How About that Stock Market!?

The first article in that series has a photo of Mr. T. He already wins in my book. Look forward to reading those.

I’d love to become more like Person #4. But being a landlord scares the crap out of me. I readily admit that I need help getting my hands a little dirtier and learning how to fix things. Maybe I’ll purposefully break something this weekend and put my skills to the test. Worse comes to worst, the DIY Forum can probably bail me out.

MMM,

I fully apologize for the repeat comment here and I most certainly respect the time the Stache spends on this blog away from family and friends

I’m Reading through your blog and applying many of its lessons. I’m looking to make a sizable deposit into a Vanguard account. Are you still holding VFIAX for long term returns even though the S&P has returned to 2007 levels? I understand your philosophy on holding VFIAX long term, but my intuition and research tell me to hold off and get in once another collapse occurs. I want to avoid trying to play the market. Wouldn’t it be wise to wait in order to buy cheap rather than investing now? Or, as represented by #4, do you see real estate as the must-stache of the most recent decade?

Any business, whether it is your own real estate or the businesses backing those pieces of paper called stock certificates has to be analyzed to see if it can continue to produce the income you think you are buying. For stock index investors, you have to look at the valuation of the index as a whole. If it looks a bit richly valued, it might be time to consider different asset classes.

When newly printed money is driving all asset markets higher, it’s time to be very, very careful about what you are buying across the board. Buy the assets that are likely to survive and continue to produce income when the music stops and everyone is looking for a chair.

I don’t sell stocks or mutual funds much nor do I sell the rental houses unless the rental market changes for an area. I survived the real estate bubble burst and the 2008 stock market crash because the rent and dividend checks continued to arrive for the most part. When money appears, I just buy the best assets available for the amount of money I have available to invest. I’m not always right, bit I’m still here and doing just fine.

I sold some stocks and rebalancing to bonds this week. My bond allocation was a bit low and it’s the right time to increase it when the stock market is at an all time high. Rentals are great, but stock had been on a tear lately.
I’m glad I invested in both of these. Bonds on the other hand is pretty sucky lately…

There’s several other “safe” things you can invest in to make more money. One is yourself, and that’s what I’m currently doing. Furthering my education will give me the ability to gain a higher wage, and there are also “safe” industries, such as utilities and building. Simply because they will always be in demand, over the long term they will always give you back some income. You could debate whether we should add banking to that as well, considering the bailouts they get when they don’t do too well, and it’s never very long before they return to profit again.

I guess you can call me case #5, I’ve been “all in” for a while now. New high’s like this will find me taking some money off the table and propping winners up with trailing stops. I’m not trying to time the market. But I will try to take advantage of any corrections with money that I have taken off the table. There are a few positions I would like to get into, but I just can’t see buying into one when a stocks price is at a high. If it turns out that a stock continues to rise and I missed getting into it, that’s ok. There will be others!

It is very interesting reading the varied comments by the readers. They point out that investing is part knowledge and part psychology. Warren Buffet is quoted often but he is a man of many contradictions because he doesnt always do what he says or writes about. There is nothing wrong about it because investing is about putting your capital to work for the best possible return with least amount of risk. Mr Buffett is one of the best at putting a valuation on an asset and knowing whether it is mispriced. It’s sort of like picking up a brand new car for 50 per cent off the Truecar median price. That is what he does best than many other investors. That is his niche and he has been practicing it since he was MMM junior’s age. Mr MMM is very much like Buffett. Warren has achieved financial independence many many years ago and he basically does what he considers fun. He calls it Dancing to Work every day. Warren as well is anti-consumer and hates to spend or waste money.
JLCollins series of articles is an excellent starting and ending point for people who have no interest in investing for future growth. Warren Buffett has always said if you dont know what you are doing(dumb money) then index investing is the smart way to invest. Many people dont want to dedicate their lives looking for investments nor the time or willingness to commit to massive amount of reading. This is what Warren does most of his day. He was reading IBM’s annual report for 40 years before he decided to invest in it a few years ago because he felt the valuation was right and longterm future was promising. Who really wants to do that?????? For Warren that is equivalent to Mr MMM doing construction projects for fun!!!!! To each is own in my humble opinion.
A great place for many readers who want to educate them selves on Dividend Investing is Seeking Alpha. The section on Dividends has thousands of writers on the subject. Many of them were just like your readers saving their money and investing at a young age. Living within their means. Some of the meaningful contributors are Dave Crosceti, Chuck Carnevale, Chowder, Regarded Solutions, Divient 4 Life and many others. Many of the writers are old timers investing in boring dividend growth stocks all through their lives. Although many young writers are contributing as well which will relate to the readers of this blog.

