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Krystof Huang

 
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  • 10 Best Gold ETFs And Perspectives [View article]
    Correction: it might be necessary for US residents to hold all gold coins in states with no sales taxes.

    If using my suggestion to modify the federal long-term "collectibles" tax into your "ordinary" tax rate--by selling temporarily a different 1/6 of gold coins to a friend or relative every 2 months--then it seems probably necessary to hold the coins in states with no sales taxes. Your state of residency might allow you to avoid sales taxes by performing the transaction in a different state. However, your state might also specify that you are liable to pay sales taxes even if sold out-of-state. If so, you might want to hold all gold permanently in states with no sales taxes.

    Otherwise, selling all of your gold by the end of every year makes you liable for sales taxes on all of your gold, repeated every year. This is an unfeasible expense. Also, I would suggest avoiding sales tax liability, even if you think it would not be detected. It is somewhat self-contradictory to hold gold for the sake of extreme high-security, meanwhile exposing that same gold to a possibility of high tax penalties.

    (Also please note that if the gold is held in a state with no sales tax, there need not be any risk of transportation or of your friend or relative reneging on the deal--because you can "sell" the gold while yourself remaining the custodian of the gold. So--with no gold actually being moved around or changing hands--you and your friend can instead exchange CD's holding images of each gold coin transacted and clarifying who owns what exactly--with no fear of losing custody. You can either be custodian of all the gold--or you can hold the gold that is technically "not yours" in escrow--so if the other person loses their holding that is "yours" then you merely replace that loss by claiming ownership over "their" gold that you already hold. You can also agree to share liability if anything should happen to one of multiple locations--in effect, everyone then has the security as if having the total number of locations of everyone involved. Of course, every person involved then claims short-term federal tax payments or deductions on any gains or losses every 2 months on whatever gold they legally "owned" and have transacted.)
    May 3 11:56 AM | Likes Like |Link to Comment
  • 10 Best Gold ETFs And Perspectives [View article]
    Correction. If someone wants the security of holding 2/10 of savings in gold coins but with less price risk--there may be better solutions than my suggestion above of short-selling half the gold. Instead, perhaps hold 1/10 of savings in gold coins and 1/10 in cash, both in safety deposit boxes. That may amount to the same thing except much simpler. I might also look into other possibilities later.
    Apr 12 11:29 PM | Likes Like |Link to Comment
  • 10 Best Gold ETFs And Perspectives [View article]
    NEW SUGGESTIONS TO ENABLE HOLDING 2/10 OF SAVINGS IN GOLD COINS.

    While writing this article, I was aware of a certain dilemma. There is substantial price risk in holding more than 1/10 of savings in gold. While on the other hand, 1/10 of savings is not much of a safety net. Also, gold ETFs never have the absolute security of gold coins. Also, as mentioned in the article, holding gold coins has several problems.

    After thinking for some time, I suspect that I may have resolved these dilemmas, as follows.

    1) 1/10 of any investment account be allocated to gold, divided among several ETFs.
    2) 2/10 of total savings be allocated to close-to-spot gold coins, divided among several bank locations.

    The price risk of the ETFs can be considered to be automatically hedged due to its small size in relation to the stock market investments. The price risk of the coins can be cut in half by short-selling GLD for half the value of your gold coins under low margin interest at Interactive Brokers. Also, "ordinary" US tax rates can be maintained by selling 1/6 of your gold coins to a friend--and every 2 months buying it back and selling a different 1/6 to the same friend.

    However, if your friend is not a gold investor, then under this protocol, perhaps you should consider that 1/12 of your gold is no longer yours. Because perhaps you should give your friend the right to sell the 1/6 of your gold while agreeing to share half the profit. For the following reasons.

    a. If a massive financial collapse should occur--the only reason for which you should hold gold--you would not want your friend to be left with nothing after helping you out.
    b. Also, if your friend has no right to sell the 1/6 of your gold, then it might become legally questionable that you have ever "sold" the gold.
    c. Also, if there is a massive financial collapse, it will probably be a good thing for you to keep a good friend with whom you have shared something equally. (Albeit only 1/6 of what you have.)

