All about Investments!

[Jeor]

Australian investor here; my wife and I are fortunate to be in a good financial position with surplus money for investing. While we were both working and without kids, we built up some investments (friendly competition - she has a property investment, while I've invested in equities). But now with two young children and only one of us working we're treading water financially, which we're comfortable with given the good start we had. 

We were both incredibly lucky to hold onto good-paying stable jobs with regular promotions during the GFC (2008-10), which allowed us to get into the property market and share market when both were at major historic lows. I know they say it's about "time in" the market more than "timing" the market, but for us that period was crucial for giving us a major boost early on. Others were not so fortunate as I had friends who lost jobs or had trouble progressing in their careers. But we got lucky. Now in Australia, Sydney in particular, housing affordability is atrocious.

My wife believes in property investing; find a good agent, ride them hard, get good tenants, and then it's "set and forget" as rental income falls into your lap and the balance on the loan gets reduced over time. In Australia, there are also tax benefits as you can deduct the interest and maintenance costs from your income. Over time there is a good expectation of capital appreciation as well.

I prefer the share market because I prefer the academic research on stocks (I have a maths/statistics PhD) as opposed to dealing with real-world problems with agents/tenants/maintenance issues. With kids, I haven't added any funds to my portfolio over the past few years so it's a closed system - if I want to buy some new shares I need to sell others, and I maintain some cash allocation. Gives added incentive to grow the portfolio organically. Currently its total value is around 150K.

I have a one-pager of investment rules that I strictly follow (e.g. only investing in large-cap stocks, has to tick various fundamental analysis benchmarks, trailing stop-losses of 15% and picking entry/exit points on statistical trendlines). My portfolio is a mixture of individual Australian stocks and international ETFs. No crypto or alternative assets, no options/derivatives. I measure myself against the ASX200 and so far have beat the market for each of the past three years since I started taking proper records (though in 2020 I almost missed out on the COVID rally and only narrowly beat the ASX200 due to a late plunge into some energy stocks that saved my bacon!).

Currently my portfolio is quite defensive, with a high cash allocation (30%) waitng to be deployed and otherwise largely defensive stocks - telco, energy, financial and some materials (which is a large component of the ASX). No consumer discretionary or tech currently. Some Vanguard ETFs too.

[BigFatCoward]

Smug people losing money on crypto/nft's will never not be funny. Especially youtube personalities.

Normal members of the public who got caught up, I feel dreadfully sorry for. 

[Jeor]

25 minutes ago, BigFatCoward said:

Smug people losing money on crypto/nft's will never not be funny. Especially youtube personalities.

Normal members of the public who got caught up, I feel dreadfully sorry for. 

Personally I think crypto is a massive Wild West. If you're into it, good luck to you. But I'm not particularly sympathetic to people who lose money to hacks or Ponzi schemes and then call on the government to compensate them or complain that the environment is unfair or untrustworthy. I thought the whole point of crypto was that it was a deregulated environment free from government control, so you have to take the bad with the good. Hgh risk, high return and all that. There's a reason that "boring" bank accounts and mainstream investments have lower returns, but are safer and compliant with all sorts of regulations.

Edited August 29, 2022 by Jeor

[Wade1865]

45 minutes ago, BigFatCoward said:

Normal members of the public who got caught up, I feel dreadfully sorry for. 

BigFatCoward -- I sympathize with the private investor as well, genuinely. I felt there was merit (but not for me) in cryptocurrencies. And I wouldn't be surprised if it rebounds in the future, though I wouldn't bet money on it... NFTs, on the other hand, were so often advertised (by way of exclusivity, or in an arcane way, by Twitter influencers; e.g., Wall Street Playboys) by the crypto community when Bitcoin, et al., skyrocketed; in order to lend legitimacy, and exploit the uninformed mass who jumped in late. As reckless as I was, I'd never go beyond stocks, bonds, real estate.

21 minutes ago, Jeor said:

Personally I think crypto is a massive Wild West.

Jeor -- that's the best description I've seen on cryptos. Room for profit, yes, if you've got the right touch.

[Wade1865]

1 hour ago, Jeor said:

We were both incredibly lucky...

Jeor -- impressive breakdown, thank you for sharing. I found it valuable and thought-provoking while recalling my own experiences. And I suspect it could provide greater value to young people (in their future, should they recognize it) given how cyclic both stock and real estate markets are in the West.

Likewise, it was a high-paying, stable profession that allowed me an adequate accumulation of money, which I then depolyed shortly after the GFC; and subsequently, the US subprime mortgage crisis. It was during these times when I acquired a taste for (what was then perceived to have been) reckless risk, which I have maintained to this day. In hindsight, of course, it was the height of prudence (...not luck).

