Introducing a new membership category

All our current members are in the Level 1 category. The questions which they have asked suggest that we need an additional category which we are introducing herewith. To review:

Level 1

$C200 including taxes

The Monday Morning Mentor Program members get:

  • PDFs of the books Monday Morning Millionaire Ed. 2 and The Six Habits of Monday Morning Millionaires
  • ongoing support and encouragement for passive investing
  • academic literature-supported answers to investing questions
  • access to relevant webinars
  • relevant blogs
  • academic investment paper reviews
  • abstracts of articles supporting the Monday Morning Millionaire Program investing philosophy from the Wall Street Journal, Forbes, Financial Times of London, Globe and Mail, New York Times and other financial publications.

For members who want to start investing like Monday Morning Millionaires quickly and with confidence, we now offer

Level 2

$C1,700 including taxes

The Monday Morning Coaching Program members get:

  • All Level 1 benefits
  • Six one-on-one telephone coaching sessions to internalize the six habits of Monday Morning Millionaires.

We offer a free half-hour discussion for anyone interested in exploring whether level two suits their personal investment needs. Simply email me at milan@drmilan.com to set up an appointment.

 

Investors on the average cannot outperform investors on the average.

 

The title of this blog is a mathematical certainty. A similar mathematical certainty is that money managers on the average cannot outperform money managers on the average.

When we subtract the time and the monetary costs of managing money, one the average, we get a guaranteed underperformance relative to the market as a whole.

That is another mathematical certainty.

That is why the Monday Morning Millionaire Program so enthusiastically recommends investing in an exchange-traded fund (ETF) which mirrors the S&P 500 index which itself is a good proxy for the American economy on the whole. We are connecting to and benefitting from the strongest economy in history. Warren Buffett himself, regarded by many as the greatest investor in history, wants this approach to be used in the settlement of his estate.

Michael Bloomberg has stated that Donald Trump would be wealthier had he invested his inheritance in an ETF which mirrors the American economy and sat in a rocking chair after that. In Trump’s defense, he can justifiably state that his way is more exciting,

Low-cost, diversification and tax efficiency make up the rational, intellectual foundation of indexing, that is, investing in an ETF which mirrors the American economy. The difference between indexing and managed money is that the latter has no rational, intellectual foundation.

Why invest in the stock market at all? There are so many other ways to invest. The chart below provides the answer. (Used with permission from Prof. Elroy Dimson.)

Over the last 117 years, no investment category has equaled investing in the market. Will that be the case over the next 117 years?

Seasoned Monday Morning Millionaire Program members know that in addition to the best possible returns, investing in the market has the following four advantages:

  1. constantly quoted prices
  2. absolute liquidity
  3. low transaction costs
  4. excellent record keeping provided by brokers.

No one can pick stocks or time markets in the short run. Nevertheless, you can reliably make decent money in the U.S. with a slow and steady approach of investing in a low-cost, market index ETF. To quote John Bogle, forget the needle, buy the haystack. Starting early in life and saving 10 percent of your annual income and investing using the Monday Morning Millionaire Program method will allow you to maintain your career lifestyle into retirement.

 

 

Negative compounding? Is there such a thing? What is it?

 

Why is self-directed investing (do-it-your-self investing) such an important habit of highly successful investors? Why not buy an exchange-traded fund (ETF) run by professionals for the seemingly low cost of 1% per year in fees? Compared to restaurant tipping which commonly runs between 15% to 18%, a 1% fee does seem low. The concept of negative compounding shows that a 1% fee is far from being low.

Before looking at the seemingly low 1% per year in fees, follow the link to review the run by “professionals”  aspect. That will show you what you are getting for what you are paying. Alternatively, you can save yourself the time needed by taking our word that professionals’ performance record is nothing to be proud of.

Now, let us look at the seemingly low cost of 1% per year in fees. That 1% per year is subtracted every year from investors’ entire mutual fund including investors’ contribution that year as well as all the compounding growth which has taken place over the life of the fund. Investors can call it negative compounding.

Investors lose 1/3 to 1/2 of their gains to the managers of the fund.

The table below shows the result if an investor puts $1,000 a month into an investment account each year for 30 years, earns an annual 7% return on average and pays a fee of 1%.

Annual fees Value of account Lost to fees
1% $979,256.24 $393,618.60

The arrangement is a wonderful deal for the managers. They take no risk. They get paid even in down markets when investors lose. They get a significant portion of the gains in rising markets.