    (Note. I am not a legal expert and laws can change. Any such protocol should be verified by a tax professional each year.)
    Apr 11 03:00 AM | Likes Like |Link to Comment
  • 10 Best Gold ETFs And Perspectives [View article]
    SOME CLARIFICATIONS ABOUT THE SECURITY PROS AND CONS OF ON-MARGIN TRADING.

    If your investment strategy makes use of margin, see:
    * Margin rate comparison: http://bit.ly/1kvUqyb
    * Brokers offering portfolio margin: http://bit.ly/PBz80P

    As of 2014, only 3 brokers seem to have margin interest rates low enough to make it feasible to use margin extensively: Interactive Brokers, Options House and Trade Monster. Options House does not yet offer Portfolio Margin. Trade Monster requires an account value of over $300,000 both for Portfolio Margin and for reasonable interest rates.

    As implied in my article above, it is usually best to avoid margin and especially "portfolio margin," which multiplies the trading that you can do and therefore the risk. However, Options and short-selling often must be done "on-margin" even if you are not risking more than your account value. Sometimes these are only hedge positions, not adding risk but subtracting risk, and yet the margin allowance is used up. If so, for an amateur investor who needs to increase margin capability, it is probably better to avoid applying for the high-credit "portfolio margin," and instead to consolidate trading with savings, i.e. deposit 50% more into the trading account and do not substantially trade with it. This increases your margin allowance without necessarily increasing your risk--for example if you use that extra margin and extra deposit primarily to hold TIPS.

    However, having a substantial amount of "unused money" in the account might not be feasible for the following people.

    a) A highly-skilled amateur investor who is trying to live off of investing and does not yet have a large amount of extra capital.
    b) A professional account manager who wants to show a strong performance record while also enabling strong safety measures.

    If you are in category A or B, I would still caution against the use of margin to add leverage risk. However, it might be sensible to use margin if that margin is primarily used to hold gold and TIPS. (If ETFs are used, with a maximum 1/10 of account value per ETF). Otherwise, no matter how well your hedge protocol might work--whether it consists of short-selling or of trail-sell orders--during a major flash-crash you could still ultimately be relying on FDIC or SIPC insured cash. FDIC or SIPC insurance is sort of like a wooden fire escape: it is quite reliable except during the most important time to be reliable. During a 2008-level crash, when major pillars of finance are at risk, neither FDIC nor SIPC insurance can be considered fully secure. See: http://bit.ly/1bcAy3f

    And even though a major crash "probably" will happen gradually, it also might be precipitated by a flash-crash. If so, nothing will be totally safe--but you can have a substantial chance if your trail-sell orders are triggered in time and if your TIPS are already in-position.

    In conclusion, in my small opinion, everyone should avoid using margin, thereby avoid increased risk and also avoid outrageous margin interest rates. However, for some highly-skilled investors, it might make sense to hold gold and TIPS on-margin as safety positions. And yet again, if so, currently the only brokers worth considering for substantial on-margin trading seem to be Interactive Brokers and Options House--and for very large accounts Trade Monster.

    (And of course if at all feasible, it is also a good idea to diversify between several brokers.)
    Apr 3 05:15 PM | Likes Like |Link to Comment
  • 90% Of Green Energy Stocks Will Go Bankrupt... So Buy The Sector? [View article]
    Thank you for the kind words Joe. Glad to know that maybe there are two sane people on this planet. We seem to have a similar experience and sure you can quote me.

    By the way I sneaked in a few of my words about black gold in my latest SA article about yellow gold which I hope you might like: "10 Good Gold ETFs and Perspectives": http://bit.ly/1fCLC5f
    Mar 19 10:09 PM | Likes Like |Link to Comment
  • The Dead Cat Dollar Outperforms Gold, Silver And The HUI [View article]
    Thank you Bob for your inspiring article and your friendly words to me back in December. I was encouraged to write a full article. This ended up taking several months but in March 2014 finally has been accepted by SeekingAlpha as "10 Good Gold ETFs and Perspectives." That article also references your article. http://bit.ly/1fCLC5f

    The necessary re-examination convinced me to invest in gold but not invest in silver. Also to use diversifified multi-ETF gold as a portfolio hedge. In practice, now is proving a great time to use gold as a portfolio hedge. Any downward speed for gold can only be half as much as the last few years. And so for the time being, my ETF gold very reliably goes up whenever stocks go down, as well as somewhat vice-versa.

