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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: of 75335  
Subject: Re: New passive investor looking 4 strategy crit Date: 2/5/2004 10:09 PM
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>> Not familiar with the book.
A lot of my strategy originated or was tweaked by Swedroe's book. Some of the major points he made, in my own words are:
1. Strong support for EMH - the only way one could know better than the market is with (illegal) inside information.
2. Strongly Anti-Active Management - He gave many long term comparisons.
3. Strongly against investing in individual stocks, or even sectors.
4. When investing in riskier asset classes, he suggested choosing several with a low correlation (domestic small cap & foreign small cap). By rebalancing annually, the overall volatility of the portfolio is reduced, and in his long term examples (some up to 75 years) the portfolio return is higher than that of any of the individual asset classes.
5. Strongly against chasing yesterdays hot thing - the market has already incorporated in the current situation and all that's left is a higher greater risk.

My first investment was buying sunw at 12.41 (luckily just 100 shares). I rode it down to 2.38 before it started back up. Since something like that would almost certainly happen to me eventually, I'm glad it was my first investment. It drove home the need for a disciplined approach.

I'm well aware of the psychological challenges with rebalancing, but as an engineer I appreciate in depth long term analysis of strategies (Swedroe did a lot of that). When I'm convinced of the long term mathematical effects, I can do things that otherwise feel counterintuitive. So I'm confident I can make myself rebalance annually.

I just ordered the Berstein book (new) for 17.39 including shipping from overstock.com.

For the most part your comments, and those of others, have been pretty close to the conclusions I've reached. One notable exception is on cds/bonds. I was thinking that for the next 10+ years, I'm primarily holding a small bond position to reduce volatility help harvest gains with rebalancing. So I was thinking short term (~1 year) bonds would be best due to the lower correlation with equities. It looks like in order to get the 4% return you mentioned I would have to use 5 year cds. So do you disagree with holding shorter term bonds?

Oh, and the car loan is 0%.

Thanks for the comments everyone!
Joe
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