The Investment Thread

[nate82]

I was looking at the stock analyzer Old School Value yesterday. Not cheap at somewhere around $30/mo, but I think when I start being able to put real money away per month, that would really help me to figure out stuff like the Graham Number without near as much work. My usual route is to start with DataRoma, find some interesting recent buys, and then analyze those myself. The downside to it is I lose some time in waiting to see what the Superinvestors have done instead of noticing something right away on my own, but the upside is I'm letting smarter people than me make the initial decision, and I think that's still an overall plus.

 

That is a waste of time and a waste of money IMHO. If you are just trading a couple hundred dollars here and there and you are not investing tens or hundreds of thousand of dollars you are wasting your time on all of the advanced valuation models.

 

It really is as simple as taking a chart and then putting in a linear equation on that chart. If the value of the stock is below the linear line then buy if it is above the line then sell. It really is as simple as downloading the data from yahoo finance and then putting that information into Excel and making a graph with a linear line.

 

Take Amazon for instance:

 

 

This is a 3-month trend of Aamzon you would buy when you are below the trend line and sell when above it. For example in this graph you would have bought in mid December and you would see a small profit now. It is far more advantageous to use what you already own to invest than it is to pay for someone to invest for you. If you want someone to invest for you I suggest investing in ETF funds as you are going to get more value (your time and money) from them than you will if you use a tool that you are probably only going to use once or twice a month on average.

 

Just my opinion on this.

[owbc]

AirBNB has been great from a vacation perspective...I've had a blast staying in people's vacation homes all over the place. I can't imagine why I would ever want to own a vacation/investment property when you can pay to stay in a different on every time, and they are often way nicer than anything I would ever be able to afford. But if you do own one, you can rent it out when you aren't there and it can potentially pay for itself or return a profit. I know someone making her entire salary via AirBNB.

[adambr2]

Your theory says you want to (combined?) save up $1mil for an early retirement at 45? That’s going to be one sad retirement.

 

No, it really not. As I mentioned your mortgage would be paid off which for most is a substantial monthly bill. You would also be able to supplement that money with social security once you reached your 60s.

 

It really depends on a number of factors -- your cost of living for one. Where I live in Central Wisconsin -- 40k a year will go a long way. Obviously as someone pointed out that 40k was just an example because it worked well as a round number.

 

Most importantly, it depends on your priorities and what they are. If you need to have that vacation home, if you need to wine and dine, yes that will be a sad retirement. If you can find a way to live within lesser means and value your time more, it can be a very happy retirement.

 

Others brought up the idea of having one spouse retire while the other continues working for health insurance, a great idea. Ideally you could simply have one spouse work part-time, but part-time jobs with decent insurance are hard to find. Obviously insurance is the million dollar question, and not an easy one. I don't know much about the government marketplace for insurance, never had to use it.

 

My dad retired in his 50s from a modest job. He owns his home and makes enough in retirement to live comfortably. For extra side cash, he earns $300 per month from donating plasma twice a week, which takes about an hour each time. He actually enjoys the hour to just sit there and read or watch Netflix. This plan isn't for everyone, but it works fine for him.

 

Retirement, or timing retirement, is nothing more than a choice between time and money. Every year you have less time and more money. I won't make 45, but I won't work a day into my 60s -- I've never heard of anyone on their death bed saying they wished they had less time and made more money.

[GAME05]

Can someone correct me if I'm wrong, but isn't there an exception to the early withdrawal penalty of a Roth IRA in order to purchase a house?

 

I've finished paying my total debt, but don't yet have enough to start investing with. So I'm devouring investment books and also trying to figure out just where to put my savings. Challenging part is I'll retire somewhere between 55-60, so not old enough to start pulling from an IRA, but I'm currently in work housing, so I'll need to rent/buy a place to live.

 

Also thanks for the advice Nate82. I think as I learn more I'll become more confident in how to do things myself along with how to do it that I suppose I wouldn't really need an analytics tool to do what I should be able to do myself. Plus if I don't know how to do it myself I shouldn't be using a tool to self-invest in the first place and at that point an Index fund would be the better option. Buffett has said "You should invest as if you can only do 20 trades in your entire lifetime," so I don't plan on being crazy-active buying and selling in the first place.

