Portfolio 101

[Elspode]

I had $15,000.00 in a 401k Mutual Funds pool, and after the dotcom bust, I was left with $6,500.00.

Just a note that *any* investment can help you lose your money, even the *safe* ones.

[Undertoad]

I went to vanguard.com and under personal investors, research funds and stocks tab, they have a link called Narrow Your Fund Choices Tool; and that's kinda a good way to go through and figure out what funds are best for you.

[OnyxCougar]

OK, I made some changes.

Before: 5% of income

40% Cox
10% Money Market Fund
50% Dodge and Cox Income

Now: 6% of income

10% Money Market Fund
20% Dodge and Cox Income
20% Morgan Growth Fund
20% Total Stock Mkt Index
30% Wellington Fund

Is that OVER diversification? The DJIA was -16% today, but these look like this today:

* COX 31.41 0.00
VMFXX 1.0 0.0
DODIX 12.72 +0.04
VMRGX 15.18 +0.09
VTSMX 26.36 +0.13
* VWELX 28.82 +0.18

[tw]

Originally posted by OnyxCougar
It *is* Vanguard. And I have elected to put some in mutual funds and some in the company, and I also am in the Employee Stock Purchase Plan. I think I'll switch the 401(k) to all mutual funds and leave the EPP for the stock in the company.

Those who invest in mutal funds always underperform the market. This is fact well proven based upon market history. In short, the so called professionals are some of the worst market investors. For example, at one point, MSNBC (I think it was) put a famous investor up against the monkey. Monkey selected based upon darts to a board. He outperformed the market specialist. Market professionals are too buy selling themselves rather than learning what really makes a good investment. There is great profit in selling themselves because so many laymen think you must be an economist or some kind of professional investor to invest in stocks. A concept better called a scam.

A best general source of information is the Nightly Business Report. Especially when Paul Kangas does the reports. Espeically Friday night when a market professional does a 5 minute summary suggestion. Listen to what he says. If he hypes cyclic trends and capital expenditures, then run. However if he talks about the company product and industry trends, then put his stock in your basket of 'stocks to watch'.

I spend much time watching and studying markets. Bloomberg Radio is another interesting source. But many information sources such as Wall Street Week with Fortune are a waste of time.

Lessons from both Peter Lynch and the sage of Omaha Warren Buffet are far more instructive. Read their books. What do both look at? Not the fancy numbers games promoted by market hypsters and other experts. Peter Lynch was most blunt. He followed his wife and daughters around the mall. Learned what they and their friends most liked. Then learned about those companies. Peter Lynch being 10 years every year consistent the best mutual fund administrator in market history. Look at what he is saying. Its not about economics and investment savey. That is what the ignorant liars must promoted so that you pay them. "Its all about the product stupid". Yes it is that simple to summarize - and more complex to do because you must do it every day or at least every week.

Again, mutual funds average less than the market. Obviously. You are paying a few percentage points every year to an 'expert' who really knows nothing more about the products than anyone else but must earn enough money to make his (industry average) $150,000 to $200,000 per year. Their profits - not yours - are their most important objective.

If you do go into mutual funds, then the best performing mutual funds are always index funds. No professional to make decisions. Therefore the penalty points (fees) are minimal. This is why index funds always outperform the average of all mutual funds. No professional taking big buck out of your investment portfolio.

What is an index fund? For example, one fund must buy every stock on the S&P 500. No market expert getting paid to make decisions. The decision was up front. They will buy every S&P 500 stock. No human taking his cut is why the index funds always return a higher average investment. Further caution. Many mutual funds have other hidden fees. More money that will not be there to be invested the next and further years.

But again, I return to Peter Lynch who only says what virtually every famous market investor says. Stocks, rather than mutual funds always average a higher rate of return. You buy a basket of five stocks - which is what he recommends the average investor to bet on. One will always be a dog. Three will be average performers. And one will be the star that more than compensates for the dog. It works. Literally any money I have is only from investment. I don't play money games. I learn about the products, invest with the intent of staying there at least three years - usually more. Look at stock prices every day or maybe three only to learn the 'attitude' of the market (how todays price reflects what the market rumor mill is saying), and get out only when it was obvious there was too much extravagent exuberience. IOW got out of everything after maybe 10 years.

Friday night at 6:30 or 7 on PBS. This is a good place to start. Nightly Business Report.

