Hi all- I used to post on this forum about 5 years ago and I've popped in once in a while (usually when I started thinking about investments!) I'm a new investor compared to most people here, and I'm sure a lot of you have already learned the lessons I had to learn the hard way, but I thought I'd share (and maybe save the next wave of investors?).1. My first $20 shouldn't have been to buy Motley Fool products, it should have been to buy "The Intelligent Investor" by Benjamin Graham. I'm less than half-way done with reading it and he had already described the stupid things I've done multiple times.2. I need to trade less. In the first 2.5 years of my 5 year investing career, I managed to lose $17k. I bought some BMW buys, but I also bought on a what sounded good. I doubled-down on stocks I shouldn't have, and then in disgust I sold most of my portfolio. My biggest loser- ACAS- I bought at $41 and $38 and sold at $5.82. In my next 2.5 years of "trading" in my IRA I'm up about $200- but only because I made 4 purchases (VFINX, VTRIX, AAPL, C). While $200 over 2.5 years is not anything close to impressive, it's a lot better than losing $17k, and I also have the dividends reinvested. I also spent almost $450 in trading fees the first 2.5 years, and $60 the last 2.5. I also wasn't in the best financial situation to invest, which is why I only made IRA trades.3. Graham says in his book that, "The primary cause of failure is that [investors] pay too much attention to what the stock market is doing currently." I definitely spent too much time watching stock prices. I want to buy ~10 quality companies at a point at which they are undervalued and hold on to them. Hopefully I can figure out how to do that. I did promise myself not to make another trade before I finish The Intelligent Investor.4.I need to take my emotions out of trading. There are companies that I dumped that I loved when I bought them, I loved when I sold them, and that I still love. That makes 0 sense. I sold Whole Foods at $11, now it's $75. Of course I wish I still had it.5. Dollar cost averaging and dividends are your friend. I have held JNJ and GE for a long time and while JNJ hasn't moved much - I own a lot more of it than when I started just from dividend reinvestment. JNJ has been very flat, but it's a company I'm still happy to own. GE hasn't done well, but doubling down at a good time and all of the quarterly dividends have lessoned the hurt. I am down 37% on my initial investment, but only down 15% overall. Again, another company I'm happy to hold on to. (though I need to look deeper into both these companies) I need to figure out a way to dollar cost average my investments without spending a fortune in commissions as I like the idea of buying the same $ value of a great stock monthly or quarterly.I haven't kept up with the board at all, but I wondered how the BMW method has faired against the market over the last few years. Is it still viable? And how have you all been? :)
You have discovered what many of us have discovered, that the siren song of easy riches is enticing and the cost of tuition of Investing 101 can be extraordinarily high.Ken Fisher said something important, if you know what everyone else knows you don't have an advantage. After paying for Inv-101 one should set off on one's own track which is what Jim did with the BMW Method and it paid off handsomely until it didn't. The core of the BMW Method is as sound as it ever was. Jim set out to test the bleeding edge, something that is hard to fault, and that got him into trouble. Many of us have learned that the financial sector is really, really, high risk, or as Nassim Nicholas Taleb puts it: "Bad black swan prone." Part of the difficulty for the curious and the studious is that we like to explore that bleeding edge and it is easy to fall into the abyss at the edge of the world. The Intelligent Investor covers it nicely with the division into "defensive" and "enterprising" investors but even the latter should be somewhat defensive. A conundrum for innovators.Denny Schlesinger
