Wise Investing

Wise Investing http://www.bnet.com/5799-19698-0.html?type=18 Blog Recent Discussion Activity RE: The Performance of Leveraged Funds Can Be Ugly http://moneywatch.bnet.com/investing/blog/wise-investing/the-performance-of-leveraged-funds-can-be-ugly/1005/#18916_92075 Agree 100%, Market timing is a loser's game, except for the VERY FEW who have great skills. I know I'm not one of those, nor would I ever suggest that any investor try to enter that elite group. Where we differ is that I know for a fact that people can become immune from market declines. That's the whole point of my coming here to converse with you. You call me a grand super-cycle buff - but I have never made a market prediction on your blog. You are distorting the facts. I want to protect your clients against a possible decline. I don't want to argue with you. I want to discuss why you are hiding options from your clients, thereby limiting their choices. The question for each investor is: Are you willing to pay the cost of acquiring that immunity? For some the reply is a solid 'no.' But for millions of investors, the answer would be a resounding 'yes.' They would say 'why didn't I know about this until now'? But financial planners are unwilling to let their clients in on the conservative, risk-reducing options game. Why don't you ask clients if they would be willing to accept a limited upside in exchange for a guaranteed limited downside? Just ask them. You will be surprised by the replies. That you will not ask is what I cannot comprehend. Last year you had a taste of how almost all assets can fall together, making a mockery of asset allocation as a method for reducing risk. This may be what you learned in school, it may be based on accepted research and theory. But, sometimes theories get updated when more evidence is accumulated. I believe the evidence is clear: In today's global markets, assets are far more aligned than ever before. that means there is a much greater probability that asset allocation will be far less helpful than it has been in the past. All I'm suggesting is an alternative. Yet, you dismiss it out of hand. You trot out words like skewness and kurtosis to make it seem as that makes options a bad idea. It's not your money (except for the fees). It's your client's money. Why not use every tool available to them? Why are financial planners and advisors afraid to learn how to use options to benefit clients? Kurtosis is not the answer. One point: You always mention covered call writing. That is merely one (not anywhere near my preferred) option strategy. It's a trade off for your clients: Sacrifice the possibility of a gargantuan upside - a rare occurrence anyway - for guaranteed protection when the market tumbles. That's also a rare event, but one psychological test after another demonstrates that a dollar in the hand is worth two in the bush. People like profits, but they hate losing. That's the point. Options do not threaten your business. they allow you do do more for your clients and truly earn your fees. I believe my attempts to convince you to learn what your cleints need, instead of force-feeding them what you offer, is wasted. But perhaps some clients read this blog and can ask you the proper questions. It's shame that an industry that can do so much good for the investing public is more interested in safeguarding its own income rather than providing the services so badly needed. Regards, Mark It's one thing when a market decline occurs at a convenient time for an investor - when he has sufficient time to hope the market recovers - as it has always done in the past. But what is someone who had to forcibly retire last year to do? Start drawing funds from a decimated account? There would be nothing left in short order. This time a quick rally has helped - but it has not helped enough. There has been virtually no growth for 10 years. With all due respect to Buffett - and I'm a big fan of his - that does not the fact that investors can and should become immune to the downside markets. Mon, 23 Nov 2009 15:48:44 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/the-performance-of-leveraged-funds-can-be-ugly/1005/#18916_92075 2009-11-23T15:48:44Z RE: Good News Update: Consumer Prices, Retail Sales, Manufacturing http://moneywatch.bnet.com/investing/blog/wise-investing/good-news-update-consumer-prices-retail-sales-manufacturing/1030/#18996_92005 Thank you for posting SOMETHING positive!! Sun, 22 Nov 2009 22:31:00 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/good-news-update-consumer-prices-retail-sales-manufacturing/1030/#18996_92005 2009-11-22T22:31:00Z RE: Is Now a Good Time to Invest in TIPS? http://moneywatch.bnet.com/investing/blog/wise-investing/is-now-a-good-time-to-invest-in-tips/681/#14767_91999 Larry - thank you for taking the time to explain this. I'll read it several times to be sure I understand. Many thanks, Gail Sun, 22 Nov 2009 22:07:44 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/is-now-a-good-time-to-invest-in-tips/681/#14767_91999 2009-11-22T22:07:44Z RE: The Performance of