Investing General Discussion

Blazin · Jul 19, 2019

Sanrith Descartes said:
I dont know what your cost basis is on NFLX, but I truly believe if you are profitable you should be cashing out. With Time Warner, Disney and Apple on the way, NFLX is about to understand what competition is. And I mean deep pocket competition.

My honest opinion is this bull is dead and has been since Dec. When Mnuchin called the Plunge Protection Team and resurrected it, it has basically been nothing more than Trump and friends abusing the algos with tweets. Most of the Treasury yields are inverted and the SP500 P/E is way too high from a historical perspective. Trump and the Fed are kicking this bitch on until Nov 2020. The price we will pay wont be a soft landing. It's going to be ass ravaging when it finally corrects. Robert Shiller's Cape has the SP at the 3rd highest level in history.

I have taken most of my profits off the table to cash. What I am still holding are value positions with strong cashflow and dividends (ex. ATT). My only loser I am still holding is an all world ex-US etf that I got greedy on and held it longer than I should have. As they say, greed is the debil.

What's your plan for if you're wrong, when do you get back into the market? S&P 3200? There are many counters to the negative things you're seeing. Must be very patient and let the price action tell you the story. The mostly likely thing to happen after new highs is more highs. We just had a 20% correction 7 months ago. Not disagreeing that there are plenty of concerns but there are always plenty of concerns in a bull market.

Captain Suave · Jul 19, 2019

Blazin said:
The mostly likely thing to happen after new highs is more highs.

Looking at previous periods for an expectation of future performance is silly if you do so with blinders on with respect to drivers. We have an economic/financial system that generates cyclical highs and lows as a matter of structure due to the interactions of labor/consumer population growth, personal, corporate, and government debt/income/investment, fiscal policy, and the reactions of the market to all of those (and of course the same for our trading partners and alternative investment markets). The long business cycle isn't an accident or the result of random shocks - it's the product of competing feedback loops that consistently (if not exactly predictably) lead to valuation overshoot. We're at or near the peak of this cycle, and it sure looks like we would have seen a correction already if the Fed hadn't been propping up the market with free money. (Note the Fed keeps making these flirty statements about lowering rates in an economy where we've already got historically low unemployment and no inflation.) That doesn't work forever, and it makes the crash worse because then they're out of levers to pull when it goes bad.

Blazin · Jul 20, 2019

I’m a professional trader and have been doing this for twenty years, have a degree in economics and I live and breath the markets. I can tell you’re more aware but it’s hard to have these discussions without three thousand word posts so I normally don’t .

I have no doubt you and I could have a five hour conversation on your post just as a warmup. I have learned a lot over the decades and knowing how to handle the data you are discussing is pivotal to successfully managing money over long periods. My point of contention wouldn’t be the observations but what is done with that information .

So this is my none reply so you know I’m not ignoring your response just that it’s not likely to be productive to go into further given the venue.

Sanrith Descartes · Jul 20, 2019

Blazin said:
What's your plan for if you're wrong, when do you get back into the market? S&P 3200? There are many counters to the negative things you're seeing. Must be very patient and let the price action tell you the story. The mostly likely thing to happen after new highs is more highs. We just had a 20% correction 7 months ago. Not disagreeing that there are plenty of concerns but there are always plenty of concerns in a bull market.

As you say in a later post, this forum isnt the place for what needs to be long worded replies. That being said... I look for a re-entry point at valuations I feel are acceptable. FOMO is a horrible affliction. I am totally ok with missing out if we see 3100 or even 3200. Trump/Powell/Mnuchin shenanigans not withstanding, the fundamentals tell me a correction is coming. I cant time it, so I am ok waiting with a cash position and taking what I get from my value/dividend holdings.

In the meantime, while I am a long term investor in general, i do look for short term shocks that cause temporary inefficiencies in the market either in specific sectors or individual stocks that I can exploit for a short term gain. Example I went long on ABBV when it got over sold on the Allergan news. Closed my position on the bounce and cleared about 10% in about a week.

Sanrith Descartes · Jul 20, 2019

Blazin said:
I’m a professional trader and have been doing this for twenty years, have a degree in economics and I live and breath the markets. I can tell you’re more aware but it’s hard to have these discussions without three thousand word posts so I normally don’t .

