19, 2022
Great job Jonathan. Much appreciated. I enjoy reading. My investing philosophy matches yours very closely. I note that stock pickers keep saying that THIS is [finally] a stock pickers market, but alas, every year, it isn't. I shudder to think of what happened to those heavily over weighted in, for example, Moderna. One holding like that and all of your correct gains in other stocks wiped out.
Post: How We’re Doing
Link to comment from January 19, 2022
I'm glad I don't fly anymore, as I did monthly as a commercial banker. It's an unpleasant experience. Most people I know feel the same way. Way too much of a hassle. So then, has air travel gone in the right direction? No. Just because it's cheap doesn't make it worth the while. So now it's something you do only when you have to. Sad. Like a bus, only you probably won't get there on time.
Post: Why Am I Late?
Link to comment from January 19, 2022
Thanks Jonathan, interesting, but it seems to me that from a practical point of view, the amount of the return is of no consequence. Its kind of like how will the Mets do next year. From an asset choice perspective, it is always equities having the best return, and owning very low returning bonds only to reduce volatility and/or act as a source of funds in a down market. TINA, there is no alternative, trumps everything else. What interests me is which market segment to overweight, and vice versa. For example, commodities do well in periods of inflation, but not so well if central banks are restricting economic growth to control that inflation. Higher interest rates help financials, however the yield curve is actually flattening, which is worse.
Post: The Bogle Method
Link to comment from December 15, 2021
There is something to be said for the enjoyment to be gained by investing successfully as a retired person. I enjoy it. If I had two or three Vanguard index funds I'd have to figure out something else to do.
Post: Mix and Match
Link to comment from December 6, 2021
All of the target date funds I have seen include very significant bond positions, even at a relatively young age. We live a lot longer now. Worse, your bonds will return the lowest projected yield in our lifetime because of the Fed, meaning if you are successful in your equity investments, you can be guaranteed your bonds will drag down your return significantly. How can you call something an investment if it's projected return is below zero in real terms? Is the substantial price of the reduced volatility gained by buying low yielding bonds worth the price? I say no. 100% equities for me until bonds have a positive real return. Age 77.
Post: Mix and Match
Link to comment from December 6, 2021
To have cash for purchases "at the bottom" means you have to put a percentage of your portfolio in cash, since everyone agrees that no one can time the market. Holding cash means your return will underperform the market, 100% of the time, during any long term period when the market average is rising. Seeking alpha is a fools errand. Hold cash, not for dry powder for purchases, but to avoid ever, ever, having to sell to raise cash in a down market, for say unplanned expenses or margin calls. I'm reading A Random Walk again, and it all comes to rest on the one principal that everyone agrees on - you cannot predict the future - and yet everyone keeps trying.
Post: When Cash Is King
Link to comment from November 6, 2021
I stopped investing in bonds after I understood that holding bonds reduces your total real return, always, and this effect was exaggerated when bond yields fell below the rate of inflation, because of the Feds QE. I believe that the popularity of holding US bonds (excluding those in foreign countries with negative yields) is because most people have been told all their lives that bonds are safe, and safe is what they want most for their life savings, and also there are those who admit they have no stomach for stock market volatility. I also would wager that the vast majority of the public does not understand that bond principal decreases when rates rise. They are about to learn this relationship very soon, as their 401k quarterly report shows a decrease in value when Fed tightening begins. I am 77, own zero bonds, sit out market downturns, and have maximum return as my objective. I use ETFs exclusively, to reduce risk and volatility.
Post: No Bonds for Me
Link to comment from October 30, 2021
Crypto currency has value, as a unit of exchange, simply and only because someone else has agreed to accept it, until they don't.
Post: Reading Tea Leaves
Link to comment from October 9, 2021