What do you really know about investing?

[brattzz]

I always believe that, as long as don't lose money, then it's fine..
Not to be too greedy,

[chialc88]

I always believe that, as long as don't lose money, then it's fine..
Not to be too greedy,

Hey! I heard that before.
rule #1 and #2 thingy, right?

As I am still learning and practicing.
I have a long way to goal.

I ought to be more realistics and treat investing as a war rather than a battle.

LC





yesterday enemy has become tomorrow friend

[Temperament]

June 11, 2014, 5:01 a.m. EDT
The best investment advice ever
/////////////////////////////////
///////////////////////////////////////

Now for my own best-ever advice. It's based on things I learned over the years from lots of smart people. It's firmly rooted in the notion that risks are every bit as important as returns.
I first heard it in 1994 at a conference of academics, and I still think it's the single best piece of investment advice I know: Never take an investment risk that doesn't pay a premium for taking that risk over the long term.
Let me explain by giving a few examples of investments with a history of paying a premium return to those who took the risks involved. The returns below are for the 30-year period 1984 through 2013.
My first example won't surprise you.
Stocks are riskier than bonds. And they provided a premium return. The Standard & Poor’s 500 Index SPX -0.25% returned 11.1% annually with a standard deviation of 15.5%. (Standard deviation is a statistical measure of volatility or risk; higher numbers represent higher risk.) The Barclays U.S. Aggregate Bond Index returned 7.7%, with a standard deviation of 2.9%. Conclusion: Investors in the S&P 500 took much more risk — and got much more return.
Small-cap stocks are riskier than the large-cap stocks of the S&P. And they provided a premium return. An index of U.S. small-cap stocks had a standard deviation of 20.9% and returned 12.9%. Again, more risk and more return.
The same is true of value stocks. U.S. large-cap value stocks had a standard deviation of 18.6% and returned 13.4% (versus 15.5% and 11.1%, respectively, for the S&P 500). U.S. small-cap value stocks had a standard deviation of 21.2% and returned 14.8% (versus 20.9% and 12.9%, respectively, for the U.S. small-cap index).
Without burdening you with figures, I can report that the same pattern holds for international value stocks, both large and small.
I can't prove this next example with reliable statistics, but I am quite sure that investors who use professional investment advice achieve higher long-term returns than those who make their own decisions. Every DALBAR study that's been released points to that conclusion.
But in one respect, hiring an adviser can actually be riskier than doing things yourself. Professional advice costs money, and as I have said many times, every dollar you pay in expenses is a dollar you no longer own. When you pay that money, you've got no guarantee that it will pay off.
You may notice some investments are missing from this list. You won't find gold, commodity funds, technology funds or penny stocks. Every one has above-average risks — but none of them has paid a long-term premium return. Annualized performance over the same 30-year period:
• Gold: Its standard deviation is 20.1%, but its return is less than 5%. If you're OK with that much risk, U.S. small-cap stocks returned 12.9%.
• Technology stocks: The Nasdaq Composite Index has a standard deviation of 17.8% and returned 8.5%. For less risk than that, you could have had the 11.1% return of the S&P 500.
• Commodities: The Dow Jones Commodity Index has a standard deviation of 15.3% but a return of only 2.1% — less than one-third the return of bonds!
• Penny stocks: Their risks are sky-high, and their returns are essentially a crapshoot.
My best-ever advice certainly isn't all you need to be successful. But it's simple and robust. It applies to anything you can quantify, because it's based on facts, not hype, hope and vague notions. To put my best advice into practice you have to quantify expected risks as well as expected returns.
I hope you'll do just that and increase your probability of long-term success.

NB:
Of course they are exceptions. The special "SPECIALISTS"

i am just a "COUNTRY BOY"
Money i have none,
i just have a Golden Smile,

[chialc88]

Wow, T,
Great reflection!

I started my journey in 1991 during operation desert storm.
Extremely exciting period and cow boys everywhere.

Keep it up!

Love Compassion


Earth day - save the world everyday.

[Temperament]

i was a "COUNTRY BOY" from 1987/88. i still am/is always.

[chialc88]

i was a "COUNTRY BOY" from 1987/88. i still am/is always.

True!
The different between who I was in the 90s and now:
1. the people I met
2. the book I read

Love Compassion


Earth day - save the world everyday.

[Temperament]

http://www.marketwatch.com/story/how-qui...link=MW_TD

//////////////////////

Don't get greedy
If you don't know your hurdle rate (or choose to ignore it), you put yourself at risk of losing your retirement. Consider this real life example:
In 2002 , a 70-something-year-old couple came in to see me, and told me their story. In 1998, they had a million dollars. Their cost of living was $50,000, and they had $15,000 coming to them from Social Security. This couple's investments needed to generate $35,000 a year to make up the difference. $35,000 is 3.5% of a million dollars, so leaving some room for inflation, their hurdle rate was about 4%. If they made 4%, they would probably cover their cost of living for the rest of their lives.
They had their money in Treasurys, CDs and cash. Interest rates at the time were 6.5%, so they were making $65,000 a year. They were well above their hurdle rate with relatively no risk. They spent $35,000 of their returns a year and banked the other $30,000. If you look at their situation mathematically, you can see they would never run out of money.
But what did they do? They saw that the technology stocks were making 20%-25 %. All of their friends were telling them about all the wonderful returns they were making.They started thinking about all the money they were leaving on the table by only making 6.5%. The market kept going up, and after two years, the couple finally succumbed to the mermaids' song. They put all their money into technology stocks at the beginning of 2000. We all know what happened next. In a little over a year, the dot-com bubble burst. The couple lost 90 % of their money. Their million dollars became $100,000.
Moral of the story
Don't take more risk than you need to accomplish your goals. It makes zero sense to take one iota more risk than you need to. If you can win the game with 4%, be happy. You're fortunate if that's all you need to make. You can invest very conservatively. You don't have to take a lot of risk. That's a good thing. Don't get mad at yourself because you're only making 6% when you could make 20%. Instead, be happy that making 6% exceeds your hurdle rate.