 

And just to have it posted, here's a link to Buffett's annual letters to his shareholders, which are all a must-read and included the one written last week: http://www.berkshirehathaway.com/letters/letters.html

[nate82]

Can someone correct me if I'm wrong, but isn't there an exception to the early withdrawal penalty of a Roth IRA in order to purchase a house?

 

I've finished paying my total debt, but don't yet have enough to start investing with. So I'm devouring investment books and also trying to figure out just where to put my savings. Challenging part is I'll retire somewhere between 55-60, so not old enough to start pulling from an IRA, but I'm currently in work housing, so I'll need to rent/buy a place to live.

 

Also thanks for the advice Nate82. I think as I learn more I'll become more confident in how to do things myself along with how to do it that I suppose I wouldn't really need an analytics tool to do what I should be able to do myself. Plus if I don't know how to do it myself I shouldn't be using a tool to self-invest in the first place and at that point an Index fund would be the better option. Buffett has said "You should invest as if you can only do 20 trades in your entire lifetime," so I don't plan on being crazy-active buying and selling in the first place.

 

And just to have it posted, here's a link to Buffett's annual letters to his shareholders, which are all a must-read and included the one written last week: http://www.berkshirehathaway.com/letters/letters.html

 

Depends on the plan for early withdrawal for a home. If it is a company plan or a union plan you should be fine. Now how much you can withdraw is dependent on the plan rules. If you get fired or leave you will have to repay the loan within 90 days or however long your plan gives you. If you don't repay it will count as an early withdrawal and you will have to pay the tax on that.

[Jimbo]

Can someone correct me if I'm wrong, but isn't there an exception to the early withdrawal penalty of a Roth IRA in order to purchase a house?

 

The principle can be withdrawn anytime. Up to $10K in earnings can be withdrawn to purchase a principle residence.

[GAME05]

Well, I'm about finished with the book Rule #1 by Phil Town. The first 30 pages of the book is a lot of "Only 15 minutes per week! Make money guaranteed!" and the usual bad salesman nonsense. Common sense says none of that is true, as with the example he gives of a couple buying a stock conveniently at a low point, selling at all the peaks, and repeating. But to his main points, I like the approach to evaluating a stock for the long term, what to look for and how to value a stock based on those numbers.

 

Ideally, Town requires 10, 5, 3 and one-year numbers in EPS, Sales, Equity, Cash and ROI in order to look at the moat of a business. He notes that having less than this increases the risk and lessens probability.

 

I won't be in a position for many months yet to be buying anything, but I was spending a long time this morning just going to many different sites and at least trying to find those numbers. I could find five-year, and Fidelity had 8-year numbers on AAPL, but 10-year numbers are all locked behind paywalls. But I found a blog post which mentioned many public libraries have subscriptions to Morningstar's Premium services. And sure enough, it looks like my parent's home library does, and offers it from home computers using the card number. So check your local library and see if it does and not pay $30/month.

 

Town also has you look up Future EPS Growth Rate and Estimated Future PE (along with current EPS, which is easy to find). I haven't attempted to look for those yet.

 

Once I finish Rule#1, I think I'll pick up The Manual of Ideas by John Mihaljevic and Active Value Investing by Vitaliy N. Katsenelson

[LouisEly]

AirBNB has been great from a vacation perspective...I've had a blast staying in people's vacation homes all over the place. I can't imagine why I would ever want to own a vacation/investment property when you can pay to stay in a different on every time, and they are often way nicer than anything I would ever be able to afford. But if you do own one, you can rent it out when you aren't there and it can potentially pay for itself or return a profit. I know someone making her entire salary via AirBNB.

Yep. If you have vacation property and the mortgage/taxes/insurance are $3000/month, all you need to do is rent it 100 days a year at $400/night and you break even (assuming also charging cleaning fees which pay the cost of cleaning, and $4000/year in maintenance and supplies such as toilet paper/paper towels, towels, etc.) from a cash flow perspective and build equity. Plus you can take one trip per quarter and write it off as a business expense of "checking up on your property/doing maintenance", so your actual vacations are tax deductible.

