# Dividend Investing or Couch Potato



## wwwkp84 (Sep 7, 2012)

It is said that about 15-28 stocks is when you get true diversification... so what's better? Picking stocks with dividends or setting up a ETF couch potato portfolio?


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## Jungle (Feb 17, 2010)

Couch potato. 

This might be short sighted, but popular US dividend blue chips (ko, mcd, jnj, cvx, etc) all under performed s&p 500 this year. These are the ones that raise dividends every year. 

Even look in the 1990's. S&p500 did a triple, stocks like MCD did a double. 

Would you like to take the chance of underperforming?
Will you know which stocks to pick that will match or outperform ? 

Once you get into 6 figures, underperforming can cost you a lot.


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## hboy43 (May 10, 2009)

wwwkp84 said:


> It is said that about 15-28 stocks is when you get true diversification... so what's better? Picking stocks with dividends or setting up a ETF couch potato portfolio?


Define better. Seriously.

I go with individual stocks because I define better as:

lower MER
better control of when I pay taxes
provides some fun and excitement, (especially with stocks that start with "N":biggrin
more volatility on individual holdings provides better opportunity to buy low and sell high because stocks spend more time low and high than ETFs

My disposition allows me to do individual stocks. I can be unemotional over paper losses, and therefor ruthless at buying more when it is the right thing to do. I don't need to see a good return every year. I don't need to be close to anyone's favourite benchmark. I don't need to see every holding have a good performance every year. I can wait a very long time for a holding to do well, quietly adding to my position while I am taking a shellacking. I can and have tolerated 6 or so bankruptcies, though most are now in the distant past (hello NT).

Oh, and my spouse doesn't pay any attention to what goes on. This point alone ought to chase a number of people to the couch potato. My investing at times is like the saying about law and sausage making ...

What I don't get is a nice bland average return every year right down the middle of the standard deviation curve. Frankly, I don't even know how well I do over the long term compared to the average. A few months ago I estimated my 10 year average annual return to be in the 6 to 8% range. Is that good or bad, anyone, anyone, Bueller? I retired at 39, stayed retired, have more money that when I retired, these are the metrics that matter to me. Smooth ride, hell no was well down at the depths of 2008 and at all time high now.

So, how do you define better?

hboy43


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## uptoolate (Oct 9, 2011)

I go Couch Potato. There seems to be some discussion these days as to how many individual stocks one needs to be well diversified, the suggested number seems to have increased in recent years. If you like the excitement of picking stocks then do that with your mad money.


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## jcgd (Oct 30, 2011)

It's my opinion that if you want to be well diversified then you might as well index. Why spend time and effort when you don't need to? If you you want to pick individual stocks you will be diversified in years with lots of deals, and concentrated or in cash in years when there aren't many deals. Sure you can try to stay away from bad companies when stock picking yourself but if you picked "good" microsoft 10 years ago you've made very little, and picked "bad" RIM one year ago you've made a killing. So I personally think you should either index if you are lazy or value invest if you want to pick stocks. Diversification is two-faced.


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## doctrine (Sep 30, 2011)

The answer is, it depends. For example, some people, like myself, are looking for more cash flow (i.e. dividend yield) from Canadian companies than the S&P TSX 60 or 300 can provide. Canadian companies are ideal for generating cash flow in taxable accounts because of the dividend tax credit. This just isn't available from foreign companies (without taking more risk by moving to higher yield companies to compensate for additional taxes). And the value of Canadian dividend ETFs in this area can easily be challenged. Why overcomplicate something as simple as a portfolio of 15 Canadian companies with reasonable yields?

Why would you want tax advantaged cash flow from reliable, Canadian dividend paying companies? There are lots of reasons, including retirement income or for a Smith Maneuver strategy.


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## fatcat (Nov 11, 2009)

It seems to me that the big problem for those of us in Canada is which index do you buy ?

The major indexes are so overweight in energy financials and materials.

If those sectors have a bad year you are hosed.

I have a mix of targeted etf index funds and individual stocks.


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## lonewolf (Jun 12, 2012)

Hi, wwwkp84

Perhaps brute force math is the best tool for determining the precise amount of diversifacation.