The majority of people I knew, including family and friends, lost jobs then homes; and collegues, lost value as their stock holdings collapsed. The rest hesitated and failed to exploit both events. If they'd been able to hold (or add to) their holdings, they'd have seen not only a recovery but substantial increases in value / profit.

I've already spelled out my timeline, so I'll expand by illustrating (by way of ratios) how my stock holdings look now; T is down 6%; XOM, up 72%; KHC, up 6%; and WBD (a T spinoff I kept out of curiosity), down 54%. If it weren't for big oil and the war in Ukraine, I might be toward the bottom, or even underwater.

We diverge on investment methods, which I find to be an incredibly interesting comparative case study, for anyone interested. My criteria is based on feeling and intuition, informed by geopolitics and socially-based traffic (i.e. direct interaction and social media). I use no boundaries (stop-loss, etc.) and pay only passive attention to daily changes. Reckless, I'm sure, but applied the same way I operated downrange, with equally beneficial gains. Warfighting ... moneymaking ... both are nothing more than (very, very serious) games, to me.

***

THIS IS NOT ADVICE -- DON'T BE RECKLESS

HAHAHA

[Jeor]

1 hour ago, Wade1865 said:

We diverge on investment methods, which I find to be an incredibly interesting comparative case study, for anyone interested. My criteria is based on feeling and intuition, informed by geopolitics and socially-based traffic (i.e. direct interaction and social media). I use no boundaries (stop-loss, etc.) and pay only passive attention to daily changes. Reckless, I'm sure, but applied the same way I operated downrange, with equally beneficial gains. Warfighting ... moneymaking ... both are nothing more than (very, very serious) games, to me.

***

THIS IS NOT ADVICE -- DON'T BE RECKLESS

HAHAHA

There's more than one way to skin a cat. My personal belief is that most investing methods work, so long as they're based on a general correct theory and the investor follows them consistently. So if you're a more macro investor, or if I'm more quantitative, both ways can work and they probably work better than either of us trying each other's, because we're more comfortable and knowledgeable following our own systems. No system has a 100% success rate but if you're consistent and get more than half your decisions right then things should take care of themselves.

[Alarich II]

10 hours ago, Jeor said:

My personal belief is that most investing methods work, so long as they're based on a general correct theory and the investor follows them consistently. So if you're a more macro investor, or if I'm more quantitative, both ways can work and they probably work better than either of us trying each other's, because we're more comfortable and knowledgeable following our own systems. No system has a 100% success rate but if you're consistent and get more than half your decisions right then things should take care of themselves.

The thing is - and most market studies show this - that individuals very rarely "beat" the market and that includes most professional, active fund managers. Which is why I am highly sceptical of actively managed funds, stock-picking strategies or cluster strategies (like niche-ETFs). Either they are bascially index-hugging strategies or they are taking disproportional risks to beat a much more diversified market index, which is a bad risk/return ratio.

[Heartofice]

15 hours ago, BigFatCoward said:

Smug people losing money on crypto/nft's will never not be funny. Especially youtube personalities.

Normal members of the public who got caught up, I feel dreadfully sorry for. 

I just watched a Coffeezilla video where it turns out that Jordan Belfort, of Wolf of Wall Street fame is making his name now as an investment guru!! He appears to have done a 180, going from saying that Crypto is a scam to saying that you need to invest in crypto.. and do it now!

I think that if someone like that can survive as a crypto investment guru then that tells you all you need to know about what the crypto market is like. 

[Wade1865]

3 hours ago, Heartofice said:

I just watched a Coffeezilla video where it turns out that Jordan Belfort, of Wolf of Wall Street fame is making his name now as an investment guru!! He appears to have done a 180, going from saying that Crypto is a scam to saying that you need to invest in crypto.. and do it now!

I think that if someone like that can survive as a crypto investment guru then that tells you all you need to know about what the crypto market is like. 

Heartofice -- what's interesting to me is that by now most people should realize the intense volatility of crypto. I won't claim he's not trying to tap or exploit a fresh batch of inexperienced investors, but it also tells me he might genuinely thinks there's now room to profit off the Bitcoin collapse.

[maarsen]

4 hours ago, Heartofice said:

I just watched a Coffeezilla video where it turns out that Jordan Belfort, of Wolf of Wall Street fame is making his name now as an investment guru!! He appears to have done a 180, going from saying that Crypto is a scam to saying that you need to invest in crypto.. and do it now!

I think that if someone like that can survive as a crypto investment guru then that tells you all you need to know about what the crypto market is like. 

It could also mean he has crypto to sell and is looking for suckers, judging by his past behaviour.

[Heartofice]

Essentially none of these ‘gurus’ make their money from trading. They get paid for telling other mugs what to buy and sell, doing talks and selling courses. They aren’t stupid enough to throw their own money down the toilet on crypto.