Many people can’t stand to watch their balances go down. When the market goes down severely is is like a 50 per cent off sale at the Mercedes Benz dealership!!!!! Instead of buying as much stock that they have money for they panic and sell. It is counter intuitive to do otherwise and that is the hardest part!!!! The psychology of the market is half of your success.

For me personally I invest JL Collins index style plus Dividend Growth style.
The most important thing to do is to save as much as you can and live below your means. Then every day you can dance to work(on whatever level that is meaningful to you) after you attain Financial Independence!!!!

That chart reflects a series of bubbles…first the dot com bubble, then the housing+consumer debt bubble, now the government debt/spending bubble.

I was number 1. Then I decided “this is stupid” so I became number 3. Now that the house is paid off, money is starting to pile up and I don’t know where to put it since every asset class seems overvalued. Real estate prices are low. There is a four family building for sale right now for $20,000 less than when I made an offer on it 7 years ago and interest rates are much lower too. But it seems to me that real estate will see another crash when interest rates inevitably come back to more normal levels. Still I am thinking about paying cash for a rental, then if/when the stock market tanks again I can borrow money against real estate to roll into stocks.

Has anybody tried investing in timber?

Bad news! My crystal ball broke yesterday…

Good news! My 401k switched to VIIIX from VFINX. My fees went down to 0.02%.

Anyone care to lend me their crystal ball?

Joking aside…manage risk, don’t chase returns!

Stock market investing is long haul investing. If you’re not in it for the long haul, you are doing something called, “speculating” or “trading.” From a personal finance perspective, I have a hard time justifying this because trading is a full-time job. Just read, “A Random Walk Down Wall Street.”

Similarly, I’m not heavy into the stock market because I don’t like not having much control. If I don’t know everything about what I’m spending my money on (I’d argue that most passive investors are almost exclusively guessing), then I call it speculating. I don’t speculate with my life’s earnings. I invest.

Just consider that GE’s financial statements are about 23,000 pages and prepared by TEAMS of the best accountants in the world. The best financial minds assisted by algorithms developed by laid off Lockheed Martin astrophysicists fuck it up all the time. If you don’t know what a 10Q is, then I’d say you have no business even reading the subject blog post. Instead, you should take a class if you’re interested.

The point about investing in 2009 at the bottom and realizing a huge gain now is sort of irrelevant to me. That’s like saying we should have dropped a nuclear bomb on Japan on December 6th, 1941. If we reach back to October of 2009, all I remember is a lot of doom and gloom and virtually nobody knew anything about where the market was going — especially no passive investor. If you did this and kicked ass – that’s called good guessing or luck.

Don’t let today’s success indicate a sure thing in the future just like don’t assume today’s doom is doom tomorrow. This is the lull of tossing a coin 10 times and each time getting heads. Don’t assume anything — it’s still 50/50. The only helpful insight is that you just may be exceptional at gauging how hard everybody else is going to freak out. I’m terrible at this, so I stay away.

I stick with tangibles. Rental income makes sense to me. I can see the roof, turn the water on, change the locks. I have much more control and understand the local market much more. Like MMM, I can screen tenants, paint the fence, upgrade counter tops…

One last thing… I don’t care at all about Warren Buffet, and I’m sort of sick of the financial hero worship and focus. These people are playing a COMPLETELY different game than anybody reading this blog. I say let’s play OUR game. If you get to the billion dollar level by reading MMM, I would give him a substantial bonus.

In my mind, long haul index is the only acceptable level if you’re passive.

