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It is always interesting when your email is publicly available – this means that sometimes the public writes to you and today was no exception.  My winner for email of the week is the chap who wrote to me today and see he was suspicious of financial markets because his broker was spying on him and running his stops. That is the broker was pushing the market in the opposite direction to his position just he would be stopped out and they presumably would be profitable. interestingly, this has happened with a full service broker, an online broker, a CFD provider, and an options broker. In fact it had happened with everyone he had dealt with. In his words it was a conspiracy to get him because they didn’t want someone like him being successful.

Me thinks our friend has not worked out what the common denominator in his problem is.

Email Of The Week

In the weeks leading up the beginning of the Mentor Program we send out a slew of videos and other material to bring people up to speed with the things we will be discussing during the program.

The writer of our email of the week writes……

Do I have to watch all the videos you have been sending out?

No numb nuts ignore them completely, in fact ignore all the material we send out during the program. Because not paying attention and not doing any work is a sure way to be sucessful.

We Have A Winner

For the most outstandingly stupid piece of investment advice you will hear. My only disappointment is that this advice came out on 30/12/12. So we have to struggle through all of 2013 before we hear something equally as stupid for this year. Well life is tough but no doubt the financial media will surprise us with its idiocy once again.

The offending piece is by David Potts in the Melbourne Age

4. Shares

You should review your shareholdings every year, and may as well do it now so you don’t forget.

Re-balancing is what advisers call selling some of one stock and buying more of another if they’ve moved out of kilter.

So if one stock has shot up, you take some profits by selling some of your holding and buying more of one that hasn’t moved or even dropped, as long as you’re still happy it will be a good investment.

With brokerage so low, you can afford to buy or sell in dribs and drabs and you’re not trying to time the market, which is impossible.

Ok….let me translate this remarkable piece of advice. You want me to sell the shares that have gone up and use the money to buy more of the ones that have gone down. Sounds genius….

I wont even go into what is wrong with such advice other than to say that it is this sort of logic that has meant that for the past 15 years Australian Superannuation funds have returned less than cash. Thereby, condemning a generation of retirees to a poverty level existence. If you want you can look through this blog for all that has been written on DCA and other such things.

As for timing the markets other I will defer to the following proverb.

 

Mail Bag Time

Its time to dig into my mail bag and see what half baked homilies which pass for series content  I have received this week. This weeks winner comes from an email newsletter I seem to be getting that has the quote…..

“Get out of the casino, own Corporate America and hold it forever! No trading, no nothing. You don’t need to trade; you don’t need to worry about the market. To protect yourself from the bumps the stock market will scare you with – even though it shouldn’t scare you because there have been bumps in the market since the beginning of time – be a very long term investor ”

Jack Bogle: Founder Vanguard Group

Being of an enquiring mind as opposed to a dim wit who takes quotes from others as being gospel I thought I would have a look at what an investment in corporate America would have gotten you.

The chart below is of a single dollar invested in the S&P 500 – as you can see its not that brilliant. In 20 years your $1 would have grown to just under $4, a compound rate of return of about 6.2%. It should be noted that during the same period the average Fed Funds Rate was 3.32%. It is also distressing to note that you would have had zero return for the past 12 years.

Initially this looks not too bad – you have outperformed the cash rate but for the luxury of returning 6.2% you have had to endure losing half your money not once but twice.

Speculation must be worth the effort – for a heart stopping MaxDD of over 50% I would expect  returns of the same order and consistency of an operation such as Renaissance Technology which has posted an annual return of 35% pa net of fees since 1989. A paltry 6.2% simply wouldn’t do.

If I were a buy and hold investor who believed in corporate America in 1990 which is when I ran these figures from then I would have picked from the following stocks.


There are no prizes for spotting the companies that are no longer in the Dow because they went broke.

The numbers are even worse when you look at the local market.

The annualised return on the All Ords since 1990 is 4.5%, during which time the cash rate was an average of 5.6%. Hardly an inspiring vote of confidence in trusting in businesses run by others.

The plantiff cry of buy and hold is simply that – the mournful mewing of those who seem to believe that a stock knows that you own it and that it will do the right thing by you. Investing or trading is not about confidence in the ability of others to perhaps be able to do the right thing by you and your investment but rather confidence in the fact that you will be able to do the right thing.

When you are asked to have faith in a given entity and its management always remember this.  Kodak invented the digital camera and were sent broke by it simply because the idiots running the company could not conceive of the fact that one day someone would put a camera in a phone.

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