October 27, 2006 at 10:40 AM #7791
Hi everyone…after reading and enjoying these user forums for over six months, I am moved to comment on the validity of the market analysis and investment advice that various folks are disseminating.
Sound investment advice rarely comes from anyone that does not have a very strong theoretical, applied, and experience-tested knowledge of the following concepts:
(1) Portfolio Risk Management
(2) Market Volatility and its Risk Implications
(3) Limitations of Fundamental Analysis
(4) Tax strategies
Regardless of whether or not any of the individuals who post have a clear grasp of these topics (I’m sure there are some that do), since posts on a Blog commonly address a single point rather than a comprehensive strategy, relying on a Blog to make investment decisions is DANGEROUS and will not be fruitful unless you possess the skill to put it in its proper perspective. If you have an effortless understanding of (1)-(4) you have that skill…if not, please acknowledge your limitations before running off and putting your 20K nest egg where somebody else’s mouth is.
Aside from the fact that posts rarely address points *1* and *2*, the biggest potential problem with posts on this blog is a complete and total disregard for *3*, or more precisely, the Limitations of Fundamental Analysis for predicting short to medium term directions of the markets, whether it’s FOREX, socks, options, commodities, bonds, housing, whatever.
Please try to keep in mind that:
(1) Press release dissemination is not fundamental analysis, nor is healthy discussion of said press release.
(2) Fundamental analysis had proven useful for predicting long term trends, but is known to lose its value over shorter time periods. Further complicating matters is the fact that to correctly play long term trends, you have to understand points *1* and *2* from above.
(3) Getting a long-term housing play correct (which many have done on this blog simply by chance) is completely different from getting long term wealth management right.
100% of Blog posts reflect an incomplete picture of what one needs to be a successful at wealth accumulation and wealth management, and 95% of Blog posters lack the knowledge, experience, and psychology that has been historically proven to solidify success in this regard. Counting yourself among the right 5% is a journey, not a Sunday night Blog update.
I welcome anyone to argue against me on these points. *Sarcasm On* Heck, you can even show me your 6-month portfio results to prove me wrong.
Happy Halloween!October 27, 2006 at 11:39 AM #38590powaysellerParticipant
Good post, cabinboy.
Do you think anybody would take investment advice from an internet discussion group? I think the piggington group is above average intelligence and income and education, so we are using this economics and investing discussion as one more input in our existing portfolio plan. I hope it is not the sole investment input for anybody.
Any internet discussion on investing is just food for thought. For me, it has been very productive to exchange ideas. Where else would I have learned about bear funds, buying gold (which I used to think of as a worthless metal), or selling my house? Bloggers have enriched my investing experience, but the foundation was laid before I came here. People need a foundation and then the blogs are just additional food for thought. If I were younger and didn’t have my roadmap already, I would be in Rich’s office to get myself all set up for asset allocation, insurance, trust, etc. Those are the foundation. Good point, cabinboy.October 27, 2006 at 11:57 AM #38596PDParticipant
Cabinboy seems to have a very high opinion of himself and a very low opinion of everyone else. According to him, only the professionals are capable of being right (even though almost all economists were wrong about GDP) and us stupid Piggingtons who sold our houses at the peak did so purely by chance.
It sounds like Cabinboy is a Financial Advisor who is proud of the fact that he has been in the market the last couple of months. I hope that everyone on Piggingtons has made money. I sold in May and took great profits. At least half of the stocks I sold have not returned to the price where I sold them. The other half are above where I sold them. However, when you calculate the added profit I made with half my stocks, minus the additional value of the ones that have gone up, plus the interest I have earned over the last six months, I’m about break even. Go figure.
I will admit, however, that if I had bought in August with the proceeds of my sales in May, I could have made even more money. Most people who are pointing the stupid finger, however, did not sell at the high in May and rebuy at the low. Their profit for the interim is the difference between the two (very simplified since everyone’s portfolio is different).October 27, 2006 at 12:03 PM #38597WileyParticipant
I’m sure Warren Buffet would agree with your view on fundamental analysis. (sarcasm on).
Six month or less is not an investment. Its called speculation.October 27, 2006 at 12:19 PM #38602kev374Participant
There are many economists out there who speak absolute rubbish! Infact, I would say an above average number of seasoned pros have no idea what the hell they are talking about. One of the top business schools in the country, UCLA Anderson, has made absolutely contradictory predictions 6-months apart… in early March they said housing was going to crash 15% or more, now they say it’s going to be flat even though predictions based on market fundamentals are the same for both time periods. Seems like someone paid them off.
You have to also keep in mind that many economists have unethical industry bias..for instance the report that came out of Harvard University recently on the state of the Housing Market is an absolute joke and was financed by the National Association of Realtors. Harvard University economists selling themselves to cheap scam artists like the NAR is highly unethical.
It’s better to absorb knowledge from all sources and then make your own judgement.October 27, 2006 at 12:50 PM #38607AnonymousGuest
I fully agree with Wiley.
Speculation can also be long term: I’m 100% in gold mining companies, as I speculate that foreigners will panic and move to gold. I have no idea when this will happen. And it may never happen. And my ‘sell’ trigger point is a multiple of historic gold prices (which, themselves, appear to be a function of inflation and speculation!). Nothing fundamental, whatsoever, and long-term. Pure speculation.
I’m a firm believer in discounted cash flow models, and look forward to returning to the days when I can use them, again.October 27, 2006 at 12:56 PM #38611
You and I agree. My point about the sixth months was said with sarcasm…6 months is indeed speculative.