I have no doubt you and I could have a five hour conversation on your post just as a warmup. I have learned a lot over the decades and knowing how to handle the data you are discussing is pivotal to successfully managing money over long periods. My point of contention wouldn’t be the observations but what is done with that information .

So this is my none reply so you know I’m not ignoring your response just that it’s not likely to be productive to go into further given the venue.

Just curious, you based in or around the City?

Blazin · Jul 20, 2019

Sanrith Descartes said:
Just curious, you based in or around the City?

Not anymore, my life took quite the trajectory change, my wife hated NY and I gave in and left. I'm a born and raised NY'er. I have amassed enough money that I now manage my own portfolio, some people say I'm retired, but that is just silly to me, as I spend an exorbitant amount of time on trading and studying market. I don't like talking numbers much on the forum as we already have enough bullshitters that I'd rather avoid being lumped in with them, but my portfolio is multiple seven figures and I earn my living solely from my investments. Given my age I will hit eight figures in the not too distant future (though its not really a goal) but I am not an aggressive risk taker, but rather calculating and conservative.

I too am concerned about the current environment and am making most income at the moment from selling puts than just "sitting in cash" The more money you have the more you learn that even cash is a trade and has risks and proactive money management involves ways of trading around that. There is one thing (and often only one thing) that Jim Cramer is right on and that is "there is always a bull market somewhere" but you have to be pretty actively engaged to be involved.

On this forum I try to stick to what is most helpful to the community which is low cost index fund investing (the Vanguard approach) as I know it's what is most likely to be beneficial to people in the long run who don't do this for a living but are trying to raise their families and work their careers and hopefully retire someday.

Sanrith Descartes · Jul 20, 2019

Blazin said:
Not anymore, my life took quite the trajectory change, my wife hated NY and I gave in and left. I'm a born and raised NY'er. I have amassed enough money that I now manage my own portfolio, some people say I'm retired, but that is just silly to me, as I spend an exorbitant amount of time on trading and studying market. I don't like talking numbers much on the forum as we already have enough bullshitters that I'd rather avoid being lumped in with them, but my portfolio is multiple seven figures and I earn my living solely from my investments. Given my age I will hit eight figures in the not too distant future (though its not really a goal) but I am not an aggressive risk taker, but rather calculating and conservative.

I too am concerned about the current environment and am making most income at the moment from selling puts than just "sitting in cash" The more money you have the more you learn that even cash is a trade and has risks and proactive money management involves ways of trading around that. There is one thing (and often only one thing) that Jim Cramer is right on and that is "there is always a bull market somewhere" but you have to be pretty actively engaged to be involved.

On this forum I try to stick to what is most helpful to the community which is low cost index fund investing (the Vanguard approach) as I know it's what is most likely to be beneficial to people in the long run who don't do this for a living but are trying to raise their families and work their careers and hopefully retire someday.

I am a huge fan of low cost long term investing for pretty much anyone who doesnt have a finance/econ background AND the time to dedicate to the market. Once I explain the impact of management fees/taxes/turn over on overall returns compounded over decades I convince most folks that sp500/total market ETFs with a 3 or 4 basis point fee is the better long term answer for them.

fris · Jul 20, 2019

Blazin said:
On this forum I try to stick to what is most helpful to the community which is low cost index fund investing (the Vanguard approach) as I know it's what is most likely to be beneficial to people in the long run who don't do this for a living but are trying to raise their families and work their careers and hopefully retire someday.

so much this. i talk to so many people who share stories of their wins, how they just knew staying in things like facebook early woudl pay off, etc. it's exhausting knowing for every wining story they have 3 more losing stories they never share. any time i've played w/ any single stock, it's failed me. my grandmother inspired me. when my grandfather passed, she took over his investment portfolio and did amazing for someone who'd you consider a life long house wife. she took her initial investment out of google after it doubled. she made a ton on KBR. anything i buy stays flat lol. my gains have been purely due to indexes and i'm OK w/ that. i keep a small % in a few aristocrat stocks and few reits and use the dividends to play w/.

Blazin · Jul 20, 2019

fris said:
so much this. i talk to so many people who share stories of their wins, how they just knew staying in things like facebook early woudl pay off, etc. it's exhausting knowing for every wining story they have 3 more losing stories they never share. any time i've played w/ any single stock, it's failed me. my grandmother inspired me. when my grandfather passed, she took over his investment portfolio and did amazing for someone who'd you consider a life long house wife. she took her initial investment out of google after it doubled. she made a ton on KBR. anything i buy stays flat lol. my gains have been purely due to indexes and i'm OK w/ that. i keep a small % in a few aristocrat stocks and few reits and use the dividends to play w/.

