The joys and sorrows of trading

The Stock Market is designed to transfer money from the Active to the Patient.” Warren Buffett, June 25, 2019. As everyone knows, Buffett is one of the most successful investors in history. 

Isn’t Buffett paraphrasing Paul Samuelson? The Economics Nobel laureate, a decade earlier, stated: “Investing should be dull. It shouldn’t be exciting. Investing should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas… It is not easy to get rich in Las Vegas, at Churchill Downs, or at the local Merrill Lynch office.”

In their study of 66,465 accounts (the number is not a misprint) titled Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors published nearly 20 years ago (12 Apr 2000) Barber and Odean show that active trading by individual investors results in poor performance. (Brokers do all right; investors could do better, much better.)

In their paper titled Trading is Hazardous to Your Wealth: Evidence from Mutual Funds Around the World, last revised: 26 Jan. 2018, Dyakov et al show that the performance of a large number of actively-managed mutual funds is significantly lower than market returns. (Fund managers do all right; investors could do better, much better.)

Active traders use a large number of strategies. The elegance of simplicity eludes them. To get an idea trading systems, glance at 101 Formulaic Alpha  or  151 Trading Strategies..   None have a long-term record of profitability.

The Monday Morning Millionaire Program (15.5% annual return since 2012) offers a safe way to experience investing excitement, joys of excitement without leaving home.

Invest 5% or less in a “fun” portfolio.

For your core portfolio, follow the six habits of Monday morning millionaires and grow rich. Many of our members don’t feel the need for a “fun” portfolio

Please note that the Monday Morning Millionaire Program contains opinions only. It does not provide any investment advice or endorsements.

With fewer than 400 words, members can read this blog in less than five minutes. Following and studying the links embedded in the blog could take from half a day to a lifetime.

 

Experts vs the Monday Morning Millionaire Program

Who but the weatherman can be wrong much of the time and still keep the job? Stock market gurus and forcasters, that is who.

Meredith Whitney made quite a name for herself as a  stock market Oracle when she predicted the banking crisis that in late 2008. Her noteworthy call on Citibank’s balance sheet troubles got her widely talked about, written about, interviewed, filmed — she could do no wrong. A genius.

The genius appeared on the CBS news program 60 Minutes, where she confidently stated that there would be “50 to 100 sizable defaults” in the municipal bond market.

As an aside, Monday Morning Millionaire Program members don’t buy bonds. After taxation and inflation, the loss of purchasing power of bonds, that is, negative returns if held to maturity, is the case nearly always.

September 2012, the Wall Street Journal published a disparaging piece titled “Meredith Whitney Blew a Call—And Then Some.” She had predicted “50 to 100 sizable defaults” — there were five!

Investment history is replete with renowned experts with advanced training and extensive experience, with access to the best tools, the best equipment,  the best data available, with access to VIPs and insiders, making disastrous predictions.

Jesse Livermore became one of the world’s wealthiest people speculating in the stock market. An expert’s expert, he could see ahead, he could predict, like Meredith Whitney, he could do no wrong.

Jesse Livermore’s yacht.

In 1940, due to speculative failures, Livermore committed suicide leaving an 8-page note stating “Can’t carry on any longer. This is the only way out. I am a failure.”

Irving Fisher, seen as “the greatest economist the United States has ever produced” by respected, Nobel Prize-winning colleagues, is largely remembered today for saying just before the Wall Street Crash of 1929,  that the stock market had reached “a permanently high plateau”.

There are other examples. Long-Term Capital Management, with some of Wall Street’s major figures as well as two Nobel Prize-winning economists, needed a bailout of billions by more than 10 financial institutions in order to prevent market panic and collapse of the entire financial system.  Experts at work.

Ray Dalio is well worth following. His half-hour YouTube video How The Economic Machine Works will give viewers the best education on economics available in such a short time. But, check recent headlines about what Dalio has to say.

Nov. 15, 2019, Billionaire Ray Dalio Predicts The Next Big Market Crash 

Feb. 28, 2019, Ray Dalio Is Changing His Mind About the Next Recession

If you go to a search engine and look for Dalio economic predictions you will note a great deal of vacillation.  Eloquently stated but vacillation, nevertheless.

And how does the Monday Morning Millionaire Program (15.5% annual return since 2012) compare? The investment habits that older members have and newer members are developing, will very likely result in a portfolio performance that, over the course of a decade, will do better than over 90% of other portfolios including ones managed by experts. It has been ever thus.

Happy Thanksgiving to our U.S. members

About half of Monday Morning Millionaire Program members are Americans, about half are Canadians and a few are from Britain. We celebrate Thanksgiving on different dates.

Different dates?

Rosi and I express gratitude for our good fortune, every day.

