[Editor's Note: This guest post is written by “Dr. Mom,” a regular reader, popular commenter, and previous guest poster who is anonymous to you, but not to me. We have no financial relationship.]
This post was inspired by WCI’s recent post on investing in Bio-Tech stocks. The post reminded me of a recent interaction with my husband (DD) who thankfully is back to normal, or at least baseline. Then, (Spoiler Alert) mix those ingredients with watching Kung Fu Panda with my son as he recuperated from getting his wisdom teeth removed, and out pops the post. As always, I am not buying anything from you or selling anything to you. I remain anonymous because who I am does not matter, and I don’t want patients seeing my posts come up if they Google search our name. I could be your pediatrician for all you know.
Last year the interaction begins:
Husband: Hey, come look at this cool YouTube video.
Dr. Mom: Cool. What’s that? Looks like something out of Star Wars.
Husband: It’s a drone. I think we need to look into investing in this technology.
Dr. Mom: Dinner’s ready. Let’s eat.
Fast-forward a few weeks:
Husband: So, I did some research on drones. I think we need to invest in Company A.
Dr. Mom: Are you sure your timing is right? The company just had a big run up. Maybe your idea is correct but you are late to the party. Have you considered Companies B or C? What if big players like Companies D, E, or F get involved? What do you think of that book I saw you reading, Devil Take the Hindmost by Edward Chancellor? Have you considered a sector etf? Might be a safer way to play your idea.
Husband: What’s a sector etf?
Dr. Mom: Dinner’s ready. Let’s eat.
Fast-forward a few weeks:
Husband: So I found a few sector etfs, but I can’t decide which is best. Can you take a look?
Dr Mom: (Really, there is a drone sector of the S&P? I guess Hubbie is not going to let go of this.) Sure. But, dinner’s ready. Let’s eat.
Fast-forward a few weeks:
Husband: So did you look at those etfs?
Dr. Mom: Of the three choices, I agree with the one you liked best. But, again, it has just had a big run up so maybe your timing is off.
Husband: So where should my entry point be?
Dr. Mom: I don't know. Dinner’s ready. Let’s eat.
Husband: I am not going to forget about this. I know you read all that stuff on technical analysis years ago.
Dr. Mom: Well, then you know I think it is just an attempt to read the arbitrary tea leaves of crowd psychology, and that it was one of the few books in my life that I started and didn’t finish. You tried reading it and couldn’t finish it yourself.
Husband: Please?
Dr. Mom: Whatever.
A few days later:
Husband: So what is my entry level?
Dr. Mom: (Really? He knows I’m making this stuff up!) I think that $X is a good level based on Fibonacci regression analysis and the convergence of the 50 and 200 day moving averages. Blah, blah, blah…
Husband: But, that’s so low it will never get there.
Dr. Mom: (That’s the idea.) Dinner’s ready. Let’s eat.
Fast-forward a couple of months:
Husband: Hey that etf finally hit your price level today!
Dr. Mom: Come on, man. We are on vacation! Why are you even looking at stocks? Stop it! Want to play Bocce? Besides, you never want to buy it when it hits the price the first time. Let it bounce and get it when it hits it the second time.
Fast-forward a few weeks:
Husband: So I bought that etf today. It hit your price for the second time.
Dr. Mom: (Really?) That’s nice Dear. Dinner’s ready. Let’s eat.
So Kung Fu Panda fans, you know what’s coming. For those who don’t, the secret ingredient to stock picking is there is no secret ingredient. It is just random luck and chance. Ladies, if you see any of my husband in your partner, get involved in your finances! If you see yourself in my husband and you don’t have a partner, use a mentor like WCI.
Our compromise is that 10% of our portfolio is allotted to individual stocks. We count this ETF in that group. A year ago we had 5 individual stocks. Today we have 3 and this ETF. Although a small difference, I consider the change progress.
Skadoosh!
If you learn anything from our interaction, please let it be the following: When two strong willed, opinionated, and variably obstinate people work together and compromise for a mutual purpose they are both better for it. The point is not optimizing the portfolio, but optimizing the relationship.
Best wishes as always.
Dr. Mom
What do you think? Do you or your spouse enjoy picking stocks or sectors? How do you limit the damage to your serious money? Comment below!