The Monday Morning Millionaire Program shows how to outperform over 90% of professional managers over the course of a market cycle and keep the amount lost to fees.

We are looking here at the “humble arithmetic” which John Bogle frequently wrote about.

Do it yourself, avoid negative compounding and prosper.

 

Our personal portfolios, 6/3/19

Since January 2012, we have outperformed the market slightly in our core portfolios. It is almost a certainty that we will not be able to continue to do so. However, since we have the six habits of highly effective investors, it is an absolute certainty we will be able to equal the market minus a small transaction fee. Seasoned members on the Monday Morning Millionaire Program do so.

Every Tuesday, I publish with comments, Rosi’s and my core portfolios and my fun portfolio holdings and the activity which took place on Monday.

Rosi does not have a fun portfolio. She has her fun skiing, cycling in the skiing off-season, making muffins, walking our dog, reading, making our travel arrangements and spending time with our grandchildren.

My Fun Portfolio

Finally, during the last 3 months, our fun portfolio is beginning to outperform the market. Please note that the only way to beat the market is to ignore one or more of the six habits of highly effective investors. We ignored two. One, the portfolio is fully invested, that is, it cannot be rebalanced to a sensible asset allocation and two, it has only one stock, that is, it is not diversified by owning the entire US market via an exchange-traded fund which mirrors the S&P 500 index.

Since inception, the portfolio is down significantly because the only security in the portfolio, AbbVie (symbol ABBV), tanked immediately after we bought it.

Since that time, we sold derivatives on ABBV each time that we were assigned. (Covered calls 11 times and cash-secured uncovered puts 9 times.) We have recovered 2/3 of the loss overall but still hold a loss position.

Yesterday, I sold covered calls on ABBV, expiry date June 7, strike price $76.00 and got $US 986.00 per ten contracts.

Since my fun portfolio makes up only 5% of our market holdings, it cannot have a major impact overall.  It could, however, come up with an unusually good opportunity which we could apply to our core portfolios.

Core portfolios (all are tax-advantaged)

After withdrawing our entire annual budgeted income needs from my personal core portfolio recently, I followed Paul Samuelson’s advice (Samuelson is an economics Nobel laureate) stating that investing should be like watching paint dry or grass grow. We maintain a 50/50 asset allocation with 50% in a US money market fund (TDB166, now paying 2.24% annually, down from 2.25% three weeks ago) and 50% in the RSP ETF.   That 50/50 asset allocation equals the market over the course of a market cycle (peak to trough to peak) with half the volatility, that is, half the risk.

 

 

 

 

Enough! How much is enough?

“Yes, but I have something he will never have.”, said Joseph Heller in his comeback to his colleague and friend Kurt Vonnegut’s comment that their hedge fund money manager host made more money in the previous week than Heller’s best-selling novel Catch 22 did even with over 10 million copies sold.

“And what is that?” asked Vonnegut.

Heller’s response: “Enough!”

How much is enough?

On Friday, May 31, CNN published an article titled Is $2 million enough to feel wealthy?

The article refers to an interesting survey by Charles Schwab which shows is that a net worth of $2.27 million would allow most people to feel wealthy. (We can assume that the net worth figure does not include the primary residence even though that is not made clear in the survey.)

A good definition of true wealth is not needing anything. Zeno, Epictetus, the Stoics, and today’s minimalists would be there with a very low net worth. People who maintain a private jet or a large yacht simply could not manage.

How does this apply to Monday Morning Millionaire Program members?

Consider the following:

  1. Members of the Monday Morning Millionaire Program have an annual income of about $100,000 on the average. (Most are dentists, veterinarians and optometrists. Their average incomes are easy to find on the Internet.)
  2. The six habits promoted by the Monday Morning Millionaire Program promise that members will be able to maintain their career income level into retirement without encroaching on the principal.
  3. A 4% rate of withdrawal is widely considered by experts as a safe way to do so.
  4. The portfolio(s) size which would allow a 4% withdrawal rate to generate $100,000 without encroaching on the principal is $2.5 million. (4/100 x $2,500,000 = $100,000)

Monday Morning Millionaire Program members are or will be a part of the one percenters we hear so much about. Most would envy us.

As simple as possible, but no simpler

Here are a few recent headlines from some of the most highly respected English-speaking publications such as the Wall Street Journal, the New York Times, the Globe and Mail, the Economist, the Washington Post, the Financial Times….and we haven’t even touched on German, Italian, French, Chinese, Russian, Indian business publications.

