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The problem I have with “staunch indexers/ing” and Malkiel is the notion of buy and hold period. Although Malkiel has admitted just for some fun he likes to trade stocks with some “mad money” his general advice to the laymen investor is buy an index and sit tight. I will admit I have not read his books, just articles and some interviews etc..His reasoning in his words and quite simple is you “Can’t time the market” end of story. Here is where I disagree, there are a few folks out there who have successfully been timing the market and at the same time use the low cost indexing approach. Not to sound like a one trick pony but Bob Brinker is one of them and this is not my opinion just based on his record since 1981 publicly available for those who want to look it up. http://en.wikipedia.org/wiki/Bob_Brinker My point is who would have wanted to a passive indexer from say 1970-1982 or from March 2000 to around 2003 this last one being quite short but extremely painful!!! I got out in March of 2000 per Bob’s advice and back in sometime in 2003 and did quite well all in all. I am what you would call an active/passive indexer with 90% of my money in the wilshire 5000….when invested in the market. I will also occasionally go short through various instruments.
Sure Simon I had room for some gold stocks when it was at 275 but quite frankly made more money in the stock market at the same time, not opposed to a little hedging. But we take different road when you suggest gold at $5-7000 thousand? Then you start sounding like someone who is storing canned food in the bomb shelter (lol)and although I do indulge in some of the “conspiracy” stuff I don’t see the illuminati taking the world down and gold being your savior. As part of a well balanced portfolio I would agree it has it’s place though. And if we do get to a point where gold is at $7000 I hope my little plot of land is still there for me to live a simple peaceful life as the illuminati bring there “dark” reign over the world. I wonder though with all that gold if the s*** does hit the fan will it be shared for the better good of mankind or will those with the resources be hiding in bunkers or fortresses with paid militia protecting them from the starving masses? Sounds like a good sci-fi book? Maybe…
I’m not a market timer kind of person I like the long term trends and that makes me a bear on stocks. I buy gold for insurance and because there is so much that can’t be known about the markets these days. If it goes to $2,000 I will be happy, it if reaches $4-5,000 or better then great, it’s a bonus.
If only I had the same conviction about assets in 1987/88 I would have bought everything I could at Flamingo beach for $1.00m2. At $2,000m2 today that truly is a long term trend!
As much of a bear that I am, I also believe that the market could hit Kramers year end target of 14,458 but next year will be worse. With USD currency dilution running at a 13% annual click stocks could stay where they are and yet lose considerable value in real terms.
Risk is the possibility of losing money. But the most basic concept in finance is that risk and return are inextricably connected. If you are seeking high returns, you are going to have to bear high perceived risks. What everyone here is talking about are perceived risks. The current reality could take a turn in many different directions but in itself is not enough to warrant a complete economic and social melt down. We can find experts to quote for bull or bear directions but it all boils down to our individual feeling and perception as to who we will listen to.
Are we on the verge of a new dark age? I just don’t feel it. It just doesn’t seem like that is what is happening. We are suffering a market correction the likes of which has been predicted to happen at any time since the new year. Period. That’s all. And there will be a bounce back someday again. I am sitting tight and watching the sheep run in large groups to gold. They will run back to equity stocks again someday.hmmm… because you still think of “stocks for the long run” you will, like most people, stay in the market – it is not the sheep, or the crowd as I call them, that are moving into gold right now, quite the opposite. No, most people still think, like you, that this is a buying opportunity and the bull is intact, and indeed it might be, for a while. But why stress yourself trying to time the market? Relax, get some gold, move your dollars into Yen and let others scrape around for profits.
With the exception of mining/resource stocks, where I am still invested, I will move back into the broader equities market someday….in about fifteen years when we hit the bottom.
Timing the market is when you sell off stocks and hold, looking for safer places for the money so that you can go back in at a better time. I am not doing that. Nor am I sure that most people are holding right now. It looks to me like most individual investors are pulling out of the market in a bit of a panic while many institutions are buying in. Has it ever occurred to you that the market might just be another wealth re-distribution vehicle? The fat cats scare up a panic so the little investors sell their portfolios cheaply to the same fat cats only to come back later and buy them back at higher prices. I am guessing at motives here, but the results are a reality.
I said “most people, like you, will stay in the market” meaning that even if they sell now, they will jump straight back in because they see it as a buying opportunity. And I went on to ask in reference to those people; why bother trying to time the market? Semantics…who needs them?
Regarding wealth redistribution; of course the market is there to separate people from their money, particularly those that believe what their broker tells them about stocks for the long run.
Why can a broker not tell his clients to get out of the market? Because it is a conflict of interest – the interest of his firm! Unless he is truly independent he is unable to advise his clients to move to cash or other vehicles; only newsletters will do this for their readers.
Surely a decent broker would have said to his clients that the risk of fallout from sub prime was significant and advised his clients to sell months back. If you think this is unrealistic then how come my advisors did exactly this? Is there not one other person who was advised to do the same thing by their broker?
