UnThreaded | Threaded | Whole Thread (37) | Ignore Thread Prev Thread | Next Thread
Author: rrosenkoetter One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76237  
Subject: Finding a good financial planner Date: 2/7/2005 11:23 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
Or... help with investment plans.

So far, my wife and I have talked to several advisors and they're all idiots.

EVERY one so far has pulled on charts showing how much money a $10,000 investment would be worth if invested in so-and-so fund.

I point out to each one that the charts start in 1982, the beginning of the last bull market, and they just look at me blankly. "You got a chart of how that fund did from 1966 to 1982?" I ask. (The Dow Jones went from 968 beginning of 1966 to 1027 beginning of 1982 - yes, that a 6% TOTAL gain over SIXTEEN years. Bear markets are REAL. And we're in one now.)

Of course, they can't answer.

My wife and I actually have a good amount of money. Enough that if we could double it two or three times, we could retire... At 10%, that would be 14-21 years. At 7% (which I would be happy to get), that would be 20-30 years. And that doesn't count us continuing to save (which we will do). I'm only 35, so I have the 30 years if necessary.

But it's very hard being at this point. When we were first starting out, it didn't matter so much where we put the money. We were saving more each year than we were getting in returns for a while.

Now that the nest egg has grown, our choices are much more important. We haven't done very well for the last 5 years. Our retirement money has only grown probably 10% total since 2000 (and that's only because of our continuing contributions).

I'm reading and learning as much as I can, but what I see is that we're in a bear market... and I forsee another 10+ years of crap to negative returns. We just moved all our money to Vanguard (Yes, our last broker had us in B shares in high-fee funds), so we're starting from scratch there. All our money is currently in short-term bond funds (paying 3-4%).

Part of me wants to just stay there for the next 10 years until P/E ratios drop to the low teens or single digits again, and I can start buying index funds again, but of course almost EVERYONE (most people on these boards it looks like as well) tells me that's crazy... That one must stay invested...

And 3-4% is crap, if I ever want to retire. See, that's the problem. There's no reason we shouldn't be able to retire wealthy... but if I make the wrong decisions, I could blow our well-earned retirement on the lakehouse with the speedboat to take the grandkids tubing.

If I stick with 3-4% bonds, and the stock market goes up 8% a year for the next 10 years, I'm really hurt our retirment. If I invest in the market, and it crashes (and it certainly could), then I've hurt our retirement even more.

I need to talk to with someone competent, several competent people actually. I joined these boards hoping you all could help. I want to talk to someone who actually told his clients to get out of stocks anywhere from 1998-2000. Someone who recognized that a P/E ratio of 31 is bubble territory. Someone who has studied the history of the market.

If I can't find professional help that I can trust (and I'm not just looking for someone who will agree with me... I want someone who knows what they are talking about), then my plan is to do the following:

- Our current nest egg will remain in the short-term bond fund.
- Every month, I'll invest 1% of it in the market (spread among various Vanguard funds, mostly index), so it will take me 8 years to be fully invested again.
- Our continued savings will go 100% into the market (spread among the same Vanguard funds as above)

That's the best I can do on my own right now. Maybe as I learn more, I can come up with something better.

Comments would be most appreciated.
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44371 of 76237
Subject: Re: Finding a good financial planner Date: 2/7/2005 11:43 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 6
rrosenkoetter asks,

I need to talk to with someone competent, several competent people actually. I joined these boards hoping you all could help. I want to talk to someone who actually told his clients to get out of stocks anywhere from 1998-2000. Someone who recognized that a P/E ratio of 31 is bubble territory. Someone who has studied the history of the market.


For every financial advisor who told his clients to sell everything in 1998-2000, there are 10 or 20 similarly credentialed people who told their customers to get out in 1995 or 2002, missing the subsequent gains. There's no way to identify beforehand which advisor will be lucky with his market timing predictions in the future.

A better course of action is to just decide on an appropriate asset allocation and rebalance annually.

intercst

Print the post Back To Top
Author: rrosenkoetter One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44374 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 12:50 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
So you think that every financial advisor is a fraud? That none of them understand the markets at all? (I wouldn't disagree with that out of hand).

I've read some good books, and some older guys newsletters. The whole cycle of bull\bear markets, how P/E ratios have historically "shown the way"

Richard Russell (he's 80 I think), has lived through two bear and two bull markets. He made accurate calls about the bull market in the 50s and 60s, he called the bear from 66-82, he called the last bull market when everyone else was giving up on stocks (he called it early by a couple of years - but everyone who listened to him made a killing in ten years), AND he called the last crash (in 1999, about 9 months early).

He's a proponent of the Dow Theory, which I don't know much about... but he also believes in the cycles of the market... Pendulum always swings too far... For the last 100 years... P/E ratio goes up into the 20+ range, and then back down into the single digits. Over and over this has been true. The S&P 500 still has a P/E ratio of around 20... This bear market has a long way to go before the P/E ratios drop past 15 and back into the low teens or single digits (at which time one should be buying again).

HE seems to know what he's talking about. He's made plenty of money on his own theories.

Should I basically assume that any financial advisor still working out of an office on Main Street obviously doesn't know what's talking about, because otherwise he'd be rich and retired?

See, I need to someone to help with investing in a bear market, but most advisors refuse to believe we're in one (it only lasted 2 years in their mind). Or I need someone to prove to me that "this time it IS different", and a market can continue to rise starting from a P/E ratio of 20 and low low dividends.

I've had THREE advisors tell me.. "but the economy is growing great!" Well, the economy grew at 3%+ during the 60s and early 70s as well, but the market stayed flat for many many years. Economic growth doesn't automatically equal higher stock prices. If stocks are still over-priced then earnings can grow while stock prices remain stagnant (which then brings the P/E ratios down slowly over the next decade - just like the last bear market).

