Comments on: Two Rules of Investing

By: GFMorris.com » links for 2009-02-24

GFMorris.com » links for 2009-02-24 — Wed, 25 Feb 2009 02:30:42 +0000

[...] Two Rules of Investing | Live Granades (tags: gfmorris_comment) [...]

By: Geof F. Morris

Geof F. Morris — Tue, 24 Feb 2009 03:56:43 +0000

What you could argue, Stephen, is an estimation of future earnings expected and check the P/Efut. But that’s ballsy. Of course, that’s the reason that you choose to invest in one stock over another: expectations of future dividend earnings being available at the strike price at the time you buy. Yes, that goes against all your advice, but it also goes back to the fundamentals of what investors should be trying to do, including the institutional ones, instead of this short-term, leveraged-to-the-hilt crap. But that’s a rant for my blog and not yours.

By: A Few More Random Things About Investing | Live Granades

A Few More Random Things About Investing | Live Granades — Mon, 23 Feb 2009 18:36:31 +0000

[...] Two Rules of Investing post resulted in several good questions from people, both in comments and in email. I’ve got [...]

By: Stephen

Stephen — Fri, 20 Feb 2009 22:58:05 +0000

Did he have any examples of applying his metric for what low is? Because I’d be very interested to see how it fared in the current market implosion. My gut feeling is that “buy low” inevitably fails because there is no real way of measuring low — you can’t really tell when you’re near a local minimum in price.

By: Morgan

Morgan — Fri, 20 Feb 2009 22:21:52 +0000

I picked up a book awhile back wherein Ben Stein compares various investment strategies, and he found that market timing (buy low, sell high) and monthly installments (always buy, never sell) were both beaten by buying low and never selling (over long runs against historical data). In time intervals that you don’t buy, accumulate the cash you would have invested for a larger investment when the metrics become favorable again.

Buying low here is defined as buying when stock price * existing shares / (assets – debt) is less than a threshold. This is of course only applying to the aggregate statistics of a diversified fund – single stocks are far too ideosyncratic to evaluate that way.

By: Stephen

Stephen — Fri, 20 Feb 2009 15:13:34 +0000

Matthew: Yeah, we’re putting our non-401k retirement stuff in a Roth IRA.

Jody: I’d hoped you’d show up! I hadn’t thought about addressing exchange-traded funds. I looked at VIPERs back in the day (or whatever Vanguard’s calling them now), but decided the transaction costs (given small monthly investments) and delayed dividend investment made index funds more attractive to me. Looking just now, I see that Vanguard’s ETFs have half the expense ratio of their index funds.

I’d never heard of or thought about bond laddering. I’ve seen CD laddering before for cash investments. For bonds right now I’m just going with a bond index fund, since I don’t have huge sacks of cash to invest.

Good info all around, and stuff for me to mull over.

By: Oompa

Oompa — Fri, 20 Feb 2009 10:55:48 +0000

Couple of addendums since you have once again meandered into my realm.
Don’t forget the SPY and the DIA (aka the Spiders and the Diamonds)
The SPY is a tracking stock listed on AMEX. It is a tracking stock based on the S&P 500 and basically can be bought, sold, shorted and margined.
The DIA is the same thing for the dow 30. These are good ways to track an index without having to pay the fees associated with mutual funds.

Another thing to look at is bonds. In a market like we are facing today AAA rated bonds (especially municipal and general obligation) are a very safe haven for money. If you are going to research bonds there are 2 key phrases that you need to look for. Non-callable and convertable. The non-callable piece basically means that the bond cannot be payed out early thereby killing your cash cow before its time has come.
A 30 year bond (minimum investment of 10k) will pay you an interest payment every 6 months and then at the end of the 30 years the full original investment will be paid back to you. The coupons (interest payments) are generally set up as January/June or May/October and you will get x percent of your original investment back. The other thing is that some bonds will be tax deductable (such as municipal bonds) although those tend to be 10 year bonds.

You can ladder bonds wherein you get a a coupon payment every month by getting a January/June, a February/July, a March/August, a April/September, and a May/October thereby insuring that each month a bond is paying off. Granted this is a large initial investment but the payoffs can be quite acceptable if you find the correct bonds then the long term payoffs are more than adequate.

Just my .02

By: Matthew Amster-Burton

Matthew Amster-Burton — Fri, 20 Feb 2009 05:06:54 +0000

Awesome post.

The only thing I’d add is to make it a Roth IRA if you’re eligible, which you probably are.

By: Stephen

Stephen — Fri, 20 Feb 2009 03:13:34 +0000

I can't tell you how much you'll need to save, since that really depends on how much you guys are bringing in, how long until you'll need the money, etc. The easiest thing to do is invest in a Vanguard Lifecycle Fund, like the Vanguard Target Retirement 2035 one. It's all index funds, it has an expense ratio of 0.18%, and it automatically does the diversification and rebalancing I was talking about. The downside is that you've got to come up with $3,000 to open an account, and ideally you should be putting money in every month.

By: Elizabeth

Elizabeth — Thu, 19 Feb 2009 22:33:03 +0000

ok, you are talking to a stock/mutual fund/index virgin. Most of what you typed was greek…if you could put it to a toddler…How much does one need to invest WISELY and what would you recommend (actual names n such). We truly need to diversify before we are left cold and hungry living in a cardboard box at 65! LOL money managers and “people” cost extra money that we don’t necessarily have. So in the wise words of some random actor ” ‘splain it to me like I’m a three year old.”