donzelion

Who's Smarter: Bond Guys or Stock Guys?

Buy low, sell high...right now, I'm skeptical of bonds and stocks. Seems the best investment is in workers themselves, since employers seem to be abandoning them. Sadly, since I'm in no position to hire them, the best proxy I can find: prosper.com and similar peer-to-peer lenders.

Just 5 ETFs and You're Set? Buy-n-Hold Silliness Still Carries On

re prairiedog555's Suze Orman note: she puts her money in munis for the tax advantage. As the bulk of her income is in the +35% tax bracket, that makes perfect sense. Others earning less than $250k ought to follow a different strategy (which she points out clearly).

Re Bogle's advice: for an investor putting away $1-2k per month, investing in 5 ETFs each month makes no sense whatsoever once you factor in trading costs of $7-10 per purchase. Vanguard's website has an excellent tool comparing the relative advantages of investing specific amounts in funds v. ETFs; for "most" investors, funds would be a better option (jury's still out on whether buy'n'forget is prudent though). (Of course, Vanguard's brokerage services charge something like $25/trade, an obvious effort to discourage this sort of trading even more.)

Last I checked, "Idiot's Guide" and "Dummy's Guide" type books were still selling well: there's a place for such things for many people. Those who seek to master a field won't be satisfied with such novice offerings - but it's better'n'nothing (and sadly, far too many "should be" investors know nothing at all).

Vanguard's Bogle: Buy and Hold Is Alive and Well

With respect to bonds, I suspect investors avoid bonds in part due to tax structures (bonds other than munis = ordinary income, which taxed less favorably than dividends or capital gains in most cases).

With respect to international diversification...I split the difference between you and Mr. Bogle. U.S. (and European) companies will exploit many of the best opportunities, but in a few contexts, local companies have the advantage (e.g., utilities/infrastructure, telecoms, and other sectors involving close government ties). As a dividend growth investor, I'd think DEM would warrant consideration as an alternative to VWO (higher fees, but much higher payout ratio, and their selection process seems prudent in bubble-riddled emerging markets).

Rob Arnott: The Urban Legend Behind Stocks, Bonds and More

"In my view, there are bargains galore, today, but not in growth stocks or in Treasury bonds."

From reviewing, it would seem that junk bonds (JNK) and emerging market debt (EMB), followed by deep value companies (dividend payers, esp. higher yielding equities) are the best targets according to Mr. Arnott. While I can't see much further upside to treasuries, I'm curious to what extent, if any, looming tax changes upset the dividend analysis (a 5% increase in tax rate compounded over dividends ought to have a substantial long-term effect).

That said, I applaud every time an investor reiterates the basic truth: "there is nothing new under the Sun: diversify." And sell off the best-loved assets to trade them for the worst-loved assets every now and then. All makes sense to me...

April's Unemployment Report: Lies, Damned Lies, and Statistics

At some point, the rate of unemployment growth MUST slow - for reasons that have nothing to do with unemployment or jobs. From October through March, firms were letting go of the "easy to fire" employees - sales agents, white collar desk jobs, non-critical assistants, and the like. If a position can be easily eliminated, it was.

After March, terminations will require better payout packages - responsible companies try not to hand out pink slips to employees with 20+ years of seniority, as that invites all sorts of other costs, pension issues, legal liablities (age discrimination) and the like. Far better to "coax" reluctant employees into voluntary early retirement - which takes time, effort, and even more money.

More important, a "retired" employee is not counted as an "unemployed" former employee unless s/he starts looking for a job and files for unemployment insurance. Every person over 60 who is laid off may become "unemployed" in a technical sense, but few will show up in the unemployment numbers - even as the number of jobs shrinks.

The Economy Is Bottoming

"The good news that has driven stocks higher is that the bad news that had been expected has failed to materialize; things aren't as bad as the market had feared."

On the contrary, the "good news" is that things don't appear to be that much worse than the market had feared last Fall.

Things are about as bad as the market contemplated. Highest unemployment in 25 years - and still growing (albeit, supposedly a lagging indicator). Massive earnings shortfalls (but only relative to ridiculous projections in March 2008). Massive uncertainty about the value of major financial assets (but perhaps by changing the accounting rules, we can put a bandage on uncertainty and make everyone feel better about risk).

Stewart vs. Cramer: Long-Term Asset Allocation Incorrectly Maligned

Stewart's point ought to be recast. The "long haul investing" often means, "buy it, hold it, forget it." That's not investing; that's long-term speculation.

One might buy a house because a broker claimed "it's a great house for the long haul" - but one wouldn't leave the house sitting there for 20 years and do nothing, hoping it will appreciate in value over that time (nor would one blame the broker 20 years later if his claim turned out to be false). Yet folks buy companies that way all the time - never bothering over minutiae like financials, annual reports, conference calls, or even voting.

'Investors' often look down on day-traders as speculators, but they miss the obvious: it isn't the length of time one holds an asset that transforms it from speculative gambling to an investment - it is what one does while one holds it.

If one can't be bothered to find out who and what you're buying (a few hours a year per company), then one should stick with funds, and stop pretending to be an investor, whether for long haul or short.

Why Not to Buy Bond ETFs

"What I'm seeing is a lot of assets priced at distressed levels ... and none more than in certain parts of the equities markets." Hmmm....well, if asset prices are at distressed levels because the assets are actually distressed, then how is that a recommendation to buy now?

Granted, the basic point of your article remains sound - people should have worried about capital preservation long before, and for investors young enough to wait for a recovery (could come in 2010, could come in 2020, but will eventually come) - now is a better time to buy than 2006, 2007, or 2008.

But the way i see it, it's always the "best time ever to buy" - and there's never a chance of missing the "opportunity of a generation" - if you know what you should be buying at any given time. Since I don't have such knowledge, I need better arguments to justify one investment over another.

How Safe are Bond ETFs?

Other than increased liquidity, what advantage does AGG have over BND? Seems that for fixed income investments tracking similar indexes, the key would be to squeeze every last dollar out of fees...

Toward a New Model of Diversification

"I still believe in diversification." I believe in arithmetic - "buy low, sell high." Way I see it, diversification is just one of many strategies to achieve the real goal - a good strategy in most cases, but no strategy works in every environment, particularly not when a single factor (e.g., leverage inflating asset classes) crosses beyond every sector.

Hence, "anything else you can think of" ought to focus on what nobody will ever link to financial markets. My candidate? Human capital. Not "anything you can think of," but the skill and capacity to "think" - skills, training, credentials, and social networks. Human capital isn't readily converted to pay the rent, but it's easily the most non-correlated asset class out there.

Bond ETF, Mutual Fund Correlation to the S&P 500

"All fixed-income securities are are risk of loss of purchasing power due to inflation."

Inflation hurts every fixed-income strategy, but wouldn't bond funds hold up better than owning actual bonds themselves (IF the bond funds had low enough fees, that is). TIPS (automatic inflation adjustment), short-duration funds, or aggregate bond funds (AGG, BND) ought to rebalance towards bond flows...

Makes sense to me to buy a hefty chunk of bond funds in a tax-advantaged account (IRA, 401k), and just let'er DRIP.