Regardless, we all have plenty to be grateful for. Our children and grandchildren won the lottery by being born here. For that alone, we/they need to be grateful.

So, from the Monday Morning Millionaire Program team to our American members, Happy Thanksgiving — happy every day!

 

Prospering in a low interest rate environment

Janet Yellen, Chair of the Federal Reserve from 2014 to 2018

The first of the six habits of Monday Morning Millionaires is to have a disciplined savings approach starting early in life. Without it, the other five don’t matter.

What do the current, near-zero interest rates do for savers? Adjusted for inflation, savers are losing purchasing power.

On the other hand, near-zero interest rates give us a stock market that is at an all-time high, — euphoria for investors.

In order to save, savers have been frugal, lived within their means, spending less than they earned, deferring gratification and behaving in a generally admired way. Their reward for more than a decade now?  The new normal has crushed them.

Former Fed chief Janet Yellen does not think that it will get better for savers anytime soon.

The new normal, painful for virtuous behavior, shows the beauty of the Monday Morning Millionaire Program philosophy. While each member’s asset allocation is personally unique, each member’s asset allocation has a large percentage of the portfolio invested in the market.

Historically, a 50/50, market/near-cash asset allocation has equalled the market with only half the risk. Savers would be way ahead if they joined the Monday Morning Millionaire Program. It has had a 15.5 percent annual return since 2012 during which time savers earned near zero percent.

This difference is the primary cause of the disturbing increasing wealth inequality.

While there is nothing that we can do about the wealth inequality we can make sure that we are on the right side of the situation by practising the habits of the Monday Morning Millionaire Program.

Please note that the Monday Morning Millionaire Program contains opinions only. It does not provide any investment advice or endorsements.

With fewer than 400 words, members can read this blog in less than five minutes. Following and studying the links embedded in the blog could take half a day. How you manage this blog depends on your level of investing knowledge. Your choice!

The Butterfly Effect, savings rate, asset allocation

The Butterfly Effect states that small causes can have huge effects. A butterfly flapping its wings in Borneo at the right point in space/time can cause a hurricane on the east coast of North America.

The Butterfly Effect operates in the markets. A rumor of a new gold finding in Mongolia can have a huge effect on the gold futures market, on the Nasdaq, on the S&P 500, the ETF’s that mirror it and more.

Investors are at the mercy of the Butterfly Effect. We have no control over it. Among the huge number of factors influencing market movements, we have full control of only two in our investing; our savings rate and our asset allocation.

Because of the Butterfly Effect, increasing our savings rate and parking the money likely is the best investment that we can make. A disciplined savings program starting early in life is the first of the six habits of Monday Morning Millionaires. 

This recommendation is as boring as it is effective.

Equally boring an equally effective is our asset allocation. When Gerald Loeb, the most quoted man on the stock market before Warren Buffett came along, wrote his book The Battle for Investment Survival,*  over 70 years ago, the expression “asset allocation” was not in use.

Loeb stated: “Indeed, should some super-solvent agency agree to preserve the buying power of capital for a substantial length of time at a stated fee per annum, informed people would embrace the plan enthusiastically if they felt there was any real possibility of the agency staying solvent.”

In Chapter 6 of his book titled How to Invest for Capital Appreciation Loeb says: “It is far better to let cash lie idle than to buy just to “keep invested” or for “income.” In fact, it is really vital—and just this one point, in my opinion, represents one of the widest differences between the successful professional and the loss-taking amateur.”

Loeb was talking about asset allocation.

The only two factors over which investors have control, our savings rate and our asset allocation, are boring and effective. As Economics Nobel laureate Paul Samuelson stated: “Investing should be dull. It shouldn’t be exciting. Investing should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas… It is not easy to get rich in Las Vegas, at Churchill Downs, or at the local Merrill Lynch office.”

Please note that the Monday Morning Millionaire Program contains opinions only. It does not provide any investment advice or endorsements.

With fewer than 500 words, members can read this blog in less than five minutes. Following and studying the links imbedded in the blog could take half a day. How you manage this blog depends on your level of investing knowledge. Your choice!

 

*Loeb, G.M. The Battle for Investment Survival, Classics Edition, p. 18. Kindle Edition.

 

 

The smallest amount for practical investing

While many Monday Morning Millionaire Program (15.5% annual return since 2012) members are multimillionaires, beginning investors and those at the start of their careers, often wonder what is the smallest amount of money for practical investing.

Following the habits of Monday morning millionaires requires us to invest in exchange-traded funds (ETFs) which parallel the S&P 500.

It is possible to buy one share of any stock, however, it is practical to buy securities in board lots, that is, 100 shares at a time. Investors who are interested in selling puts and calls must do so in board lots. There is no choice.  (Only sell, never buy puts and calls.)

