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» Rande - Re: Re: Caller of The Day 9/8/01

In response to message posted by bob90245:

bob,

The caller had a ten-year time horizon.

BTW -- I think Siegel is being overly generous when he says "...few investors can do this." In fact, he may be doing a disservice by intimating some sort of special ability to fortell the future exists, but only in a few. You know, like those 1-900 Gypsy fortune tellers on t.v. I think Bogle and Malkiel are a little closer to the mark:

The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible. After nearly fifty years in this business, I do not know of anybody who has done it successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently. Yet market timing appears to be increasingly embraced by mutual fund investors and the professional managers of fund portfolios alike. [John C. Bogle in Common Sense on Mutual Funds]

As I have often argued: Even the Almighty cannot determine a single correct value for the market as a whole. [Burton G. Malkiel in How Much Higher Can the Market Go from The Wall Street Journal (9/22/99)]

Moreover, perhaps the advice Flanigan was giving to continue to DCA even in the face of adversity as opposed to the fear-mongering, depend-on-me-to-save-you type of advice we sometimes hear can be summed up in this quote:

"The Excellent Investment Advisor knows that it is very easy to get investors to do things that will end up being bad for them and very difficult to get them to do things that will ultimately make them wealthy." [Nick Murry in "The Excellent Investment Advisor"]

But don't try telling the true believer. As Hulbert points out, we sometimes have an overriding need to believe, even to the point of believing that it's possible to predict the future with accuracy and consistency. Most of us can be objective when it comes to phony 1-900 fortune tellers, but we seem to lose that objectivity when it comes to believing those who pretend to have predictive abilities when it comes to the future of the stock market. Why is that?

Investors often develop a cultlike devotion to one investment guru or another. And when they do so, objectivity goes out the window. That isn't to say that the investors' psychological needs should be dismissed. After all, investing is an arena filled with uncertainty; it's only natural for people to seek approval and affirmation in such an environment. But it is hazardous to one's wealth to seek such psychological security at the price of objectivity. [Mark Hulbert in Wearing Your Heart on Your Portfolio from the NY Times (2/6/00)]

Anyway, interesting call and great advice by Bill Flanigan.

-- posted by Rande

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» SteveT - Re: Re: Re: Caller of The Day 9/8/01

In response to message posted by Rande:

Rande I could not agree with you more when you said in part... In fact, he may be doing a disservice by intimating some sort of special ability to fortell the future exists, but only in a few.

My wife has come around and understands and more importantly supports the concept of a diversified portfolio, asset allocation, and Dollar Cost Averaging. She also has come to see the wisdom in rebalancing the allocation when it get to far from "our plan". Pretty hard to argue with selling bonds on strength and buy equities on weakness and the opposite when equities are strong.

Not exactly rocket science when one takes an objective look at it. It may not yield the highest returns year in and year out. It requires only a little time to manage, is reasonably tax efficient, reduces costs of needless trading, eliminates the conflict of interest scenario. All in all not a bad way to proceed. Thanks for helping me to see the light my friend.

-- posted by SteveT

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» Kirk - Re: Caller of The Day 9/8/01

In response to message posted by SteveT:

My wife has come around and understands and more importantly supports the concept of a diversified portfolio, asset allocation, and Dollar Cost Averaging. She also has come to see the wisdom in rebalancing the allocation when it get to far from "our plan"

Great news! I think the battle is won one bullet at a time. We educate one person, then they pass it on and so on...and so on...

thanks for sharing the good news!

-- posted by Kirk

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» reporter20 - 403B

Hi Rande:
My wife is eligible for a non-matching 403B at her job she just started. Since there are only 4 months left this year, I thought it might be better to contribute to an IRA this year and start the 403B next year. The HR person at the company told her she could contribute 25% of salary this year. He also told her after one year of employment, she is eligible for an 11% of salary pension, in addition to the 403B. He said at that time she could contribute 14% of salary to 403B and still get the 11% pension. This does not sound right to me, but I'm no tax man. My CPA is on vacation, so I thought I would bother you. The percentages sound wrong to me. Any help would be appreciated. Thanks in advance.

