Here are some articles that caught my attention this past week. Topics include: A (free) $600,000 lesson from Buffett, the impeding bond market non-event, Cable TV investing schmucks and more.
First and Foremost – Happy Memorial Day and a huge thank you to any active duty and retired military personnel. Without your service, none of this is possible. Thank you!
This week’s reads:
Giving Yourself an Investing Makeover
Anything by Jason Zweig is a must read for new investors (His own personal website is here: http://www.jasonzweig.com/ ). His Intelligent investor column alone is worth the subscription to the Wall Street Journal. His story this week is about a fund manager who is completely changing his entire thought process about investing after donating $600,000 to charity in exchange for lunch with Warren Buffett. The last few paragraphs of his column this week sums up the ideas I am trying to get across at Begin To Invest to a “T”:
“When researching a company, Mr. Spier has a strict routine. First he reads its official financial filings—annual and quarterly reports, proxy statements and so on. Next he reads news releases and conference-call transcripts. Only then will he allow himself a peek at online commentary, news coverage or Wall Street research. That way, his first impressions come from primary sources.
Individual investors are constantly being exhorted to try beating Wall Street at its own game of trading like crazy to chase whatever is hot. But why should you bother trying to play a game that even most professional players can’t win?
Instead, take a page from Mr. Spier’s book and play by your own rules. The faster Wall Street runs, the more you should slow down and step back from that madness. Buy and hold an index fund forever, or study a few stocks with all the peace of mind you can muster.”
Simple Lessons To Save Your Bonds
I like this article for a number of reasons. First, I just came across the site, and the articles are exceptionally well written and contain top-tier research. Just read this article and you will see what I mean.
Second, is because I have developed a real hate for all the “experts” spieling their opinions on interest rates and the supposed impending doom that will result if you don’t act now. As Servo Wealth points out, it probably means very little for an investor who is properly diversified and invests with a long time horizon:
“To conclude, much of the misconception about interest rate forecasts and their impact on bond market decisions can be summarized in three simple lessons:
For diversified, long-term oriented investment portfolios, interest rate and bond price changes matter very little. Most of a portfolio’s volatility comes from stocks.
Interest rate cycles can last for very long periods of time which makes interest-rate forecasting almost impossible. Further, the extremes of the bond market (cash or long-term bonds) rarely make sense.”
My one piece of investing advice
Another short, simple and to the point article from Vanguard that makes one point very clear: Start investing early. The age at which one begins investing matters more than asset allocation and more than the specific savings rate (within reason of course).
Just see Vanguard’s graphic below:
2014 Investment Company Handbook
The latest publication from the ICI is a fun read on the current state of the investing world. Full of fun facts about everything finance. From asset allocations to variable annuities, this report covers it all.
Fox Gives Show To SEC-Fined Analyst Who Was Paid To Push Now Worthless Stocks
Just in case you need one more reason to never listen to the main stream media for investing advice, look no further than Fox Business’s newest show host.
“Payne failed to disclose that he received payments from Members to promote Members stock. Without admitting or denying the alleged violations, Payne consented to the entry of a permanent injunction against violations of Section 17(b) of the Securities Act of 1933. In addition, Payne agreed to pay a civil penalty of $25,000.”
Even for those who mean well, giving worthwhile investment advice on timing the buying and selling specific stocks is next to impossible. And everyone once in a while you find some schmuck like this guy who is actually being PAID to promote specific stocks and not disclosing it. And yet, many will continue to take his investment advice. Sickening
If that doesn’t get you to follow the advice of Mr. Spier from the first article, I don’t know what will:
“Worried that knowing the prices of his holdings would make him want to trade them, he checks their market values once a week at most and leaves his firm’s only data terminal switched off for weeks at a time. Mr. Spier avoids speaking to brokers; he puts in his trading orders by email, after market hours, so no broker can try swaying his judgment.
Mr. Spier has divided his office into two spaces—a “busy room,” with his phone and computer, and the “library,” a quiet area down the hall where no one, including Mr. Spier, enters with an electronic device. He likes to spend much of the day there, reading and thinking.”
That quiet area sounds pretty nice right about now.
Here is what I am reading this week:
Flash Boys: A Wall Street Revolt
I am only a couple chapters into the book so far, a really fascinating start though. It begins describing a top secret, very straight tunnel being dug from Chicago to New York. This tunnel was for the laying of a fiber optic cable route that would become the fastest in the nation, and allow traders to place trades milliseconds faster than anyone else.
High frequency trading as been all over the news recently. Here is my quick 2 cents on the (non)-issue. If you see me change my tone over the next few weeks, you will know this book had an impact:
Traders have been effectively doing this for centuries, from the first horseback ride across the country, to the first phone line and now to the fastest fiber optic cable, traders who had an edge in speed have always been able to take advantage of price imbalances from one place to another (a process known as arbitrage).
I think some of the practices of the high frequency traders is questionable, and if they are truly trading based on incoming orders than it should probably be illegal. But in the grand scheme of things, it really means nothing for an investor who is investing intelligently and making only a handful of trades a year.
I believe for most investors, picking one fund with a slightly lower expense ratio will save you more in 1 year than a lifetime of “fees” paid to high frequency traders.
That’s all for this week, Happy Memorial Day weekend!