How come these guys (who's JOB is to know everything they can about the market and the history of the market) don't know this?

Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: OldOne Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44375 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 1:00 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
I am not certain you really need to talk to a live financial planner. You seem pretty savvy already. Or, at least you have a working BS detector and are willing to walk away from the shysters.

If you don't really feel comfortable making your own decisions, a guy could do a lot worse than to just subscribe to Bob Brinker's MarketTimer newsletter & follow his recommendations. Take a look at: http://www.bobbrinker.com/ . Since 1988 the CAGR of his "model portfolio I" is on the order of 14% . The CAGR for the past 5 years is ~ 9%. Both of these results are well above your 7% criteria.

Cost is $185 per year. And, as I recall the damn geezer very nearly predicted the 2000 market top. I thought I was smarter than he was and didn't get out in time. My net worth has recovered & is now well above the 2000 high, but I will admit when someone has spanked me in the market.

I am going to retire in less than a year and will roll my 401k over into an IRA which pretty much follows his model portfolio I.

Print the post Back To Top
Author: ziggy29 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: 44376 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 8:09 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 6
>> So you think that every financial advisor is a fraud? That none of them understand the markets at all? (I wouldn't disagree with that out of hand). <<

I think this reading just a little bit too far in between the lines.

I think the point being made is twofold:

1) You need to be real careful and know all the stuff to ask, and the stuff you need to look for in a financial planner because many of them try to time the market which can make you very lucky (if they're right) or screwed (if they're not).

2) If you can take the time and effort to learn about what to look for in a financial planner, there's a decent chance you can redirect that time and effort toward learning the basics of age-appropriate investing, asset allocation and rebalancing and learn the relationship between risk and reward, and about reducing volatility through holding non-correlated assets. And save the fees in the process.

#29

Print the post Back To Top
Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44379 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 11:34 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 3
Our current nest egg will remain in the short-term bond fund.

At your age, this is like keeping your money in a matress. I was 98% in equities until a couple of years ago. Now, I'm 92% in equities. I retired six years ago at 49. I still do a little part-time consulting, but not enough to call it working. In my view, it's difficult to impossible to retire via a bond fund as a major investment vehicle.


Print the post Back To Top
Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44381 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 11:43 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 5
Author: rrosenkoetter | Date: 2/8/05 12:50 AM | Number: 443740
So you think that every financial advisor is a fraud? That none of them understand the markets at all? (I wouldn't disagree with that out of hand).

I think you have a misunderstanding about what a good financial advisor does. Any financial advisor who says he knows what the market will do in the future is one to walk away from. No one knows what the market will do in the future regardless of what they claim. If you hire a financial advisor who has 'called' the last two bear markets, then he has been lucky two times in a row. That's the same as a person who has thrown two sevens in a row with a pair of dice. Do you think he will be lucky again?

A reputable financial advisor will work with you to plan all areas of your finances. This would include amoung other things, a savings plan, an estate plan, and a portfolio tailored to your specific needs, based on your risk tolerance, age, and other personal information. It will be a portfolio that sets a level of growth and risk based on an allocation between uncorrelated (weakly correlated) asset classes. It may be as simple or as complex as you are willing to pay for. A simple asset allocation plan assigns a percentage between stocks and bonds and keeps that percentage constant. A complex plan could involve many different asset classes (precious metals, real estate, foreign currency, etc). However, you get about 95% of the benefit of diversification from just using the Total Stock Market mixed with the Total Bond Market (mutual funds). Once this allocation is established, the financial advisor will recommend to you to rebalance as needed to keep the percentages constant, and he will meet with you at least once a year to review your whole plan and make changes as necessary to reflect changes in your life.

The more experienced an advisor is, the more emphatically he will tell you that past performance does not indicate future performance. You have to protect yourself from the risk that past performance does not properly indicate actual performance.

I've read some good books, and some older guys newsletters. The whole cycle of bull\bear markets, how P/E ratios have historically "shown the way"

There are several organizations that study how successful each financial newsletter has been over long periods of time, and overall, in my opinion, there isn't a single newsletter that is worth buying. I think you should read some books like:

'The Wealthy Barber' by David Chilton
'The Four Pillars of Investing' by William Bernstein
'A Random Walk Down Wall Street' by Burton Malkiel
'Common Sense on Mutual Funds' by John Bogle
'Stocks for the Long Run' by Jeremy Siegel

All this said, most people here at the Fool have decided to learn enough to do most, if not all, of their own investment planning. Most still need professional help with their estate planning.

Russ

Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: investinginstuff Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44385 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 12:53 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
To intercst's comments I might add that even if there was a financial advisor who urged people to get out of the market before the crash, who would have listened to him? Any advisor who used prudence in investing during the bubble was dismissed as a loser.

JLP

http://AllThingsFinancial.blogspot.com

Print the post Back To Top
Author: rrosenkoetter One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44387 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 1:42 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
Thanks for all the posts. And I will read those books.

>> Any financial advisor who says he knows what the market will do in the future is one to walk away from. No one knows what the market will do in the future regardless of what they claim. <<

I'd like to revisit this topic. What do you all think about the correlation between the market's P/E ratio and it's subsequent performance?

Have any of you read Bull's Eye Investing by John Maudlin?

Historical data shows the average market P/E ratio swings up and down with bull/bear markets. Over the last 100 years, in every bull market, prices for stocks shot up faster than earnings. At the top of every bull market, P/E ratios were high (20+). Then the bear market takes over, and the pendulum swings the other way. Either prices drop drastically (Great Depression), or prices stay stagnant for many years until earnings catch up (1966-1982).

Historical data shows that if you invested when P/E ratios were low (low teens, single digits), you made a lot more money over the next 10 years than if you invested when P/E ratios were high (20+).

