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Thoughts for windfall

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  • IntensiveCareBear IntensiveCareBear 
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    Status: Physician
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    Joined: 12/22/2018

    …3) Lot of success buying great stocks after an earnings bust and collecting profits on them (FB, AMD, NVIDIA, CNX, SVXY). (Id say i trade at most 3-5 stocks/indexes a month, on average maybe 1 a month. I set trade trigger alot of times, which catches the stock when it falls really low for a few minutes. I also never buy a stock I wouldn’t plan on holding for atleast a year. IE I’ll buy facebook after a 20% drop but if it doesn’t go up 10-15% in the next 3 months, I’ll just keep holding onto it for a year…

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    Yeah, this above is a fine strategy. It is an even better strategy if you sell covered calls on the ones you get stuck with (drop from QE or general market turbulence, you buy low, and then they keep dropping or go sideways). That can be particularly important to generate some trickle income from stocks without dividend. I don’t know if I’d consider those you listed ‘great stocks,’ but maybe your risk tolerance or personal preference is different (I would tend to consider DOW stocks or dividend aristocrats like MCD or MMM or JNJ or PG or KO a bit ‘great’er).

    SVXY is not a company/stock at all, though; it is a leveraged fund. I would assume that’s a typo? Those are very directional and not meant to be held for any significant length of time. It is good to understand and have some bearish tools like SDS, SPXS, and SPXU in your arsenal, but they shouldn’t be called on very often. There are many more sunny and cloudy days in the market than rainy days, so I don’t often tend to predict thunderstorms. I also think that the news/politics or interest rates guessing is fairly pointless… that stuff is often already baked into pricing and stock valuations… and I just don’t find the politics reality show very enriching to keep tabs on. The other ‘strategies’ you mentioned are pretty much just pure market timing and guessing based on world events. It can work, and it can fail. In the long run, the companies and their profits or success/failure will be much more important.

    I totally agree that you can almost always beat the S&P with solid active strategy, though… I’ve had similar results to yours. My only year since residency I failed to best the S&P was where I predicted a crash (never came) and changed to mostly bonds, and I missed a lot of gains (I only gained 5% versus S&P doing 12% in 2006). YMMV this year doing a similar rain prediction; I hope you fare better, lol. Overall, I have had much success. I’ve bought numerous small caps over the years that get bought out and realize a sudden big gain, others that climb steady, and a few that tanked. Most my consistent winners are large cap stocks that can profit easily and consistently just buy buying dips or low P/E relative to peers (sometimes with cash covered puts), holding them for dividends + calls, and maybe eventually selling them at their peaks. Indexes can also have returns improved by selling calls (SPY, QQQ, VWO, etc… IVV starting to get more liquid also).

    As long as you are buying things you feel do well in your hands with solid reasoning for the buys, there’s no problem. Buffet was right when he said “if you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes.” What wasn’t said is that it’s also perfectly fine to sell it after 6 or 12 months if you are up and/or a better buy is out there. I know I wouldn’t be worried one bit if I lost the ability to trade my holdings for a year or two… they’re all good companies with good business model, nearly all have good history of profitability, most give dividends, and most are on S&P or even DOW. It is basically a game of cherry picking my own improved index fund with extra dividends thrown in (options).

    The stock market has long term positive gain expectation. This is not some blackjack our roulette game where you need to win and jump out before the math inevitably catches up with you. Luck is simply the crossroads between preparation and opportunity. I see no reason not to get as involved in market investing as one feels comfortable, assuming it improves their returns or enjoyment. This is what the millions of 401k indexers buying just indexes and reinvesting dividends and settling for slightly below average results (due to ERs) do not understand. They are “gamblers” in my opinion since they are not preparing learning the market and therefore mainly just saving with an interest rate of S&P TR… minus fees. They don’t learn the game and are not actively investing or ever taking money off the table to try to increase returns… but that’s the strategy they choose. The funds looove those people since they can sell options on and against their billions of shares and collect the ERs until they retire – and beyond. That S&P low ER indexing is exactly what I recommend to friends who want a totally passive approach, though. It is still quite effective and beats many other methods of wealth accumulation for simplicity and results. Again, it’s a game with positive returns, so there is really nothing wrong with either approach.

    #213474 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2123
    Joined: 09/18/2018

    “But I don’t think its totally out of the question for a guy who just got a $1,000,000 windfall to sit on the money for a year and try and buy a nice dip given the current climate.”

    Of course it’s not out of the question. That’s exactly the plan a 3 yr NFL linebacker and a first round MLB pick chose. Saw them at a HOF college induction ceremony.
    What the heck. They could afford it at the time. Ah the good times. The good part is your not out buying stuff and you realize how actually protect it. Maybe in a year you will decide to invest for the long term.