Hi captal07!One of the biggest mistakes I think many investors make is investing without the context of a long-term financial plan....sort of ready....fire ( no aim). ;-)Here is a post link that describes my approach:http://boards.fool.com/hi-mattyfatbags-here-is-a-copy-of-a-r...Cheers!MurphHome Fool( who finds that the intersection of the BMW Method and good solid-balance-sheet dividend payers/growers has been a great place to be for the past 8 years )
Denny- I'm sorry to hear about Jim- I hope he is doing ok. I remember reading a lot of his posts back in the day. I'm thankful there are people like him around. I do consider these losses as my "investing 101" and I can see a lot of things that I did emotionally that I never should have done. It's kind of like paying for my education, except I got a lot less out of it than I did my actual degrees! Hopefully these lessons will pay for themselves in the end. I had a look at the BMW screens at bmwmethod.com - I have positions in C, GE and JNJ. Shouldn't I be THRILLED that they're so low right now? If I liked JNJ 5 years ago at $65 I should LOVE it now. Once I finish The Intelligent Investor I want to look through these three stocks and see if I should still own them. I may not have made any money on JNJ, but I own 15% more JNJ than I did 5 years ago. Not a great CAGR, but better than a lot of my other investments.Murph- thank you for sharing that post. You sound a lot like Graham! You talk about having a plan, but it's really hard for me to imagine a long term plan at the age of 30. Are you suggesting that if I plan on retiring at say, 60, then I need to figure out what kind of CAGR I need with my current assets and any planned additions and then see if I can create a reasonable plan to do so?To be honest- I don't want to spend a lot of time on research and watching stock prices. I want to trade infrequently and hold quality companies for a long time and not even worry about my portfolios. I think aiming for companies with dividends is a great idea as I'm thrilled at what JNJ has done over time, even though I'm only up 2.5% on the stock in the last 5 years. I can see what dividends could do over 10, 20 and 30 years without having me do anything but sign up for DRIPS. Also- is there an effective way to dollar cost average at smaller values? If I invested $200 in a company per quarter for example, paying $10-12 per trade is an awful lot.Graham talks about holding 25-75% bonds - are bonds still worth buying today? I looked into TIPS and it looked like they were near 0.Good to hear from you both- anyone else still lurking around?
I'm trying to figure out where I made a mistake with ACAS. Their stock peaked at nearly $50/share in 2007, and I got on board for $41 in Sept and $38 in Nov 2007. I'm looking at their 10-K for their 2006 numbers here: http://sec.gov/Archives/edgar/data/817473/000119312507044440...I'm trying to see if there is something that should have alerted me that this was a poor investment based on Graham's criteria. I'm having a tough time figuring out their P/E at that point in time though- I must be missing something, or maybe it's because they're a BDC.
I'm trying to figure out where I made a mistake with ACAS.This company prints its own money to finance itself by issuing new shares each, and every, year. This is a risky proposition when earnings contract because the amount investors are prepared to pay for new shares is proportionally less. Just when they need an infusion of cash the most is the time when their fair-weather friends are suddenly few and far between.In good times this is a fine strategy for the company and its investors but when the tables turn the inherent weakness of the business model becomes evident.Shares Outstanding '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 35.66 40.46 55.20 85.63 109 144 188 207 281 341kelbon
Shares Outstanding '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 35.66 40.46 55.20 85.63 109 144 188 207 281 341
Thanks kelbon. I was looking through some of my old posts and found this thread: http://boards.fool.com/acas-beaten-down-today-26621134.aspx?...Denny and Dan both bought in to ACAS as well, so I was in good company. Hopefully they got out before I did. :)At that point in time, ACAS was only 11 years old. That already breaks Graham's rules of needing 20 years of uninterrupted dividends.