There are hundreds. Every day. You could spend every waking hour, every day, reading them and still only get through a fraction of what is out there. All are interesting.

None will improve your investment results!

So, how can the Monday Morning Millionaire Program promise to show you how to make more money before breakfast on a Monday morning than you ever did in your best week during your career?

Heaton et al* have shown that passive index investing as promoted by the Monday Morning Millionaire Program outperforms most actively managed portfolios. Writing in the academic literature which only publishes evidence-based papers, many other authors have shown the same to be true.

*Heaton, J.B. and Polson, Nick and Witte, Jan, Why Indexing Works (May 10, 2017). Applied Stochastic Models in Business and Industry 33 (6), 690-693. Available at SSRN: https://ssrn.com/abstract=2673262 or http://dx.doi.org/10.2139/ssrn.2673262

Practicing the habits of highly effective investors, Monday Morning Millionaire Program members outperform over 90% of actively managed portfolios. To repeat again, the habits of highly infective investors follow.

Continue reading “As simple as possible, but no simpler”

Our personal portfolios, 5/20/19

Since January 2012, we have outperformed the market slightly in our core portfolios. It is almost a certainty that we will not be able to continue to do so. However, since we have the habits of highly effective investors, it is an absolute certainty we will be able to equal the market minus a small transaction fee. Seasoned members on the Monday Morning Millionaire Program do so.

Usually, I publish with comments, Rosi’s and my core portfolios and my fun portfolio holdings and the activity which took place, on Tuesdays. I did not get a chance to do so yesterday, so here it is today.

Rosi does not have a fun portfolio. She has her fun skiing, cycling in the skiing off-season, making muffins, walking our dog, reading, making our travel arrangements and spending time with our grandchildren.

My Fun Portfolio

Please note that the only way to beat the market is to ignore one or more of the six habits of highly effective investors. We ignored two. One, the portfolio is fully invested, that is, it cannot be rebalanced to a sensible asset allocation and two, it has only one stock, that is, it is not diversified by owning the entire US market via an exchange-traded fund which mirrors the S&P 500 index.

Finally, last month, our fun portfolio did better than either the US or the Canadian market. However, since inception, the portfolio is down significantly because the only security in the portfolio, AbbVie (symbol ABBV), tanked immediately after we bought it 20 weeks ago.

Since that time, we sold derivatives on ABBV each time that we were assigned. (Covered calls 11 times and cash-secured uncovered puts 9 times.) We have recovered 2/3 of the loss overall but still hold a loss position.

Since my fun portfolio makes up only 5% of our market holdings, it cannot have a major impact overall.  It could, however, come up with an unusually good opportunity which we could apply to our core portfolios.

Core portfolios (all are tax-advantaged)

After withdrawing our entire annual budgeted income needs from my personal core portfolio last week, I followed Paul Samuelson’s advice (Samuelson is an economics Nobel laureate) stating that investing should be like watching paint dry or grass grow. We maintain a 50/50 asset allocation with 50% in a US money market fund (TDB166, now paying 2.24% annually, down from 2.25% two weeks ago) and 50% in the RSP ETF.   That 50/50 asset allocation equals the market over the course of a market cycle (peak to trough to peak) with half the volatility, that is, half the risk.

 

 

 

Investment advisory newsletters; are they useful?

A Monday Morning Millionaire Program member recently stated: “I have been a subscriber to the Motley Fool to for over 20 years, and have profited from their suggestions.”  That comment prompted today’s blog. Objectively, the Motley Fool record is not nearly as good as their marketing department would have us believe, understandably and true of most marketed goods and services. The highly regarded Hulbert Financial Digest   placed the Motley Fool in the number 3 spot out of some 200 newsletters.  The Motley Fool does employ about 300 people so, yes, they are a successful organization from a corporate perspective.

How successul are their followers?

The point-form elevator pitch which follows is all you need to read to get the message. For details, read the entire blog.

Elevator Pitch

  • Investment advisory newsletters are popular. There are many.
  • Investment advisory newsletter quality is all over the map.
  • The Hulbert Financial Digest rates investment advisory newsletters. It is an excellent source of information for interested investors.
  • It is possible but unlikely that studying the Hulbert Financial Digest will improve on the passive (indexing) performance which the Monday Morning Millionaire Program recommends.
  • To have a meaningful impact on a portfolio, a buy or sell decision must involve a large percentage of that portfolio. This is a crucial point.
  • Even the best and most respected newsletters occasionally make poor recommendations.
  • Making a major commitment based on a poor recommendation could wipe out a portfolio.
  • Carefully studying investment advisory newsletters will definitely improve one’s cocktail party conversations. It is possible but highly unlikely that it will improve on the performance of the Monday Morning Millionaire Program approach to investing.