Great advice Mr. MMM.

Now, I would be interested in reading a post about how you buy a house in cash, and how much you save in closing costs.

I haven’t read much info on it.

That is a very interesting graph, but as they say “past performance does not guarantee future results”. Just because the market has crashed at this point before doesn’t mean it will now. I will continue to buy through all of the highs and lows, the overall return should remain beneficial.

you forget person #5. This one is my favorite to mock and I see them everywhere… That is the “buy high/sell low” crowd. “OHMYGODTHEMARKETISTERRIBLEIWILLNEVERINVESTINITAGAIN!!!!!” followed a few years by “Hey… that guy down the hall is making a killing, I’m going to buy in!”

I’ve been an investor for over 20 years–saving 30% of my income for that purpose. Mostly, the mix was 60% equities, and 40% bonds. My financial advisor said I was too conservative but I was o.k. with that. Fast forward to 2008, I lost almost a half million dollars in two weeks. After the crash everyone then told me I was too aggressive and that’s why I lost so much money–but I had the same 60/40 mix as always. So, the point is I can’t be both too aggressive and too conservative at the same time.

Despite being 3 months old to date, is anyone still following this topic? Whether you have or not, you may have noticed REIT’s, utilities, and preferred share ETF’s are on sale now! I’ve been taking advantge of these sale prices to increase my exposure to stocks and ETF’s that invest in these assets. As described in my posting of March 9, the governor sensed the speed drop and pulled the throttle wide open.

If anyone out there is following this discussion and the stock markets, you’ll see the TSX300, Dow Jones, S&P500, NASDAQ, and other markets have performed well over the last year. Even those REITs, preferred shares, and utility stocks have climbed. What to do? I’ve sold off a few stocks that have gone way up, and sold 2 covered all options also. No need to panic but it’s a good now time to sell off some holdings, at least enough to pay off margin debt if you have any. Referring to my post of March 9, 2013 at 4:03 PM and my more recent one of June 5, the speed has recovered so the governor has closed the throttle slightly. Wow, it all seems so ridiculously simple.

I am a long time reader and fan of MMM. I am debt free – partly supported by a lot of good advice from this website. I have been an equity analyst with an investment bank for several years, but I am now “retired” to a job with better work-life balance (to have more time with my kids).

I support the general advice of investing in index funds. But in my experience, the real big issue here is the investor’s behaviour when the crisis/crash hit (as described very well by Jim Collins). Everyone will be told by some “expert” that “this time is different – normally you should invest in a crisis, yes, but THIS crisis is different”. Back in 2008-2009 I would estimate that more than 80% of my colleagues (“smart” and trained equity analysts!) either stopped their investing completely or did not invest for a whole year, even though everyone easily should have been able to calculate the crazy upside potential. I myself invested in 2008-09, but clearly not enough.

I do not think it is sufficient to have plan for investing in crisis. I think we all need practice for investing in crisis. “Be greedy when others are fearful, and be fearful when others are greedy” and “you can not buy what is expensive and do well” are two of several Buffett quotes that have led me to invest in index funds for different regions rather than consistently in one region. So when the US Gov debt was downgraded in august (?) 2011 I invested heavily in the world-wide index fund (US dominated), and late last year when “everyone” were worried about a property bubble in China, I invested heavily in the emerging markets index fund. I felt some fear when doing both those investments, but I felt less fearful about the latter investment – hopefully even less the next time. I am a trained analyst and had simply investigated the Price/book ratios (“price is what you pay, (book) value is what you get”) and both were attractive in an historical perspective.

As you understand, I am not agreeing to Jim Collins conclusions on not investing aboad for Americans. I believe that shareholders are in genereal more powerful relative to CEOs outside US. For instance, I have never understood the crazy high CEO compensations US companies operate with. Do the shareholders support that? (not me). Also, I would argue that accounting standards are at least as good in Europe. And you should remember that there only big companies in foreign index funds as well (Samsung, Volkswagen, BMW..)

My advice is simply, practice facing your index fund buying fears (abroad) – so you are prepared when the big opportunites arises.