( the numbers for examples below are just pulled out of the air & taken a little to the extreame to make the concept a little easier to understand)

If 5 heavily traded blue chip stocks are stocks are always held in a portfolio as the stocks in the portfolio are traded & based on the back testing the average yearly gain of the portfolio is 200%. The portfolio would still come out ahead for the year if 1 or 2 of the stocks went bust.

If there were only 5 stocks that met the parameters to yield 200% a year & the next best thing was some stocks that based on back testing would yield 1% per a year. I think adding them to the portfolio just for the sake of difersifaction would make the portfolio weaker. I remember looking it up once & I dont think the average stock in the s&p 500 has a life expectancy of 100 years

If the average yearly gain based on back testing was only 1 % for each of the stocks held in the portfolio & if 1 or 2 of the stocks went bust. It would really have a negitive effect.

Of course draw down from commision should be factored in. If a portfolio is holding so many stocks that 80% of the account is being eaten by commision the investor maybe should reduce the number of stocks being held in the portfolio so the commision does not eat up the edge the investor is using.


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## james4beach (Nov 15, 2012)

wwwkp84 said:


> It is said that about 15-28 stocks is when you get true diversification... so what's better? Picking stocks with dividends or setting up a ETF couch potato portfolio?


I'd say it depends on two things: how large the portfolio is, and how much time you're willing to put into your portfolio management.

If the portfolio is pretty small, say under $100k, it may not be worth going with individual stocks. Transaction costs can eat up a lot and each stock position will be very small.

Time and effort for portfolio management is the big one. Couch potato (picking a couple ETFs) is definitely the low-effort way to go. Picking individual stocks is just fine, but you have to be willing to regularly and methodically review your positions. This takes time and knowledge. A great stock doesn't stay a great stock forever! Remember that even the index people are actually reviewing and changing their index every year.

My concern with picking a bunch of individual stocks is what happens to that portfolio in say 3 or 5 years. Your portfolio may be awesome today. And yes, you'll be able to balance position sizes (that part is easy). But what's much harder to do is to watch a company for warning signs that things are turning sour, or downright terrible. Maybe you have a couple stocks whose earnings keep sliding, then they get hit with an accounting or insider scandal, and the market value keeps declining. When do you abandon the position? What is your technical criteria that identifies it as a disaster to dump? In my experience, this is the part that goes wrong with individual stock picking... 5 years from now, you're left holding a turd like Nortel or Citigroup. And people have a psychological hesitation to dump stocks out of their portfolios for fear of 'recognizing' a loss.

That's a benefit of the index ETFs. The index creators use some kind of criteria to include/exclude stocks, occasionally refreshing the index and replacing one stock with another. The point is that they have a methodology.

If I was going to start picking individual stocks, I would probably base it on a trusted index. Then I'd pick and choose holdings from it to get the sector exposure/dividends I want with weightings and caps I want. I would re-balance yearly, meaning that I'd dump anything the index dumped, and would consider including any new holdings the index added.


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## 44545 (Feb 14, 2012)

Couch potato FTW - 20% Canadian Equity, 20% US, 20% Intl, 40% Canadian Bond. If you have a higher risk tolerance, 25% of each of the four.

Dr.William Bernstein does a good job at supporting the idea of the index portfolio versus even a large number of stocks (50+). If you look at the stock market in, say, 1912, very few of the companies on that list still exist. Therein is the problem with stock picking - over the long run, most companies fade away.


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## doctrine (Sep 30, 2011)

> If you look at the stock market in, say, 1912, very few of the companies on that list still exist.


Yes, but that doesn't mean you didn't make a lot of money owning them. Of the original twelve companies comprising the very first Dow Jones average in 1885, eleven were successful and either still exist in some form or another (merged/bought out by a company that exists to this day), or in the case of General Electric, exists right now in its original form. Only one was liquidated. What do you think the return on one share of General Electric purchased in 1885 would be now, including dividends?


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## 44545 (Feb 14, 2012)

doctrine said:


> Yes, but that doesn't mean you didn't make a lot of money owning them. Of the original twelve companies comprising the very first Dow Jones average in 1885, eleven were successful and either still exist in some form or another (merged/bought out by a company that exists to this day), or in the case of General Electric, exists right now in its original form. Only one was liquidated. What do you think the return on one share of General Electric purchased in 1885 would be now, including dividends?