    I also created a long-short ETF autotrading system SN-SOS which includes 1/10 gold. At first I planned to do 2/10 gold because it is such an effective portfolio hedge. However, even though gold only goes down significantly when stocks go up, some people might be disappointed with the drag on gains. Also, people serious about gold can hold gold coins. Therefore SN-SOS holds 1/10 gold and 1/10 short-term US Treasury TIPS ETFs. My website has full instructions how to do-it-yourself with little or no trading costs. (I will post an SA article about SN-SOS in a month or two after its performance pattern has been established.)
    Mar 17 10:01 AM | Likes Like |Link to Comment
  • 10 Best Gold ETFs And Perspectives [View article]
    Kitco and Everbank (mentioned below) sound worth looking into for gold storage. But if it pans out, do not put all your gold in one basket. Perhaps 1/4 in a home safe, 1/4 in Kitco, 1/4 in Everbank, 1/4 in ETFs. But also consider that a Kitco vault is not necessarily unconnected to banks. Nor is Kitco necessarily more accessible than the safety deposit box of a local bank that went bankrupt. Nor is there any shortage of accessible banks, credit unions and S&L's that do not gamble in derivatives if you do the research.

    Nor is custodial honesty the only problem. If the economy collapses there will be right-wing and left-wing radicals who would love to burn down banks, there will be desperate or corrupt bank employees and police officers, there will be angry farmers armed with bulldozers and dynamite. There may be biker gangs or warlords who line up everyone suspected of holding gold and shooting those that do not put out. Maybe also shooting those who do put out.

    This might all seem unlikely now. But think it through. Why buy gold? Because someday things might get really bad, at least for a short time.

    And gold is not the only thing that holds up in a crisis. Wood lots. Solar panels. Homesteading. Dried food. Or just installing a large 2-door camper on your property for storage and emergency living space. Investing locally in these things might be more secure than gold, and have similar expectations. Plus tax deductions. Plus working together with neighbors and farmers instead of pitting you against neighbors and farmers.

    Also keep in mind that if something happens to an ETF, you will have thousands of angry investors and their lawyers on your side. But if something happens to a home safe or a local deposit box, you might be quite alone in claiming reparation.

    In summary, gold in general has its limitations. Direct-hoarding also has special problems and limitations. After the pros and cons are thoroughly considered, direct-hoarding comes out perhaps 50-50 with ETFs, especially GTU which has multiple Canadian vaults and the Swiss-held SGOL.

    Also for example, holding coins nearby may have added risks, but also added advantages. In a "state of emergency," if a family member needs antibiotics or other medical help, or there are riots or a natural disaster and you need to get out of the area--rapid access to gold coins could literally save a life.

    In the final analysis, you might for example decide to hold 1/3 of your gold allocation in ETFs and 1/6 in rapid-access coins and 1/6 in whatever you decide to be the most secure alternative and 1/3 in solar panels or a chicken farm or etc.

    The value of any of these alternatives of course depends on who you are, how much you need to safeguard and where you live. Also of course if you live in Florida or a Tornado Alley, etc., maybe the best place to hold things is not where you live. In any case, what all of these things have in common is that they require research and customization.

    In the meantime, while you are doing the research, buy some gold ETFs.
    Mar 15 09:47 AM | Likes Like |Link to Comment
  • 10 Best Gold ETFs And Perspectives [View article]
    Thank you all for your comments and shared interest in the importance of gold investing. Especially ThePatron for representing a very well-respected opinion among gold bugs. In fact, I must credit the many anti-GLD arguments for leading me to my conclusion that one should never place more than 6% of savings in any gold ETF.

    Everyone should surf for the many articles pro and con GLD and make up your own mind. However I would suggest the following basic understandings.

    1. My article is long even after being much-abbreviated. I am not a recognized expert nor even a gold bug and there are certainly many details that could be challenged.

    2. If you have a strong opinion, please post a link to an article that space-effectively and well-roundedly represents that opinion. Or write an instablog yourself and link to that.

    3. No anti-GLD argument can be complete unless the several reputable pro-GLDs who have debunked that opinion are referenced and discussed point-by-point.

    4. Please note that if GLD has "fractional" holdings as alleged by ThePatron then some other ETF must also be "fractional." And as I imply in paragraph E-9 above, only by holding gold yourself can you be absolutely sure that you hold gold when it really matters.