Leveraged Funds Can Be Ugly http://moneywatch.bnet.com/investing/blog/wise-investing/the-performance-of-leveraged-funds-can-be-ugly/1005/#18916_91962 Two key points. All the evidence shows that market timing is a loser's game---especially after trading costs and taxes. Here is a simple question for investors to ask. Who should they take their advice from Grand_Supercycle/Mark or Warren Buffett who basically says the only use for market forecasts is to make weathermen look good and admonishes investors to avoid market timing? Of course no one is immune to market declines. The key to being a successful investor is to understand that there is no one who can tell us where the market or the economy is going. Thus we need to focus on the things we can control, how well we diversify, making sure we don't take more risk than we have the ability, willingness or need to take, costs and tax efficiency. That way when the inevitable, but totally unpredictable bear markets arrive you will be able stay the course, having prepared for them and not taking more risk than one can handle. Smart investors, like Buffett, accept the inevitability and unpredictability of bear markets. They take the risks in return for the equity risk premium they expect to earn (but they know it is not certain) Sun, 22 Nov 2009 15:13:04 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/the-performance-of-leveraged-funds-can-be-ugly/1005/#18916_91962 2009-11-22T15:13:04Z RE: Is Technical Analysis a Waste of Time? http://moneywatch.bnet.com/investing/blog/wise-investing/is-technical-analysis-a-waste-of-time/656/#18013_91961 Grand Supercycle I get it, while all the academic studies show that TA fails to work beyond the randomly expected, especially after taxes and trading costs, that outcome is the result of the stupidity of all the people using it. All these major companies that sell their TA services to large pension plans (and obviously have good track records before they get hired or they would not get hired) are filled with dumb people who don't understand how to apply TA. Sun, 22 Nov 2009 14:52:17 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/is-technical-analysis-a-waste-of-time/656/#18013_91961 2009-11-22T14:52:17Z RE: Is Now a Good Time to Invest in TIPS? http://moneywatch.bnet.com/investing/blog/wise-investing/is-now-a-good-time-to-invest-in-tips/681/#14767_91960 Gailk Your impression is incorrect. In fact stocks and bonds are POSITIVELY CORRELATED, not negatively correlated, though the correlation is low. To understand we need to make sure you understand what positive and negative correlation mean---and most get this wrong. Negative correlation, which is what it sounds like you believed is the relationship between stocks and bonds, does not mean that when one goes up, the other goes down. It means that when one has ABOVE AVERAGE returns, the other TENDS TO have BELOW AVERAGE returns. The more negative the correlation, the stronger the tendency. If it was negative one, then it would happen all the time. Positive correlation means that when one has above average returns the other TENDS to also have above average returns. Again, TENDS TO are the key words. With Treasury bills the correlation is basically zero but turns more positive the longer the maturity of the bond, though it is still low even for long term Treasuries (20-year). Consider that there are periods like 2008 when you have deflationary recessions when stocks and bonds move in opposite directions but there are periods of inflationary recessions when they move in the same direction (high inflation is bad for both stocks and bonds) BTW-the market bottomed on March 9th and began one of its greatest rallies ever. It is certainly possible that we can have stocks and bonds move in the same direction from here, or the opposite direction. Given that real rates are very low (and real rates reflect both the flight to quality/liquidity as well as economic growth) you should be rooting for the following: We get stronger than expected economic growth which would be good for stock prices but bad for bond prices as real rates rise. Remember bond yields can rise for one of TWO reasons---real rates rise or expected inflation rises. Treasury yields might also rise because the flight to safety/liquidity unwinds. That would be bad for Treasury bond prices but good for stocks (this has already happened to a good degree as we have seen credit spreads shrink in the non Treasury bond market). But if it is inflation rising (above the expected rate of about 2.5%) that causes bond yields to rise (prices fall) that would LIKELY (I don't have a clear crystal ball) be bad for stocks. Remember expected growth (and expected inflation) is already built into bond and stock prices---so it is only unexpected events that effect prices--something most investors don't understand--it doesn't matter if news is good or bad, only if it is better or worse than expected I hope that is helpful. Sun, 22 Nov 2009 14:48:29 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/is-now-a-good-time-to-invest-in-tips/681/#14767_91960 