[Wade1865]

5 hours ago, Alarich II said:

The thing is - and most market studies show this - that individuals very rarely "beat" the market and that includes most professional, active fund managers. Which is why I am highly sceptical of actively managed funds, stock-picking strategies or cluster strategies (like niche-ETFs). Either they are bascially index-hugging strategies or they are taking disproportional risks to beat a much more diversified market index, which is a bad risk/return ratio.

Alarich II -- yes, and the ratio is extreme. Numbers I've seen claim around 95% of professional investors fail to beat the market (specifically, the S&P 500) over time. For regular, and ordinary, investors, the ratio is likely no better, or maybe even worse. Yet, there are extraordinary investors, like Warren Buffet. I'm sure thre are additional outliers (though none as successful as him) who can also achieve unusually high returns, consistently over time.

[mcbigski]

On 8/14/2022 at 7:37 AM, DireWolfSpirit said:

Regarding those bonds-

You may have heard of the inverted yield curve, how its a harbinger of economic downturn and so forth.

The entire treasury market is currently upside down with short term yields higher than the long term yields.

Check it out, this is twisted- 1yr and 2yr with a higher yield than the 30yr long bond!

TICKER	COMPANY	YIELD	CHANGE	%CHANGE
US3M	U.S. 3 Month Treasury	2.563	0.005	0
US1Y	U.S. 1 Year Treasury	3.255	0.002	0
US2Y	U.S. 2 Year Treasury	3.25	0.021	0
US5Y	U.S. 5 Year Treasury	2.965	-0.023	0
US10Y	U.S. 10 Year Treasury	2.842	-0.046	0
US30Y	U.S. 30 Year Treasury	3.114	-0.045

Well the Inflation Reduction Act, which is apparently a carbon reduction bill and not actually anti inflationary except as far as it impose some cost controls on pharmaceuticals five or so years out, is supposed to get this all sorted.  (Though considering the history of price controls, the folks who made those provisions are charitably idiots.)  I wonder if some of the yield curve inversion is the pricing in of US government default probabilities.  More likely 20 years out than 2, which ought to have some effect on treasury pricing.  

16 hours ago, Alarich II said:

The thing is - and most market studies show this - that individuals very rarely "beat" the market and that includes most professional, active fund managers. Which is why I am highly sceptical of actively managed funds, stock-picking strategies or cluster strategies (like niche-ETFs). Either they are bascially index-hugging strategies or they are taking disproportional risks to beat a much more diversified market index, which is a bad risk/return ratio.

Indexing works best when most people aren't doing it. Beyond some point, following indexing become being a lemming.  It's a reasonable default strategy, but sometimes you need to make a stand against the madness of crowds.

Personally, I'm longer fossil fuel companies than I am solar and wind.  Doesn't matter how many greenies get into power, they don't have enough votes to overturn physics.  If I knew of a good fission play I'd be in on that as well.  Carbon free and supply measured in centuries at a minimum.  

It's almost like the powerful want to restrict clean cheap energy instead of develop it.

[Jeor]

16 hours ago, Alarich II said:

The thing is - and most market studies show this - that individuals very rarely "beat" the market and that includes most professional, active fund managers. Which is why I am highly sceptical of actively managed funds, stock-picking strategies or cluster strategies (like niche-ETFs). Either they are bascially index-hugging strategies or they are taking disproportional risks to beat a much more diversified market index, which is a bad risk/return ratio.

I took a stab at trading for a while and that didn't work, it was incredibly difficult, so I can well believe the horror stories that over 90%+ of day traders lose money. I'm definitely not cut out to be a day trader and it seems that generally there's an inverse relationship between trading activity and returns. I imagine the vast majority of investors - both retail and professionals - trade too much and account for the high percentage of failing to beat the market. Playing options/derivatives is also a losing proposition to a very high degree.

But I do believe that patient and well-researched investors still have a chance. Diversification or index funds are a safe bet and will give you market returns, but concentrating holdings in 6-10 stocks that you can keep very close tabs on gives you a chance of beating the market (and yes, conversely also gives you a chance of doing much worse than the market). But for the past three years that I've kept monthly records, it's worked. I'm sure over 20 years, it may not necessarily hold up, but for now I'm happy with my investing principles and system. My portfolio does have a mixture of individual stocks and broad market-based ETFs (none of those potentially dodgy thematic ETFs), so I'm hedging my bets a bit both ways anyway.

And in Australia, we have compulsory superannuation (employers must pay 10.5% of your pay into a diversified fund that you can't access until you're 60+) so I tend to view the superannuation as my "safe diversification" and my more active portfolio as my play money, so I'm not going all in on one method or the other.