    5. When Lehman Brothers collapsed, one of their US Treasury funds was found to hold only about 90% of its supposed US Treasuries. Nonetheless the investors did get 90% of their money right away and probably at least 5% more after litigation. Similarly, I almost did not suggest VTIP in this article for short-term TIPS, because it holds substantially more cash and less TIPS than other TIPS funds. However, Vanguard has a supremely strong low-fee business model, and any imperfection of VTIP is insignificant compared to what could happen if you rely on a lesser diversity of short-term TIPS funds, or especially if you rely on an SIPC or FDIC cash position during a banking collapse such as almost happened in 2008.
    http://bit.ly/1bcAy3f

    6. I.e. all gold ETFs are flawed. GLD is the oldest gold ETF and therefore built up entrenched detractors before the others even existed. Many of their points are valid but their messages are naming GLD over and over and so many simply assume that newer gold ETFs are somehow better. Maybe but I doubt it. And it does not really matter. I am less concerned about custodial policy than about nuclear war, riots, direct acts of theft or terrorism, draconian laws, etc.

    Therefore in my small opinion, it is naive to expect that any ETF will deliver more than 90% of what you expect when it comes to a clinch. It is far more important simply to diversify between ETFs. Of which there are half as many as I would like for gold but still enough of a variety to be thankful for. GLD is also the second most popular ETF on the planet. It is far more likely that a smaller gold ETF will get away with managerial nonsense. Did Bob Pisani even bother visiting the others?

    However let us assume for argument that GLD is outrageously found to be 40% derivative-based. There is no problem unless derivatives collapse. And if derivatives collapse, you will still be much better off with GLD than with the -90% losses that will happen to stocks, derivatives and perhaps FDIC accounts and perhaps anything tied to any paper currency.

    If you want to be totally safe, buy coins. But you may lose money every year on taxes, storage and trading costs. And do not put all the coins in one place.

    And if you have stock market investments, a diversity of gold ETFs and short-term TIPS ETFs simply provide by far the safest buttons that you can push in your online trading accounts.

    (A ladder of individually-bought TIPS is more absolute than the short-term TIPS ETFs but involves a bit more rigamarole and might tie-up some of your money for 15 years if trader confidence plummets during a stock market downturn. In all history, trading values increase for US Treasuries during stock market downturns--more consistently than for gold. However the reverse is theoretically possible, especially if the US government reschedules its debt, and which the US congress has repeatedly demonstrated it is willing to risk, and for which there might even be good reasons.)
    Mar 13 01:48 PM | Likes Like |Link to Comment
  • Yes, The Nasdaq Bubble Is Definitely Here [View article]
    Thank you NYC Trader for this necessary discussion. However I would prefer greater focus on dissecting the Nasdaq-100 ^NDX QQQ.
    *The ^NDX bubble was more than twice as outrageous as the general Nasdaq.
    * People who bought-in at the peak of the 1999 ^NDX bubble are still after 15 years a long, long way from getting their money back.
    * Nonetheless, a primary assertion in this article--that the general Nasdaq is normally no better than the S&P--is not true for the ^NDX which has consistently outperformed.
    * ^NDX would have done well for anyone buying-in with 1/10 of portfolio, rebalanced annually, during all but the worst part of the 90's bubble.
    * Nonetheless I am very concerned about the bubble-forming tendency of any high-flying tech-biased index ETFs including the FDN Internet Index ETF. I would not have more than one of these types in my portfolio and I think QQQ/^NDX is lately a bit less-dangerous than FDN or any purely high-technology ETF.
    * An S&P-600 Growth ETF such as VBK has similar potential as QQQ with minimal specialization. Similarly non-specialized high-performers are GURU and PKW. Other consistent high-performers which are somewhat specialized but not over-dependent on one hook--that consistently do extra-good whenever times are good but do not form outrageous bubbles--are a Retail Index ETF such as XRT and a "consumer discretionary" ETF (travel and entertainment) such as VCR. QQQ used to be a favorite of mine, but now is ranked in my eyes at best among the latter 4-6 of these.
    Feb 22 12:15 AM | Likes Like |Link to Comment
  • Binary Options “ZERO RISK” Strategy [View instapost]
    Rajat, thank you for sharing this insight. The basic idea is rather "11 year old" as you say--and I am very skeptical of binary options. However sometimes that is what it takes to see something clearly--and the concept can be applied to other instruments.