I lost $200 on ACAS. I lost a lot more on the shares but made it up by trading options, selling calls and puts.I liked the business but Taleb is right, finance is bad black swan prone. When the 2008 credit crisis happened it was by a miracle that ACAS didn't get wiped out. At least it taught me to keep clear of financials. I did rather well with STT because by some miracle I got out at the top. With other financials I did poorly. A mixed bag.Denny Schlesinger
Hi again, captol07!First of all, I'm not a certified financial anything...and as a Home Fool, don't speak for anyone but myself. That being said.... You talk about having a plan, but it's really hard for me to imagine a long term plan at the age of 30. Are you suggesting that if I plan on retiring at say, 60, then I need to figure out what kind of CAGR I need with my current assets and any planned additions and then see if I can create a reasonable plan to do so?Yes, IMHO, you need a plan now....one that you will review at the end of each year...and one that estimates the number of inflation-adjusted dollars you will need until your anticipated death ( not retirement ). By definition, it will be full of things that you feel are tough to estimate ( income over the decades from work, expenses as things change, how much you save, etc )...but give it your best shot. The important thing is to find in what investing ballpark ( CAGR ) you need to play....test it for reasonableness...and then design an investing strategy to deliver against it. Will the plan change? Yes, quite a bit, given your age...but the investing discipline it imposes is priceless.( reread the links for more details )To be honest- I don't want to spend a lot of time on research and watching stock prices. I want to trade infrequently and hold quality companies for a long time and not even worry about my portfolios. I think aiming for companies with dividends is a great idea as I'm thrilled at what JNJ has done over time, even though I'm only up 2.5% on the stock in the last 5 years. I can see what dividends could do over 10, 20 and 30 years without having me do anything but sign up for DRIPS.Good solid dividend payers/growers MAY be the core answer to your investing needs....depending upon what your plan says. Certainly they fit the needs you describe above. As to DRIPS....they are OK for the small account investor, in that they help avoid getting eaten up by commissions on small purchases; however, once one's account grows to sufficient size, I prefer to accumulate dividends from all the stocks and buy the best value at time zero versus DRIPing. Also- is there an effective way to dollar cost average at smaller values? If I invested $200 in a company per quarter for example, paying $10-12 per trade is an awful lot.Personally, I don't dollar cost average, but I can see it may be right for certain investing temperaments/situations. I "time" the price of individual stocks on my want list ( subject to diversification rules ). If the hit MY price, I buy...if not, I wait. There have been times when I've bought almost nothing for 6 months...and then either a general market correction or a stock-specific news events drops the prices on my watchlist to my price. I've made much more money being patient that dollar cost averaging. However...for someone relatively young and with smaller amounts to invest monthly, it may make some sense.By the way, I consider patience to be the toughest investing lesson I ever had to learn.Graham talks about holding 25-75% bonds - are bonds still worth buying today? I looked into TIPS and it looked like they were near 0.No one can predict the future, but with the unprecedented interference in the markets by the Fed, I don't like bonds for the longer term. At my age ( 65 ), the majority of my assets are "supposed" to be in bonds. Right now, bonds/bond funds comprise about 20%...and most are not long-term...and all those that are were purchased years ago, and offer at least some inflation protection ( TIPS, I's ). While bond rates may be flat/down a bit for years, at some point they will rise ( and I think dramatically )....and bonds in general ( and long bonds in particular ) will get clobbered....the exact reverse of what happened from the late 70's. My bond allocation will rise dramatically when bond rates rise dramatically ( and their value falls ). Until then, I have absolutely no problem using solid-balance sheet dividend payers growers as a bond surrogate, with an inflation-protection kicker...dividend growth. In reading the above thoughts about bonds, please remember that they derive from my investing plan...the core of which is a dividend income stream to meet expenses. Thus, I'm not worried as worried about what a stock's price may do ( capital appreciation/depreciation ).Enough for now....good luck with your investing journey...and remember:The person with a ( decent ) plan usually wins over people who don't have one.Cheers!MurphHome Fool