In fact, historical data shows that investing in the market (broad index funds) when P/E ratios are as high as they are today returned 0% over the next 10 years. The whole argument that the stock market averages 10% may be true, but there HAVE been times when the market made 0% for 10 years or more.

Now, like we always say... historical data doesn't predict the future (and this is broad stock indexes we're talking about - one can always make money on individual stocks).

BUT, if in 1902-1903 P/E ratios were pushing 20+, and a bear market followed, and in 1929 P/E ratios were pushing 30. and a bear market followed, and in 1965-1966, P/E ratios were close to 25, and a bear marekt followed....

AND in 1919-1921, P/E ratios were around 6-7, and a bull market followed, and in 1948-1950, P/E ratios were around 10-11, and a bull market followed, and 1982, P/E ratios were around 7-8 and a bull market followed...

What would a wise financial planner tell his clients about a market in 1999-2000 that was pushing a P/E ratio of 30? Could he predict the future? No... Could he say... the market is very high right now, and over the last 100 years, a bear market has followed this kind of pricing... perhaps we should move SOME money out of the market.

Very few said that... I want to find those very few.

I'll probably just do it on my own... time to buy lots and lots of books and see if I can separate the wheat from the chaff

What should a wise financial planner be saying right now, with P/E ratios still around 20? Every bear market has rallies... 1930 was a great year for stocks... even with a high P/E ratio of 23... those who jumped back in (like advisors are telling us to today) were demolished over the next decade.

I really believe that we're five years into a bear market, with another 10+ years to go, maybe longer. I want to keep as much as money as possible for when P/E ratios drop back to the low teens or single digits...

But I'm betting my families retirement on the choices I make today. I need more information, but I don't know who to believe. Those who did say "You know, companies can't grow at 30% forever - These prices are way too high"... Were they just lucky, or were they smart? Many commentators TODAY said it was obvious the market was in bubble back then. Well it seems that anyone who studied history would have seen SOME indications of danger. Most of the guys who saw it were the older ones.. the ones who lived through the 60s and 70s. How many advisors are out there today who have ONLY known a bull market?

How can these guys do this for a living and not have read every book I've read plus a thousand more?

Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: investinginstuff Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44389 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 2:14 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
Many commentators TODAY said it was obvious the market was in bubble back then.

Oh sure, they say that now. They sure as heck weren't saying it back then! I used to get so ticked at MSNBC because all they did was hype. I don't even watch that station any longer.

JLP

http://AllThingsFinancial.blogspot.com

Print the post Back To Top
Author: TwoCybers Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44392 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 3:37 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
You say you have enough to retire if you could 2 or 3 times. Well first I don't know what that means -- double it twice -- does that mean 2+2=4 (once) and 4+4=8 (twice) or does that mean 2 --> 6??

The more important questions/issues are how much money do you have and when will you retire? While many want to retire ASAP, if you are 40 years old you can expect to retire or be retired by your employer sometime in the 25 year range or sooner. i.e. you can only work on increasing your money for about 20 years --

The reason real dollars are important is I am going to suggest you spend hundreds of dollars -- maybe $2,500 or more. That is a high percentage off $100,000 -- it is not so much of $1,000,000 --

I am firmly in the camp anybody who writes as you do, knows enough to manage their own money -- Now you may lack knowledge about what investments are available to spread risk in say biotechnology -- i.e you don't know all the specialized index and mutual funds. You may not know the time tested best types of fixed income investments in a period of rising (or at least not falling) interest rates. And the item I and many others lack is the ability to be detached and make objective decisions.

So what's a person to do? I suggest you locate a Fee For Service Financial Planner -- you pay them by the hour. Get your last year's income tax, a net worth statement, list of current investments (be sure to include basis for each), a list of all trades you made in the last year, face pages of all insurance policies, etc. and your list of questions --

Then interview at least 3 planners and tell them all right up front, you are going to talk to 3, tell them your questions and on the assumption you are satisifed that you will want periodic updates in the future. Ask them for a good faith ball park estimate on what it will cost to review and recommend.

Then whether you choose to follow the advice or not is up to you. But you should have good advise. Fee for Service people know they will never see you again if they don't do it right. They also know they will not get any commissions since you are going to make your own investments at Vanguard, or Schwab or Scott or where ever.

If you have a tax professional ask for names there. You can also look on http://moneycentral.msn.com/investor/dalbar/main.asp and get some names.


Gordon
Atlanta


Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44395 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 4:07 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
Author: rrosenkoetter | Date: 2/8/05 1:42 PM | Number: 44387
Have any of you read Bull's Eye Investing by John Maudlin?

I have not read this book, and several people have mentioned it, so I guess I need to buy it and read it.

Historical data shows the average market P/E ratio swings up and down with bull/bear markets. Over the last 100 years, in every bull market, prices for stocks shot up faster than earnings. At the top of every bull market, P/E ratios were high (20+). Then the bear market takes over, and the pendulum swings the other way. Either prices drop drastically (Great Depression), or prices stay stagnant for many years until earnings catch up (1966-1982).

Historical data shows that if you invested when P/E ratios were low (low teens, single digits), you made a lot more money over the next 10 years than if you invested when P/E ratios were high (20+).

In fact, historical data shows that investing in the market (broad index funds) when P/E ratios are as high as they are today returned 0% over the next 10 years. The whole argument that the stock market averages 10% may be true, but there HAVE been times when the market made 0% for 10 years or more.

Now, like we always say... historical data doesn't predict the future (and this is broad stock indexes we're talking about - one can always make money on individual stocks).

BUT, if in 1902-1903 P/E ratios were pushing 20+, and a bear market followed, and in 1929 P/E ratios were pushing 30. and a bear market followed, and in 1965-1966, P/E ratios were close to 25, and a bear marekt followed....

AND in 1919-1921, P/E ratios were around 6-7, and a bull market followed, and in 1948-1950, P/E ratios were around 10-11, and a bull market followed, and 1982, P/E ratios were around 7-8 and a bull market followed...


