Despite last year’s (and this year’s) market collapse there are still plenty of writers, brokers and others who simply don’t get it. They have stuck to their proven method of losing a large amount of their portfolio value in record time due to, well, sheer ignorance.
Reader GH had this to say on the subject:
You simply must visit this page and ponder the nonsense.
Here’s an example: “…if you’ve not already proven that you can time the market effectively and consistently beat these passive strategies, then you have no excuse but to implement them until you do.”
Farrell and his followers never give up.
I have always chuckled about the “lazy portfolios” over the years, since they too ignore the fact that bullish portfolios will get killed in a bear market—no exceptions. MarketWatch continues to waste readers’ time by featuring the returns of those portfolios as shown in the following table:
If you are a buy and hold investor, you have now earned the right, if you had invested in these portfolios, to pound your chest and proudly declare having outperformed the S&P; 500.
Such perverse opinions are passed down from Wall Street. Some genius in the past figured out that, as a fund or money manager, all you have to do is outperform the S&P; 500, and you are a winner. The fact that you still lost some 33% is really immaterial; your investors are sure to forgive you.
Until the public finally wakes up to the fact that they are getting shafted over and over and start voting with their feet by leaving, it’ll be business as usual.
In a sense, we are our own worst enemy since deep down we’re always eager to accept something for nothing. Lazy portfolios promote that theme and, until people are willing to step up to the plate by taking responsibility, considering pros and cons of various investment approaches, they will always be left holding the empty investment bag when the bear rears its ugly head.
Comments 7
Ulli,
People never seem to learn, which is evident in their actions. They continue to make the same mistake over and over because they say it is different this time, yea right.
People are very lazy when it comes to learning about investments especially timing them. It is just too easy to let some “Money Mangler” lose the money for them. Actually lose all their gains of the last 12 years most likely. Hello depression.
T.M.
I can't imagin an investor sitting if front of his money mismanger and listen to him/her babble on and on as to how he/she beat the S&P500; and you the client lost approx. 28% avg. using the Lazy portfolio. It isn't so much what you buy as it it is when you buy and sell. I would rather bet on a monkey/chimp doing the mutual fund picking by throwing darts for me than let someone mismanage my money and then have the nerve to ask for a fee after they lost so much money, get real people.
While recently on vacation I noticed many readers want to do something even if wrong. I pondered this as you considered hedging a long position. May I say this market has taught a lot off us a renewed fear of how easy welth is destroyed. I have hedged positions ,hold the long to collect the dividend ,sell short to enjoy the ride down,buy bonds they never go down etc,etc! I have concluded that as boring as cash is if I could do it over I would exit all positions except cash till the bear is over. That means holding cash from 2000 when this bear started!
As I’m traveling around the internet this evening something just occured to me.
While it is in fact Wall Street that rightly deserves the top award for punishing investors who don’t do their homework, it seems that many investors themselves just don’t have their priorities in order so that they may give themselves a snowballs chance of portfolio survival. Here’s what I mean…
Lately I’ve noticed an increasing number of people who are blaming Obama for, in one person’s words, “…destroying people’s 401k accounts…” And their response is to organize and attend “Tea Partys”.
If I’m a Wall Streeter I’m quite pleased that so much attention is being aimed at the new administration for recent damage done to portfolios. And as that Wall Streeter with connections to Madison Ave this may be a terrific opportunity to peddle “innovative” finacial products.
Wall Street has a new supply of clients who don’t have time to take charge of their retirements, they are too busy blaming someone else and attending partys.
G.H.
Well said, G.H….
Ulli…
Ulli,
Thank you so much for your advice. I have the option to purchase my employers stock at a 15% discount at the lowest share price either at the beginning or end of the year. After making my purchase this year, I watched the share price creep up to about 32% above the purchase price. I established a 7% stop loss from the dally high value. My stop was triggered and I sold all shares retaining a 25% gain. It also broke through a trend line that I had established. If I had not followed your “exit strategy” my stock would now be 5% below my purchase price. What amazes me is that when I tell fellow coworkers that I sold my company stock, I get the typical comments like “you will have to pay short term capital gains”. My response is that I would rather pay the taxes then take a loss. Other comments are “it will come back”. I use this example when trying to explain how long it takes to recover from losses – if you buy a stock or fund for 2.00 dollars and it loses 50% what do you have left? Yes they get it right – 1.00 dollar. When I ask them how much it will take to get back to 2.00 dollars in percentage terms I usually get a blank look. I explain that it will take a additional 1.00 dollar to break even and that it is a 100% INCREASE from the 1.00 dollar balance. When I explain the rule of 72 and that it will take approximately 10 years at an average compounded rate of 7% to double the balance and just BREAK EVEN – well, blank stares of disbelief. When you are 50, 60, or 70 years old – do you have 10 years to wait to BREAK EVEN (if the market actually returns 7% annually?) So many people just do not understand that they don’t have to “sell” their 401K funds – they just have to transfer them to a money market fund – which most 401K accounts have available. Thanks again for your advice – a firm believer just trying to pass the word (mostly on deaf ears).
Anon,
Amen. I could not have said it any better.
Thanks.
Ulli…