Murph,This discussion is best taken to another board, but let me suggest that what you DID is accurate, what you said, perhaps not so much.I've seen hundreds of people with a financial plan who get "killed" almost as much as those without. What you DID was UNDERSTAND many, many alternatives, good and bad, and came up with the alternative plan that's best for you. What I also imply that you did was dedicate yourself to saving, began the process of examining what you want and need to spend, and looked to how you could invest those savings. As is said in war, battle plans go out the window after the first major shots are fired. Then it is ALL about the tactics and understanding of the folks in the field. I'm guessing that in 2008 you were happy to have a financial plan that worked or didn't work overall because your various tactics for bonds, stocks, going to cash, options and more were adjusting to the situation given. What you did, and the thorough understanding of the tactics to get there did and do get you through AND provide the balance between patience and action that you need.For our young 30 year old this is happening both from his mistakes (and it's GREAT he's seeing if and why he's wrong) as well as I hope to do the saving, tracking expenses and other things necessary for better outcomes.Finally, it wouldn't be ME if I didn't suggest that a core of his long-term holdings should be in index funds. Say what you wish, his experience shows why it's better to beat 85% of the individual pickers over retirement decades.GREAT post!Hockeypop
At that point in time, ACAS was only 11 years old. That already breaks Graham's rules of needing 20 years of uninterrupted dividends. Graham is not set in stone. A careful reading of Security Analysis shows how their thesis changed over the years from a time when bonds were investments while stocks were speculation. In time Graham and Dodd were forced to acknowledge that stocks are investments. Over the years they changed their opinion about how to calculate intrinsic value of companies, a cornerstone of value investing. For his part, while Buffett was schooled by Graham he acknowledged that his approach to investing was later influenced by Philip Fisher of Common Stocks, Uncommon Profits fame, a book most certainly worth reading.You sound like you'd like to be the "defensive" intelligent investor. Since there is no free lunch, in that case I would suggest that you should expect the average long term stock market return which is around 6.8% after inflation (in real dollars) taken from Stocks for the Long Run by Jeremy J. Siegel. One of the reasons pension plans got into trouble is that they used overly optimistic stock market return expectations. Dial down the rate in the calculation and you get a serious shortfall of funds to meet obligations. Once you hit the 70s your ability to generate income is seriously diminished and a shortfall of funds at that stage is "serious."While one is gainfully employed one has little time for serious stock market work (I wasn't interested at all) but as you reach retirement you have more time on your hands and, hopefully, more funds to manage. This might be a good time to switch roles from defensive to enterprising investing. As BuildMWell puts it, think about yourself as captal07, Inc. in the business of investing money for fun and profit. All this would be part of the plan that Murph talks about, not just dollars and cents but lifestyles as well.When I was a kid I used to watch my dad fill in 3 by 5 cards with stock price information taken from the newspaper and I could not imagine anything more boring than that. Over the past 20 years or so I have found a study of the stock market and its players to be absolutely fascinating. Nothing is set in stone. And stone weathers. ;)Denny SchlesingerCommon Stocks and Uncommon Profits and Other Writings by Philip A. Fisherhttp://www.amazon.com/Uncommon-Profits-Writings-Investment-C...Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies, 4th Edition by Jeremy J. Siegelhttp://www.amazon.com/Stocks-Long-Run-Definitive-Investment/...
Hi Hockeypop!The one thing that I left off the post was something that you touch on:Most people look for the "right way" to invest. What they should be doing is looking for the right to invest....for them. ;-)Cheers!MurphHome Fool
Thanks guys. I do think holding Index funds should be the largest component of my portfolio for now. Say 70-80%. I'm holding some money in the S&P500 via VFINX and some in the International market with Vanguard's VTRIX. I'll likely put some more money in the S&P500, and maybe the Wilshire 5000 (though this looks nearly identical to VFINX) or another fund. I'd like to look into some bond index funds too- any suggestions?With the other 20-30% I'd like to hold companies like JNJ, GE and C for now (assuming I still like them after I get some time to do more research). They seem like silly companies to get rid of when their value is so low- though the dividend for C is nearly 0.If I can prove to myself over the next 10 years or so that I can beat the index funds with the 20-30% I'm investing, I'll look into reducing my reliance on index funds. They're certainly better than sitting on Thanks for the link to those books Denny- I'll start with Fisher and give at a read as soon as I'm done with Graham.