[ilikewisco]

My gf has inherited a substantial amount, over one half million, and is planning to use Vanguard to invest. She had met with a FA her family uses, and that she has a Roth with, but the fees associated just seem like a waste. We've been looking into stuff together and are leaning toward a diversified plan of some percentage of domestic and international stocks and bonds. Plan to use index funds and ETFs and minimize fees. She is planning to invest more heavily in stocks as she wants the best returns. I agree with this except for the caveat that the market is nearing the end of a cycle and the money would be more valuable once a downturn takes place. I am supporting her in her plans though, as I do not want this to be my decision in any way. And I realize I would be trying to time the market, which is a terrible strategy.

 

I think a reasonable portfolio would be 70% domestic, 20% international and 10% bonds. I would invest more heavily in international but she would like to stay in domestic, feeling the US economy is strong. Any advice on this plan is appreciated. We both feel a FA would effectively just be skimming and a Vanguard account with index funds would accomplish the same goals while reducing fees.

[nate82]

My gf has inherited a substantial amount, over one half million, and is planning to use Vanguard to invest. She had met with a FA her family uses, and that she has a Roth with, but the fees associated just seem like a waste. We've been looking into stuff together and are leaning toward a diversified plan of some percentage of domestic and international stocks and bonds. Plan to use index funds and ETFs and minimize fees. She is planning to invest more heavily in stocks as she wants the best returns. I agree with this except for the caveat that the market is nearing the end of a cycle and the money would be more valuable once a downturn takes place. I am supporting her in her plans though, as I do not want this to be my decision in any way. And I realize I would be trying to time the market, which is a terrible strategy.

 

I think a reasonable portfolio would be 70% domestic, 20% international and 10% bonds. I would invest more heavily in international but she would like to stay in domestic, feeling the US economy is strong. Any advice on this plan is appreciated. We both feel a FA would effectively just be skimming and a Vanguard account with index funds would accomplish the same goals while reducing fees.

 

You need to forget about timing the market that is mostly a short-term investment thing. If you are only going to keep the money in for 1-3 years then yes you want to time the market for certain stocks and sectors. There are stocks that perform very well in a bear market but perform very poorly in a bull market.

 

If you are investing long-term I would go with whatever makes you comfortable in investing in. If you are not comfortable in investing in foreign companies then don't do it. I would definitely use Vanguard or any other company like Vanguard for this type of an investment. Personally I don't like FA's as they normally just take advantage of people who know very little of the market and throw big words around to get a sale.

 

I would go 70% domestic, 20% international, 5% precious metals and 5% bonds/cash. Bonds should only be invested in when you are closer to retirement if you are not over the age of 50 then there is no reason to have 10% of your assets being taken up by bonds. You are just wasting earning potential with the money just sitting in bonds.

[ilikewisco]

Thank you Nate for the advice, it is very helpful. I take a contrarian view on markets so feel it's always over sold. It just seems like all the gains from the recession far outpaced the real economy, and that seems like the market is running on fumes. But I guess if you think about everyone in the country investing in 401k's and the world putting money into the US markets it makes some sense. Thank you for the advice on bonds, I always thought they are a safe way to invest if you invest in highly rated bonds. I guess the return is not worth the safety though. We will be using this advice and taking the long view, as we should.

 

After I get my student loans paid off I plan to invest for the short term and learn the hard way. I'm reading Security Analysis now and plan to set up a for fun portfolio soon and keep trying to learn more about finance and markets. Once I track the fun portfolio I will be able to see some of my shortcomings hopefully. I do have a degree in economics, but it really has made me more of a cynic than believer in markets. I ended up pursuing a graduate degree in engineering and that is what I do for work now, so I don't use the econ in my job other than developing the economics of future projects.

 

Edit: Would it be a good idea to use Vanguard FA? They charge 0.3% per year. My gf thinks it might be worth doing, the fees are less than the FA she had been talking to originally. We are just a little worried we might not be sophisticated enough for this amount of money and do not want to do anything foolish.

