tag:blogger.com,1999:blog-7366878066073177705.post5351850901629688367..comments2009-12-02T09:58:58.351Ztimarrhttp://www.blogger.com/profile/06254802085744425067noreply@blogger.comBlogger14125tag:blogger.com,1999:blog-7366878066073177705.post-49332110224146231642009-12-02T09:58:58.351Z2009-12-02T09:58:58.351ZI&#39;m a beginner investor...<br /><br />My plan is to invest in one of the FTSE ALL Share index trackers, with monthly payments over the next 30 years or so. However, as soon as the next (inevitable) &#39;crash&#39; happens in 10 years or so, I&#39;ll simply take the money out, wait 6-8 months for the recovery to kick in and then re-invest it. My plan sounds so simple, it can&#39;t go wrong? Can it?<br /><br />discussAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-89799658364454784452009-09-21T23:19:40.314+01:002009-09-21T23:19:40.314+01:00Hi Rob,<br /><br />Thanks for your comments on P/E10. I&#39;ll check out the podcast.<br /><br />VMAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-47744321193102295062009-09-21T19:44:25.927+01:002009-09-21T19:44:25.927+01:00Hi Monevator<br /><br />To be precise I don&#39;t think education helps very much, but that&#39;s not a personal opinion but the result of rather a lot of research. More soon ...timarrhttp://www.blogger.com/profile/06254802085744425067noreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-19998909707446135572009-09-21T12:07:01.176+01:002009-09-21T12:07:01.176+01:00Timarr, I&#39;m curious as to why you think educating the populace would improve overall investment returns?<br /><br />If everyone benefits from something, then surely it&#39;s netted out?<br /><br />You&#39;d still get volatility set by whatever actors were still running more active strategies at the margin, I suspect?<br /><br />And over 30 years, our educated people&#39;s returns would still be the same - they&#39;d just have been less worried.<br /><br />Having said that I suppose they could have given less to the financial industry along the way... ;)Monevatorhttp://monevator.comnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-71780987626183437392009-09-17T14:22:28.309+01:002009-09-17T14:22:28.309+01:00<i>is there a reliable place to get current and historical index valuations (P/E, P/B, etc.)? </i><br /><br />There are. But there is not agreement on what constitutes &quot;reliable.&quot; People with different viewpoints are going to point you to different places.<br /><br />I believe that P/E10 (the price of a broad index over the average of the earnings for the past 10 years) is the best valuation metric. I have a podcast at my site (&quot;P/E10 Rules!&quot;) that explains why. But people who don&#39;t pay much attention to valuations often cite P/E1 (the more popular valuation metric) to show that valuations are not as important as those who focus on valuations say they are. This causes a lot of confusion because P/E1 gives a lot of false reads. <br /><br />My point is that I would advise you to focus on P/E10 and I would not consider any site that focuses on P/E1 &quot;reliable.&quot; But others would offer a very different take. Ultimately, the question of who is &quot;reliable&quot; is something that the investor needs to decide for himself or herself.<br /><br />There is a lot more subjectivity to ALL investing questions that those who try to portray investing as a &quot;science&quot; let on.<br /><br />RobRob Bennetthttp://arichlife.passionsaving.comnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-81634457858786273442009-09-17T04:55:56.083+01:002009-09-17T04:55:56.083+01:00I&#39;m curious ... is there a reliable place to get current and historical index valuations (P/E, P/B, etc.)? <br /><br />VMAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-37690117530901222632009-09-16T08:23:19.141+01:002009-09-16T08:23:19.141+01:00In line with Mohican&#39;s thoughts there&#39;s a lot of evidence that financial education doesn&#39;t make a huge difference to people&#39;s approaches. Automation of the process is essential, but you can also run into issues around personal freedom and choice. The risk with any wide scale mechanical program, of course, is that it becomes an exploitable bias in its own right. <br /><br />On long-term timing there&#39;s a balance between costs and incremental gain but I&#39;ve seen suggestions on anything between annually and every five years. More research needed.<br /><br />On the education thing I&#39;m currently researching an article. It&#39;s surprising stuff, as usual when people and money are involved.timarrhttp://www.blogger.com/profile/06254802085744425067noreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-64942806551386075072009-09-15T19:30:36.337+01:002009-09-15T19:30:36.337+01:00I think that&#39;s sounds promising, Mohican.<br /><br />I don&#39;t think it&#39;s necessary to make an allocation shift quarterly. My view is that only significant changes in the P/E10 level require a change, and we can go for years without seeing significant changes. But I view it as essential that the point be made firmly and clearly that <b>allocation changes are required</b> for the long-term investor. Without allocation changes, investor risk profiles are bouncing all over the place and that&#39;s just not a healthy situation. We need to put in place mechanisms to stress to investors that they <b>must</b> time the market (only in a long-term sense, certainly not in a short-term sense) if they are to have any realistic hope of long-term success.<br /><br />Robrob Bennetthttp://arichlife.passionsaving.comnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-65273921797320984842009-09-15T17:22:40.548+01:002009-09-15T17:22:40.548+01:00Rob - great thoughts. From my experience as a financial planner the education won&#39;t work on its own. Individual&#39;s irrationality will override almost all education attempts unless the education is coupled with a serious and perhaps cumbersome obstacle to acting on their irrationality. <br /><br />A passive investment approach with two important features is what we need for the average investor. These two features would automatically adjust (quarterly?) the asset mix between fixed income and equities based on the individuals planned withdrawal commencement date and overall stock market valuation based on trailing P/E10 and perhaps a measurement of P/B as well. Tie those features into a simple product with a cumbersome exit strategy (perhaps requiring the individual to list 3 pros and 3 cons of the proposed action - buy or sell) and it may just work to counteract many individual&#39;s tendency to act irrationally.