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The best way to invest period
An excellent way to invest, and a key part of anyone's portfolio
A good way to invest and equally valid with other low cost options
A fair way to invest, although you're better off trying to beat it
A poor way to invest, only idiots buy and hold indexes

Click here to see results so far.

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I think what we are going to see here is that no one believes there is only one way to invest. And I for one am open to hearing about many ideas. That's why I'm here. I learn so much just from reading these boards. I think the thread lately has gotten a bit personal, and I don't think that is necessary.

I buy & hold index funds as well as actively managed funds and a few stocks. It's interesting to note that Vanguard even says that you are likely to do well with a mix of actively managed and index funds. Of course, I take what they have to say the same way I take what Joel and Fred have to say...with a grain of salt. Not because I think they are unintelligent, but because everyone here is a faceless name - whom I have never met. I use the (sometimes) valueable information I learn here, and form my own opinions. Even among index investors, I'd guarantee everyone's allocations are a bit different.

I appreciate the time that everyone takes to contribute to these boards. I hope everyone has a nice Thanksgiving, and is able to relax from their everyday chores.

Ryan
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>> I think what we are going to see here is that no one believes there is only one way to invest. And I for one am open to hearing about many ideas. That's why I'm here. I learn so much just from reading these boards. I think the thread lately has gotten a bit personal, and I don't think that is necessary. <<

I agree. I think people can be successful timing the market. On average I don't think they beat the market...but I'm willing to concede that some people can. That doesn't make people who don't "idiots."

Successful market-timing, such as it is, takes not only the knowledge and information but also the emotional temperament to stick with the discipline, or the signals, or whatever, and not allow the twin emotions of fear and greed derail your strategy.

This is why I feel most people can't (and shouldn't) be active traders going in and out of stocks. Not because they're stupid, but because many people overestimate their ability to keep emotion out of investing, and I'm not convinced the average investor has such a temperament.

#29
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ziggy,

I doubt there are successful market timers -- if there were, they would likely be so wealthy you would never know about them. I suspect "successful" market timers have excellent selective memories.

db
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This is why I feel most people can't (and shouldn't) be active traders going in and out of stocks. Not because they're stupid, but because many people overestimate their ability to keep emotion out of investing, and I'm not convinced the average investor has such a temperament.

Yes. Trading takes discipline. The Mechanical Investing (not like that on the Fool's Mechanical Investing board) that I do is supposed to take emotion out of trading, according to its proponents.

But emotion is still there, and it will always be. It just should not be the basis of any decisions.

The proper thing to work on is to get the emotion out of the decision making process. Unfortunately, few people talk about that.

My trading systems say not to trade tomorrow. Not that there is anything special about the day, but there are simply no trades. Will I not watch the market? Of course I will watch the market. Cannot help myself. But unless there is some dramatic development (e. g. the CFO of one of the companies disappears to parts unknown, leaving "unanswered questions"), I will not trade.
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None of the above. Index investing is a good way to get started investing. But Fools want to do more than just track the index, they want to outperform it. So index investing is great when you have few alternatives (such as in a 401k) or until you develop your financial knowledgebase to a point where you are ready to branch out on your own.

Fuskie
Who notes that long term index investing is to accept par as a good score...
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Fuskie writes,

None of the above. Index investing is a good way to get started investing. But Fools want to do more than just track the index, they want to outperform it. So index investing is great when you have few alternatives (such as in a 401k) or until you develop your financial knowledgebase to a point where you are ready to branch out on your own.

Fuskie
Who notes that long term index investing is to accept par as a good score...


Par is an excellent score in golf. A golfer who consistently scored an even par for an 18 hole round would be well within the Top 1% of all golfers.

intercst
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Fuskie
Who notes that long term index investing is to accept par as a good score...

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

I have often wondered why you have chosen to speak about yourself in the third person? Do you think that this is an acceptable way to place more importance upon what you have to say? Or...is it a way to distance yourself from WHAT you have to say so as not to accept responsibility for your comments?

I'm not trying to negatively impact your posts...just trying to understand your method.

Regards,
Bill
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I doubt there are successful market timers...

Go take a look at Bob Brinker's results and then tell us that again. Somehow no one talks about him on this board, but based on actual results, he is one very smart geezer.
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Par is an excellent score in golf. A golfer who consistently scored an even par for an 18 hole round would be well within the Top 1% of all golfers.

When I started out investing, I decided quickly that I wouldn't hit for the fences (another sport's analogy). I wanted to do what I could to insure that I consistently hit the top 25%, better yet the top 15%. I also wanted to avoid ever having a year where I was measurably below the average of the top 20%. I doubt few market timers and pump and dumpers can match this type of consistent performance over a period of many years. By using Vanguard funds, I think I've surpassed my intial goals, without losing sleep or having to spend time worrying about whether I made the right choices along the way. Bottom line, I met my overall goal of solid financial security by my late 40s. I probably could have left the rat race sooner, but being the conservative type, I stuck around for a few more years to sock away some more money. I've even continued to do a small amount of part-time consulting in order to insure a six-figure annual cash flow, which has allowed my portfolio to continue to grow.