Great post Doctor Mom. I am out the door for an early morning case. I will try to leave a comment at lunch. Hint my husband thinks cows are a great investment.
You always make me laugh! I tease my friends that I am glad my husband’s midlife crisis only involved a small sailboat (which we named Crisis) and not cows! We have since donated the sailboat to a Girl Scout camp where they are getting much better use of it. Our tax write off on the donation covered most of our initial cost.
Better late than never. My husband and I bought a small farm soon after we married. He said it would be a great investment since real estate prices were so depressed. He was right about that in that it has doubled in value according to Zillow. Now he has been watching a tv show called the black angus report on rfdtv. He became convinced that registered black angus cows are a sure money maker. He bought 7 pregnant females and one bull. One of the cows is pregnant with twins. Being an ob this worries me. He says it will be fine and a money maker and a retirement income supplement ..I would prefer to diversify the money in vanguard indexes but this was the spouses money. Being a medium city girl I nothing about farms, cows, or rural life but I guess this is just another form of diversification but I truly prefer passive income.
You are my favorite poster!!!! This was hilarious to read…would love to give you and your healing husband a hug in person. You are such great examples of making things work. I love that he communicates with you about the decision even though it is relatively small and somewhat just for entertainment value at this point.
Your family has several real ingredients of a healthy relationship.
Hope to get another post from you and your wisdom.
I enjoy your comments very much, Joseph. He communicates with me about the investing stuff because the alternative is for him to take it all back over which he does not want to do. But, his perspective and humor keeps me grounded and out of analysis paralysis.
Another great post from Dr Mom. I think the question I, and everyone else, have is, did your family make money on the drone stock pick? I know that’s not the point of the post but inquiring minds want to know.
Yes…please tell us what happened with the ETF???
Unrelated to WCI:
I can pull up the new site on my phone but nothing on either internet explorer or Firefox browsers that I have always used in the past. Haven’t tried Safari yet. Please help fix.
I can’t explain your issue. It pulls up on IE right now and I use Firefox most of the time. Not sure. Maybe try clearing your cache?
Pulls up fine for me on Safari using new OS X El Capitan.
What a great name for an Operating System.
Does your computer bookmark to http://www.whitecoatinvestor.com? That doesn’t work right now as the redirect is broken. However whitecoatinvestor.com does work.
Did that URL ever work? I’ve never typed WWW as that wasn’t a URL I’ve ever purchased.
Joe,
Thanks, as this was the problem….without the question mark of course. That site was bookmarked and would no longer work. I always typed the www in the past and it always worked. Now it doesn’t work.
Thanks,
It works now.
The sector etf is doing better than the total S&P, for the moment anyway. So, we timed that end right. But, now you have to consider if we will know or get lucky on exiting the position. It is doing far worse than the Amazon stock we sold to buy it though. I don’t worry much about individual performance. I care more about our total portfolio performance which is slightly above our benchmark.
I’m in a similar relationship dynamic, except my partner is a spender not a picker. We have an equilibrium similar to the exchange in the post, bigger expenditures get talked about for a few weeks – sometimes happen, sometimes don’t. We both end up happy.
Thanks for the post DM!
FWIW I was the spender when we were younger, and he was the saver. We have changed roles as we have aged. But, I think it helps us balance our life better.
hmmm….
“the secret ingredient to stock picking is there is no secret ingredient. It is just random luck and chance.”
Maybe for some who buy stocks based on the latest fads and pumps. But for other types of investors, such as value investors who invest for the long term in individual companies, it’s about investing after checking the fundamentals of the company and operating environment and letting the company grow while monitoring them. More of the Peter Lynch style of investing. My wife is a doc and I manage our household finances because she has no interest though I try to get her to sit through our financials once a month by going through summaries presented by applications like Mint and Personal Capital.
We’ve been married for four years. Investing in individual companies is not such a complicated thing if you know some basic investing principals, understand some accounting for evaluation and stay disciplined. A bonus is that I enjoy investing and personal finance. Our household follows the dividend growth investing model and this has been working great. I’ve been investing since 2005 so I’ve experienced the bear market and other ups and downs to be confident in staying disciplined.