Yes, when a bear market starts, P/E's are always high, and when a bull market starts, P/E's are always low. The question is: how high is 'high' and how low is 'low'? That level is not defined, and never will be.

Lots of schemes have been tried over the years to define when buy and sell based on P/E ratios, but none has ever been shown to be successful in the future.

You've highlighted the problem in your numbers above. At some points in time we were in a bear market when the market had a P/E of 20 and at other times we were in a bull market with a P/E of 20. How do you use the P/E to forecast anything when it is so ambiguous.

In 1999, when the P/E's were over 50 in the Nasdaq, people explained it away as being simply a consequence of the new efficiencies of the internet world. Lots of people bought into that notion and so most people did not think P/Es were too high for this New Economy. It's amazing to me that people believed this hype, but it was mainly because relatively few of the investors in that market had been through a 1966 - 1982 style bear market. It takes some serious wounds before you begin to realize just what a bad bear market can do to you.

In the 30's and 40's bonds were more popular than stocks because no one trusted that there wouldn't be another 1929 crash. Once that generation was replaced with a new generation that didn't remember the 29 crash, the stock market got popular again. Now, I am willing to bet there are at least a few people out there who got burned so badly in the 2000 Nasdaq crash that they will never buy another stock again. They may stick with bonds for the rest of their lives.

And, that's fine! Each person should invest only to his personal risk tolerance level. Go beyond that and you are just asking to be clobbered.

What would a wise financial planner tell his clients about a market in 1999-2000 that was pushing a P/E ratio of 30? Could he predict the future? No... Could he say... the market is very high right now, and over the last 100 years, a bear market has followed this kind of pricing... perhaps we should move SOME money out of the market.

Every financial planner has his own style and his own beliefs in what works and what doesn't work. The older the planner, the more likely he will tell you that there simply is NO SYSTEM to beat the market. Many younger planners have still not figured that out. It takes getting beat up a few times to begin to understand that you cannot outguess the market.

Every system that has ever been defined to beat the market has worked in the past. The problem is, that once they are published all these schemes quit working. This is because any real advantage that the system was defined on gets arbitraged away by professional traders almost immediately after it is 'discovered'.

I'll probably just do it on my own... time to buy lots and lots of books and see if I can separate the wheat from the chaff

As an exercise, do a little checking into how a 50% Total Stock Market, 10% Total REIT Market, and 40% Total Bond Market portfolio would have fared over the last 30 years. Over the 1999 - 2005 timeframe. Compare it to the Nasdaq and the S&P 500.

What should a wise financial planner be saying right now, with P/E ratios still around 20? Every bear market has rallies... 1930 was a great year for stocks... even with a high P/E ratio of 23... those who jumped back in (like advisors are telling us to today) were demolished over the next decade.

A wise financial planner would be saying right now, the same thing he said in 2000. Establish a portfolio that is right for your risk tolerance and let it alone.

I really believe that we're five years into a bear market, with another 10+ years to go, maybe longer. I want to keep as much as money as possible for when P/E ratios drop back to the low teens or single digits...

This is fine if it makes you feel better. However, you will not be able to reliably tell when the next bull market has started until it's well underway. That will cause you to miss the early, and usually the largest, upwards moves in the new bull market.

The only way that you know that we are in a bull or bear market is by looking backwards. It now looks as if in 2000, we were entering a secular bear market, and a few people guessed that correctly, but will those same people guess the end of the bear market correctly? History says NO. That's why the more experienced financial planners don't try to guess. Usually they will move money back and forth between stocks and into bonds to try to do what the account holder wants him to do. Left alone, a good planner sticks with the chosen asset allocation plan.

But I'm betting my families retirement on the choices I make today. I need more information, but I don't know who to believe. Those who did say "You know, companies can't grow at 30% forever - These prices are way too high"... Were they just lucky, or were they smart? Many commentators TODAY said it was obvious the market was in bubble back then. Well it seems that anyone who studied history would have seen SOME indications of danger. Most of the guys who saw it were the older ones.. the ones who lived through the 60s and 70s. How many advisors are out there today who have ONLY known a bull market?

How can these guys do this for a living and not have read every book I've read plus a thousand more?

The main reason that financial planners don't read all these books is that after you've read a few, they all start to sound alike; and there are so many of them that no one who works for a living has enough time to read them all. Remember that these books are written primarilly to get the author rich and not you. Heck the author may not even believe what he is writing.

You can classify these books into two groups: 1) books that teach you how to invest conservatively and reliably for your eventual retirment, and 2) books that promote one get-rich scheme or another where you are 'guaranteed' to make 15% or 20% or even higher per year on your money. I read the number 1) type books, because I know from being burned many times in my youth that these books are telling it to you straight. These books more or less reflect what is being taught in the universities when you get a degree in finance. However, I rarely read the number 2) type, because they have usually turned out to be a waste of my time (and my money for the ones I have bought into).

I suspect I know where Bulls Eye Investing falls, but to be fair, I will not make any comment until after I read it.

Russ

Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44396 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 4:08 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 3
rrosenkoetter ask,

What would a wise financial planner tell his clients about a market in 1999-2000 that was pushing a P/E ratio of 30? Could he predict the future? No... Could he say... the market is very high right now, and over the last 100 years, a bear market has followed this kind of pricing... perhaps we should move SOME money out of the market.

Very few said that... I want to find those very few.

I'll probably just do it on my own... time to buy lots and lots of books and see if I can separate the wheat from the chaff

What should a wise financial planner be saying right now, with P/E ratios still around 20? Every bear market has rallies... 1930 was a great year for stocks... even with a high P/E ratio of 23... those who jumped back in (like advisors are telling us to today) were demolished over the next decade.