NB:-
Is it really for retiree only to invest this way?

[gutman]

http://www.marketwatch.com/story/how-qui...link=MW_TD

//////////////////////

Don't get greedy
If you don't know your hurdle rate (or choose to ignore it), you put yourself at risk of losing your retirement. Consider this real life example:
In 2002 , a 70-something-year-old couple came in to see me, and told me their story. In 1998, they had a million dollars. Their cost of living was $50,000, and they had $15,000 coming to them from Social Security. This couple's investments needed to generate $35,000 a year to make up the difference. $35,000 is 3.5% of a million dollars, so leaving some room for inflation, their hurdle rate was about 4%. If they made 4%, they would probably cover their cost of living for the rest of their lives.
They had their money in Treasurys, CDs and cash. Interest rates at the time were 6.5%, so they were making $65,000 a year. They were well above their hurdle rate with relatively no risk. They spent $35,000 of their returns a year and banked the other $30,000. If you look at their situation mathematically, you can see they would never run out of money.
But what did they do? They saw that the technology stocks were making 20%-25 %. All of their friends were telling them about all the wonderful returns they were making.They started thinking about all the money they were leaving on the table by only making 6.5%. The market kept going up, and after two years, the couple finally succumbed to the mermaids' song. They put all their money into technology stocks at the beginning of 2000. We all know what happened next. In a little over a year, the dot-com bubble burst. The couple lost 90 % of their money. Their million dollars became $100,000.
Moral of the story
Don't take more risk than you need to accomplish your goals. It makes zero sense to take one iota more risk than you need to. If you can win the game with 4%, be happy. You're fortunate if that's all you need to make. You can invest very conservatively. You don't have to take a lot of risk. That's a good thing. Don't get mad at yourself because you're only making 6% when you could make 20%. Instead, be happy that making 6% exceeds your hurdle rate.

NB:-
Is it really for retiree only to invest this way?

Excellent reminder.

I think most of us fall prey to Greed easily, no matter how many times we tell ourselves not to.

I totally agree that not taking more risk than we need makes complete sense. Just that in the face of Greed, we often cannot seem to find our sense.

[Ben]

http://www.marketwatch.com/story/how-qui...link=MW_TD

//////////////////////

Don't get greedy
If you don't know your hurdle rate (or choose to ignore it), you put yourself at risk of losing your retirement. Consider this real life example:
In 2002 , a 70-something-year-old couple came in to see me, and told me their story. In 1998, they had a million dollars. Their cost of living was $50,000, and they had $15,000 coming to them from Social Security. This couple's investments needed to generate $35,000 a year to make up the difference. $35,000 is 3.5% of a million dollars, so leaving some room for inflation, their hurdle rate was about 4%. If they made 4%, they would probably cover their cost of living for the rest of their lives.
They had their money in Treasurys, CDs and cash. Interest rates at the time were 6.5%, so they were making $65,000 a year. They were well above their hurdle rate with relatively no risk. They spent $35,000 of their returns a year and banked the other $30,000. If you look at their situation mathematically, you can see they would never run out of money.
But what did they do? They saw that the technology stocks were making 20%-25 %. All of their friends were telling them about all the wonderful returns they were making.They started thinking about all the money they were leaving on the table by only making 6.5%. The market kept going up, and after two years, the couple finally succumbed to the mermaids' song. They put all their money into technology stocks at the beginning of 2000. We all know what happened next. In a little over a year, the dot-com bubble burst. The couple lost 90 % of their money. Their million dollars became $100,000.
Moral of the story
Don't take more risk than you need to accomplish your goals. It makes zero sense to take one iota more risk than you need to. If you can win the game with 4%, be happy. You're fortunate if that's all you need to make. You can invest very conservatively. You don't have to take a lot of risk. That's a good thing. Don't get mad at yourself because you're only making 6% when you could make 20%. Instead, be happy that making 6% exceeds your hurdle rate.

NB:-
Is it really for retiree only to invest this way?

It can also be said that the couple lost their money because of a lack of knowledge in investing, on top of greed. If they spend effort educating themselves on investing, they could have avoided investing in tech stocks, or even better, could have invested in safe, dividends paying stocks and improved their overall returns.

Don’t take more risk than you need to accomplish your goals….or maybe a little twist….don’t take more risk that your ability (circle of competency).

Nice story though, thanks Temp.

[specuvestor]

I think many times it is the mermaid song of "following the Joneses" that brings many to woes, from investments to consumptions, to kids' education.

For some reason we cannot stand people around us having more things to brag about... so we do something about it.