Currently, 35% of our investment portfolio is from her contributions. Her contributions go into her ORP (18%), 403b (3%), Roth IRA (5%) and 457 (9%) of which the 457 is in individual stocks and the rest are in index funds and one mutual fund. If I had the option, I would go all stocks since that has been performing better. The rest of the 65% are from my contributions are all in individual stocks that pay dividends.
Investing styles come and go. Dividend investing has been good during your timeline to date. I agree with weighting to value and small, but it can be done passively. Follow your costs and benchmark yourself to be sure your portfolio is worth your effort. Remember individual companies lie or least withhold truth from you as the individual investor. I hope you don’t have to have a Worldcom or Enron experience to learn it. As you seem quite diversified you are protecting yourself. As for your wife’s disinterest, I was the same until our kids were in early elementary school. My motivation for learning all the finance was wanting better for them. Best wishes!
Well you could say the same thing about index funds too – it’s an investing style. Mutual funds were the investing style of choice until 08/09 because of their then low costs, diversification, management by Wall st. pros and availability in retirement accounts. But retail investors found out that mutual funds didn’t shield them from bear markets either. Post 08/09 when retail investors were afraid to get into the markets, the new low cost investing vehicle of choice that was promoted became passively managed index funds followed by ETFs and Target dated funds and these became available options in retirement accounts managed by Wall st. firms like Fidelity, Vanguard and Charles Schwab. If retail investors do not know what or why they are investing in something, the weak hands will bail irrespective of what their investing vehicle of choice is when the music stops.
Investing in businesses that can be understood and make profit for shareholders has never become a thing of the past and has always been the basis for investing.
Your understanding of the timing of these products seems off a bit. Index funds have been around since the 70s, ETFs since the 90s (and quite popular since at least the early 00s), and target date funds have been around at least as long as I’ve been investing (since 2004.) Life strategy funds preceded them. None were developed in response to the 2008-2009 bear market.
I agree that people bail out of stocks no matter how they invest in them. But the movement of low cost index funds and ETFs into 401(k) and the transparency of 401(k) fees is a good thing.
Yes, they’ve been around for a long time but their popularity over mutual funds is very recent. And the number of passive funds to get into this space has been growing significantly only recently. Investors started pouring over into index funds and passive funds from mutual funds only in the last couple of years. Annual net outflows from actively managed funds to passively managed funds have been increasing due to the popularity in passive investing growing so much so that in 2014 flows into passive funds were significantly higher than flows into mutual funds. Traditional managed fund houses have started getting more into the passive fund space too because of the trend.
“In the past few years, a clear trend has emerged in Morningstar’s U.S. asset flow data,
particularly for U.S. equity funds. Investors showed a continuous preference for less expensive,
passively managed index funds and ETFs as the number and variety of these offerings increased. The poor performance of active equity managers versus their benchmarks has
caused consistent outflows. ”
Source: Morning start fund flow report 2014:
http://corporate.morningstar.com/EFF3153A-0D23-49C0-98CC-D545E14711A7/FinalDownload/DownloadId-9AFD29541C01B76E7BD5C9368E87F3A7/EFF3153A-0D23-49C0-98CC-D545E14711A7/us/documents/Commentary/2014%20Global%20Asset%20Flows%20Report.pdf
“In 2014, passive trumped active investing as measured by inflows and outflows from mutual funds and exchange-traded funds, Morningstar announced Wednesday.
Active U.S. equity funds were the biggest losers for the year, with net inflows of $98.4 billion while passive U.S. equity funds had net inflows of $166.6 billion.”
source: http://www.thinkadvisor.com/2015/01/16/investors-embraced-passive-funds-eschewed-active-m
“The 2008 financial crisis sparked a general disillusionment among investors about traditional stock managers, and some of that has continued today, say analysts and industry observers.
Investors poured a net $336 billion into passively managed stock and bond funds in 2013, handily beating the $53 billion invested in traditional mutual funds of the same type, according to Morningstar. So far this year through July, investors put a net $177 billion into those passive funds, compared with $74 billion in actively managed funds.”
http://www.wsj.com/articles/investors-pour-into-vanguard-eschewing-stock-pickers-1408579101
I see those trends as evidence of the triumph of information over ignorance. The question is why it didn’t happen sooner. The information was there, people just weren’t looking for it yet.