Long before the Internet protocol suite or Mark Hulbert’s respected Hulbert Financial Digest in 1980, I was spending about $20,000 a year subscribing to any and all investment newsletters that I could find. I reasoned that if I could find some consensus on a buy recommendation, I could act on it profitably. Not surprisingly, there was no consensus. Every buyer needs a seller who has an opposing view about the prospects of any security.

Further, it soon became evident that some of the newsletter authors were semi-literate. Additionally, many would simply remove losing recommendations from their model portfolios to make them look better. There was no agency regulating who could write and what could be written.

That is still the case today. Investment newsletter authors are not governed by any central regulatory agency. A high school student working from his bedroom could run an investment opinion blog.

So could dentist with no investment qualifications. Me, for instance. However…

  1. I have been investing in the stock market for over 50 years, the last 30 with confidence.
  2. I am proud of my investment record and display it (as reported by my bank). To be believable, all with investment opinions should show their personal portfolio performance.

The above points give me credibility and a reputation which I guard jealously. Now back to investment advisory newsletters.

Investment advisory newsletters are often written by great analysts who share their knowledge with others for a few hundred dollars a year. However, even the best of them can make serious errors in judgment. Many were rating Enron a buy, even a  strong buy just before its infamous collapse in 2001. Now, to have any significant impact, any buying or selling within a portfolio needs to be a large percentage of that portfolio. Many held such positions in Enron. Overnight they went from wealth to poverty. Many worked for Enron and were on in years with poor prospects of recovery. These tragedies of epic proportion simply cannot happen to passive index investors like Monday Morning Millionaire Program members.

The Monday Morning Millionaire Program guarantees that members will equal the performance of the American economy with half the risk, minus a negligible transaction cost. Over the last decade, that approach has outperformed over 95% of portfolios including professionally managed ones. Will it do so in the coming years?

Rosi’s and my retirement is based on that assumption.

 

 

 

How to amass a fortune predicting the market

On March 26, 2019, from Elliot Goldenberg, CEO  Mindware Seminars, CDE credits on dream vacations!

Question:

Have you heard of Steve Sjuggerud? Apparently, a very astute stock market player who has amassed a fortune predicting various points in the market over the last 20-30 years. He claims to have built a special algorithm to determine the market top.

Monday Morning Millionaire Program Answer:

We apologize for our delayed answer. Your question was buried together with a lot of other material.

Stansberry Research is an investment advisory organization which publishes several investment newsletters. Steve Sjuggerud is the founder of True Wealth which is one of these. In November 2003, the Securities and Exchange Commission accused Stansberry of fraud. The court found Stansberry guilty; appeal was denied.

Many who head advisory organizations make a fortune by being convincing enough with their marketing  that they build up a large following. Followers pay fees.

 

One-minute explanation of recent market activity

The ten-year chart above shows:

  1. The S&P 500 index itself
  2. The Vanguard S&P 500 ETF (Symbol VOO)
  3. iShares Core S&P 500 ETF (Symbol IVV)
  4. Spider S&P 500 ETF (Symbol SPY)

2., 3., and 4. are exchange-traded funds (ETF’s) which are proxies of the S&P 500 index itself. The chart shows all four and the Monday Morning Millionaire Program recommends investing in one of these. Note that they are exactly the same, as expected. They show the performance of the American economy as a whole. (Buying the American economy is the third habit of highly effective investors.) The S&P 500 and its proxies have gone up over 150% over the last decade. You can cherry-pick investments which have done better but only with hindsight. No other category of investment has done as well. That has been the case for over 100 years and is likely to continue.

Now, the media are making a lot of noise about the market drop of the last week. (The five-day chart below shows the S&P 500 index itself and the three ETF’s which mirror it.)

Monday Morning Millionaire Program members have a long-term investment view. They would yawn at a 4% drop in after arise of over 150%. It has happened before. History shows that 5 percent drops happen more than twice a year; 10 percent, twice within three years; 20 percent, about once every three-and-a-half years; and 30 percent, once every five years. The more active members might start getting ready to rebalance their asset allocation and buy one of the increasingly cheaper proxies of the American economy.

Monday Morning Millionaire Program members know that the media need to say something even when there is a nothing to say.