Good Day All! Dr. Brown’s theme today is FEAR. His intro talk at the beginning will be a discussion of FEAR and how it handicaps you as an investor. First he wants to thank the IU Course student in who sent this question:
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“I have recently signed up for your service. I missed out on the bull run we have had because of fear. I subscribed to several newsletter firms and because they all had different takes on the market I was paralyzed and did nothing and for awhile played it to the downside which was a big mistake.”
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Dr. Brown’s Discussion of FEAR
The best investor of our day is Warren Buffet. He makes the interesting statement that you should “…be fearful when others are greedy, and greedy when others are fearful.”
Now most people take this as advice to buy at the bottom of the market.
However it is very hard to buy at the exact bottom of the market. You can see in the chart from Gecko Software below that the S&P hit bottom on March 9th.
Chart 1
There’s a special index called the VIX that measures fear and tells you a lot ONLY when it’s above 40.
Chart 2
Chart 3
Notice how it dropped below 40 at the very beginning of April.
Chart 4
Here’s the point. The stock market crashed in 1987 a lot less than it did last year.
Chart 5
Warren Buffet went on a buying spree from 1987 through 1990… a full three years.
Chart 6
The major down-trend on the S&P only just broke in late July. So we’re only about 2 months off the bottom in reality.
Chart 7
SO WHO SAYS YOU MISSED THE MARKET?!!!!
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Dr. Brown, At 55 and on disability I am tempted to cash out of my IRA so that I can do more with my money without our GOVT> restrictions What are your thoughts on this.
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This is a very personal matter that you should discuss with a professional accountant or financial planner. Let me emphasize that I intentional do not give personal financial advice. You have to study the problem, think through it, and come to the best solution for your self.
Generally on the matter of taking early withdrawals from an IRA people usually find that the cost is not worth it. Also, when people chase high returns they often lose because of the psychological state of someone who desires to chase high returns.
Great investors make their money by making decisions unemotionally and waiting after they invest.
This is why I wrote the Seven Golden Steps and recommend Alex Green’s gone Fishin Portfolio. BTW the GFP can often be closely mimicked in most 401(K)s.
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I have an annuity and would like to transfer it to professional money management because I'm not doing so well with my own money. Do you have an idea that that would not trigger the tax consequences.
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Again, I give no personal financial advice. You’ll have to discuss this with a tax professional in your area.
But, on the general discussion of annuities I’d like to explain why I can’t stand them. The first reason is that the fees are ridiculously high and just plain ridiculous ranging from Mortality and Expense Charges, Surrender Charges, through Management Fees destroying the value of annuities as investments. People are generally much better off in the Gone Fishin Portfolio where the fixed income component offers superior returns at a lower cost.
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Could you tell us "how to start", that is how to get enough diversification as soon as possible with say $50K ?
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First of all congratulations on having enough money to have a GREAT start!
Again, I give no personal financial advice. But, in general I teach in the course that investors have to first protect themselves from themselves. This is done by allocating 70% to a core passive strategy. In my opinion the best core passive strategy is the Gone Fishing Portfolio (GFP). Then the 30% leftover can be invested in single stocks.
However, somebody completely starting out may be best off with simulated trading for the first year. During that year the entire allocation would be 100% core passive portfolio such as the GFP. Here’s a link to the best stock investing simulator on the market:
http://www.trackntrade.com/hf/stocks/
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In my first call much of the discussion revolved around how you
'begin' the process of saving and then investing. What if you are not
working and want to grow your nest egg? How, or do, the formula's
change?
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The 50:30:20 formula doesn’t change unless your at poverty level. Those at poverty level are forced by circumstances to use 100% of their income on needs.
I don’t understand. You say you’re not working. Does that mean you have no income? Or is your income passive?
It’s all base on income. Many people don’t have conventional jobs yet have income… sometimes substantial.
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I have finally decided to buy NOK, NEU, EWH, PLA, SWHC, ESI, EFR, TLM, SU
Have $10,000.00 to start and would like help on what weight I should put on each stock. Please help. Should I buy NEU and ESI because of their high price with the amount I have? Decided on SU instead of PBR because am not certain about
Already have TKLC, VE, GILD, ICGE
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I do not give allocation advice. You have to attack this a stock at a time. Apply what I taught you in the course. First of all a list of stocks should be organized according to the anomaly it best fits: momentum, IPO, insider, value, ADR, or takeover.
Then the list should be analyzed accordingly. Most factors such as financials and so forth can be found at http://www.marketwatch.com/ and http://finance.yahoo.com/
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Can you please give us a plan of attack for all this research? I am focusing on the momentum and value sections but it’s hard to know which squeak to start with. Do you have a specific order to go about this in?
Historical EPS is not easy to find!
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For momentum you want to look at Earnings Growth and RSI first. Don’t just check EPS growth. You also want to see if EBIDT growth is high as well. I have found a stock screener that is ideal for all of this send lots of emails to Investment U to get them moving to get it to you!
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Dr. Brown: I am 63 years of age. How do I accomplish the 7 figure investment goal in 10 years? Is that realistic? I have some capital to start with: $50k. Is it still realistic?
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There’s no switch you can flip to turn on the profits. You have to create your portfolio based on your study of the course and then wait for ten years. I can tell you that once you get started it gets easier over time and that $50k is a great start. You may also want to try to make the Investment U conference next year in
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Dr. Brown: I believe I understand how to set up "The Gone Fishin' Portfolio" by allocating the % strategy to each of the Vanguard fund indexes to total 100% of your total $ investment. However, I don't understand how the Oxford Asset Allocation Model works. I see that there are 5 Portfolios (The Oxford Trading Portfolio; The Oxford All-Star Portfolio; The Seven Deadly Sins Portfolio; The Gone Fishin Portfolio; The Perpetual Income Portfolio) with allocations of 30% US Stocks; 30% Foreign Stocks; 5% Precious Metals; 5% REITs; 10% High-Grade Bonds; 10% High-Yield Bonds; and 10% Inflation Adjusted Treasuries. I will have 6 stocks that are worth about $100,00 if liquidated that I will be receiving within a couple of weeks and I'm trying to figure out how to use the Oxford Asset Allocation Model. Could you give me an example using the $100,000. Thank you,
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Hi Gary, again it all comes down to the percentages and I do not give specific investment advice. 70% into a core passive portfolio. Valid candidates are any of the 5 Portfolios (The Oxford Trading Portfolio; The Oxford All-Star Portfolio; The Seven Deadly Sins Portfolio; The Gone Fishin Portfolio; The Perpetual Income Portfolio). Then 30% can go into individual stocks. Alternatively an investor could put 70% and 30% into any two of the core passive portfolios above.