[MrTPlush]

When it comes to short term investing “for fun” always remember it isn’t a loss until you sell it.

 

I’m not much of a fan of trying to time the market etc. The average person trying to get creative with their market investments isn’t really a wise idea.

[ilikewisco]

When it comes to short term investing “for fun” always remember it isn’t a loss until you sell it.

 

I’m not much of a fan of trying to time the market etc. The average person trying to get creative with their market investments isn’t really a wise idea.

 

"for fun" as in not actual money but a portfolio on yahoo or something, just to track how I do. Once I have disposable income I would actually invest, but use the fake account as a way to see how poor my analysis is before I actually am investing real money.

 

Good point about it's not a loss until you sell. As far as timing the market, I don't really want to try and time it, it just seems right now you would be buying in high, and if you waited and it dropped your money would be worth more because stocks would be cheaper. But I guess that is the definition of timing the market, and it could just as easily add another 20% and we never see 24,000 on the Dow again.

[ilikewisco]

OK, instead of watching the Brewers today I tried to look into the index funds offered by Vanguard. If anyone is familiar with Vanguard funds please feel free to share your opinion. Just to clarify what I'm trying to do again, my gf has received an inheritance of about a half million and wants to invest to grow it, not looking for short term investment but long term and is fine being invested for 10 or 20 years or more before she would want to touch it. I am attempting to follow nate82's advice on the allocation. The last number is the expense ratio on the fund.

 

40% 500 Index Admiral Shares (VFIAX) 0.04%

20% Vanguard Small-Cap Value Index Fund Admiral (VSIAX) 0.07%

10% Vanguard Mid-Cap Index Fund Admiral Shares (VIMAX) 0.07%

 

15% Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) 0.11%

5% Vanguard FTSE All-World ex-US Small-Cap Index Fund Investors Shares (VFSVX) 0.25%

 

5% Vanguard Intermediate-Term Bond Index Fund Admiral Shares (VBILX) 0.07%

 

5% Vanguard Precious Metals and Mining Fund (VGPMX) 0.36%

 

Any advice on the allocation and funds is appreciated. If this is not appropriate for Brewerfan let me know and I will end the discussion.

[JosephC]

No offense my friend, but if you are looking to invest 500k+ then there are two things that you should absolutely not be doing. #1 is asking a bunch of anonymous people on a message board about how to invest. #2 is making investments heavily dependent on low management fees which appears to be what you are doing here. If your girlfriend's family has an financial advisor/investment broker they trust, then I would recommend using that individual's knowledge.

 

For the record, I do not work in the financial industry.

[ilikewisco]

#1 I tend to think this forum is pretty informed on a range of topics and would take the advice of certain members only if it aligned with my own ideas on the topic. It is anonymous so I really didn't see the harm in getting some input.

 

#2 I didn't necessarily use only lowest fees as the deciding factor, though it did play a factor. I looked at how the funds were distributed and what holdings they had and these seemed like decent choices to me. But like I said, if anyone has any reasons why they're not I'd love to hear them, again, just looking for input.

 

I get your point and this can be my last post on the subject, I guess I just didn't see the harm in getting some input. Any time I read some of these off topic threads there are a lot of good insights I would not have thought about. And I will take your advice into consideration as well, as I think this may be too big of an undertaking for us and would be better served by a professional. There is not much trust with who her family is currently using so pretty sure she is looking elsewhere, and may use the Vanguard services.

 

I wouldn't just bring this subject up on any message board and expect any worthwhile discussion, but I feel this isn't your normal message board with respect to the quality of posters.

[RobDeer 45]

You didn't do anything wrong (at least to my knowledge) in posting this. I do think JosephC was just saying, that's a big chunk of money, and she probably is better off talking with someone. My advice however, is there are a lot of sharks that will want that money to invest, and may not offer great advice. So I think it's always good to meet with multiple people, or have someone you trust, take a look at what is recommended, to make sure it's legit. I think the average investor can do a decent job, just by doing proper generic allocations, looking at fund ratings and expenses. Because this will be in a taxable account (I assume), I think this is where an advisor could really help. Help manage the investments with regards to taxes. Again, this is where you have to be careful, because some insurance or investment people may try to get you to invest in something long term like an annuity or life insurance, and it may not be the best move. Always ask an advisor why they are advising an investment and what their take is. I think people on here generally try to help and look out for each other on here.

