Why Mutual Funds Aren't Diversified February 16, 2009
Posted by Jeff Nabers in : Money, Precious Metals, Self Directed IRA Solo 401k, real estate , add a commentThis video examines diversification…
- What is it?
- Why didn’t it work to reduce my portfolio risk?
- Is there something I can do to make diversification actually work? If so, what?
Diversification is extremely fundamental to the modern porftolio theory that so many financial planners talk about. But what isn’t talked about is how and why (more…)
Is this the bottom? How to recover your stock market losses September 30, 2008
Posted by Jeff Nabers in : Money, Self Directed IRA Solo 401k , add a comment
This question is on the minds of millions of Americans. I know exactly how to recover your losses: get out of the U.S. stock market and recoup your losses elsewhere.
S&P 500 loses 28% in one year
The sales pitch of securities salesman is that the stock market goes up around 8% or 9% per year over the long run – so don’t ever sell as a reaction to losing money. Let’s examine this, and assume your investment performance equaled the S&P 500 (even though the majority of mutual funds’ performance is inferior to that of the S&P 500).
Scenario A – You entered the (more…)
Self Honesty: Stock Market Strategies Worth Considering June 6, 2008
Posted by Jeff Nabers in : Self Directed IRA Solo 401k , add a comment
While I generally avoid mutual funds like the plague, I don’t avoid the stock market altogether. I’ll split what I do in the stock market into two categories: long and short. Either way, I’m honest with myself in admitting that no matter what I do in the stock market, it will be speculative and risky.
Long
“Going long” means buying a stock and expecting its price or income to rise so I can sell later for a profit. There are millions of people who have access to the same information as you, and that is generally reflected in the price of that stock. If you know something non-public about the company, trading it may be illegal for you. I’ve bought individual stocks before; I just treat the situation honestly; it is speculative in nature, and I only make such trades with very small portions of my portfolio.
I don’t go long on mutual funds because I don’t know what I’m going long on. It is virtually impossible to know what I’m actually investing in when I buy shares of a fund.
Short
Selling Short… A short position is the opposite of a long one. Instead of buying low and selling high, selling short is a matter of selling high and then buying low. For me to do this, I borrow shares of a stock and simultaneously sell them at the market price in expectation of a price decrease. To close this position later, I just have to buy back shares of the same stock at the then market price and pay back the borrowed stock. If during my position the stock price declined, I profit; if the stock price increased, I have a loss.
Ex: ABC Company seems to be doomed. It’s currently trading at $50, but I think it will go much lower over the next couple months. I sell 100 shares short. This means I borrow 100 shares and simultaneously sell them for $5,000. A few months later I see the stock price has declined to $35. To close my position, I buy 100 shares back for $3,500. I pay back the borrowed shares and retain the $1,500 profit, less fees and commissions.
I like short selling more than going long. I often notice (more…)
Stock Market Profits: Luck, Insider Trading, Arbitrage, Big Fish, and Geniuses June 5, 2008
Posted by Jeff Nabers in : Self Directed IRA Solo 401k , add a comment
Luck… Doing very well in publicly traded securities is sometimes a streak of good luck. I’ve had a terrific run on the craps table in Vegas many times. Eventually, I run out of good luck. Many people experience the same thing with trading.
Insider Trading… This is when a person has non-public information on which he bases a trade in a public securities market. It is illegal. Insider trading in public securities can lead to imprisonment. Insider trading in real estate and private investments can lead to extraordinary profits.
Arbitrage… This is the act of profiting from the mispricing of assets. When an ounce of gold costs $900 in New York and $895 in Japan, “arb” traders will buy lots of gold in Japan and immediately sell it in New York… theoretically risk free. When dealing with transaction costs, arb trading typically requires (more…)
How come I've been losing 4% per year over the long run in a stock market that returns 10% per year? May 2, 2008
Posted by Jeff Nabers in : Money , add a commentOne investment philosophy that has grown in popularity is “Because most mutual funds can’t even outperform stock indices, just invest in index funds.” This idea builds on the assumption that “over the long haul, the stock market goes up 10% each year.” Guess what…
The stock market does not go up 10% per year in the long run
- The math is just plain wrong. Lying averages tell us if you average the annual returns of the stock market it will equal its performance… but, as the name implies, it is not true. Lying averages tell you that if you are aiming for a 10% average return, and you have a 20% loss one year, it will take a 30% gain the next year to get back on track. Truthful math will tell you it will take a 50% gain just to get back on track for a 10% average annual return. Think about that in light of the stock market activity in 2000, 2002, and 2007.
- Any returns less than inflation is truly a loss. With inflation currently at 11.58%, you’ll need a 21.58% annual return to grow your wealth at 10% per year.
Just look at the last 10 years of data…
On the chart above, the red line reflects (more…)
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