2009-11-22T14:48:29Z RE: The Performance of Leveraged Funds Can Be Ugly http://moneywatch.bnet.com/investing/blog/wise-investing/the-performance-of-leveraged-funds-can-be-ugly/1005/#18916_91946 Zero, New lows? Why tell Larry? He doesn't care. He's happy to collect fees from investors who are diversified and who have a well-allocated portfolio. He feels immune to market declines - or at least that's the impression I get. Sun, 22 Nov 2009 14:07:22 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/the-performance-of-leveraged-funds-can-be-ugly/1005/#18916_91946 2009-11-22T14:07:22Z RE: The Performance of Leveraged Funds Can Be Ugly http://moneywatch.bnet.com/investing/blog/wise-investing/the-performance-of-leveraged-funds-can-be-ugly/1005/#18916_91954 In my view more people should study the share price using charts. New lows coming too i'm afraid. I post my analysis at this forum: <a href="http://www.zerohedge.com/forum/market-outlook-0" target="_blank">http://www.zerohedge.com/forum/market-outlook-0</a> Sun, 22 Nov 2009 06:55:07 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/the-performance-of-leveraged-funds-can-be-ugly/1005/#18916_91954 2009-11-22T06:55:07Z RE: Is Now a Good Time to Invest in TIPS? http://moneywatch.bnet.com/investing/blog/wise-investing/is-now-a-good-time-to-invest-in-tips/681/#14767_91934 I do have another question, if you don't mind. I'm a little confused right now. I have been under the impression that if the stock market goes down, bonds should go up. When I look at a chart of the March, 2009 crash, bond prices went down as the market went down. What, if anything, was different that time and what can I expect bonds to do if the stock market goes down from here? Many thanks, GailK Sat, 21 Nov 2009 20:50:40 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/is-now-a-good-time-to-invest-in-tips/681/#14767_91934 2009-11-21T20:50:40Z RE: Is Now a Good Time to Invest in TIPS? http://moneywatch.bnet.com/investing/blog/wise-investing/is-now-a-good-time-to-invest-in-tips/681/#14767_91893 Thanks so much Larry. Your reply is very helpful. GailK Sat, 21 Nov 2009 16:43:29 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/is-now-a-good-time-to-invest-in-tips/681/#14767_91893 2009-11-21T16:43:29Z RE: The Performance of Leveraged Funds Can Be Ugly http://moneywatch.bnet.com/investing/blog/wise-investing/the-performance-of-leveraged-funds-can-be-ugly/1005/#18916_91903 Mr Rosemary Sure they state that about daily because if they talked about anything else the results would show disastrous outcomes. But unless you are a trader/speculator than these funds have no role in a portfolio--but investors mostly don't buy them for ONE DAY. Sat, 21 Nov 2009 15:23:58 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/the-performance-of-leveraged-funds-can-be-ugly/1005/#18916_91903 2009-11-21T15:23:58Z RE: Is Now a Good Time to Invest in TIPS? http://moneywatch.bnet.com/investing/blog/wise-investing/is-now-a-good-time-to-invest-in-tips/681/#14767_91902 Gailk Lots of questions. Let's take them one at a time First, re TIPS. The literature is clear that TIPS should dominate your fixed income allocation (at least for tax advantaged accounts) unless there is a large risk premium. And currently there is no risk premium at all. Example, ten year nominal Treasuries yielding 3.37 and ten year TIPS yielding 1.17 for breakeven of 2. Long term inflation forecast based on Philly Fed survey of professional forecasters is higher than that. So the risk premium is negative. So if you are buying bonds at all should prefer TIPS. The only question is what maturity. At all levels now TIPS below historical averages, in some cases well below. The closest is the longer end of the curve. And the TIPS curve is pretty steep. So IF I was buying I would buy the 2025 TIPS. However, you can get similar inflation protection by buying ST high quality bonds or short term CDs. My personal preference now is the DFA short term extended credit fund for those with access to it--or a similar investment grade ST bond fund--say no more than 3 years. Note my book The Only Guide to Alternative Investments has a detailed chapter on TIPS, including a suggestion for a shifting maturity strategy for buying individual TIPS As to bond funds. Some advice The evidence is that it is even harder for active fund managers to outperform in bonds than in equities. I explain why in my book, The Only Guide to a Winning Bond Strategy You'll Ever Need. So I would avoid active managed funds due to their higher costs -- among other reasons. Having said that, PIMCO is probably the best active fund manager and if I had to choose an active fund (I don't) then I would choose one of PIMCOs (or run by Gross). And finally, for reasons discussed in the bond book I would also avoid any fund that buys non-investment grade paper and avoid any fund that buys callable bonds or MBS (which have implied puts and calls in them). I hope that is helpful Sat, 21 Nov 2009 15:21:47 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/is-now-a-good-time-to-invest-in-tips/681/#14767_91902 