"A lot", I'm sure. The point is: how do you know you're picking the next General Electric?


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## doctrine (Sep 30, 2011)

You don't, but my point is that owning an index fund or ETF is not the same as owning the stocks they represent and can reduce returns. The S&P 500 index, for example, has additions and subtractions every year. In essence, it is a form of active management and holding a fund that tracks the index is tracking the active stock selections of a group of managers at Standard and Poors. The S&P 500 index, to this day, fails to beat the performance of owning an equal weight portfolio of the original S&P 500 stocks in 1968. That means, that you would have been better off owning that portfolio of stocks from 1968, and held each one even though some went bankrupt, were liquidated, bought out or taken private, than attempting to follow the active selection and removal of stocks by Standard and Poors. The turnover average of the S&P 500 is about 20 companies removed and added per year - almost 900 companies added and subtracted since 1968.


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## leoc2 (Dec 28, 2010)

james4beach said:


> ...
> 
> My concern with picking a bunch of individual stocks is what happens to that portfolio in say 3 or 5 years. Your portfolio may be awesome today. And yes, you'll be able to balance position sizes (that part is easy). But what's much harder to do is to watch a company for warning signs that things are turning sour, or downright terrible. Maybe you have a couple stocks whose earnings keep sliding, then they get hit with an accounting or insider scandal, and the market value keeps declining. When do you abandon the position? What is your technical criteria that identifies it as a disaster to dump? In my experience, this is the part that goes wrong with individual stock picking... 5 years from now, you're left holding a turd like Nortel or Citigroup. And people have a psychological hesitation to dump stocks out of their portfolios for fear of 'recognizing' a loss.
> 
> ...


^^^^^:encouragement::encouragement::encouragement::encouragement:^^^^
I don't have a bloomberg terminal ... I don't want to visit and talk with CEO's of the companies I want to own ... I have made enough money stock picking the past 15 years, it's time to go conservative.... Market returns are fine by me.


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## 44545 (Feb 14, 2012)

leoc2 said:


> ^^^^^:encouragement::encouragement::encouragement::encouragement:^^^^
> I don't have a bloomberg terminal ... I don't want to visit and talk with CEO's of the companies I want to own ... I have made enough money stock picking the past 15 years, it's time to go conservative.... Market returns are fine by me.


^^^ Precisely. 

I cite Bernstein's "Four Pillars of Investing" and "Investor's Manifesto" again that the point of indexing is not to maximize the chance of getting rich but to minimize the chance of getting poor.


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## scomac (Aug 22, 2009)

CJOttawa said:


> ^^^ Precisely.
> 
> I cite Bernstein's "Four Pillars of Investing" and "Investor's Manifesto" again that the point of indexing is not to maximize the chance of getting rich but to minimize the chance of getting poor.


Also see The 15-Stock Diversification Myth.


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## Cal (Jun 17, 2009)

CJOttawa said:


> ...the point of indexing is not to maximize the chance of getting rich but to minimize the chance of getting poor.


Well put.


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## blin10 (Jun 27, 2011)

CJOttawa said:


> ^^^ Precisely.
> 
> I cite Bernstein's "Four Pillars of Investing" and "Investor's Manifesto" again that the point of indexing is not to maximize the chance of getting rich but to minimize the chance of getting poor.


so then put it in savings account and make your 1.5% return and be done with it, why bother ?


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## 44545 (Feb 14, 2012)

blin10 said:


> so then put it in savings account and make your 1.5% return and be done with it, why bother ?


Inflation is the silent killer, averaging 3.26% per year for the last, oh, hundred years (ish).

As I wrote, the point of appropriately allocating assets is to "not retire poor" and this is done by taking an appropriate level of risk that will most likely result in your meeting your goals.

Taking _too much risk_ (speculating on the next GE/Apple/Walmart etc) may make make you rich but more likely will make you poor.

Taking _too little risk_ (GICs, bonds, cash deposits) will absolutely end with you poor as inflation erodes the purchasing power of your savings.