-- posted by reporter20

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» bob90245 - Re: Re: Re: Caller of The Day 9/8/01

In response to message posted by Rande:

Rande,

Thanks for your reply. Like an alcoholic trying to stay sober, I’m trying to affirm my faith in investing for the long term. These are difficult times for the faithful.

When I started investing my personal money, I chose individual stocks – especially tech stocks. I sold most of my stocks at the beginning of the year. I’m now a big believer in index funds (I hold SPY and VTI). I like the concept of “core and explore” I’ve been reading on this site. So I’m shifting my equities so that the core (80%) will be in index funds.

-Bob-

-- posted by bob90245

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» Erik75 - Re: Re: Re: Re: Caller of The Day 9/8/01

In response to message posted by bob90245:

Rande, Thanks for your reply. Like an alcoholic trying to stay sober, I’m trying to affirm my faith in investing for the long term

Bob, Aversion therapy worked for me, but it was expensive. Cost me the price a large Mercedes.

I just took one big swallow of brinkers "Act Immedately" medicine last October and haven't been tempted to time the market or listen to a Marketimer since then.

I suspect a smaller dose would have also worked. Maybe a Honda Accord sized dose, or even a Hundai Elantra sized dose. OTOH, maybe it's like antibiotics and too small a dose just builds up your resistance. I will testify though, that a full brinker sized dose of "Act Immediately" will get your head straightened out.

-- posted by Erik75

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» Erik75 - Re: Re: Re: Re: Caller of The Day 9/8/01

In response to message posted by bob90245:

Bogle and others have said words to the effect that major index funds outperform 80% of managed mutual funds and financial advisors over the long run. also that most of the 20% that outperform the index funds are doing it through luck and there is no reason to expect anyone of them to continue doing it.

I know I'm not smart enough to pick the small percentage of the apparantly succesful 20% that actually have any real talent, so I have again become a serious long term index fund investor.

-- posted by Erik75

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» SteveT - Re: Re: Re: Re: Re: Caller of The Day 9/8/01

In response to message posted by Erik75:

Erik I got the impression that 20% is not the same 20% each year but a different 20% each year. Those that consistently beat the major indices each year for 20 years consecutive or longer would be much less. At least that is how I understand it.

-- posted by SteveT

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» Erik75 - Re: Re: Re: Re: Re: Re: Caller of The Day 9/8/01

In response to message posted by SteveT:

Steve, basically yes. I highly recomend Bogle's book "Common Sense on Mutual Funds"

There are other books out there with simmilar messages, but bogle spells it out the clearest and IMHO has the most credibility.

If you go through Kirks website link to Amazon to buy it, he gets some sort of commision. a nice way to show you appreciation for Suite101 at no cost to you. I have no connection to Site101, I just appreciate what's available here, particularly Rande and Kirks's work.

-- posted by Erik75

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» Kirk - Re: 20% Myth

In response to message posted by SteveT:

When managers beat the S&P500 for enough years, they probably retire and write a book such as Peter Lynch has done... Or they form their own company like Warren Buffet has done and thus they can keep the gains rather than a mutual fund family. I doubt many that are really good will work for a regular mutual fund. Perhaps they'll be transfered to larger, more profitable accounts so they can get a higher reward? They might even just "oversee" the fund so their name stays on it for advertising while they acually manage big money accounts and let underlings run the fund for them.

Others, like David Dreman, charge a hefty load to play and you really have to invest for the long term with them to make up for the hefty load.

Bottom line to me is the mutual fund industry is more about selling soap than selling something that will make you rich.

A BIG problem with index funds is they get bloated with mania stocks and then when a bubble bursts, these index funds under perform a non capitalization weighted index for a period of time. I don't think we have all the answers yet but I am sure happy NOT buying index funds the past few years but trying to buy value as the growth stocks were so over valued.

We might just find that value managers do really well over time as they avoid the large losses when manias end... whereas index funds can't avoid these losses. It will be interesting to see, but my own style has been doing well enough for me beating the averages so either I have been VERY lucky for 10 years or have some skill? (I think it is a mixture of both) Certainly owning mostly technology in my personal holdings and STILL beating the S&P500 means something the past year or two?

Anyway, nothing is as simple as it seems.

-- posted by Kirk

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