I am a “staunch indexer” mostly because that is what I learned when first exposed to investing. Of course I read the Bogle, Siegel, Malkiel books and was indoctrinated into that approach early on. A prime part of that indoctrination is that “it is almost impossible to time the market, so why even try?” Furthermore, we live in a country of “convenience.” Is it any wonder that indexing is so appealing to so many who find investing either intimidating, a mystery, nerve-racking, difficult, too time-consuming, confusing etc etc all the while being referred to as “the lazy man’s porfolios?” This laziness is someone else’s opportunity, believe it. On another note, yes, the market has always worked in cycles and anyone who didn’t expect a correction was highly naiive, greedy, careless or in denial. After these past two weeks, I will gladly admit that it would appear that a combination, hybrid, passive/active approach is a more effective plan and throw in some alternative investments too. The key is, you need to know what you are doing and IF you can time the market, you could do damn well, of this there is no doubt but for sure it is much easier said than done, at least on a consistent basis. Buy and hold should realistically read, “buy and hold*” As far as the GOLD market, there is so much propaganda, hyperbole and head games along with the constant fluctuations going on that most get shaken out rather easily, this is all part of the game since there is actually only a limited amt. of the actual stuff available to begin with. One constantly comes across advice that GOLD should comprise no more than 10% of your portfolio, I always laugh as it invokes memories of childhood games. Oh, and for those “buy and holders” that believe that indexing is ultra-safe and that you can’t take significant losses, you are without a doubt highly misinformed and deceived for the concept of risk/reward applies every bit as much here as with individual stocks, trust me on this one. And by the way, asset allocation and diversification are both relative to the quality of the assets you choose to begin with… you get the point. Finally, yes, GOLD can be a good hedge and maybe even more than but thank goodness for Costa Rica….and affordable land, at least while it lasts! 😉
crchuck – Perhaps you’re right. Certainly I can’t be bothered to time the market, it’s too much work. I would rather take a punt on a basket of junior miners on the ASX or AIM in London.
Regarding the 10% rule, I think most people say even less than that. To be honest I probably take on more gold, CR land and junior miners than I should! But I like the ride…
maybe you can pay for a letter that times the market for you? Also you said, “To be honest I probably take on more gold, CR land and junior miners than I should! But I like the ride… ” I hope you never take up gambling (in jest). Most likely, for one who makes comments like that, the money is not the issue but rather the game is, the sport of it all…
Who’s worrying I got back in when the s&p was around 800 or so…currently dollar cost averaging in on the dips. I don’t have to worry about timing the market, Brinkers news letter comes every month…since 1986! And only a $180 bucks! Eternal bulls or Bears you both lose, no use for either…have fun guys.
This Brinker guy has a good track record right? I will check him on the Hulberts Digest; is he in their top ten?
I’m not a perma bull or bear; I go with the trend.
I currently have no intention of trying to engage in market timing for I know full well that I don’t have the preparation to do it effectively….it’s funny though because I recently received a warning from my plan administrator accusing me of market timing after I re-allocated my portfolio…..can’t win for losin….no pun intended
That is exactly why we check in with “the Brink”! I’m not trying to convert anyone it has just worked for me over the last 20 years. If your program is working for you all the best. Hey i’m pretty open minded Simom has me reading up on Gold now!
Oh by the way I have not been timing lately either as the cyclical bull has been intact for awhile and buying on some of the dips. My two cents the correction is over lets wait for s&p 1600…
Edited on Aug 17, 2007 07:23
I don’t use a broker’s services…that is just throwing away money from my perspective. I do spend time every day watching the market and my portfolio, not because I am day trading but because it is entertaining and keeps me in touch with how my portfolio is doing. Minor tweaks now and then and always looking for buying opps is worth the time spent. I am long on a lot of small caps and the volatility is a roller coaster ride. I am not losing sleep and enjoy tying in market news and world events to a personal level.
i posted re:gold awhile ago. i quadrupled my money when nixon made gold legal to own. this is fact. i bought kruggerands. deak perrara redeemed those without any bona-fides. hand the gold, look at it (as kruggerands), pay me cash, walk away. now, i’m sure, it’s different but…. i recently bought 10K of gold stocks (because i didn’t have cash to buy gold coins) and now it’s 32K after 3 years. why? INSECURITY drives the value more than anything else. buying some seems like a good idea. why buy coins? no need to pay $35 ,or more now, to assay bullion and as long as you stay under the reportable cash transactions rules no one knows what you’ve done. thank you mother earth news for this idea. gold coins can be sold for cash, subject to the caveat of current rules. don’t be GREEDY, just focus on SECURITY and you’ll find everyone else’s bottom is pretty much the same (in general). but hey, do what you want. i’ll follow my own advice since it’s worked so far.
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