I really believe that we're five years into a bear market, with another 10+ years to go, maybe longer. I want to keep as much as money as possible for when P/E ratios drop back to the low teens or single digits...

But I'm betting my families retirement on the choices I make today. I need more information, but I don't know who to believe. Those who did say "You know, companies can't grow at 30% forever - These prices are way too high"... Were they just lucky, or were they smart? Many commentators TODAY said it was obvious the market was in bubble back then. Well it seems that anyone who studied history would have seen SOME indications of danger. Most of the guys who saw it were the older ones.. the ones who lived through the 60s and 70s. How many advisors are out there today who have ONLY known a bull market?

How can these guys do this for a living and not have read every book I've read plus a thousand more?


People make good livings by being effective marketers and selling what people want to buy. With a good sales pitch, you can even sell an investment strategy that's likely to do poorly.

I suspect that most of the people on this board wouldn't buy a market-timing service. They are familar with Modern Portfolio Theory (MPT), long-term buy and hold (LTB&H) investing, and proper asset allocation. They've probably read the books by Bernstein, Bogle, and Seigel that rkmacdonald mentioned in post #44381. They believe the academic research showing that actively-managed accounts and market-timing are likely to underperform over the long-term.

If you're looking for someone to tell you that market timing is a good idea, you're probably in the wrong place.

intercst


Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: rrosenkoetter One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44401 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 5:30 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
Again, thanks for all the replies...

Good stuff... Looks like the money I spent to get on these boards might have been worth it.

Ron

Print the post Back To Top
Author: rrosenkoetter One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44403 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 5:54 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
>> but will those same people guess the end of the bear market correctly? History says NO. <<

Ah, but we know that a bull market has never STARTED at a P/E ratio of 20 (Of course, it could... Past history is no guarentee of future results).

But I think it's a fairly safe bet to say that the bear market isn't over right now...

Right now, I'm pretty much out of the market...

I'm very slowly moving money back in (1-2% a month - using dollar cost averaging on money I already own). I may not be 100% back in when the next bull market starts but I'm guessing I'll be mostly invested. Meanwhile all the money I save each month now will go 100% into the market.

And I'll be sticking with asset allocation with annual re-balancing.
I'm going through the Vanguard funds right now. You guys mind commenting if I post my possible allocations? Like to see what you think once I've got a plan...

If you want the numbers, I'm 35... Saving $20,000 a year (all 401k) for the next 7 years and then probably $10,000 a year after that (my wife is eight years older than me and wants to retire at 50). My wife and I have about $400,000 already saved... two doubles gets us to $1.6 million - throw in the extra savings, and we should be above $2 million (take us another 20 years or so)

Sad... that $2 million is really only enough to throw off a safe $100,000 a year income, that with inflation, will only be worth $50,000 a year in today's money.

Amazing that $2 million is only barely "enough" (of course, that's trying to keep the capital intact or slightly growing).

You see... we're in great financial shape... but we're both worrying about "blowing it". Our last advisor had us invested in high-fee mutual funds that tanked badly in 2000. I started reading, we made some back, and I decided to move everything to Vanguard and take responsibility for this money myself.

But it's SCARY...

Much easier when the "professional" did it for us. Then we could blame him when things went wrong... Of course, if he loses our nest egg, being able to blame him won't make us feel any better.

Again, I've got 20-30 more years of working ahead of me. Hopefully I can keep most of my money intact, save some more, and in ten years get to enjoy another 18 year long bull market, and get out just in time to retire... :) (Yeah, right)




Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: ziggy29 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: 44404 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 6:01 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 5
>> But I think it's a fairly safe bet to say that the bear market isn't over right now... <<

Bear market? Are you talking about the market that began in Spring 2000 when the dotcom bubble burst?

Yeah, that was nasty.

But $10,000 in the S&P 500 at the end of 2002 became $14,000 at the end of 2004.

That's a 40% gain in two years.

If you also had some small caps and REITs, you did even better.

>> Again, I've got 20-30 more years of working ahead of me. <<

I wish you luck, but if you have another 20-30 years of work ahead of you, I think it's a big mistake to not have it mostly invested in equities. IMO, that was true in 2000, it was true in 2002, and it's true today.

#29

Print the post Back To Top
Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44405 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 6:02 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
Author: rrosenkoetter | Date: 2/8/05 5:54 PM | Number: 44403
Sad... that $2 million is really only enough to throw off a safe $100,000 a year income

I'm sorry to tell you, but based on historical data, if you want long term portfolio survival, 40 years or more, then 4% a year is all you can take (starting - then indexed upwards with inflation each year). If you take 5%, as the $100,000 indicates, you will not have a very high chance of long term survival. $2 million will only get you $80K a year (initial withdrawal).

Russ

Print the post Back To Top
Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44408 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 6:33 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
intercst: "People make good livings by being effective marketers and selling what people want to buy. With a good sales pitch, you can even sell an investment strategy that's likely to do poorly.

I suspect that most of the people on this board wouldn't buy a market-timing service. They are familar with Modern Portfolio Theory (MPT), long-term buy and hold (LTB&H) investing, and proper asset allocation. They've probably read the books by Bernstein, Bogle, and Seigel that rkmacdonald mentioned in post #44381. They believe the academic research showing that actively-managed accounts and market-timing are likely to underperform over the long-term.

If you're looking for someone to tell you that market timing is a good idea, you're probably in the wrong place."


One of the joel's (sorry joel) likes market timing, and as best as I understand MI, it is largely a timing like strategy and there is at least one whole board devoted to MI on TMF.

Regards, JAFO




Print the post Back To Top
Author: rrosenkoetter One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44414 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 7:08 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
>> But $10,000 in the S&P 500 at the end of 2002 became $14,000 at the end of 2004.

That's a 40% gain in two years.
<<

Heh, but $10,000 in the S&P 500 at the end of 1999 was still only worth $8250 at the end of 2004.