    #213475 Reply
    Liked by Jack_Sparrow
    Avatar Financial Naive MD 
    Participant
    Status: Physician
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    Joined: 05/05/2019

    The 30% in cash was just a round up of the latest stocks I sold IGM (tech ETF), ODVIX (china fund), UNH (united health), and GOOG (all reaped 10%+ gains since i bought them less than 6 months ago),  Also sold Boeing, SQ, and RTN, all for a loss between 7%-10%. There is not a lot of strategy in a robotic sense. I’ve got a few rules I stick to too try and keep my emotions from getting the better of me, For example, if its up more than 15% in 3 months I sell it.

    I hear what the investors above are saying, statistically the sound strategy is throw it all into a safe AA, low fees and you’ll win out in 30 years. I won’t disagree that this is the most tried and true recipe for success. This is my approach to my 401k/retirement funds….

    But I like to play with fire a little bit. I also invest/chase the market as a hobby, I’m part of an investment club, etc. I’m sure right now, I’m a product of survivor bias and easy to talk big when the markets are at an all time high. I could be a few bad trade away from going under but its the stock market, everything is a gamble on some level. I don’t plan on timing the market for 30 years, nor do I recommend it.

    But I don’t think its totally out of the question for a guy who just got a $1,000,000 windfall to sit on the money for a year and try and buy a nice dip given the current climate. (Longest Bull Market in history, Federal Debt, Pensions/SS underfunded, extreme politics, majority of investors see problems ahead). Id give a different answer if the investor asked this question January 1, 2019 and maybe a different answer in 3 months.

     

     

     

     

     

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    Well, if you keep selling your winning stocks when they gain 10%-15%, when are you going to make big bucks?  One sure bet is you will pay 35% short term capital gain to Uncle Sam.  Statistic shows time in the market beats timing the market.  I bought Netflix $12 about 6 year ago, now $360 (3000% gain), I bought ROKU $38 in Dec 2018, today went up 28% (115% gain).  However, I only play individual stocks just for fun.  I will never bet my retirement on them.  I remembered the pain when I lost 70% value of individual stocks.  Almost all my holding are now in low cost index funds.

    #213572 Reply
    Liked by Jack_Sparrow
    IntensiveCareBear IntensiveCareBear 
    Participant
    Status: Physician
    Posts: 137
    Joined: 12/22/2018

    Financial Naive MD wrote:

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    …I only play individual stocks just for fun.  I will never bet my retirement on them.  I remembered the pain when I lost 70% value of individual stocks.  Almost all my holding are now in low cost index funds.

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    I don’t get this thinking at all. Index funds are just large baskets of individual stocks. You are betting your retirement on it, but it’s a game with positive return expectation… so that’s fine.

    The indexes are less variable and have ER. The stocks are usually more variable and have zero ER. It’s fine if you want to just buy and hold indexes and don’t want to take advantage of the variability (of either stocks or indexes). That can make good sense for those wanting a hands-off approach or those who have reached their goal milestones and want to be more conservative, but it doesn’t make it a crazy undertaking for anyone else to embrace the volatility. Some people choose total index, some might do S&P, some do DOW index, and some do single stocks. They are just different breeds of the same animal. It is a financial freeway with coach buses, conversion vans, SUVs, sedans, sports cars, motorcycles, and crotch rockets. Each can get you where you want to go. Each has their advantages and disadvantages, but each depends primarily on the skill and comfort of the operator.

    …Buying and selling individual stocks is simply taking advantage of that increased variance and zero ER. Again, the markets are a game with positive return expectation based on history (and inflation). If you told me I could only own WalMart, Pfizer, P&G, Amazon, Microsoft, Ford Motor, Nestle, YUM Brands, Exxon, JNJ, JPMorgan, and Honeywell for the rest of my investing career… that would be fine with me. I can make plenty of money just on those. I’d prefer to have at least twice that many options so that I don’t have more than 10% of my portfolio in any one company, but I could make due with even just 5 of those if I had to. I would view that as driving the SUV or sedan on the freeway metaphor.

    When Target or WalMart or some company goes down 12% in a day or two (something an index can barely ever do) due to a QE announcement or credit card breach or tariffs or workers threatening to unionize or whatever, that doesn’t mean that 12% of their stores were struck by lightning. Assuming their core business model is still strong and P/E is reasonably in line with their peers, it might be a good buy opportunity on a proven and profitable company at discount price. They didn’t lose 12% of their merchandise in a fire. They didn’t have 12% of their top store managers get caught in child porn scandals. The sky is barely ever falling, so I see nothing wrong with wanting to buy at those points, holding to collect dividends, selling calls if you want, and sell when price rebounds (sharp uptick in price and/or P/E above peers).