Well, in our case it was simple: in my wife’s ORP managed by Fidelity, there were no index funds until 2013. And she worked under the Texas UT system which is a large system. The moment I noticed index funds (Fidelity S&P 500, international & mid cap), I sold the actively managed funds with .75% in total management fees (they were the cheapest among all the available funds) and bought the index funds instead. A vanguard bond index fund was added only this year.
I would suspect this was the case for most folks in their retirement plans and since most retail investors have a majority of their investments in their retirement plans, these fund houses probably didn’t feel the need to add low cost passively managed funds to the mix until people stayed out of the market and there was pressure from Vanguard’s success (my suspicion).
I think your suspicion is right.
There have been lots of headlines this year about the massive outflows from mutual funds to etfs/indexes this year. The interesting effect has been the (at this time) possible effect on market stability due to how these instruments operate and how to contain an event like August 24 in the future.
There were large, supposedly liquid etfs with NAVs down 6% that dropped 40-50+%, it was a screaming crazy bargain, most of which was gained back before the end of the day.
Probably going to have some outstanding GUC crazy low ball orders out there for the next one.
Agree that indexing is a style. My point was not to argue specific styles of investing. The post is about how spouses can differ in styles and still make it work. You are doing a lot of finance great: saving, investing, diversifying, and having a plan. If you like dividend investing, go for it. Decide a benchmark and be sure your time and effort is worthwhile. Matters not to me.
If you told my husband and I thirty years ago that I would be the one at this point in our lives doing the finance we would have had a good belly laugh. But, yet here we are and it works. Good luck with getting your wife more involved as you will both benefit.
Hilarious and so true. Most of the world out there thinks investing is stock picking! I thoroughly enjoyed this post and good a few good laughs too!
I dont think this is true in practice. People think of it like that, because they remember buffet and so on, but in reality most people are in mutual funds and etfs and indexing is becoming the thing to do and its what their employers offer them.
All the comparing etfs to individual stocks is of course timeframe dependent and how you do things (that is trend following, cyclical, counter cyclical, etc…). Its unfair either way to compare one to another over a short period of time that is unrelated to your expected time frame you think it should perform or plan to sell, if ever.
Most of the time people are comparing themselves to an inappropriate index anyway, and compound that by just picking the time frame that confirms their own bias.
It is easy to cherry pick one position in time and think it means something good or bad. I am far more interested in what our entire portfolio is doing than in any individual position. Hence, why I don’t argue about 10% of it not indexed in whatever. A quick and easy way to benchmark is to look at the Vanguard Life Strategy or Target Date Fund that most closely matches your overall allocation. Then check if you are beating it net of fees. I also decided that my time was valuable enough that I should beat it by enough to make up for it. Since I wasn’t, I decided to index.
Your comparison method is good, and exactly what I meant. Its improper for a retiree with a 60/40 portfolio to feel like they are doing poorly when the S&P has a great year and they didnt do similarly. Its not an apt comparison, and there are lots of different indexes for various portfolio types. Target date funds are probably the easiest way to find an allocation similar to your own, thats a good idea.
The big companies like Vanguard, Schwab, etc. offer portfolio tracking tools that can allow you to follow a benchmark much closer to your actual portfolio. We benchmark this way. They also offer many cool ways to look at your risk for your return like plotting out on the efficient frontier.
What did my husband want us to buy? Spyglass or something? FOrget what the company did. Took 2 years to go from $40 to $0 IIRC. I forgot to tell him “That’s nice, honey. Dinner’s ready. Let’s eat.” enough. However wisdom kept me from letting him buy >10 shares. On the flip side, I admit I also recently (over a year ago, ain’t I smart, well we’ll see won’t we!) bought stock in most of the Hep C therapy companies. Again, a tiny amount of our portfolio so it won’t really make or break us no matter how they do.
As I always say, and he kindly agrees is correct, we won’t know the yield of anything until we cash out of it to use the money. A real TEOTWAKI as some feared of Y2K and all our US $ and investments would be worth less than knowing how to garden and hunt. (We really do diversify!)
[That’s the fourth one David. I’m now blocking your IP address. Quit spamming my website.-ed]