I'm not saying that one should be jumping in and out of the market each year. I'm saying that broad trends have occured in the past. It's likely they will do so in the future. There HAVE been DECADES where the market (indexes) returned less than 3%. And those decades occurred when the P/E ratio was as high as it now.

I'll get back in the market over the next couple of years... Probably too fast, but one thing is true.. I won't know when the next bull market will start, so it's best that we're full invested.

FYI - there has never been a bear market that only lasted two years... There are rallies inside a bear market however...

Of course, there's also drops during a bull market... so the question is... will the market head back up past it's old peak? Or will it falter from the current rally and continue heading down...

See, I just can't dump it all in the market today... because history points to us being in a bear market.. and if I did dump it in, THAT would be market timing...

So I'll go slow... If the market drops, I'll get in cheaper.. If it goes up, I'll have a little in to enjoy some of the gains.




Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44415 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 7:32 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 2
rrosenkoetter:

>> But $10,000 in the S&P 500 at the end of 2002 became $14,000 at the end of 2004.

That's a 40% gain in two years. <<

"Heh, but $10,000 in the S&P 500 at the end of 1999 was still only worth $8250 at the end of 2004."

Where are you getting your numbers? They seem low.

I went to Vanguard and used VFINX (Investor class, not Admiral or Institutional classed)http://flagship5.vanguard.com/VGApp/hnw/FundsPerformance?FundId=0040&FundIntExt=INT&DisplayBarChart=false

I calculate $9470.80 using 1999 and 2004; if those are beginning year numbers, then I calculate $8864.25 using 2000 and 2005 (which would be end of year 1999 and 2004).

Regards, JAFO

Print the post Back To Top
Author: ziggy29 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: 44416 of 76237
Subject: Re: Finding a good financial planner Date: 2/8/2005 7:35 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 2
>> Heh, but $10,000 in the S&P 500 at the end of 1999 was still only worth $8250 at the end of 2004. <<

You're absolutely right. But human nature would not have sold everything in early 2000 and bought back in at the end of 2002.

Human nature, including many financial planners, would have encouraged selling only after many months into the bear market, after you had already lost a lot of money...and may not have encouraged you to buy again until much of 2003 had past (and you lost a lot of the gains).

Keep in mind that many financial analysts downgrade a stock only AFTER the bad news that *already* knocked it down 30%, and upgrade them AFTER the news that *already* made them rise 20%. Closing the barn door after the horses already escaped is a common thing for many market analysts (and some financial planners who dart in and out of stocks following them).

Just remember that the market isn't Lake Woebegon. Not everyone can be "above average."

#29

Print the post Back To Top
Author: rookieJoe Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44440 of 76237
Subject: Re: Finding a good financial planner Date: 2/9/2005 2:06 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
But I think it's a fairly safe bet to say that the bear market isn't over right now...

Based on PEs and other stats I agree that is a strong likelihood. But I wouldn't call it a "safe” bet (I guess it depends on what the definition of the word “safe” is).

A popular quote is “Never treat the likely as certain, or the unlikely as impossible.”

For example, there are a lot of pressures on the US economy and the dollar (google for the current accounts deficit for more info – its not the same as the budget deficit). If the fed loses control of those challenges, a swift substantial decline in the dollar, followed by high inflation is a real possibility.

Do I think it will happen? No.
Do I think the risk of happening is low enough one should ignore it? No.

Owning equities (stocks) is a good hedge against inflation. Owning foreign equities is a good hedge against declines in the dollar.

That's why they say “diversification always works –sometimes you like the results and sometimes you don't.”

-Joe

Print the post Back To Top
Author: FieldingMelisch Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44478 of 76237
Subject: Re: Finding a good financial planner Date: 2/10/2005 8:34 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
Since you're into Vanguard, check out their financial planning services. I believe their fees are quite low compared to most.

Print the post Back To Top
Author: boltsonp Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44480 of 76237
Subject: Re: Finding a good financial planner Date: 2/10/2005 8:59 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
I have no advice about finding a financial planner and I too struggle with how to get the best loiw risk return . I will share my father's strategy with you. He was a blue collar worker who always saved at least 10% of what he earned, along with tax refunds and any other windfall that came along. While my family lived frugally, my Dad's savings grew. This blue collar worker in a single earner household put two kids through college and retired with just about $1 million in the bank. Yes, the bank. He invested in CDs (certificates of deposit), shopping for the highest rates and spreading it across many banks. He found banks that paid as much as 13 or 14% in the 70s I believe. He also purchased some US savings bonds along the way. He (being a child of the depression) did not trust the stock market and its risks. My family often ponders what he might have accumulated had he put some of his money into the market, even conservatively. But he is living proof, that you can accumulate wealth without risk through prudent saving and understanding the "miracle of compound interest and time." Since you are still young, why not look for the best and safest returns? Leave the risk taking to the older generation that got a late start and doesn't have a choice.

Print the post Back To Top
Author: boltsonp Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44481 of 76237
Subject: Re: Finding a good financial planner Date: 2/10/2005 9:02 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
I have no advice about finding a financial planner and I too struggle with how to get the best low risk return . I will share my father's strategy with you. He was a blue collar worker who always saved at least 10% of what he earned, along with tax refunds and any other windfall that came along. While my family lived frugally, my Dad's savings grew. This blue collar worker in a single earner household put two kids through college and retired with just about $1 million in the bank. Yes, the bank. He invested in CDs (certificates of deposit), shopping for the highest rates and spreading it across many banks. He found banks that paid as much as 13 or 14% in the 70s I believe. He also purchased some US savings bonds along the way. He (being a child of the depression) did not trust the stock market and its risks. My family often ponders what he might have accumulated had he put some of his money into the market, even conservatively. But he is living proof, that you can accumulate wealth without risk through prudent saving and understanding the "miracle of compound interest and time." Since you are still young, why not look for the best and safest returns? Leave the risk taking to the older generation that got a late start and doesn't have a choice.