<br /><br />Thoughts?mohicanhttp://www.blogger.com/profile/06094213357140749289noreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-60658895117163344812009-09-15T12:52:38.514+01:002009-09-15T12:52:38.514+01:00<i>So what do you do?</i><br /><br />My view is that what we need to do is to educate people, timarr.<br /><br />Say that we taught people how to drive by explaining that the speed at which you drive makes no difference and that we reinforced that message daily by advising people that the key to safe driving is always to ignore posted speed limits. There would be a lot more accidents, right?<br /><br />That&#39;s what we do in the investing field. The most important thing to get right is the asset allocation. Yet The Stock-Selling Industry has directed hundreds of millions of dollars to marketing campaigns telling people that there is no need for them to change their stock allocations in response to price changes. When people hear something repeated thousands and thousands of times, they come to believe that there is something to it. That&#39;s why we are in the economic crisis we are in today.<br /><br />We should be giving people accurate and realistic investing advice. The first rule is that the key to long-term success is setting your stock allocation properly. The second rule is that, to do that, you must be willing to adjust your allocation as needed in response to changes in valuation levels.<br /><br />The widespread promotion of Passive Investing is the reason why so few middle-class investors are able to invest effectively or even to engage in rational discussion of the investing realities. We all need to get to work building a model that works (I call the non-Passive model &quot;Rational Investing&quot;).<br /><br />RobRob Bennetthttp://arichlife.passionsaving.comnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-42756273190039864432009-09-15T06:48:33.747+01:002009-09-15T06:48:33.747+01:00I&#39;m not suggesting that passive investing is &quot;best&quot; (or not) merely that the baseline achieved by dollar-cost averaging into a standard index tracker over a long period is the baseline against which other investment strategies should be analysed, with volatility thrown into the mix. The problem with other strategies is that they generally require financial advice which is increasingly mistrusted.<br /><br />However, the argument that people aren&#39;t even rational enough to invest this way is quite valid - I&#39;ve just been reading a UK government paper that shows 1 in 7 people regard the lottery as a key part of their financial planning. So what do you do?timarrhttp://www.blogger.com/profile/06254802085744425067noreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-14519454816064176302009-09-14T22:53:18.644+01:002009-09-14T22:53:18.644+01:00This ignores income taxes and inflation.<br /><br />Since I can&#39;t really ignore them does this investment<br />scheme really work for retirement?<br /><br />In saving today you have a choice of avoiding two of the following:<br /><br />- taxes<br />- inflation<br />- risk<br /><br />Actual saving requires avoiding all three.<br /><br />Without inflation and taxes the small investor has no<br />reason to be in the stock market (or any fancy financial products).<br /><br />He should be just in cash, or possible some really<br />secure bonds. Saving over a lifetime can easily support a reasonable retirement. Under these conditions financial planning is trivial.<br /><br />The major push into the stock market is due to the pressure from inflation and taxes -- bonds are a certain loss if not a wipeout. The stock market<br />might not be much better than bonds after inflation,<br />taxes and some amount of bankruptcies.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-61342231067745228522009-09-14T21:52:47.834+01:002009-09-14T21:52:47.834+01:00I don&#39;t think the article is saying that the only choice is between stock picking and passive investing. Some criticism of passive is coming from those who advocate decisions about timing switches between asset classes.<br /><br />Market-timing a switch between asset classes is surely not a passive approach (and hence is rightly set up in opposition to passive investing), but it does not require segregated portfolios of shares, bonds or whatever, still less an active approach to the management thereof.<br /><br />To continue the train of thought of the article, if switching between asset classes is to be considered, can it be done in a simple mechanistic way that adds value? i.e. how does the average Joe who uses index trackers to get exposure to his chosen asset classes do asset class switching in a way that is consistent with his knowledge, skill and level of engagement? The share index &quot;valuation&quot; techniques I know of need too much info, too much brain power, too much compute power and too much time to fit this scenario.<br /><br />As a side observation, I think the language is lacking. We talk of &quot;passive&quot; investing as though it applied only to the management of a holding in a single asset class - classically of shares. Seems to me that we can have pasive investing on at least two levels: intra-asset-class (e.g. equity index tracker) and inter-asset-class (e.g. do nothing (ltbh), or a simple periodic cut-and-fill rebalancing strategy). We don&#39;t (yet) have good ways to mark this kind of distinction, do we?<br /><br />BTW: If active investing is too complex for the average Joe to use and make work, but passive investing isn&#39;t, how come the vast majority of average Joes still don&#39;t use passive investing? Must be that the case for passive is *still* too complex for them to get (and be confident of), mustn&#39;t it?Jameshttp://www.personalbest.ltd.uknoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-31043476540788597022009-09-14T20:13:02.157+01:002009-09-14T20:13:02.157+01:00The choice is not between stock picking (which requires more expertise than many middle-class investors possess) and passive investing. How about investing in indexes <i>rationally</i> (that is, taking valuations into consideration when making allocation decisions)?<br /><br />That&#39;s a simple way to invest and one that protects investors from most of the risks of stock investing.<br /><br />RobRob Bennetthttp://arichlife.passionsaving.comnoreply@blogger.com