You have seen how I post. It is that same march forward on facts so solid as to not waver in attitude. Attitude necessary to make money in the markets. Too many people buy and sell only on the same 'feeling' that said there were WMD. Emotion is why we can make money at their expense. They brag about profits. But when I compare their examples to stock history (as I did with one 7-11 Store owner), they are not making much money. Instead they are enriching their broker while bragging about mythical profits.

Brokers don't like me. I don't make them big bucks. No one really makes big bucks by playing the market. Brokers should only make money when you buy and sell. Period. That means stocks - not mutual funds.

It is a rare individual who made even $20,000 per year working fully time by day trading. Very rare. For the same amount of money during that time, the patient investor made closer to $100,000. This is why you look at the product. Only product and its market will tell you what the company will be making in profits for the next 4 years. Hypsters and stock brokers are too busy studying financials and cyclic trends rather than learn what really makes a stock profitable. They look too short term.

Which comes to the part of how to look at the product. First, I don't know anything about the retail food industry. I don't even try to invest in retail. I don't understand the product. Invest only in what you understand. What is your background? Start there.

The first stock will always be a loser. (And don't invest in your own employeer). You must do that to really understand investment. Until you do so, you will always be a loser at the investment game. Example of a big loser. $5000 in a stock that sells for $4800 three years later. So why is that so important? Because without that $5000 at risk, you will not view your investment with the proper mental attitude. There is a big difference between being at risk and only playing a fictional stock market game. BIG difference in how the human brain analyzes the day to day events when the risk is real.

IOW don't drop everything into stocks just yet. Start only with one. And how do you analyze your current and future potential investments? NY Times and Wall Street Journal are essential. Barrons Weekly is periodically helpful. Industry trade rags are important.

In the newspaper stores, smart investors looking at the inside page of a WSJ or NYTimes. They are looking at list of companies often indexed on second page of second section. They are looking for any articles that mention a company from their 'basket of stocks'. That is what the investor does. He looks every day not for the big news. Notice how I get so much information about George Jr and Iraq. I constantly look for the little details. That is what the smart investor is doing everyday. Keeping his eye open for any trivial little detail involving a stock and the industry of that stock. Looking mostly at the products. Those details suggest well in advance what the future is for that industry and whether it is time to invest.

[continues on next post]

[tw]

[continued from the previous post]

Take the computer industry as an example. Clearly Microsoft and Intel - great companies - are not positioned for any major market breakthroughs. Both are good stable investments if you are 60 or 70 years old. But at 35, your investments must be growth. That means moderate risk with growth potential. Maybe a revival of the semiconductor industry would mean Applied Materials or Novellus - both have been dogs for a while. But first see some reason why the semiconductor industry is poised for a serious upswing. Again, good investments worthy of watching. But maybe not currently good.

What about Nokia? The cell phone maker (which is another branch of the computer industry). Maybe except that phones are now becoming commodities. Too much of the advanced technical work so successfully achieved by both Nokia and Erricson is now performed by new, upstart (even Chinese) companies. Amazon is worthy of watching. Profits are not yet there but the product line is quite good and innovative. Adobe still has a good market without any serious potential competition and with still many new future advances for their product lines. Qualcomm is in the driver seat for cell phone technology. Therein lies a few stocks to keep watching if you understand the computer business. Will the networking business finally create enough demand (will the last mile companies finally stop impeding the growth of broadband)? Questions answered by watching every article about Cisco and Juniper Networks. Questions answered by watching how the cable companies and baby bells either stifle or promote internet growth.

See how it goes? There is nothing fancy about stock investment except by understanding the only reason for growth - the product and its markets. Don't let the market liars have you think that investment is only for professionals. Again, the market experts average underperform the markets. Product is why Peter Lynch and Warren Buffet were such good investors. Warren Buffet says he only invests in what he understands. Bill Gates is one of his closest friends. But Buffet still will not invest in computers. He does not understand the product or its market.

That is what you must do. First put most money in index mutual funds that have the smallest annual fees (penalty costs). Invest in a few hundred shares of one stock. Always buy stocks in groups of one hundred shares. Within a year or two, then you will be ready to move from index funds to a basket of five stock. And yes, that means reading about and learning the products. Don't waste time on useless publications such as the Daily News, Action News, or the local gossip newspaper. You must read real news. That means serious sources from time to time such as Barrons, NY Times, Wall Street Journal, Washington Post, Philadelphia Inquirerer, or LA Times.