Print the post Back To Top
Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44482 of 76237
Subject: Re: Finding a good financial planner Date: 2/11/2005 12:13 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
boltsonp writes,

I have no advice about finding a financial planner and I too struggle with how to get the best loiw risk return . I will share my father's strategy with you. He was a blue collar worker who always saved at least 10% of what he earned, along with tax refunds and any other windfall that came along. While my family lived frugally, my Dad's savings grew. This blue collar worker in a single earner household put two kids through college and retired with just about $1 million in the bank. Yes, the bank. He invested in CDs (certificates of deposit), shopping for the highest rates and spreading it across many banks. He found banks that paid as much as 13 or 14% in the 70s I believe. He also purchased some US savings bonds along the way. He (being a child of the depression) did not trust the stock market and its risks. My family often ponders what he might have accumulated had he put some of his money into the market, even conservatively. But he is living proof, that you can accumulate wealth without risk through prudent saving and understanding the "miracle of compound interest and time." Since you are still young, why not look for the best and safest returns? Leave the risk taking to the older generation that got a late start and doesn't have a choice.

It's much harder to accumulate $1 million in this manner when CDs are paying 2% to 5%.

intercst

Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: joesasnak Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44484 of 76237
Subject: Re: Finding a good financial planner Date: 2/11/2005 12:21 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
You're asking good questions and any planner who's guiding you into a large allocation of equity index funds would make me get up and run right now too. I've read Mauldin's newsletter for over a year now and I've read a good portion of his book and ole John makes a lot of sense to me. Folks who say "you can't time the market" need to look at historical graphs of index performance over long periods of time. It's crystal clear - SELL STOCKS WHEN THE PE IS HIGH, BUY STOCKS WHEN THE PE IS LOW. Warren Buffett wrote a several great articles for Fortune Magazine between 1999 and 2002 describing why the stock market was historically expensive and why the stock indices would return a mid-single digit rate over the first 10 or so years of the new millenium.

Here's another good book- Bull by Maggie Mahar (http://www.amazon.com/exec/obidos/tg/detail/-/0060564148/qid=1108099052/sr=8-2/ref=pd_csp_2/103-1761441-7245426?v=glance&s=books&n=507846)

Common Stocks and Uncommon Profits by the legendary Phil Fisher (http://www.amazon.com/exec/obidos/tg/detail/-/0471445509/qid=1108099148/sr=1-1/ref=sr_1_1/103-1761441-7245426?v=glance&s=books) is recommended by Warren Buffett.

I also recommend reading everything you can that Buffett writes. Great stuff!!

One investment idea for the equity portion of your portfolio is to select funds that did well in the post-Internet bubble pop. You may be familiar with these, but if not here's a list of a few funds and fund families that did well from 2000 thru 2002 and that have experienced managers with long histories of good returns.

- The Clipper Fund - http://www.clipperfund.com/ Mgr. James Gipson
- Third Avenue Funds - http://www.thirdavenuefunds.com/ Mgr. Marty Whitman (four funds in the family all have done VERY well)
- Longleaf Funds - http://www.longleafpartners.com/ Mgr. Mason Hawkins (four or so funds in this family as well. Currently closed to new investors, but a great track record).
- The Fairholme Fund - http://fairholmefunds.com/home.htm Mgr. Bruce Berkowitz. Relatively new fund, but Berkowitz has been managing money for over twenty years. A very good fund.

I own all of these funds, several of them for many years. These are disciplined, investor friendly fellas who know where to hide when the bears are prowlin'.

FYI, big bear markets like the mid-70's sink pretty much all ships. Even the Sequoia Fund run by Buffett's friend Bill Ruane took a big bath in the mid-70's crash. Sometimes the waves are so strong that everybody gets wet...

Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44486 of 76237
Subject: Re: Finding a good financial planner Date: 2/11/2005 10:08 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
Since you are still young, why not look for the best and safest returns? Leave the risk taking to the older generation that got a late start and doesn't have a choice.

Why? Looking at monthly S&P Composite Index since 1871, there has been exactly ONE 15 year period that you would have lost money and NO 30 year periods that money was lost. IMHO, you're really not taking on much risk when you have a long time horizon.

The real risk is not reaching your financial goals until you're too old to enjoy your life.

-murray


Print the post Back To Top
Author: ziggy29 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: 44487 of 76237
Subject: Re: Finding a good financial planner Date: 2/11/2005 10:36 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
>> Why? Looking at monthly S&P Composite Index since 1871, there has been exactly ONE 15 year period that you would have lost money and NO 30 year periods that money was lost. IMHO, you're really not taking on much risk when you have a long time horizon. <<

True, but different people have different needs and wants, even when they are 25 or 30.

Some people want to maximize their expected portfolio and will accept a greater risk that they will fall short of what they need.

Others want to maximize their chances of getting to where they want to be, when they want to be there, and want to take the minimum possible risk to get them there.

The former should go all-out in stocks for the first decade or two. The latter, even at a younger age, may want to determine the return they need and look for an "efficient frontier" that's likely to get them there (or a little above that) with a minimum of risk.

#29

Print the post Back To Top
Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44492 of 76237
Subject: Re: Finding a good financial planner Date: 2/11/2005 11:21 AM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
He found banks that paid as much as 13 or 14% in the 70s I believe.

I remember those days. It cost 17-18% for a mortgage. When we bought our first house in 1982, the rates had really dropped, so our first mortgage was at a low rate of 13.75%.

My family often ponders what he might have accumulated had he put some of his money into the market, even conservatively. But he is living proof, that you can accumulate wealth without risk through prudent saving and understanding the "miracle of compound interest and time." Since you are still young, why not look for the best and safest returns? Leave the risk taking to the older generation that got a late start and doesn't have a choice.


