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Author: charliebonds Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35365  
Subject: A Friend Writes Date: 12/30/2011 4:24 PM
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A friend writes: What is so easy for you is pretty opaque to most of us. I fantasize about taking a dart and throwing it to pinpoint a stock that will simply go up and up forever!

I replied: I can give you the true, three-word explanation for my investing success: "Sheer, dumb luck". Seriously, that's 90% of the explanation. In the fall of '99, I didn't like what was happening in the stock market and thought it would end badly. So I focused my money and efforts on bonds. In betting terms, I walked into the casino and bet everything on red. Out of sheer, dumb luck, the bet paid off. What I did wasn't anything any investor couldn't have done just by buying a single index fund that focused on bonds, such as Vanguard's VUSTX or VBLTX. My 10-year, average return of 8.10% is no better, no worse, than theirs (8.18% and 7.93%, resp., as of 11/30/11). But no investor in his or her right mind would have made that bet. They would have spread their money among many asset-classes, a few of which did better, but most of which did far worse.

But let's say they did make that bet, that they bet everything on a single bond fund. Where would they be today? They'd be better off financially than 98% of their peers. But they wouldn't be better off in terms of their investing skills. All they did is make one lucky guess about asset-allocation. Can they repeat that performance going forward? My bet is that they can't, and that I can't, either. But I am willing to bet that bonds aren't going to be the place to be going forward, that over the next decade, bond investors are going to get killed, as will stock investors. But traders (any asset-class) might actually be able to do well in the choppy, flat-to-down markets that are likely to prevail. So that's the bet I'm making for 2012 and beyond. I'm going to stop buying bonds and find something to trade.

From my daughter I'm getting the same kind of resistance and stalling I get from everyone else to whom I try to preach the gospel of active investing. Her choice. Their choice. It's not my problem that they will never be able to retire, not that I've been able to do so, either, not when I'm putting in 20 hours/week managing my money, and, lately, it's been 12 and 16 hour days as I gear up for my 2012 campaign.

If you want to use darts to pick your stocks, do so. Actually, it's a very sound method *provided* you know when to get out. More than one study has been done using random entries paired with aggressive risk-management and proven to be profitable. Or as the trader's joke goes:

Ques: You and a monkey are going to set up a trading business. One of you will do all the buying, one all the selling. Which job do you want?
Ans: Always assume a monkey did your buying, and that the far more important job is risk-management.

-------------------

Lastly, to All.

I want to thank you for your indulgence (or not) of what I've posted over the nearly ten years it's been since the time I first wandered into this forum (under a different handle) and challenged what someone was saying about bond-investing, because it reflected his lack of experience and understanding about how bond-investing must be done if a real-rate of return after taxes and inflation is to be obtained. The past several years have proven me right. The trade-off that has to be made with every bond-buying decision is whether to accept default-risk or purchasing-power risk. Those are the two sides of the equation. You can't avoid both risks at the same time. Most bond investors can't quantify either one for themselves. But they fear the former more than the latter. So they buy accordingly, and they haven't done very well in recent years.

My bet is most bond-investors will continue to under-perform unless they change their game. What worked in the '90s didn't work in the '00s. What worked in the '00s won't work in the 'teens. Out of sheer dumb luck, I had the wind of falling interest-rates at my back for nearly ten years, as well as little competition for what I was buying. But now, with yield-hungry boomers crowding into an increasingly over-crowded market, and with central bankers printing money and continuing to suppress interest-rates out of self-interest in their own survival, it's gotten tough to find bonds that are cheap enough to offer a margin of safety *and* a real-rate of return. So I've ceased my buying, and in 2012 and beyond, I'll be rotating my efforts into a new investment theme, about which I won't be posting. So this really is a "good-bye" to you, an audience whom I valued as any writer does, because it was your unspoken questions I was trying to answer on the theory that, if I could explain it to someone else, I could explain it myself. The time for explaining is over. Ben Graham's classic intro to value-investing really does have most of the answers any investor needs. The rest is just small details that the specific markets you pursue will teach you if you just pay attention to what they are saying.

It was a good ten-year run for me, but 'charliebonds' is no more.

Trade well.
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Author: CheersSRX One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 33545 of 35365
Subject: Re: A Friend Writes Date: 12/30/2011 4:47 PM
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Good luck to you, Charlie. I have enjoyed your "ramblings" immensely and shall miss your posts more than you can imagine. Especially since they would be on a new topic, and one that I aspire to but will never engage in due to my lack of expertise and the time to gain same.

Cheers!

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Author: KingOfTown Three stars, 500 posts Old School Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 33546 of 35365
Subject: Re: A Friend Writes Date: 12/30/2011 5:48 PM
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Thank you Charlie for all of your thought-provoking ideas - and the great stories of fly-fishing and the like.

I have learned a lot just by reading your posts. They encouraged me to buy some books as well as bonds.

For what it's worth, I think you are right about the future of bond investing - at least for a few years (perhaps a decade). But I must admit I have thought that for a while now. Who would believe that interest rates would remain so low so long? It's possible you might still be early in your new investment theme, but based on your teachings here I'm pretty sure you'll move at a pace that will make your success likely.

I hope you continue to post on those boards that relate to your new theme. They are bound to be educational, notable and readable.

Thanks and good luck in the new year.

Regards,
Les

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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 33547 of 35365
Subject: Re: A Friend Writes Date: 12/30/2011 6:12 PM
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Goodbye to Charlie!

I've enjoyed your posts through these years. Your approach is much more scientific than mine--going for the sweet spot on the yield curve. You've avoided stocks, which have been my 2nd form of investing, having started with bonds some 50 years ago.

Last year I had some bonds redeemed, couldn't find a replacement that I liked, and bought new windows for my house. This year you bought more bonds, and showed that there were still some to be found, if you looked hard enough. The stocks have treated me well in 2011 and hopefully will continue to do so in 2012. I have 3 positions coming due in early 2012 and likely will shift the money to stocks.

Your new investing platform? I hope not commodities. That is a fast-moving field with less than zero sum--less because the broker gets paid for every round turn. It is highly leveraged and one can lose one's shirt very fast.

For me, I will stick primarily with stocks, keep an eye on the bond market and if interest rates improve a lot, get back in. I'll hold my bonds and let them mature--or maybe do some selling, as there must, sooner or later, be rising interest rates to contend with.

You'll be missed around here--but the choice to find a different investing theme is correct, I'm sure!

Godspeed to you and I hope we meet again.

Chris

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Author: LONGREITS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 33548 of 35365
Subject: Re: A Friend Writes Date: 12/30/2011 7:42 PM
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Charlie, thanks for your invaluable contribution to this board. I'm a better investor because of it.

LR

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Author: voiceinthedin Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 33549 of 35365
Subject: Re: A Friend Writes Date: 12/31/2011 3:31 AM
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Ans: Always assume a monkey did your buying, and that the far more important job is risk-management.
-------------------


Charlie,

thanks for the wisedom above....words to live or die by......

We will see you in the five percent solution.....quite sure of it.....

Dave

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Author: DrTarr Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 33551 of 35365
Subject: Re: A Friend Writes Date: 12/31/2011 9:45 PM
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he he he, silly monkey!!

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Author: TMFMurph Big gold star, 5000 posts Old School Fool Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 33552 of 35365
Subject: Re: A Friend Writes Date: 1/3/2012 9:02 AM
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Hi CharlieB!

My sincere thank you for all the educating you did on this board ( and others ).

You are a true Fool, "educating, enriching and amusing" others.

Thanks again...and good luck in your new investment endeavor...whatever it is. ;-)

Cheers!
Murph
Home Fool

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