    I stumbled on this article while surfing out of curiosity for what the heck are these "binary options." I have yet to find a clear explanation either from protractors or detractors. A critical article at Forbes just rambles on with anecdotes and does not seem to understand the difference between a zero-sum game and a negative-sum game. http://onforb.es/QeoLo2

    If you play poker at a Connecticut casino, you pay $5 every half hour just to sit at a $5 table. This is obviously what it takes to pay for all the chandeliers, carpeting, air conditioning and croupiers. Nobody can consistently overcome that rake. And yet there is no shortage of suckers.

    To be specific, nobody has explained what is the vig? I see some saying there is a built-in disadvantage of 55/45 which is worse than playing against loaded dice. Then there are "comments" that claim there is actually an advantage. http://bit.ly/1fvlf1p

    The first question to ask is, how do the Binary brokers make their money? Are they operating out of the kindness of their hearts? I am not claiming to know at this point. I have run out of time trying to find out.

    Rajat, if by chance you are not a millionaire by next June, feel free to send a private message to see how I am doing with my non-binary adaptations.
    Feb 18 08:23 AM | Likes Like |Link to Comment
  • Why I'm A Passive Investor (And You Should Be Too) [View article]
    Thank you Larry Swedroe for this thoughtful article whereby we might discuss our self-labeling as investors.
    I call myself an ETF investor, for more-or-less the same reasons that Larry Swedroe calls himself a passive investor. However I suspect that I am more passive because I do not see the point of actively making a distinction. I might be mistaken because I am too passive to verify this--but it is my impression that many if not most ETFs calling themselves "actively managed" are actually following a "Mechanical Investing" methodology to the same degree as those calling themselves "passively managed." As pointed out by Larry Swedroe, there are ETFs that follow the equivalent of an Index even when there is no Index. What is the equivalent of an Index? I am not active enough to bother to decide.
    There also seems some bugaboo about relying on past performance. And every time I hear this, they always end up relying on past performance. What else is there besides religious-like beliefs? Theoretically, Europe and China have equal or greater growth potential as the US S&P. So I started out thinking I should invest in EZU and EEM. However several years ago I decided they were clearly not rebounding with the same energy. Avoid. And I was very very right. I still think EEM may surge ahead of the S&P eventually. But I realize that for several decades it is not likely to be nearly as sound an investment. My studies of performance have educated and refined my investment religion and vice-versa. I do not think it is logical to separate the two.
    My religion says that solar power is here to stay, as well as a feel-good investment, and that if we use ETFs we can't do too badly. (TAN) follows the MAC Global Solar Energy Index. Then I took a look at TAN's performance! Every preconception that I had about nonleveraged ETFs being automatically safer than individual stocks was totally blown away. I still cling to my religion but now I am more wary.
    Conversely, the Solactive Guru Holdings Index (http://bit.ly/1aR32zf) picks the best-performing stocks of the best-performing hedge fund managers. The very definition of active management in spite of being an Index--and from a pool of the most over-rated stock-pickers on the planet to boot. Nonetheless GURU works great and I am willing to bet 10% of portfolio that it keeps on doing so.
    P.S. PHDG/VQT are is listed as "actively managed." But I happen to understand it is the very opposite in actual fact. PHDG/VQT follow the VEQTOR index that has proven since 2004 systematically to gain about half as much as the S&P most times, meanwhile as in 2008 and 2011 to go up in value during severe downturns. Unless derivatives collapse, I am quite sure this will be consistent and am betting another 2/10 on this. If PHDG/VQT were not derivative-reliant and if derivatives were not proven in 2008 to be at risk of collapse from the bank failures, then I would invest 4/10 in PHDG/VQT on margin. Read this study by SA contributor Fred Piard: http://bit.ly/1iEZTR2
    Feb 11 09:32 AM | 1 Like Like |Link to Comment
  • Why Long-Range BEVs Are An Economic, Energy And Emissions Abomination [View article]
    Thank you for this informative article. This reinforces my general suspicion that, rather than take risky investments in the name of "doing good," the average investor will do more good by focusing on the bottom line, and easily saving +1.0% annually on typical investment overhead, meanwhile donating -0.1% of portfolio to Greenpeace each year.