 

So what is her long term plan for this money? What if something happens and she needs it sooner than 10 years or more? Would she use part of it for a big purchase, ie. downpayment on a house? All things you have to think about. A lot of times we have great intentions, but you'd hate to have a situation where you invest it all in mutual funds, the market tanks and it's only worth half, and you are forced to take it out and lock in a big loss.

 

edit: I just went back and skimmed earlier posts that I hadn't read. You also want to make sure you are diversifying by cap size and growth vs value stocks. So within domestic and international ratio, you want to make sure you are touching on all those areas. Usually in a fund analysis, it will have a dot in a tic tac toe looking grid, on where the fund lands. Large, mid, or small cap and also a growth or value fund. Ideally you have a foot in each area. Large cap funds tend to be the safest equity investments, so most people have a much higher percentage there. You can do more research on this to see what is appropriate for your goals (risk/reward).

[ilikewisco]

The tax considerations are a good point, we have thought about it a little, as far as reinvesting any dividends and not taking any income from it. Where that will be an issue is when she finally looks to cash out. She will be in school again in about a year so may try to take dividends then for living purposes and deal with those taxes, but it would be her only income. These are things I need to look into though. I have an uncle who has his own tax business, I will talk to him about what types of investments would align with a tax strategy. She plans to use this money to invest for the long term, no plans to pull it out and should not have to for any specific reason. She's more interested in leaving the money in the market and letting it grow. Personally I'm not sure if she should be expecting the same returns as we've seen the last 30 years but everyone she talks to says get it invested ASAP.

 

I think the biggest thing is to take our time and do some in depth research on some funds and talk to more people. I have a friend's wife and my brother-in-law's uncle who are FAs and I would trust, but they are both located out of the area and she doesn't know either so would rather not use them. But I should still reach out and get some advice. Her family's FA was steering her toward a fund which took a 2% fee off the top, and I think other fees would have been applicable as well, and if she wanted to get out of that fund and into another it would be another 2%, so figured he's not really looking out for her.

[RobDeer 45]

Just because a fund is front loaded (pay to get in), does not mean it's bad advice. So don't think the person is a bad advisor. Advisors have to get paid for what they do. They get it one way or another, and they should. The problem is when they lead someone to an investment that doesn't make any sense, just for a higher commission. I was in the FA industry for a few years out of college, so I know just enough about the industry to get an idea what an advisor is going for. You could always ask that advisor if there is a possibility to buy the same funds in a managed account, where you just pay an annual fee (maybe around 1%) and not have to pay a front load fee. This is an ideal type of an account for someone who would be pretty active with your investments, because you wouldn't get charged for buying and selling. A front loaded fund makes more sense if you were to invest, and probably just let it sit for years (not be too active in trading). Remember, inside a mutual fund, the fund managers are buying and selling stocks to meet the objective of the fund, so you don't really need to buy and sell funds themselves, too often. Typically only if they underperform their peers for a couple years in a row and if their rating goes down.

[ilikewisco]

OK, he knows the family well and their investments are just held, so he probably was looking out for her knowing that is their strategy. It just seemed like 2% was excessive when you could be in a Vanguard account and the fees can be as low as .05% per year. I told her to make sure he would act as her fiduciary and put it in writing and he did not have a problem with that. He had also made a mistake which cost them money and tried to push them into something which was not beneficial to them, but they realized it wasn't to their benefit and did not allow it.