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I'm not trying to negatively impact your posts...just trying to understand your method.

I accept full responsibility for my comments, since I believe in what I say (most of the time).

Fuskie
Who is the first to encourage others not to listen to his opinions...
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wcfenton writes:

I have often wondered why you have chosen to speak about yourself in the third person?

Fuskie responds:

I'm not trying to negatively impact your posts...just trying to understand your method.

I accept full responsibility for my comments, since I believe in what I say (most of the time).

Fuskie
Who is the first to encourage others not to listen to his opinions...


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

Huh?

BHM
Who observes that Fuskie didn't really answer Bills question...
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Well, as the Doctor says in third person,

Statistically, market timing works. The reasoning is that stock prices are not a random walk (50-50 either up or down) if this were the case the index would be the same as it was 40 years ago. (inflation adjusted) Plus, no one would invest.

So, on any given day, if you randomly pick a stock (in the index) and pick the up direction, you are statistically better off. Hence timing works!

OK, for those TA fans out there, the doctor is not saying there is not any merit to TA. But, it must always be remembered, as with buy and hold investing, that past performance is not a guarantee of future results.

Just because a stock can not break resistance in the past does not guarantee it won't break it in the future. Otherwise we all might still own some enron!


In fact, because the Doctor is rather crazy, if the tech looks good and is contrarian, man is that time for an option! But bear in mind, the Doctor also likes 29 BLACK!



The Doctor went with a good way to invest and equally valid with other low cost methods because:
1) it is not the best way period. because some of the return is in the effort and pleasure we get in trying - such as Joel.
2) it is not a key part of anyones portfolio because some portfolios should probably not even contain stocks!! It is really not an "excellent way" for all but is very easy and is a good way.
4) most people on these boards believe the can "beat it," so this one was valid to the Doctor as well, but this does not negate the Doctors prescription.
5) Well, maybe the Doctor believes this as well, but saying this in public is like telling the opera singer she in not the fat lady ever one talks about.
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The reasoning is that stock prices are not a random walk (50-50 either up or down) if this were the case the index would be the same as it was 40 years ago. (inflation adjusted) Plus, no one would invest.

Now I don't know to what extent I do or don't buy into random walk myself, but this is a misunderstanding. If that was the case don't you think that along the way somewhere, one of the hundreds of academic minds that have studied it would have realized it?

A random walk can still get you somewhere. In fact, it's often used to heuristically solve very difficult problems that can't be solved in traditional manners. A random walk can have a bias in one direction or the other, it can have a direction that it progresses in. It's just saying that it's next move it unpreditable, not that the overall direction is.

There's a difference between saying it's entirely random and it's a random walk. That's why they use the latter and not the former (in fact, if it was the former, it wouldn't have adjusted for inflation either).


On your bottom list there:
2) There are bond indexes too, short term, as well as REIT, precious metals, etc. About the only index I've never heard of is a MMF one, but hey, it's possible (although probably fairly pointless). So specifying index investing in no ways specifies any level of risk (other than > 0, I guess).
4) I agree that most, or at least many people, believe they can beat it. But that does not mean that "you're better off trying." I tried to make that distinction moving from 'good' (you can try to beat it, but only if you want, 6 of one, half a dozen of another) to 'fair' (you can beat it and you really should try).
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>Now I don't know to what extent I do or don't buy into random walk myself, but this is a misunderstanding. If that was the case don't you think that along the way somewhere, one of the hundreds of academic minds that have studied it would have realized it?
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We have, we just haven't solved what makes the "randomness" bull or bear. (other than some obvious enron, macro economic or behavioral issues)

Those silly Academia folks, simply modeled the fluctuations in stock prices using geometric brownian motion - which wall street calls "a random walk." There have been numerous studies on the distribution of stock returns and while a normal distribution is used-(or lognormal)to solve such difficult problems, Black Scholes etc., this is still a basic flaw (and is argued as a flaw by acedemics). The tails are typically to fat and there is a slight postive skew. This is really bad news for things like options, but good news for a random walk investor.

I read "Entirely random" by your use would be 50/50 chance bull or bear and that each event is independent and identically distributed - brownian motion?. Which would be as you suggest, not a walk with a bias -which has been shown to be the case with stocks. (at least I know with the S&P)



But on the original use, this was just a spoof/proof on timing the market! You CAN do it because historically, stock prices having not been "ENTIRELY" random! But this only gives profits equal to buy and hold (neglecting friction-or trading costs)
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