    I found this article while researching environmentally-friendly ETFs to suggest on my "responsible investing" website.

    I think it is a good thing to support the development of alternative energy technology, and that it would be unreasonable to expect no "abominations" along the way. My case in point is the island nation of Singapore: a tiny flat place accessible by a single causeway. Singaporeans love cars more than life, especially the Mercedes, and horsewhipped a US teenager for allegedly spraypainting a Mercedes. Meanwhile the Singapore government paid cash for a state of the art subway system, and taxes cars 300% or more. Thus keeping the unnecessary vermin within slightly tolerable levels, meanwhile enriching the public coffers. Huge beautiful trees are also being planted along every highway.

    Nonetheless, Singapore remains a smog-ridden place unnecessarily breathing its own excrement. Singapore is a culturally sterile place which most wealthy and talented people wish to leave, not a Bali or Serendip to which people wish to go. All of this could so easily be changed. Contract with Mercedes to build a plant in Singapore for look-alike BEVs. Ask any price and force the idolaters to pay, just as Singapore is already doing. Also build a huge rental lot just across the causeway for enabling gasoline-powered road trips to Malaysia. More and more income for Singapore, plus perferct BEV transportation for a tiny flat island, plus the absolute elimination of noise and smog. No can do.

    I am not singling out Singapore as an example of backwardness. Quite the contrary, Singapore is an example of how backward the human race is, even when provided an idyllic possibility and a relatively pragmatic government.

    So, we really should invest in green technology, and we really should not be surprised when the results occasionally show just how primitive and irrational the human race is.

    However, now for the flip side of the coin.

    I also dabble in Options trading methods which capitalize on the perennial human fear of non-existent I.V., which I call "Imaginary Volatility." Consequently I specialize in ETFs not individual stocks, which have minimal real volatility. So as an Options-trading tree-hugger I was naturally attracted to the high-IV solar-powered TAN--until I took a look at its long-term performance. To my shock, I never saw such very real risk except in a leveraged ETF! Such investments are fine for billionaires like Buffet but not for me.

    Later, while compiling a list of green ETFs to suggest, I never saw such a lineup of absolute crap shots. I began to realize that firstly, there is a reason that alternative energy is called "alternative." Secondly, we are only recently beginning to see more and more ETFs capable of systematically sorting out the better non-alternative investments! So logically we should expect that "alternative energy ETFs" which are worth investing in may be several decades away. If ever. Basically, we can only expect something "alternative" to become a sound investment after it is no longer called "alternative."

    To be specific...

    After studying the performance charts of all the leading "green ETFs"--only QCLN shows a clear long-term propensity for not-losing. I like QCLN's holdings and I think that this ETF concept ought to be supported. Nonetheless, in the final analysis, QCLN has done terribly during the bull market of the last three years. I have a list of a dozen ETFs that consistently do much better than the S&P. Why should any investor have to put up with an ETF that actually loses year after year while the S&P is doing so well? If you want to be so idealistic, better to invest in GURU and give half the difference to Greenpeace.

    As of January 2014, the only two green ETFs that consistently do better than QCLN are:
    PUW PowerShares WilderHill Progressive Energy
    EVX Market Vectors Environmental Services

    I am ethically lukewarm about both of these investments. PUW does not invest in alternative energy development, but in companies that make conventional equipment more efficient. EVX does not invest in new environmental conservation ideas but in waste disposal companies which incidentally have major recycling programs. You might do better for the environment by asking your grandchildren to have one less baby. Thus a million less rolls of recycled toilet paper and several less electric cars to recycle.

    Nonetheless these are healthy directions for the planet. Equally important, they keep up with the S&P very well.

    I am currently creating two "Pro-green Mirror Trading" or "MPG" long-short investment systems for mirror-trading at Covestor. One of these systems is "high risk," making substantial use of margin leverage, therefore can easily afford to invest in both PUW and EVX.