I cannot say enough about PBS's Nightly Business Report. Friday is an especially important day. A visiting market expert on for a quick 5 minute presentation. Listen to what he/she says. If he taulks like an economist or accountant, then ignore him completely. He is a classic stock broker plying lies to get other person's money. But if the presentation discusses stocks in terms of why they have a good product or market, then add that stock to your basket of 'stocks to watch'. From that 20+ basket, you will eventually select 5.

Do not invest in futures. Do not sell short. Do not buy stock options. All that is complex and dangerous. Just buy five good common stocks knowing that no matter what happens, you must still own those stocks five years later. That is how the smart investors make big bucks. No churning (buying and selling every year). No reinvestning the few dollars of dividend into shares every three month. Just a straight forward investment in common stock by (and only use) a discount broker.

You don't need a full service broker. Their advise, based upon historical averages, is inferior to the average investor. In reality, the full service broker is a fancy, shined-up salesman whose job is to get you to do what is in his best interest. He is the poor student in school whose only objective in life was the $150,000+ per year salary. Yes, whores make that much. Uses a Discount broker. One common stock sometime in the next three months is where you begin.

For those others - your first stock investment should have been by the time your were 25. That way, when you were thrity, then you have enough feel for the market to be earning good money in your 30s. Oynxcougar is an example of an investor who has started too late; who must now play catchup. And of course, those who invest in mutual funds only make the stock brokers richer at their own personal expense. Mutual funds routinely underachieve.

[depmats]

tw - you have your head so far up your ass on this one that i don't even know where to start.

[elSicomoro]

Tear his arguments apart then.

[lumberjim]

Originally posted by tw

You have seen how I post. ~snip~ But when I compare their examples to stock history (as I did with one 7-11 Store owner), they are not making much money.

oh...my...god.

can you even imagine?

You're a 711 owner, and tw comes in. Wearing an overcoat and a stetson hat, no doubt. He purchases a coffee, and says "how bout that stock market". Unsuspecting, and unaware of what you are about to do, you say, " yeah, my mutual fund is doing great."

I think you all know what happens next ....~shudder~

45 minutes later, as you dab the blood from your ears, he finally leaves, and gets into his 95 Ford Taurus, and drives off into the rainy Monday morning. It's not going to be a good week.

[wolf]

One of my 403(b) accounts (it's the same as a 401(k) but are set up for non-profit organization employees) is through Vanguard.

I don't know if these funds are open or closed at this point, but you might want to take a look at the performance of the STAR fund and the Balanced Index Fund.

[Undertoad]

tw, guess what... OC's money market fund selections have outperformed the market over the last two years. And your hero (and mine) Peter Lynch made his beans running the biggest money market fund...

Care to post your stock choices so we can vet them for you and help your research, or do you prefer to keep this careful diligence to yourself?

OC I think your selections are fine. Personally I would be more in the growth fund - and I am (my choice is VSEQX), even though I'm a little older than you. But this is on the level of nitpicking. You're in good shape, now sit back and let those pieces of paper come in.

[elSicomoro]

Depmats had posted a response to tw...I wonder why he deleted it.

[xoxoxoBruce]

Maybe he remembers leading a horse to water, before.

[lookout123]

Let me give this a try. unlike tw i do this for a living so i will not make any recommendations on here. (proper recommendations are on an individual basis.)

Those who invest in mutal funds always underperform the market. This is fact well proven based upon market history. In short, the so called professionals are some of the worst market investors.

buzzzzzz, guess again. of the 4 fund families currently sitting on my desk, 3 have outperformed the market over the last year and all 4 over the last 10. here is a quick exercise. imagine that you can travel back 70 years ago and invest $10k in each of 5 stocks (or predecessors) from this list: Alcoa, Altria grp, Am Espress, At&T, Boeing,Caterpillar,Citigroup,Coca-cola,Disney,Dupont,Kodak,Exxon,GE,GM,HP, Home depot,Honeywell,IBM,INTEL,Int'l Paper, J&J,JPMorgan Chase, MCD's,Merck,Microsoft, Proctor&Gamble, SBC Communications,3M, United Technologies, WalMart

If you had picked the top 5 performers you would hold $18.3Million. If the same $50k had been invested in my favorite conservative fund you would now hold $28.5 million.

This is not an unusual story. A properly managed fund has the ability to throw out stocks that underperform and pick up stronger ones - thus keeping only the best players in the game. that means better returns for you -tw.

