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Subject:  OT: Any TC2000(funds) Users? Date:  6/20/2002  10:10 PM
Author:  imcharliehm Number:  4015 of 35363

Is anyone using TC2000(funds) as the basis for their investment/trading decisions?

This crazy market is killing returns for conventional strategies, but there are still oppportunities out there. E.g., May 07 I took a position in EGLRX, an international REIT, purely on the basis of technicals --though admittedly very late and I haven't the slightest idea what they own-- and I'm up an annualized 13%, which makes me wonder why I'm even considering junk bonds and putting in the hours doing fundamental research when risk-equivalent returns --the only true basis of comparison-- are available in easier ways. E.g., on something like OAKGX, a global value fund, I'm still up 18% from where I got into it nearly two years ago, and only truly scary bonds are offering 18% these days, not that I'm not looking, but I'm questioning the prudence of committing more money to the sector for it's being very expensive (due to where we are in the interest rate cycle, which continues to base.)

Admittedly, trading technically is sector hopping, and a very unFoolish thing to do, but in the trading-range/down market we're in, holding on and hoping just doesn't make much sense. My interest would be to get a thread going on using funds --any asset class-- as alternatives to CD's (and equivalent) when appropriately adjusted for the genuine risk differences there are going to be between the instruments, as a way to keep cash working. The question to explore, which anyone could jump in on, is this:

How much does a fluctuating investment --however that is to be measured--- have to return in excess of a non-fluctuating investment before taking on its risk becomes becomes the smarter choice? Where does the crossover point --the efficient frontier-- fall when the two are plotted against each other? (which is probably a function of a third value, if I'm remembering the MPT stuff right, which is one's individual risk tolerance, which would need to to be quantified as well.)

Conceptually the problem is simple: convert an apple and an orange each to juice and ask which one tastes better as well as provides threshold nutritional value. Any ideas on how to obtain risk numbers that would have general applicability to the fixed-income community that presumably makes up this message board so that people could see that there might be alternatives to CD's, an instrument with which I'm currently quarreling? Not that I'd urge anyone to make the move from where they are currently comfortable, only that, in keeping with the spirit of TMF website, one's investment choices should be rational ones, not driven by fear or ignorance, and I think the banks are currently ripping off the investment public even more than they usually do, especially when one looks at the spread they make on the money.

If hard-number arguments can't be constructed as to why CD's are the better choice in this current market than investments that are perceived to be riskier but aren't proven to be riskier when properly adjusted for reward, buying CD's is acting on superstitions that have the rational force of the tooth fairy. It's a belief that might be as harmful to one's financial health as cigarettes ae to one's medical health (which, you'll remember, once were once touted as causing no adverse health effects.) The addiction to security that drives the sales of CD's is just as insidious as nicotine, I would argue, to put the case in the most extreme light I could, as a means to trying to determine where are the rational boundaries and limits of one's beliefs and choices.

If nothing else, the question is an interesting problem in behavioral finance. Why do people fear downside losses of what they have more than they fear upside loses (in terms of opportunities foregone compared to what they could have?). That's the academic question, and the research is consistent: we are hard-wired for the former choice. But, I then ask, why can't investor education overcome that hard-wiring, especially presumably educated, motivated people such as make up the Fool community?

The Cap Preservation/Cap Appreciation debate has generated more heat than light, more emotion than reason, and I'm a lot more passionate in my dislike of CD's than mere reason would suggest, and I think it's because the question runs a lot deeper than mere numbers. It threatens core identities, and arguments become defenses of that self and status quo rather than an opportunity for change and growth. I see CD's as instruments of class oppresssion which I'll fight anywhere and every where I can. Others see them as pillars of stability and guarantees that, if they queue up and accept their portion of gruel, then at least worse things won't happen to them and resent me for being a boat rocker. Yeah, I'm pushing hard here, but my intuition says that psychodynamics is trumping accounting. Money isn't just money. To an extent greater than we are all willing to admit, it is also the measure of who we are.

I can't find the book on my shelves right now, and I never did get very far into it, but it's by Maria Nameth (?) and called something like "The Energy of Money." Also, I now see I'm going to have to go back and look at the applied Jungian stuff again and try to match psychological types to preferred investment vehicles and strategies. Why do self-identified investors fear traders? Why do self-identified traders despise investors? Where do gamblers and speculators fit in? Ugh. This stuff is bottomless. One puzzle just turns up a dozen more.

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