    However my mid-risk MPG account for the average investor with only $10,000 and no-leverage can only afford to invest in EVX. I have not chosen EVX over PUW for ethical or performance scores, both of which seem about the same. My deciding factor was simply that EVX has very little trading volume. Therefore firstly needs more support and incidentally might have more room for future growth. It seems to me at least equally important that, for both MPG accounts, I will be asking Covestor to pledge a portion of mirror-management fees to Greenpeace.
    Feb 9 11:32 AM | Likes Like |Link to Comment
  • GLD Capital Gains Need Careful Tax Planning [View article]
    Hello Kevin Feldman, thank you for this article. Two years later, I am now writing about gold investing. This is the only article I can find that states clearly that we might maintain short-term tax status while also maintaining a continuous ownership of the same value of physical gold by switching between different physical gold ETFs. There are now 6 physical gold ETFs with acceptable liquidity: GLD, GTU, PHYS, IAU, SGOL, AGOL. Of these, I find that only AGOL has a wide spread, and even so, placing a GTC limit order at midpoint seems to make a fair trade. I.e., those desiring the hedging value of continuously holding physical gold, and also for whom the short-term tax rate is best, might divide the total allocation between 5 out of 6 ETFs, and every 2 months, sell one and immediately buy another. Thus no gold ETF is held for more than 10 months at a time.
    Are you sure that this sort of "shell game" would work for maintaining short-term tax status?
    Other internet articles seem to imply by their lack of clarity that this is somewhat of a grey area. If so, I have been considering instead using 4 gold ETFs--and every 3 months, selling one for 5 weeks. Thus never rebuying and also never reselling until over 30 days have passed--and varying between 3/4 and 4/4 of the total allocation. Thus being less overtly a "shell game."
    On the other hand, it would seem contradictory for the IRS to argue that anything called a 'collectible" is interchangeable. Selling one Rembrandt and buying another Rembrandt is not a continuous investment, nor is selling a Double Eagle and buying a Krugerrand. Physical gold is taxable as a collectible precisely because it is directly attached to unique physical gold. Meanwhile conversely, we are able to adjust FIFO or LIFO so as to change between long term and short term on identical equity products for the same company and same custodian.
    So, it seems to me that two different gold ETFs with different custodians holding different gold in different countries and with slightly different prices and different management fees can be seen as different investments. If so, then it certainly would be most convenient to be able to constantly invest in 5 out of 6 different ETFs, the first method above.
    Any opinion about this, as well as any references to appropriate internet pages, would be appreciated.
    Feb 8 11:20 PM | Likes Like |Link to Comment
  • Warren Buffett Is Wrong About Dividends [View article]
    To Sumflow, I welcome your interest in my comment. In reply to your questions.
    #1. I am not trying to single people out by age. I just think it is a shame that many young people and their parents feel that they "must" get their own home. This high expense at this early time in life is exponentially damaging to investment potential--although not as damaging as having several children. Retired people on fixed incomes face an inverse but equivalent dilemma. Incidentally, anybody at any age who owns a home should consider buying a very large (!) used camper, both for storage and for emergency living space. Zoning codes often make it difficult to fully install the camper, but there is no need to install it. When in use, you can contract with a portable toilet company to empty the septic tank regularly. Also I know several people who would be much wealthier today if they had bought a large camper instead of building an addition--which is not only costly up front, but you pay every year in double the property taxes.
    #2. You are arguing for buy-and-hold vs. trend-trading. Trend-trading certainly has pros and cons as discussed in my article: http://bit.ly/XWUYq0
    Anyway this does not pertain to individual stocks vs. ETFs. My point is that I lost money a few years ago because RIMM/BBRY was highly and repeatedly recommended by Forbes Special Survey, which in turn had the highest gain vs. downturn ratio of any investment guru tracked by Hulbert Financial Digest during 2001-2010. Meanwhile I would have done great with a tech ETF, which does not depend on whether or not Apple or Nokia beat out BBRY, etc. Holding-on to BBRY as it fell, based on my faith that it would rebound, would not have helped! Similarly, BP may have looked great before the gulf oil spill, or Exxon before Valdez. Buy XOP instead. ETFs are not immune against non-rebounding. QQQ's Nasdaq-100 index has even today not rebounded from its peak in 2000. Someday the S&P might not rebound from another 2008, just as the Euro-zone EZU is not rebounding well today. But if QQQ was rebalanced annually to 1/10 of portfolio, you could still have done well. Anyway, for those with less than a million to invest, it seems to me that a portfolio of 10 ETFs is far safer than stocks by offering more diversification than 100 stocks. Also far cheaper to trade if you think a downturn is coming. Also far less time and nuisance to figure out year-after-year what and when to buy.
    Feb 8 12:01 PM | Likes Like |Link to Comment
  • Warren Buffett Is Wrong About Dividends [View article]
    * For me, Charlie Zap has the most enlightening comment: how the tax code disincentivizes dividends.
    * I also like the way that the main article implies that (a) dividends are popular and (b) ex-dividend drop in share price does not last. Therefore offering shrewdly-moderate dividends might boost share price, by boosting investor popularity more than its cost to the company.
    * I also like the basic idea of retirement planning via dividends=retirement plan. I believe that maybe 1/10 of investors understand financial planning to a degree that would provide them a more sound plan.
    * However whether dividend guru or not-dividend guru, a universal suggestion by investment gurus is re-investing and not-spending. My main suggestion is that, rather than pay rent or home maintenance costs, young people or elderly people should consider buying a large used 2-door camper. Or for those who do not have parents or children with a house to park a camper, find people with whom to share rent or home maintenance. Also do not have more than one child unless you are quite well off. That will do a lot more than dividend investing.
    * Also what I know for sure is that (a) I pay more taxes on dividends and (b) every time I look at what dividend investors claim to be making, so far it does not sound as good as my non-dividend expectations.
    * Meanwhile I am equally focused on gaining + not-losing. I am wide open to some dividend-fan looking at my portfolio someday and making suggestions. But until then I have enough to think about.
    * Also, I am increasingly enamored with ETFs vs. individual stocks. A great dividend-paying company can have a disaster and plummet. This generally cannot happen to an entire index ETF. Or if it does happen you can sell on the downtrend and rebuy on the rebound. With individual stocks like RIMM/BBRY you can never be so sure that there will be a rebound. And "total return" of dividend-focused ETFs never look outstanding.
    * On the other hand, recently I have also focused on long-short mutual funds. The two best in my opinion are MFADX and DGQIX which has a dividend emphasis. I suspect that its dividend focus adds to the probability that the losses of DGQIX will remain consistently mild.
    * However I am completely re-writing my long-short strategy after discovering the hedging ETFs PHDG, VQT and XVZ. These are many times more effective than dividends in cushioning portfolio downturns. http://bit.ly/1iEZTR2
    Whether or not focused on dividend investing or ETF investing, hedging ETFs can minimize portfolio downturns. The only downside is that hedging ETFs may lose all value if derivatives collapse--as might have happened if not for the banking bailouts of 2008. Therefore, I advise against more than 1/10 portfolio in PHDG (semi-derivative) and 1/20 each for VQT and XVZ.