2009-11-21T15:21:47Z RE: Is Technical Analysis a Waste of Time? http://moneywatch.bnet.com/investing/blog/wise-investing/is-technical-analysis-a-waste-of-time/656/#18013_91880 TA does work if you apply it correctly. We will make new lows according to my charts. Technical analysis can also assist us as to the direction of the economy. My indicators can identify trend changes before they occur. They warned me of an impending market crash back in early *2007* My long term USD indicator has been giving BULLISH warnings for some time and I am expecting a USD rally. The VIX continues to give bullish warnings as well. Is the bear market rally ending ? I post my analysis at this forum: <a href="http://www.zerohedge.com/forum/market-outlook-0" target="_blank">http://www.zerohedge.com/forum/market-outlook-0</a> Sat, 21 Nov 2009 11:25:02 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/is-technical-analysis-a-waste-of-time/656/#18013_91880 2009-11-21T11:25:02Z RE: The Performance of Leveraged Funds Can Be Ugly http://moneywatch.bnet.com/investing/blog/wise-investing/the-performance-of-leveraged-funds-can-be-ugly/1005/#18916_91850 The emphasis is on DAILY performance of the specified benchmark. The funds make it clear that the performance does not track, there is significant tracking error, and that they are not suited to many people. It's not appropriate to compare a yearly chart to a device intended for daily transactions. If you look at the chart in its intended time frame, days, you will see the appropriate return (or lack thereof) less fees. Sat, 21 Nov 2009 06:07:31 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/the-performance-of-leveraged-funds-can-be-ugly/1005/#18916_91850 2009-11-21T06:07:31Z RE: Is Now a Good Time to Invest in TIPS? http://moneywatch.bnet.com/investing/blog/wise-investing/is-now-a-good-time-to-invest-in-tips/681/#14767_91785 I know this thread goes back a few months, but I'm wondering if it's still a good time to buy TIPS and which maturity is best? And a little off topic - is this a good time to buy a good general bond fund? I'm thinking of Harbor Bond (HABDX) run by Bill Gross and/or his team. I noticed on the HABDX one year chart that the fund prices went down along with the stock market prior to last March and have gone up with the stock market since then. If I believe this stock market is due for a steep correction, should I wait until then to buy the bond fund? Thank you Fri, 20 Nov 2009 20:41:37 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/is-now-a-good-time-to-invest-in-tips/681/#14767_91785 2009-11-20T20:41:37Z RE: The Performance of Leveraged Funds Can Be Ugly http://moneywatch.bnet.com/investing/blog/wise-investing/the-performance-of-leveraged-funds-can-be-ugly/1005/#18916_91702 Agree that leveraged ETFs are so bad that they ought to be banned. But they do have one good use for active traders. Rather than buying a 2X leveraged bullish ETF, short the 2X leveraged bear ETF. Again, not your cup of tea, but useful for active traders Fri, 20 Nov 2009 14:01:59 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/the-performance-of-leveraged-funds-can-be-ugly/1005/#18916_91702 2009-11-20T14:01:59Z RE: Lessons From the Bear Market http://moneywatch.bnet.com/investing/blog/wise-investing/lessons-from-the-bear-market/974/#18527_91357 More people should study trends ! I use technical analysis to identify trends which can also tell us where the economy is headed. My long term USD indicator has been giving BULLISH warnings for some time and I am expecting a USD rally. My indicators can identify trend changes before they occur. They warned me of an impending market crash back in early *2007* The VIX index continues to give bullish warnings as well. Is the bear market rally ending ? I post my analysis at this forum: <a href="http://www.zerohedge.com/forum/market-outlook-0" target="_blank">http://www.zerohedge.com/forum/market-outlook-0</a> Wed, 18 Nov 2009 19:38:45 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/lessons-from-the-bear-market/974/#18527_91357 2009-11-18T19:38:45Z RE: Growth in China, India and Brazil Might Not Mean Great Investment Returns http://moneywatch.bnet.com/investing/blog/wise-investing/growth-in-china-india-and-brazil-might-not-mean-great-investment-returns/1002/#18776_91227 Shivdesai Yes EM countries are more risky for many reasons. Just a couple that are very important a) less developed capital markets including banking systems b) more subject to flights of capital Now there is one important thing to keep in mind, most of the value premium comes from a small group of value stocks that "migrate" from value to growth (not the whole asset class outperforming) countries can also migrate from emerging to developed, and that can provide a large boost to returns (perception of reduction in risk as the countries migrate out of developing status) Wed, 18 Nov 2009 13:59:10 GMT http://moneywatch.bnet.com/investing/blog/wise-investing/growth-in-china-india-and-brazil-might-not-mean-great-investment-returns/1002/#18776_91227 2009-11-18T13:59:10Z