    It’s an individual decision at the end of the day. For every Sears or General Motors,  there will be many more success stores which will more than offset the bad performers. And besides, indexers owned Sears and GM too. Stock pickers actually may not have owned them, depending on their selections. Buying individual stocks is just as much about avoiding the bad/overpriced actors as it is about finding the superstars. Both of those help beat the index. GL

    #213654 Reply
    Lordosis Lordosis 
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    Status: Physician
    Posts: 793
    Joined: 02/11/2019

    Financial Naive MD wrote:

    Click to expand…

    …I only play individual stocks just for fun.  I will never bet my retirement on them.  I remembered the pain when I lost 70% value of individual stocks.  Almost all my holding are now in low cost index funds.

    Click to expand…

    I don’t get this thinking at all. Index funds are just large baskets of individual stocks. You are betting your retirement on it, but it’s a game with positive return expectation… so that’s fine.

    The indexes are less variable and have ER. The stocks are usually more variable and have zero ER. It’s fine if you want to just buy and hold indexes and don’t want to take advantage of the variability (of either stocks or indexes). That can make good sense for those wanting a hands-off approach or those who have reached their goal milestones and want to be more conservative, but it doesn’t make it a crazy undertaking for anyone else to embrace the volatility. Some people choose total index, some might do S&P, some do DOW index, and some do single stocks. They are just different breeds of the same animal. It is a financial freeway with coach buses, conversion vans, SUVs, sedans, sports cars, motorcycles, and crotch rockets. Each can get you where you want to go. Each has their advantages and disadvantages, but each depends primarily on the skill and comfort of the operator.

    …Buying and selling individual stocks is simply taking advantage of that increased variance and zero ER. Again, the markets are a game with positive return expectation based on history (and inflation). If you told me I could only own WalMart, Pfizer, P&G, Amazon, Microsoft, Ford Motor, Nestle, YUM Brands, Exxon, JNJ, JPMorgan, and Honeywell for the rest of my investing career… that would be fine with me. I can make plenty of money just on those. I’d prefer to have at least twice that many options so that I don’t have more than 10% of my portfolio in any one company, but I could make due with even just 5 of those if I had to. I would view that as driving the SUV or sedan on the freeway metaphor.

    When Target or WalMart or some company goes down 12% in a day or two (something an index can barely ever do) due to a QE announcement or credit card breach or tariffs or workers threatening to unionize or whatever, that doesn’t mean that 12% of their stores were struck by lightning. Assuming their core business model is still strong and P/E is reasonably in line with their peers, it might be a good buy opportunity on a proven and profitable company at discount price. They didn’t lose 12% of their merchandise in a fire. They didn’t have 12% of their top store managers get caught in child porn scandals. The sky is barely ever falling, so I see nothing wrong with wanting to buy at those points, holding to collect dividends, selling calls if you want, and sell when price rebounds (sharp uptick in price and/or P/E above peers).

    It’s an individual decision at the end of the day. For every Sears or General Motors,  there will be many more success stores which will more than offset the bad performers. And besides, indexers owned Sears and GM too. Stock pickers actually may not have owned them, depending on their selections. Buying individual stocks is just as much about avoiding the bad/overpriced actors as it is about finding the superstars. Both of those help beat the index. GL

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    Sounds like a strategy that works well when the market is generally going up and might bite you during bad times.  How long have you been actively investing this way?  If it has been working so well why can’t the fund managers figure this out?  Shouldn’t we have a ton of active management funds outperforming the index?
    Good or bad market it sounds like a lot of work.

    “Never let your sense of morals prevent you from doing what is right.”

    #213673 Reply
    Liked by Jack_Sparrow
    IntensiveCareBear IntensiveCareBear 
    Participant
    Status: Physician
    Posts: 137
    Joined: 12/22/2018

    Lordosis wrote:

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    …If it has been working so well why can’t the fund managers figure this out?  Shouldn’t we have a ton of active management funds outperforming the index?…

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    They make a ton, man. The vast majority of them outperform the index, some much more than others. You see what you know.

    What you are probably looking at is just their realized and unrealized gain/loss or the amount of gains they pay to investors (some share better than others).