    XVZ gradually loses over time but gains twice as much twice as early during S&P downturns. PHDG and VQT gain about half as much as the S&P over time--3/20 on them more than pays for the losses of 1/20 in XVZ. If you also trend-trade then your portfolio value can actually shoot up during downturns. However, if derivatives collapse -100% then general equities can be expected to lose at least -70%. I.e., derivatives are not less secure than equities, they are simply not more secure than equities. I.e. it is not safe to replace a gold or TIPS allocation with derivatives. However it certainly is a good idea--and a much more effective hedge than dividends--to replace some of your investment allocation with PHDG, VQT and XVZ.

    Also, you can create your own long-short portfolio by combining PHDG, VQT and XVZ with better-than-S&P index ETFs--such as GURU, PKW, QQQ, SVXY, VBK, XRT, VCR. I am adding EVA to my list, which generally does the same as the S&P, to support environmental conservation. I.e. with hedging ETFs you can create your own long-short mutual funds while directly controlling the level of market exposure and derivative exposure.

    I will soon post an article about gold and then start working on a new article about PHDG, VQT and XVZ. Incidentally, for maximum security as you age and savings increase, in my opinion older investors should hold at least 2/10, and increasingly more of savings, in individually-bought TIPS or a combination of short-term-only TIPS ETFs and perhaps just a bit of SGOL. FDIC or SIPC insured cash or CD's are not any more secure than dividends or derivatives! See this article: http://bit.ly/1bcAy3f
    Feb 8 10:09 AM | Likes Like |Link to Comment
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