[chuckiehacks]

I'll second the tax aspect considerations. Keep in mind that if you're investing in mutual funds, the managers of those funds are buying and selling stocks within the funds, likely creating capital gains (on which you get the privilege of paying taxes). I invested on my own for years, but then also received an inheritance that was more than what I had previously invested. At that point, I turned to a professional to manage all my investments. There's value in having someone coordinate all your investments - as you likely have (or will have) several different buckets. In my case, I have the inherited account, a rollover IRA from previous jobs, and my current job 401k. My guy makes sure my overall picture is the mix of investment vehicles, risk profiles, and taxable income generation (or tax loss harvesting) fits with what I'm comfortable doing.

[FVBrewerFan]

I see no problem trying to time the market. If I get a check for half a million today, no way would I put that into the market. Maybe I would lose out, but I'm just very confident there will be a correction within the next few years.

 

I don't trust any advisors, not sure I would even it was a family member. If they were so good at the job, they would have been able to retire long ago with 10s of millions of dollars. They can't beat the S&P on a regular basis any more than you can. Are there really good ones out there, and ones that have my best interest in mind? Probably, but impossible to know.

 

As mentioned earlier, tax considerations is something you should always keep in mind. Sock away as much as you possibly can in 401k and IRAs. Even annuities are worth looing into, which the financial planning world hates. (As a contrarian, that tells me it's worth looking into.)

 

First thing you should do though, buy a few thousand tickets to every Cubs game at MP the rest of they year and hand them out only to Brewer fans.

[MrTPlush]

You aren’t timing the market by saying “there will be a correction in the next few years”. That’s the easy part...the problem is try to get in at or near the bottom.

 

What if it takes another few years and the market soars until then? Any correction probably won’t get it low enough to be where it is now. Makes you better off just getting in now, growing, taking the correction hit, and then still be ahead.

 

You could also wait it out for a correction watching the market keep rising and wait for the correction. When you think it is back on the rise you buy in...but wait, it was only halfway down. Then you lose all the market gain and still take on some of the correction.

 

If one could time the market to any realistic accuracy everyone would do it and people would be swimming in money. The fact is it isn’t. If you are looking at a 20+ year investment it’s smartest to just get the money into the market.

 

Only timing of the market I would recommend is in the event of a big market crash or recession. If you are lucky enough to be in a good financial state at a time like that it could be a wise idea to start putting lots of money into the market. Then again that just being at the right place at the right time...not really timing anything. Timing the market is really just sitting around hoping it sees a correction sooner rather than later and hoping you put (or take out) in your money at the right time.

[FVBrewerFan]

You aren’t timing the market by saying “there will be a correction in the next few years”. That’s the easy part...the problem is try to get in at or near the bottom.

 

What if it takes another few years and the market soars until then? Any correction probably won’t get it low enough to be where it is now. Makes you better off just getting in now, growing, taking the correction hit, and then still be ahead.

 

No question, it is impossible to know the top or the bottom. For that matter, how long it will take to get to the bottom, back to the top, etc.

 

But I'm personally gambling that the market will not soar even higher in the next few years. Even if it does, at some point I see it going way down again. I wouldn't wait for the bottom, since we have no idea what it is. Just buy chunks on the way down once we get to correction territory.

 

I just don't believe in dollar cost averaging for stocks. There is always some luck, some educated guessing involved, but I believe we've had a big bad bull market, and I'm not buying equities until we have a correction. Yea, that means I have to wait, maybe for a while, but that's ok.

[RobDeer 45]

I don't trust any advisors, not sure I would even it was a family member. If they were so good at the job, they would have been able to retire long ago with 10s of millions of dollars. They can't beat the S&P on a regular basis any more than you can. Are there really good ones out there, and ones that have my best interest in mind? Probably, but impossible to know.

 

A majority of FA aren't trying to beat the street every day like traders. They are offering a service. Trying to help their clients understand and invest wisely and properly plan for the future. A lot of people don't have the time or the ability to understand how to invest properly, so that's why the service is needed. I don't think too many advisors are saying they will make you rich, but that they will come up with plan to help meet your goals. I think if you can find a good and fair financial advisor, that goes above and beyond, and truly understands what they are doing, you hold on to them and pay for their service. Unfortunately the best ones typically only deal with big money. The other unfortunate part is there are a lot of FAs that aren't worth paying. Like a good accountant and mechanic, they can be great to have.