[Jeor]

As an aside, I also tend to believe that retail investors who know what they're doing have some advantages over professional fund managers. While it's true that professionals have more access to information and capital, they have some major handicaps versus the amateur investor. Fund managers have lots of overheads (and hence have to beat the market by a greater degree than retail investors, who only have to worry about brokerage), they are worried about reporting short-term performance, and often their hands are tied by investment mandates, client direction or ESG concerns. And compared to a retail investor, a professional fund manager usually can't increase their cash allocation (even when that might be prudent) or include ETFs in their mix as that's seen to be a copout for a professional to do.

[Alarich II]

 

22 hours ago, Heartofice said:

I just watched a Coffeezilla video where it turns out that Jordan Belfort, of Wolf of Wall Street fame is making his name now as an investment guru!! He appears to have done a 180, going from saying that Crypto is a scam to saying that you need to invest in crypto.. and do it now!

I think that if someone like that can survive as a crypto investment guru then that tells you all you need to know about what the crypto market is like. 

I have yet to see a usecase beyond organized crime, money laundering and scamming that really needs crypto to work. To me, it's a colossal waste of energy so far, because what I see is a lot of people betting on speculative gains but very few are actually investing in a business model. If I absolutely had to invest into crypto, I would invest in the trading platforms like coinbase, because they at least have some kind of business model.

[Wade1865]

12 hours ago, mcbigski said:

Indexing works best when most people aren't doing it. Beyond some point, following indexing become being a lemming.  It's a reasonable default strategy, but sometimes you need to make a stand against the madness of crowds.

mcbigski -- that's probably the primary reason why I've avoided index funds, being inherently non-conformist. I'm sure there's some value in following the crowd (e.g., safety, belonging), but the best case end-state is average. And average is failure, imo; worse, lethal if the crowd really is moving toward some unforseen disaster. Moreover, I suspect that the more people who index, the less gains are available -- unsure, though.

[Wade1865]

12 hours ago, Jeor said:

I took a stab at trading for a while and that didn't work, it was incredibly difficult, so I can well believe the horror stories that over 90%+ of day traders lose money.

But I do believe that patient and well-researched investors still have a chance. Diversification or index funds are a safe bet and will give you market returns, but concentrating holdings in 6-10 stocks that you can keep very close tabs on gives you a chance of beating the market (and yes, conversely also gives you a chance of doing much worse than the market). But for the past three years that I've kept monthly records, it's worked. I'm sure over 20 years, it may not necessarily hold up, but for now I'm happy with my investing principles and system. My portfolio does have a mixture of individual stocks and broad market-based ETFs (none of those potentially dodgy thematic ETFs), so I'm hedging my bets a bit both ways anyway.

Jeor -- very helpful, value-added!

I knew two boomers who attempted electronic day trading in the late 90s and early 00s, shortly after receiving inheritances. Millions in USD lost, never permanently regained. Even I could feel the heartbreak. I've also heard several more horror stories second-hand from others. Yet, it (and even swing trading) is still a very appealing idea. Too dangerous, though, as a general strategy.

Passively investing since 2008, I estimate I've made a little more than two dozen trades (buying and selling), averaging about 2 trades a year. Infrequency, and over-concentration, are major reasons why I've been beating the market consistently, but I ack the risk and intend to distribute it. Right now I feel comfortable with energy, communication services, and consumer staples. The next sector I move into is probably going to be financials or utilities. Ultimately, as I learn more about stock investing, I'll move half my funds into 10 sectors, with 10% invested in each; and (probably) hold the other half as deployable funds for short- and medium-term exploitations.

13 hours ago, Jeor said:

As an aside...

Excellent analysis on the individual investor's advantages. I noticed several actionable implications, and if actively employed, would enhance returns.

[Wade1865]

7 hours ago, Alarich II said:

I have yet to see a usecase beyond organized crime, money laundering and scamming that really needs crypto to work. To me, it's a colossal waste of energy so far, because what I see is a lot of people betting on speculative gains but very few are actually investing in a business model. If I absolutely had to invest into crypto, I would invest in the trading platforms like coinbase, because they at least have some kind of business model.

Alarich II -- according to Finbold, 70% of BTC addresses worth $1 million USD or more were wiped out in the first half of this year. And across all crytpocurrencies, over $1 trillion USD in value has been lost. I looked at COIN, the stock price is approaching $68 USD, down from a nearly $354 USD high within the last year. On one hand, holding BTC or COIN is one hell of a risk to take for the masses. On the other hand, there's potential for a lot of gains to be made by the few.

[Jeor]

Big drop and market selloff today, seems like a good time to resurrect the thread!

The question is whether equities will retest (and potentially crash through) the June lows. Seems everyone was expecting good news on inflation and got disappointed. Personally I think it'll be somewhere in the middle...at least for Australian equities, a tough next few months but not a gigantic crash. US markets probably a bit more susceptible to that, but we'll have to see.