Again, mutual funds average less than the market. Obviously. You are paying a few percentage points every year to an 'expert' who really knows nothing more about the products than anyone else but must earn enough money to make his (industry average) $150,000 to $200,000 per year. Their profits - not yours - are their most important objective.

quite simply - if you are paying "a few points" then you are picking really bad funds. industry averages are around 1.4% my favorite funds are well under 1%. And believe it or not - the fund managers do know more about the market than you. They live,eat, breathe the market. do you have an entire team of people to break down a company to figure out which way the stock should go? nobody is correct 100% of the time. someone good is right @75% of the time. as far as their (our) profits being more important than the client's - if you aren't aware, we make less money from selling funds than from individual stocks. (breakpoints, longer holding period, less overall turnover) so who's needs are being met by recommending funds?

MSNBC (I think it was) put a famous investor up against the monkey. Monkey selected based upon darts to a board. He outperformed the market specialist.

over what time period? investing is not a windsprint but a marathon.

That is what you must do. First put most money in index mutual funds that have the smallest annual fees (penalty costs). Invest in a few hundred shares of one stock.

index funds are not bad, but not the best long term performers. they hold every stock, so that means they hold all of the losers too. i would rather pay 5% (before breakpoints) to get into my favorite fund - because i will more than recover that in gains. again - a well managed fund...

Brokers don't like me. I don't make them big bucks. No one really makes big bucks by playing the market. Brokers should only make money when you buy and sell. Period. That means stocks - not mutual funds.

you're right - you don't make big money by "playing the market" - buy and hold is the philosophy that most brokers subscribe to. brokers probably don't like you because you are not a good client to have. my guess is you argue, insult, and ignore professional advice. out of curiosity - if your doctor tells you that _____ is what you need to do, do you assume you know better than they, and ignore them? BTW, do brokers dislike you in a greater numbers than the general public as a whole?

You don't need a full service broker. Their advise, based upon historical averages, is inferior to the average investor.

what averages would those be?

Invest only in what you understand.

that is the fastest way to lose your ass. that is the exact opposite of a diversified portfolio. of course, that is what you may have to do if you think you are more qualified than any full service broker.

In reality, the full service broker is a fancy, shined-up salesman whose job is to get you to do what is in his best interest. He is the poor student in school whose only objective in life was the $150,000+ per year salary. Yes, whores make that much. Uses a Discount broker

wow - you sure pegged me and my peers. we were lazy ass scheisters, who didn't bust our ass to jump through all of the hoops to qualify for licensing. S7 exam - only 66% of the people who take it pass. most companies only allow one shot. this is serious stuff, and the vast majority of us take the responsibity given to us VERY seriously.

For those others - your first stock investment should have been by the time your were 25.

yes that is ideal - but when it comes to investing it really is better late than never. be realistic about your goals and ask professional advice about what may be the best way to get there.
i recommend that most people stick primarily with quality funds until they have put together around $50K then start branching out a little more aggressively into individual stocks and bonds.

the most important thing i can say(again) is that investing is not for the undisciplined or the weak willed. wise investing will chew your guts up sometimes because the best thing to do is generally the opposite of what your instincts tell you. it is a scary feeling buying into something when you see it has been going down. but you don't wait until a shoe sale is over to make your purchase do you? a full service broker allows a barricade between your emotional instincts and your investments.

[depmats]

Originally posted by sycamore
Depmats had posted a response to tw...I wonder why he deleted it.

Because what I had posted is pretty mean spirited. But if you insist, tw is the kind of guy that if he comments that it is cold, I could set his coat on fire and I would still not be able to convince him of anything other than what he already believed.

[tw]

Originally posted by depmats


Because what I had posted is pretty mean spirited. But if you insist, tw is the kind of guy that if he comments that it is cold, I could set his coat on fire and I would still not be able to convince him of anything other than what he already believed.

tw has contempt for those who post with emotion rather than using logic. Look at Lookout123's recent post. He does post facts. Nothing mean spirited in anything he posted. He posted his perspective using factual information.

UT also posted facts. For example he noted one of the Vanguard funds cited is a excellent performer. Some are. Others are not. The overall market average for mutual funds is to underperform. Your perspective may vary. That too is a fact.

In the meantime, a five year chart of that cited Vanguard fund. Did they have management change a few years back? Cited elsewhere is that Vanguard fund managers typically stay with the fund for about 3 years.