Generally speaking, he would have done better if he had invested some of his money. A big risk of taking the safe route of finding the lowest risk places for your money, such as a savings account, is that you don't necessarily keep up with inflation, so although your dollars are growing, they may not be growing at least as much as inflation, and you effectively lose buying power.

I would also argue that it's better to be taking higher risks when you are younger and do have time on your side so that if your investments do go down, you have time to grow them back up. Taking more risk when you are older means that you don't have as much time to build up the nestegg and you may not be able to generate enough earnings to supplement what you have saved.

Given a choice, I would much rather take risk now when I'm in my late 40's when I can continue to add to my savings from my earnings than later when I am in my late 70's and can't just go back to work, or at least not at the salary level that I have now.



Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: bgailch Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44590 of 76237
Subject: Re: Finding a good financial planner Date: 2/14/2005 2:58 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 2
I would like to add to Russ's book list these two, which I have just read and enjoyed:

The Intelligent Asset Allocator by Wm Bernstein

A Random Walk Guide to Investing by B. Malkiel

Both authors suggest that you don't need an advisor. (Perhaps both of these books are rewrites of the one's Russ listed by them, but just in case . . . .)

One of these two authors recommended the Tweedy Brown fund packet in which there is an excellent booklet on characteristics of successful investing (can't remember its name), but Tweedy Brown asks that you consider their option before you put everything into index funds, i.e., they use a method to beat indexes over a long period. It's interesting reading.

I liked the analogy Bernstein used about outstanding advisors who can "call the market." Have a hundred people flip a coin. Heads stay in the game; tails leave. On average half will flip heads. So the 50 left flip. On average, 25 stay in the game. And so on. So the few left in the game are said to be "good" at coin flipping, but statistically, they are just the lucky, inevitable few left.

Betty



Print the post Back To Top
Author: ziggy29 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: 44591 of 76237
Subject: Re: Finding a good financial planner Date: 2/14/2005 3:16 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 2
>> I liked the analogy Bernstein used about outstanding advisors who can "call the market." Have a hundred people flip a coin. Heads stay in the game; tails leave. On average half will flip heads. So the 50 left flip. On average, 25 stay in the game. And so on. So the few left in the game are said to be "good" at coin flipping, but statistically, they are just the lucky, inevitable few left. <<

This was a pretty good example to show how it's possible for a few managers to consistently "beat the market" even if it may not be at least partially attributable to skill.

Having said that, beating the market isn't specifically a coin toss which is indisputably a random event. We can't conclude that there *is* no skill for "beating the market." All we can conclude, statistically, is that there is no evidence that anyone can.

If there were a statistically significant number of managers who "beat the market" above and beyond what you'd expect in a binomial distribution,you might be able to conclude that such skill truly exists above and beyond dumb luck. For example, assuming "beating the market" were a 50/50 proposition (i.e. nothing but luck that can be matched by a monkey throwing darts), you'd expect one manager out of 1,024 to beat the market for ten straight years. If significantly more than one out of 1,000 managers beat the market for ten straight years, then maybe we could say with a reasonable confidence (usually 95% for statistics of this sort) that "skill" exists.

But since that's not the case, looking at mutual fund histories (especially when considering survivorship bias), we can't draw any conclusion that there is truly a "stock picking skill" among money managers (relative to the market overall).

Personally, I tend to believe that there may be a few people with a gift for picking stocks, but that (a) such people will be identified to the point where they receive more money than they can invest in good ideas and hamper their returns, and (b) these people are so rare and not easy to identify that I'd rather perform consistently inline with indexes than risk significant underperformance.

#29

Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post Back To Top
Author: rrosenkoetter One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44594 of 76237
Subject: Re: Finding a good financial planner Date: 2/14/2005 5:51 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
The interesting (and sad) follow-up to this analysis:

How many people are employed by the mutual fund and stock-broker companies? How many people have jobs that offer absolutely NO value to anyone? How much money do we investors waste on these worthless people's salaries?

What do they think when they read such these studies and realize that they really have contributed NOTHING in their professional lives?

Print the post Back To Top
Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44598 of 76237
Subject: Re: Finding a good financial planner Date: 2/14/2005 6:38 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 1
rrosenkoetter asks,

The interesting (and sad) follow-up to this analysis:

How many people are employed by the mutual fund and stock-broker companies? How many people have jobs that offer absolutely NO value to anyone? How much money do we investors waste on these worthless people's salaries?

What do they think when they read such these studies and realize that they really have contributed NOTHING in their professional lives?


I imagine that they're laughing all the way to the bank.

intercst




Print the post Back To Top
Author: Docshelf Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44812 of 76237
Subject: Re: Finding a good financial planner Date: 2/23/2005 3:20 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
I'm no $$ guru, but, supposedly the S&P 500 beats stock brokers et. al. 75% of the time, over long (decades) periods.

I have also seen some "snapshot" views of the S&P for particular time intervals posted here, but, have yet to see any real discussion about the power of dollar cost averaging, which, again, beats the "pros" almost every time.

-sch

Print the post Back To Top
Author: IndecisiveFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44813 of 76237
Subject: Re: Finding a good financial planner Date: 2/23/2005 3:22 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 2
I have also seen some "snapshot" views of the S&P for particular time intervals posted here, but, have yet to see any real discussion about the power of dollar cost averaging, which, again, beats the "pros" almost every time.

There are plenty of posts debunking DCA. All you need to do is use the inadequate TMF search engine.

IF



Print the post Back To Top
Author: ImAGolfer Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44817 of 76237
Subject: Re: Finding a good financial planner Date: 2/23/2005 7:00 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
All you need to do is use the inadequate TMF search engine.

You noticed that too?

Print the post Back To Top
UnThreaded | Threaded | Whole Thread (37) | Ignore Thread Prev Thread | Next Thread
Advertisement