THIS IS MY FIRST contribution to HumbleDollar. It may well be my last, for I am no longer old. Rather, I’m ancient and on my way to being archaic.
The vicissitudes of investing are behind me. I now invest for fun, for the data analysis, for following the impact of macro world events on economies, for the thrill of the market rollercoaster, for the intellectual challenge, for the exercise of discipline,
I’M NOT A SAVVY investor, nor do I pretend to be. Some people get paid to analyze and make predictions about stocks, often for people like me. How reliable are their opinions? I’m not so sure.
Take the newsfeed about my largest single stock holding, the utility Public Service Enterprise Group (symbol: PEG), that I got late last month from my Fidelity Investments account:
“Guggenheim Downgrades Public Service Enterprise Group to Neutral From Buy,
THE S&P 500 INDEX just hit a new all-time high, topping 5,000 for the first time. Is it now too high? For investors concerned about market risk, this is an important question. But it isn’t an easy one to answer.
For starters, there’s no single definition of “too high.” Consider the price-to-earnings (P/E) ratio, the most common measure of market valuation. By this metric, the market does indeed look pricey. The P/E of the S&P 500 stands just a hair below 20 based on expected 12-month earnings—far above its 40-year average of 15.6.
I KISSED REBALANCING goodbye. In any case, I wasn’t consistent about rebalancing our retirement portfolio.
I’ve never attempted to maintain a specific stock-bond ratio. Whenever I did something akin to rebalancing, it was usually in response to some vague discomfort about the level of risk we were taking. Or it was based on a hunch about where the market would move in the near future—typically misguided.
This latter activity is also known as market timing.
ROGER PENSKE STARTED as a race car driver, but soon found he’d be better off as a team owner. Penske’s holding company also has stakes in Penske Truck Leasing, among other businesses, as well as the Indianapolis Motor Speedway, home of the Indy 500.
One of Penske’s criteria when hiring race car drivers: select folks with a burning desire to win. Penske has said he can guide a driver’s thinking about the best way to pursue wins,
RETIRED HEDGE FUND manager Jim Cramer is the host of Mad Money, a staple of financial television. For years, critics have derided his investment recommendations—to the point where there’s now a fund designed specifically to bet against him: the Inverse Cramer Tracker exchange-traded fund (symbol: SJIM).
For investors who see Cramer as the P.T. Barnum of finance, this fund offers the ability to make bets that are precisely the opposite of what Cramer recommends.
I WRAPPED UP MY first HumbleDollar article by declaring that I’m no investment expert. I still stand by that statement.
But I also maintain that this insight is a strength, not a weakness. Recognizing my limitations allows me to settle on an investment strategy that gives me a better shot of arriving at my retirement goal, with less likelihood of a detour along the way.
My wife Sharon and I hold most of our retirement savings at Vanguard Group.
WITH 2024’S ELECTION underway, many folks are asking, do politics affect investment markets? On that score, there’s good news: The data say markets in the U.S. have delivered good—and roughly equal—results under both Democrats and Republicans.
But that doesn’t mean politics never has an impact. Look outside the U.S., and you’ll see that a country’s political structure can have enormous implications. To the extent that your portfolio is diversified internationally, it’s important to keep an eye on developments elsewhere.
CHARLIE MUNGER, WHO died recently at age 99, always had a colorful turn of phrase. But entertaining as he was, his comments were also invariably full of wisdom.
In fact, taken together, Munger’s ideas offered investors a masterclass in investing. Here are some highlights:
Choosing an investment strategy. Munger, along with his partner, Warren Buffett, often commented on the limits of his knowledge. But this wasn’t false modesty. What Munger was saying was that the universe of investments is too broad for any individual to fully master.
“WE GOT A THING going on, we both know that it’s wrong, but it’s much too strong to let it go now” are blues lyrics about a man and his lover. But they might as well be referring to my affair with the January effect.
Last year, I wrote about my favorite seasonal anomaly, the tendency for small-cap stocks to outperform large stocks during the first month of the year. In December 2022, I’d set out to see if the phenomenon was still alive.
MANY FOLKS EQUATE a stock market downturn with losing money. I often hear comments like, “I lost money yesterday. The stock market went down.”
I believe this impression of loss is an illusion, one that can be detrimental to our financial health—because it blinds us to certain fundamental truths.
1. Illusion of lost money. You only lose money if you sell shares at a loss. If you don’t sell amid a downturn,
THIS YEAR SAW THE passing of two giants of the investment world. The first was Harry Markowitz, who in the 1950s developed a concept now known as Modern Portfolio Theory. His key insight was one that today we view as so fundamental that it’s easy to take it for granted: Markowitz was the first to articulate and quantify the importance of diversification. He later won a Nobel Prize for his work.
This year also saw the passing of Charlie Munger.
REMEMBER WHEN YOU got that first AARP card in the mail? I must have been 50, not at all ready to begin thinking about senior discounts, and slightly offended. That was 12 years ago.
Well, I’m feeling that way again. You see, the grim reaper—oops, I mean retirement—is getting close. That means it’s time to reduce my exposure to stocks, while boosting my holdings of income-oriented investments. It’s a strange feeling for someone who has spent his life investing almost exclusively for capital appreciation.
WE OFTEN IMAGINE WE know something about the future that’s unknowable—and the result can be costly investment mistakes. Below is an edited excerpt from the new book “From Zero to Millionaire: A Simple, Effective, and Stress-Free Way to Invest in the Stock Market,” published by Harriman House.
“I don’t think the United States is going to survive.”
Several years ago, I was having lunch with a friend in a San Francisco restaurant when he made this confession.
I PAY FOR MY OWN partial retirement with a university pension, income from rental properties, income from the remnants of my private psychology practice and, of course, Social Security. I long ago emptied my retirement accounts to pay for our son Ryan’s college education and to help launch his career.
What about my wife Alberta? She has income from her fulltime psychology practice, her share of our rental income and Social Security. But unlike me,