So we need to look for the lowest price ETF that parallels the S&P 500. Please note that the lowest price does not mean the lowest value. Since the ETFs we use in the Monday Morning Millionaire Program mirror the S&P 500, their values, but not prices, are identical.

The best ETFs to track the S&P 500 are:

  1. iShares Core S&P 500 ETF (IVV)
  2. Vanguard S&P 500 ETF (VOO)
  3. SPDR S&P 500 ETF Trust (SPY)
  4. Schwab U.S. Large-Cap ETF (SCHX)
  5. iShares S&P 500 Growth ETF (IVW)
  6. Guggenheim S&P 500 Equal Weight ETF (symbol RSP)

Of these, RSP sells at the lowest price, about$115.00 per share today. So, a board lot would sell for $11,500.00.

Following the habits of Monday morning millionaires also requires us to follow a personal asset allocation regime.

Many Monday Morning Millionaire Program members follow a 50/50 asset allocation with 50% in cash or near-money and 50% in an appropriate ETF. That means the smallest practical amount for investing would be $11,500.00 times two, or, $23,000.00.

Members who don’t yet have that amount of money can buy a small number of RSP shares, as small as one share! However, we feel that the best they can do with what they have is to save it.

Please note that the Monday Morning Millionaire Program contains opinions only. It does not provide any investment advice or endorsements.

With fewer than 400 words, members can read this blog in less than five minutes. Following and studying the links imbedded in the blog could take half a day. How you manage this blog depends on your level of investing knowledge.

Your choice!

My personal portfolios, 11/3/19. Also, time to rebalance?

Last Monday, I bought AbbVie Inc (Symbol ABBV) to bring it up to 22% of my holdings so that I could write covered calls on it. (ABBV C 01NOV19 78.00 US, that is, expiry date Nov. 1, strike price $78.00)

Normally, I confine my options selling (only sell, never buy options) to 5% of my holdings unless I see favorable mispricing. Last week ABBV options looked like such a situation. At a bid/ask range of $1.18/$1.21 on a $78.00 stock, that worked out to 1.53% per week!

By expiry date, the stock was trading above the strike price and I was assigned, that is, the stock was called away and I had to sell my shares below market price. That means that had I not sold covered calls on ABBV and simply held the shares, I would have done better.

I am reminded of J.P. Morgan’s quote (also attributed to Bernard Baruch) that you see above.

The required sale of AbbVie Inc. shares now puts me at 57.90% in cash and near-cash (11.90% cash and 47%

TDB166 now yields 1.68% so I will convert all the cash to that money market fund but, otherwise, I will leave the near-cash-heavy position as it is until I see an interesting derivatives opportunity.

Rebalancing

Recently, the market has gone up enough that investors might consider re-balancing to their personal asset allocation.

From Market Insider, Aug. 27, 2019:

“Warren Buffett’s mountain of cash may be a warning to investors that stocks are overvalued and that a crash is around the corner.

“The investing guru’s firm, Berkshire Hathaway, held a record $122 billion in cash at the end of June.

“The conglomerate’s cash is worth nearly 60% of its portfolio of public companies, the largest proportion since before the financial crisis.

“One of Buffett’s favorite yardsticks suggests the US stock market is more overvalued than it was at the height of the dot-com bubble and just before the financial crisis.”

Monday Morning Millionaire Program (15.5% annual return since 2012) members might want to review their asset allocation and even considering adjusting it to lower the percentage of market holdings.

Please note that the Monday Morning Millionaire Program contains opinions only. It does not provide any investment advice or endorsements.

 

Group enrolment in Level 2 Coaching program

Dr. Richard Rogers, President of the Maryland State Dental Association ‘Member Perks’ company and a Maryland Delegate to the American Dental Association, recently enrolled his staff of seven in the Monday Morning Millionaire Level 2 Coaching Program. We plan to have six, one-hour teleconferencing sessions as staff meetings and review everyone’s Scorecard results.

Our objective is to move all Scorecard answers to the “Yes” column by the end of our sixth session.

This is the first time that we have enrolled a group in our Level 2 Coaching program and we look forward to our meetings with eager anticipation.

What a wonderful gift to the staff!

We would love to see other groups, be they professional staff, family members, reading clubs, etc., follow this generous example of the practical and effective.

The Monday Morning Coaching Program

One of our members just completed The Monday Morning Coaching Program,  the investment approach that Warren Buffet wants for his estate. Our member moved his Scorecard result from 47 to 90!

Without question, from here on, his investment results will outperform over 95% of portfolios including professionally managed ones. He will invest confidently using safe and effective, evidence-based methods. He will do so in less than half and hour per week.

Take a look at the program. It might have value for you.