    You are not seeing all of the income from calls and puts and etc which they generate from the millions of shares held. A good example would be Buffett’s fund Q1 report for Berkshire… it looks like they lost a lot on Kraft Heinz, but you don’t know of or see all of the covered call monies and dividends those KHC shares have raked in for them over the years on 13Fs. They probably bought many of the shares with cash covered puts, so they got them at lower prices than market… and they also got paid to buy them. And besides, their “loss” on KHC last quarter isn’t even a realized loss unless they sell.

    https://whalewisdom.com/filer/berkshire-hathaway-inc#tabsummary_tab_link (look at the bottom graph… Berkshire performance lags S&P TR for years, right? Totally wrong.)

    A very simple example would be that I (or anyone) could easily manage a fund that tracks the S&P, buy a million shares of SPY (or most of the individual stocks, proportionally), and look like I’m doing a fine job of tracking my index on 13F filings. What you wouldn’t see is the large amounts I could make (or lose) selling – and maybe buying, options. If I wanted to sell some far OTM calls (say 10 or 15% OTM call each month on SPY for maybe a nickel or dime per share), nobody would ever know, but my company would be much richer… and it’s up to me whether or not I share very much of that with the fund investors. It is almost impossible to get “caught” doing those strategies, and even if you do see a huge surging market, you just use incoming investor funds to buy back the calls. It is not some not some underhanded or cloak-and-dagger stuff, it is simply harnessing the power of OPM (other ppl’s money). That is what funds do… and insurance companies, and banks, and publicly traded companies, and etc etc etc. They all make a higher percentage return and give investors a lower, but usually decent enough, percentage.

    Yes, Vanguard and Fidelity and etc etc want everyone to buy their broker consults and active funds with higher ERs. However, they do just fine based on the total assets under management also with 401ks and other indexers. If you honestly think VOO or VTI only makes 0.04% for Vanguard since that’s the listed ER, I don’t know what to tell ya. Maybe you also believe Bank of America only makes 3.5% on your home mortgage or that they lose 0.5% on your savings account? Enjoy the weekend.

    #213682 Reply
    Avatar Jack_Sparrow 
    Participant
    Status: Physician
    Posts: 37
    Joined: 01/09/2019
    Sounds like a strategy that works well when the market is generally going up and might bite you during bad times.  How long have you been actively investing this way?  If it has been working so well why can’t the fund managers figure this out?  Shouldn’t we have a ton of active management funds outperforming the index? Good or bad market it sounds like a lot of work.

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    Maybe not directed at me but only been investing during the good times/Bull Market. I have no illusions my current strategy would work in a more volatile market.

    I’m not a fund manager by my friend is so I’ll give you my general understanding.

    1) Fund managers are the market, and drive the markets. For simplicity, if all fund managers decided to pull out and go 20% in cash, the stock market would go down at least 20% and it won’t go up until fund managers buy back in. Maybe the first money manager firm can do it but if they all did it, it wouldn’t be profitable, markets would adjust quickly to the buying and selling.

    2) Investment laws/codes, fund promises. Maybe its different for each Hedge Fund but I thought I read somewhere by definition a hedge fund can’t go more than 15-25% in cash at any point. Also I’m fairly certain a hedge fund can’t buy a stock and then just sell it the next day like I can. I think they usually have a 1-3 month waiting period between transactions (at least this is the rule for my friends firm) They usually just buy options instead. Also would seem unethical(against the SEC) to advertise a funds saying you will target this % of X and that % of Y and then just sit in cash.

    3) Scale Factor/Liquidity – I can buy $20,000 of an individual stock plenty of seller/buyers, nobody bats an eye, stock price doesn’t adjust, if Warren Buffet tries to scale it and buy a stock for 2 billion, the markets move, plus who knows who he buys it from, not to mentioned Buffet has to find someone who is willing to buy the stock from him. Not like someone like me, who just puts in an order and seconds later is gets bought.

    3)Fund managers basically are always buying or selling. So people give money to the fund and say buy something. So the fund manager  buys whats the best deal on that day. In my opinion, there isn’t a single fund manager out there who would be willing to tell their clients.. “Hey we think the market is going to crash so we are going to sit in 100% cash for 1-3 years while we wait this out in hopes of greater returns”. There are several fund managers who will go 10-15% in cash, buy defensive stocks bond, though on a smaller scale. but no trades = no commissions, etc. bad for business. Someone like me, I can wait it out, only strike while the iron is hot.

    4) Fund managers don’t have the risk tolerance and most of the time their clients don’t either…

    5) Every fund managers tries to buy low and sell high. But with a 2% annual fee its got to be hard to beat the markets. compared to the $10 dollar fee i’m charged per trade.

     

     

     

    #213683 Reply
    Tom Kazansky Tom Kazansky 
    Participant
    Status: Dentist
    Posts: 27
    Joined: 12/02/2017

    OP – what did you decide to do?

    #213684 Reply

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