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## Belguy (May 24, 2010)

Personally, I have no interest in doing the research necessary to know which individual stocks to buy, when to buy them, how long to hold onto them, and when to dump them. Also, I am up against institutional investors which their large research staffs and banks of computers. Do I really think that I can outsmart them and the markets over the long term? I may have a good year or two or three successfully beating the markets but, over the longer terms, it becomes less and less possible. Also, are you only going to invest in Canadian companies when the TSX represents only a tiny number of companies in a much bigger world? 

If you still want to dabble in individual stocks, you can employ the so-called 'Core and Explore' system where most of your money is invested in your core holdings of four or five low-fee, broad-based ETF's such as those offered by Vanguard and a smaller portion is used to dabble in individual stocks. Then, you can compare your results for each portion on say a yearly basis and tilt your allocations accordingly. The core portion of your portfolio will require very little time and effort to manage as you should just hold the ETF's in them forever and do zero trading or second guessing other than the all important rebalancing chore.

The most difficult initial task that you have is to get your asset allocation right in the first place considering your time horizon and risk tolerance. Do not over-estimate your risk tolerance so that you panic and sell when (not if!!) the markets tank. You must have faith in your asset allocation and be prepared to hold the investments in your portfolio through ALL market conditions and avoid the temptation to try to time the markets which, for the most part, is a mug's game.

When establishing a 'Couch Potato' portfolio, I would use the model portfolios at www.canadiancouchpotato.com but utilize mainly the low fee Vanguard family of ETF's. For international ETF's you have to choose between the hedged and unhedged versions. I prefer the unhedged offerings for long term holds but many others invest in the hedged versions. 

Oh, and one other point. Couch Potato investing is easy, cheap, and deathly dull. If you like the excitement and adventure of playing the stock market, this is not for you. You have to have other interests in life. For me, that means spending most of my time watching the Cartoon Network and not researching individual stocks and constantly buying and selling stocks in hopes of beating the markets over the long term and good luck with that!!

Happy New Year!!


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## fatcat (Nov 11, 2009)

there is a third way between buying the indexes and stock picking and that would be the connolly / jarislowsky approach of buying solid companies and holding them through thick and thin for long terms with little trading

this presents a money-management problem mainly in so far as you need to budget and manage funds to hold through dips and god-forbid serous dips (though index funds usually tank during serious pullbacks as well)

i think there are enough companies with great products, solid balance sheets and decent market share to build a very solid long-term hold portfolio

and if you are holding long-term you can hedge by buying more than one company in a given sector and still keep trading costs and "churn" (which i think is an underestimated weakness of many portfolio's) to a minimum

in other words a portfolio of even 30+ stocks or 15-20 stocks and some targeted etf's


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## Belguy (May 24, 2010)

I forgot to mention that long term, buy-and-hold, index investors are likely to experience single digit, possibly even low single digit, portfolio returns for the foreseeable future and so be prepared for that. In recent years, fixed income investments provided a degree of ballast whenever equities hit the skids but such protection will be significantly reduced going forward when interest rates start to rise.


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## Jungle (Feb 17, 2010)

After reading the dublar studies and seeing some stock picks of average people at work, on the internet, ect I do believe that most will underperform the benchmark at some point. 2-3 years of falling behind while the broad market outperforms, it's already too late. Money has compounded and you can't get back that time. 

As mentioned above, some stock pickers don't even track their returns and compare to a benchmark.. They may not know how good or poor they are doing.


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## My Own Advisor (Sep 24, 2012)

@CJOttawa,

Don't you invest in both? ETFs and dividend paying stocks?

Jungle - can you cite what are those stock picks of average people at work? Curious. 

I would fully agree with your comment about not adequately comparing my portfolio to a benchmark. I need to get on top of this in 2013.


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## Belguy (May 24, 2010)

Sometimes, the impression that I get from this forum is that virtually all of the stock pickers and market timers on here are consistently outperforming the indexes, even over the long term.

Is it luck or skill or is it even a fact?:rolleyes2::sour::confused2::topsy_turvy:

It's like we hardly never hear the bad news!!!

Sorta like the upcoming New Years Eve party where you will hear about all of the stock market killings the attendees have made over the past year but next to nothing about the losses.

Such is life.

The older that I get, the more cynical I become.