Even in trading it has proven out for me. 95% of my successful trades are large market based ETF's and almost every big loss has come from individual equities. Part of that I think is that I understand the macro better, but certainly individual names can really be a gamble and can make trade breaking moves off unpredictable headlines. As an option seller I am sometimes sucked into the delicious high implied volatility of individual names and the corresponding premiums that go with it, but they pay those premiums for a reason. The risk of loss is significant.

Captain Suave · Jul 20, 2019

Blazin said:
I’m a professional trader and have been doing this for twenty years, have a degree in economics and I live and breath the markets. I can tell you’re more aware but it’s hard to have these discussions without three thousand word posts so I normally don’t...

So this is my none reply so you know I’m not ignoring your response just that it’s not likely to be productive to go into further given the venue.

That's fair. I have an econ degree, did a lot of finance work for my MBA, and have since run a boutique consulting firm specializing in long-term business forecasting, capital planning, and cyclical risk analysis (though admittedly not financial market analysis). It sounds like it would be a fun conversation, but I agree this isn't a great venue.

Blazin said:
My point of contention wouldn’t be the observations but what is done with that information .

That's always the hard part. Doubly so if you're trying to put both a date and a number on your expectations.

Sanrith Descartes said:
I am a huge fan of low cost long term investing for pretty much anyone who doesnt have a finance/econ background AND the time to dedicate to the market.

This is me. I could, but I can't/don't put in the time so I just ride with Vanguard. It's done very well for me.

Sanrith Descartes said:
FOMO is a horrible affliction. I am totally ok with missing out if we see 3100 or even 3200.

That's my dad's answer to the question. He's totally OK with locking in his gains for this cycle at present levels. (Obviously there's risk if he's misjudged badly enough that the market goes up another 20% and then the correction is historically small.)

Sanrith Descartes · Jul 20, 2019

Captain Suave said:
That's my dad's answer to the question. He's totally OK with locking in his gains for this cycle at present levels. (Obviously there's risk if he's misjudged badly enough that the market goes up another 20% and then the correction is historically small.)

Early in my investing career I was a homerun hitter. Always looking for the stock that was going to go ballistic. I feel a very large percentage of retail investors are also.

I learned through experience and losses this was a really bad strategy. Reading books by guys like Bogle and Kahneman also helped me out a lot.

Also being an Econ guy (seems a popular degree in this thread) and also having a Poli Sci degree I combined the two to focus on macro variables combined with geo politics. This lead me to semi- focus on the energy sector. I put my ego aside and forgot about hitting homers. I am now quite happy to hit singles and doubles. I will take them all day long. Because of the innate short term volatility of the energy sector this strategy works well for me. If I can lock in an 8-10% gain in a (relatively) short time period I take it, bank it and wait for the next shock.

My core positions are US total market ETFs (3 basis point fee) and an all world ex-us ETF (8 basis points). I am content with owning the total market. I have a separate cash account I speculate/play with.

Blazin · Jul 20, 2019

Reminder to those locking it in here, bonds are currently far more overbought than stocks

Gravel · Jul 21, 2019

The big thing about market timing is you have to be right twice. You have to call the top and the bottom.

I've also heard that "this is finally the top" every single year since about 2011. So good luck.

Captain Suave · Jul 21, 2019

Gravel said:
The big thing about market timing is you have to be right twice. You have to call the top and the bottom.

For maximizing possible returns, yes. In order for it to be a good call you "just" have to come out such that the amount of the peak you miss is less than the amount of the net fall/rebound you miss. Not trivial, but more slack there.

(Yes, this is only known in retrospect, there's risk, and (+fall - rebound - missed peak) can be negative.)

Locnar · Jul 21, 2019

The experts here say low fee index like vanguard. What mix of index though? All domestic? some foreign? total market or stick to big industrial?

Sanrith Descartes · Jul 21, 2019

Locnar said:
The experts here say low fee index like vanguard. What mix of index though? All domestic? some foreign? total market or stick to big industrial?

Disclaimer I am no "expert".