When I was a kid I used to watch my dad fill in 3 by 5 cards with stock price information taken from the newspaper and I could not imagine anything more boring than that. Over the past 20 years or so I have found a study of the stock market and its players to be absolutely fascinating. Nothing is set in stone. And stone weathers. ;)Denny makes an important point .... I read Graham when I was 30 and just didn't "get it." Fortunately I kept the book and 20 years later I did. Context, background, learning from mistakes and experience make a LOT of difference. Those are all good books!Hockeypop
"Denny- I'm sorry to hear about Jim- I hope he is doing ok. I remember reading a lot of his posts back in the day." - captal07Don't be sorry, captal07, there is nothing to be sorry about. I am still around and doing quite well. What Denny was referring to was my errors back in 2008 where I used the BMW Method on bank shares and was clipped by the market quite severly.The good news is I never gave up and made 100% of my losses back between March 2009 and May 2009 with bank stocks! I never gave up on my belief that the banks would rebound and I continued to bet on that recovery...but not with WAC and WM where I lost the big bucks. They were no longer around to aid in the recovery, but the rest came roaring back.The reason that I am not around here as much as I should be is to be blamed on my boat. My wife and I bought a second home in New Bern, NC, and it came with a boat slip. Owning a 40 foot boat slip provides a very good reason for owning a 38 foot boat and, being a BMW Method believer, I just had to apply it to the purchase of a historically under-valued sailboat. Now, I spend my time varnishing teak instead of looking at the stock market. Thus, I am not around TMF like I used to be and my stock portfolio is still looking quite nice. The beauty of the BMW Method is it allows us to buy at historical lows and then allow the market do all of the work. The more time I can spend sanding teak, the better. The market doesn't know whether I am watching FOX Business, CNBC, Bloomberg, or painting varnish onto wood. Actually, applying varnish is far more lucrative as it adds value to a C&C sailboat while watching the financial channels is almost a total waste of time. So, please do not count me out. I am alive and well and making money with my investments. Heck, I have been retired now for 17 years and investment income is how I live. This sailboat of mine was bought by Mr. Market just last year. Mr. Market also paid for my brushes, sandpaper and varnish. He puts diesel in the tank, buys new sails and pays the taxes every year. Thank goodness he cannot see how little I do for him in return. Mr. Market is one hard working dude...and I love him for it. I have figured out that the best bet is to just leave him alone and let him work for me. BuildMWell
I'm glad to hear you're enjoying life Mr. BuildMWell! Sailing a boat must be infinitely more satisfying than watching financial channels :)I've finished my first read through The Intelligent Investor and Common Stocks, Uncommon Profits. Two different perspectives and methodologies that both appear to have strong foundations and evidence of success. I've also been reading through a few of the boards, and it's interesting how I can see people doing exactly the things that Graham and Fisher say not to. I was just on the AAPL board and reading about how AAPL is either over or under valued- how it will hit $500 or how it will recede to $300. At a quick glance, it appears to be undervalued from this chart: http://bigcharts.marketwatch.com/advchart/frames/frames.asp?...Yes the price keeps going up, but the P/E keeps going down while EPS increases! To me it looks like a better value than when I bought it at $320 last year. Anyway, I plan on looking into it deeper, though my experience doing DD is limited. I'll try to approach it with the knowledge I've gained from the two books I've just read.I too have a lot of time on my hands as well because I'm looking for work, so I figured I'd put my time to good use! I'm finally back in the US after spending the last 5 years living in Australia, Japan and Singapore. It wasn't a great decision financially, but it was an amazing experience that I'm very thankful for.I look forward to hearing more from you when you're not sailing!
Jim:Good to hear you are busy with a boat! I used to hate varnish so I let the teak weather which looks rather good, if you like it. Just keep splashing it with salt water. Glass boats don't have much teak.Those of us who didn't panic in 2008 got most of our money back in 2009 and 10 except for certain banks that went belly up. I was a late arrival at the finance industry and I have convinced myself to leave it alone. There are a lot of simpler, more transparent businesses so why make life complicated? I still have a few finance stocks but I'm not adding to them.I know you were pushing the BMWM to the bleeding edge and there sometimes one bleeds. It's part of the territory! Last year I joined a group of traders and gave it a try. No way! There is more to life than sitting in front of a computer monitor all day. Besides, unless one trades with mountains of leverage, you really have no advantage over more leisurely BMWM style entries and exits. Leverage, as has been shown again and again, can be fearsome!While I don't much trade BMWM style, having become acquainted with CAGR, it now has become a central theme of all my trades and for that I thank you!Denny Schlesinger
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