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## doctrine (Sep 30, 2011)

Belguy, I'm not sure. I started investing in companies directly for my taxable account because ETFs do not provide the type of cash flow that I was looking for. I'm not looking to beat the TSX index, I'm looking to get a 4-5% yield plus growth over time in capital and dividends - it's not complicated! My strategy could be very useful for retirement income, or a Smith Maneuver portfolio. 

And with two trading days to go, it looks like my returns in 2012 consisted of approximately 5% dividends and 7% capital gains, for a total return of 12%. My gains in 2011 were about 5% dividends and 5% capital gains. Over this period, I have a total return of 10% dividends and 12% capital gains. This is exactly what I was looking for. It so happens that the commodities heavy TSX did not do as well, with about a 5% loss over the same period including dividends. 

Next year, perhaps RIM, potash, gold and coal prices will rise again and I will lag the index. I don't predict that it will or won't, but I am very confident I will get my 5% dividend yield again, and a lot of dividend increases. At least, over the last two years, I have given myself a 25%+ head start.


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## Jungle (Feb 17, 2010)

A co-worker told me his dad bought [email protected]$8/share. I did not want to say anything.. he looked it up and was horribly shocked to see it had fallen to $2/ share. 
Another co-worker bought rim @47. Tried to average down now. 

But this is not enough evidence to prove that most investors underperform. The dublar study is much better at showing how horrible average people do over a long term. 

I myself have even underperfomed while learning how to invest during the last 5 years.


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## scomac (Aug 22, 2009)

Belguy said:


> Sometimes, the impression that I get from this forum is that virtually all of the stock pickers and market timers on here are consistently outperforming the indexes, even over the long term.
> 
> Is it luck or skill or is it even a fact?:rolleyes2::sour::confused2::topsy_turvy:
> 
> ...


So quit complaining about your returns. If those of us who stock pick are all full of sh*t about our performance, than you should be able to revel in the returns that you have made with the comfort that you have earned all that can be had.

How's about a New Year's resolution on that subject, Belguy?


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## dubmac (Jan 9, 2011)

I invest in both ETF's (CDZ, FIE, CYH etc) and dividend stocks.
Have a look at the link below - especially item 4 in the list of 5. 
http://www.myownadvisor.ca/2012/04/the-top-5-things-you-need-to-know-about-dividend-paying-stocks/
Buy good compaies, (like BCE - they;ve been around since 1881!), banks, utilities etc, drip the dividend, buy more shares, rinse and repeat until you retire - then add the dividends to your income stream - at least ..I hope it's gonna work..:chuncky:
Have a good 2013 CMF'ers


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## andrewf (Mar 1, 2010)

On average, the stockpickers are full of ****. Alpha is zero sum, before the cost of trading/management. The trouble is telling which ones are which.


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## donald (Apr 18, 2011)

What i find funny isindex vs ind.stocks)Those that index are so scaried of failure.
Like in life and investing-NOTHING is for certian(every control freak knows this)Life is a series of challenges,resets/lessons/growth/ ect.
Its almost like index are afriad-They are more concerened with not losing then winning.
Since when in "life" is anything controllabe-It never is---life is not designed to be certian----Like the saying goes:a ship aint meant to be in the safe harbour,its meant for the sea----I think ''most'' indexer's want to explore but they just cant out of fear of faliure.Embrace failure---its always present in life......We all fail @ times in everything---good luck in perfection--dont exist---if that makes sense.


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## andrewf (Mar 1, 2010)

Right... indexers are cowards, just like the people who prefer not to play blackjack, buy lottery tickets, etc. Everyone who doesn't spend their savings on lottery tickets is a coward...

Indexing is not 'safe'. It's about taking all the risk you are paid well to take and no more. Lack of diversification is taking risk that doesn't pay on average.


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## donald (Apr 18, 2011)

My point is andrew:anyway you invest your not going to get it ''perfect''(ind or ind)Nobody wants to hold nortelbut it happens.