Also, I did not say fundamental analysis does not have its place. It just needs to be applied over a suitable investment horizon. Clearly, as you point out, Warren Buffet is extremely good at this, among other things.October 27, 2006 at 1:29 PM #38616
It’s unfortunate that I sounded arrogant in my last post…that was not my intent. Let me repeat, I agree with Powayseller…there is significant value to her efforts, Rich’s efforts, and all the efforts of this collective blog.
The post was strongly worded only because it was meant to be a disclaimer that no one should take isolated pieces of advice too seriously without having an overall wealth accumulation and maintenance strategy. Maybe it didn’t need to be said.
I am definitely not a financial advisor. I’m not selling advisory services. I simply stated that there is a lot out there to learn and people should find these things out for themselves, if they do not already know them. I also did not include myself in the 5% of people who know such things. I do not include myself among the 5%, in large part because I do have the experience having made AND lost money in each and every investment class. (this 5% number is pulled out of a hat, could be .01%,.1%, could be 10%…I don’t know).
Now, since I’m accused of arrogance, let me humor you…
Anyone who takes their entire California housing bubble proceeds and bounces them around between the stock market and cash or bonds in one giant, undiversified chunk is simply a speculator who has little understanding of how risk can be managed to produce higher returns than even a reasonably lucky speculator will return over time.
How about another one. Financial planners are typically not among the 5% of people that know what the heck is going on. There are obviously good ones who do. I would consider a hedge fund manager who has a 35% annual return track record over ten years by squeezing the nectar out of every type of investment instrument that our fine earth offers as someone who knows what’s going on.
(I’m not that hedge fund manager either by the way, but these people exist.)October 27, 2006 at 3:56 PM #38636(former)FormerSanDieganParticipant
This board is good for seeing others’ ideas. I doubt that any intelligent person would blindly follow any advice dispensed here. For that matter, I think it is foolish to depend solely on any single source for advice.
My Advice for asset allocation
That gives you a 5% head start on everybody else 🙂October 27, 2006 at 4:13 PM #38639barnaby33Participant
Ummm thats 105%.
JoshOctober 27, 2006 at 4:44 PM #38644DoofratParticipant
I think Kev374 summed it up:
“It’s better to absorb knowledge from all sources and then make your own judgement.”
Cabinboy, if your argument is correct, Rich should just take down the forum since everybody here either has all four skills you describe and doesn’t need anybody else’s analysis, or they don’t have these skills and will blindly follow somebody’s advice here and get in trouble and end up on the street.
“Six months of returns” Where does that fit in after talking about the limitations of fundamental analysis?!?
First you say that fundamental analysis loses it’s value over short time periods (which I agree with wholeheartedly), but then you want to compare 6 month returns?!?
I think that the forums are a valuable source of ideas, no matter who they come from. If people want to go 100% gold, that’s their business and I may not agree with them, but I certaintly want to hear their argument about why they are doing it, I might learn something.
I don’t think people here are reading posts and then opening a new window and logging into E-Trade to dump what Powayseller talked about last week and buy what jg talked about today. Give us more credit than that.October 27, 2006 at 6:10 PM #38652
Just to clarify…I was being sarcastic when I suggested comparing 6 month returns. Comparing 6 month returns clearly does not tell you anything. I beat Berkshire Hathaway over the last 6 months. Am I the next Warren Buffet? Nope. Luckily, I don’t need to be. He’ll sell me stock in Berkshire anytime I’m interested.
My argument is that Rich should keep the forum open since learning how to apply all 4 skills across a wide variety of markets takes many years of applied to master and has nothing to do with one’s level of education.
I’m not trying to take credit away from anyone. Those of you who effortlessly apply the 4 points know their importance and likely have the hard fought wins and losses to prove they’ve mastered them.
I agree with you that people are not likely opening E-trade accounts to run afer the timber sector based on what they read in Piggington (though it is likely decent advice). However, my hunch is that there are people out there heavier in cash than your average successful investor after listening to the very compelling arguments of some of the more bearish folks on Piggington.October 27, 2006 at 6:16 PM #38653
Sorry, above post responds to doofrat, not Kev374…October 27, 2006 at 11:07 PM #38668powaysellerParticipant
Those people heavy in cash in anticipation of a recession will look brilliant in a few months, just as Roubini looks brilliant today while for months he was called a doom and gloomer, an Eyeore, etc. I am done following the Wall Street dogma; blindly following the idea of dollar cost averaging is a sure way to underperform. So is buying and holding real estate.
If you are suggesting that people should stay invested in stocks and bonds for the long run and dollar cost average, then I heartily disagree with you.
Anyone who is in cash when the stock markets nosedive going into the recession will be very happy. If the dollar loses more value, those in euros and gold will be happy too.
Also, I wouldn’t guarantee the average investor successful if he’s got his money in the stock market right now. THe stock market is going down as we head into the recession. Being in cash earning 5% is the best place to be.
Anybody who is in the stock market needs to have a darn good reason for it. If you are on this forum, you understand the housing bubble,a nd that every housing decline has led to a recession. GDP is slowing, and the recession is imminent.
Now the question is the same as I asked people in 1999: how will you know when to get out of the market? If you can ride it to the top and then get out before it drops, you will have done better than I. (“I” is correct grammar here)October 27, 2006 at 11:34 PM #38669sdduuuudeParticipant
Great post, cabinboy.
I think it was sensible, well-written advice based on 4 important but not well understood principals, and not one bit arrogant.
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