Low fee index funds come in all flavors and from all fund companies (BlackRock, State Street, Fidelity, Schwab etc). Additionally some investment houses have deals with the fund creators allowing commission free trades of those funds.

That out of the way, asset allocation of what ETF's to buy is an individual question. At its simplest (the Boglehead 3 fund strategy) uses an SP500/US all market ETF (example SPY), a global ex-US ETF (example IXUS), and a Bond ETF (ex AGG). The ratio, however, isnt written in stone. Depending on age, current market conditions, view of the future one could run 65% US, 25%, Global and 10% bond. This is just an example.

As to SP500 vs Total market, historical returns show them neck and neck. Small caps have more volatility (in my opinion) and the Total Market funds break with the SP500 when the Smalls jump on the roller coaster.

Just my non-professional opinions.

Captain Suave · Jul 21, 2019

Locnar said:
low fee index like vanguard. What mix of index though? All domestic? some foreign? total market or stick to big industrial?

Not an expert, but I do a standard mixture of 90% market funds with 10% bond, since I'm 40 and don't expect to touch the money for 25 years. Within that, I take a 60/40 spit of domestic/foreign. Domestic market fund is whatever the lowest-cost S&P-tracking I'm eligible for on that account. (Vanguard has per-account asset thresholds on which tiers you qualify for, with lower cost ratios for higher tiers, down to expense ratios of ~0.04%, which is great.)

sleevedraw · Jul 22, 2019

Locnar said:
The experts here say low fee index like vanguard. What mix of index though? All domestic? some foreign? total market or stick to big industrial?

Domestic v. International:
Conventional wisdom is all over the place. Some Bogleheads say 33 domestic total stock / 33 international total stock / 33 investment-grade bonds if you just want to do a lazy portfolio, although that will yield pretty meh results, IMO. I've heard others say about 20% of your total portfolio should be international.

I intentionally underweight the amount I have in international because my dad has been investing for a long time and has never had a good return rate with it. To paraphrase him, international is like the Chicago Cubs; it'll always do well...next year. Intuitively, I also think a lot of countries developing nationalist mentalities means international trade will be stunted. I think the domestic market is going to do better in the short and intermediate-term (at the very least).

Large Cap v. Small(er) Cap:
It makes sense to invest in both large cap and extended market (mid/small caps). You can either invest in an extended market index fund which will hit both mid/small, or you can get a discrete mid-cap and a discrete small-cap fund. Generally speaking, mid cap and small cap beat large cap over an extremely long (40-50 year) term, but they tend to be more volatile (thus, higher risk/higher reward.)

My current personal allocation is:
~30% large cap (S&P 500 index)
~30% extended market
~10% real estate
~10% international
~10% bonds (right now, I'm in short-terms because I'm waiting to see what the Fed does with interest; generally speaking you'd want these to be intermediate-term investment-grade)
~10% "fudge" (usually an actively-managed sector fund in health care or tech because those are the sectors that I know, and IMO you only want to actively invest in sectors you do know)
Rebalance annually.

Regarding the above, I'm relatively young and have a pretty high risk tolerance.
Reallocate 5% of your equity/real estate over to bonds for every 5 years of age over 30 that you are. So for 35, have a 15% bond allocation. 40, 20%, etc.
Most of the latest investment research I've read says a 60/40 equity/bond allocation is the best option for retirees (in that, on average, it lasts the longest of all allocations). If you go much lower than that, you risk having inflation eat too much.

Gravel · Jul 22, 2019

I agree on international. I go with the JL Collins theory that it's 2019, and "American companies" are essentially global already. You don't need more international exposure.

If the time comes that it starts looking like the US won't be the dominant economy for the next century maybe I'll reconsider.

Sure, I miss out on companies like Nestle, Sony, and Toyota, but fuck it?

Sanrith Descartes · Jul 22, 2019

A couple things...
About bonds. I advise being wary of investment grade bonds. There is a truckload of corporate debt right now. A lot of it is one grade above junk status. There is a sentiment that a good 25 -35% of that investment grade could take the downgrade to junk in the near term. Bonds that arent Treasuries need to be viewed with skepticism.

When looking at global-ex US, not all sectors are the same. Developed world (Europe/Canada etc) isnt Emerging Markets. Non-US markets are in a tailspin from a Macro perspective. If you dont own it already I might think twice about dipping your toe in. 6-18 months from now you can buy global ETFs at bargain basement prices.

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