My point is,why do people approach investing like they are going to never make a ''mistake"?Life is full of:
marriages break-down(nobody plans that)
Maybe raising a troubled kid(or they have a disability)
maybe one losing a job(not getting promoted)
maybe you deal with a sudden health issue....the list goes on.
Nobody in life gets anything perfect,nobody.Im not trying to sound cynical but my point is expect failure and roadblocks ect.....that is life.....i dont care how many hours someone tries to perfect things--life always throws the odd left hook.
anybody old enough should no what im saying


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## 44545 (Feb 14, 2012)

My Own Advisor said:


> @CJOttawa,
> 
> Don't you invest in both? ETFs and dividend paying stocks?


After reading books like "The Four Pillars of Investing" I sold off all my individual DRIP shares. I'm in index funds entirely.



donald said:


> What i find funny is: (index vs ind.stocks)Those that index are so scaried of failure.


Painting with a broad brush there Donald.

I had a dispassionate look at the numbers, read many books on the topic like the above-mentioned "Four Pillars..." and took a course of action that will most likely do better than 80% of active fund managers.

What I get a kick out of is trying to find ways to save more money or make a bit more on the side.

Regarding "Nobody wants to hold nortelbut it happens", that's "speculation" not indexing. 

You might enjoy reading some of the books mentioned on the forum. They discuss the dot-com boom and bust, including Nortel.


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## humble_pie (Jun 7, 2009)

jungle it's not dublar. Surely you would want to get the name straight.

dalbar services the financial industry giants of north america. Not surprisingly, their research confirms that investors need the professional management that is offered by the financial industry giants of north america. 

dalbar studies showing poor returns for investors are based on mutual funds samples, not on an across-the-board DIY investor spectrum. In the whole of cmf forum, i doubt there is one single mutual fund supporter, so i don't really see what the latest dalbar study on mutual funds, or any dalbar study on mutual funds, has to do with the price of chicken in this thread.

from dalbar's own summary of its annual investor performance review:

_Since 1994, DALBAR's QAIB has been measuring the effects of investor decisions to buy, sell and switch into and out of mutual funds over both short-and long-term time frames. The results consistently show that the average investor earns less - in many cases, much less - than mutual fund performance reports would suggest._

i for one am not willing to support the statements of those who say my-stock-picks-lost-money-last-year-therefore-all-stock-pickers-lost-money-last year. An even more bizarre variation is to say my-co-worker's-dad-lost-money-on-AMD-last-year-therefore-by-extension-all-stock-pickers-lost-money-last-year.

a logical extension of the indexation-works-best argument would be to abolish all indexed etf companies - abolish as in shut em down & destroy their charters - & then to extract more money from taxpayers in order to create even cheaper government-sponsored indexed rrsps, tfsas & resps for the masses. These could be run by the CPPIB.

but i'm sure that such a bare-bones economical resolution is not one that the couch potatoes on this forum are seeking. No, they're here to glorify & tout the private indexed etf industry.


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## scomac (Aug 22, 2009)

andrewf said:


> On average, the stockpickers are full of ****. *Alpha is zero sum, before the cost of trading/management*.


I never said that wasn't the case. My point is that if folks were truly at ease with passive total market investing, they wouldn't have to preach about it quite so much, as in our dear friend, Belguy's case. It's almost as though some must reinforce what they believe in because they really aren't all that sure no matter how much supporting evidence they encounter.


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## kcowan (Jul 1, 2010)

donald said:


> My point is,why do people approach investing like they are going to never make a ''mistake"?Life is full of:
> (mistakes list)
> Nobody in life gets anything perfect,nobody.Im not trying to sound cynical but my point is expect failure and roadblocks ect.....that is life.....i dont care how many hours someone tries to perfect things--life always throws the odd left hook.
> anybody old enough should no what im saying


I agree. I think most individual investors like me have made some mistakes too. That is how we learn. But now that the learning has been done, we capitalize on it to establish and maintain our investment approach.

We also establish similar approaches for every aspect of our lives. I have my real estate strategy and no one on this or any other board is going to change it. I have my travel strategy and it will not fit anyone else on this board. I have a strategy about buying expensive toys and cars, etc.

So anyone that says: "This is my strategy and you should all follow it" has probably not lived long enough to learn from their mistakes. I find that sad. Why? Because they have never experienced other approaches, for better and for worse.

Thanks for your post donald


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## Echo (Apr 1, 2011)

Indexers and stock pickers probably agree on one thing - both approaches are better than an actively managed mutual fund portfolio. Where I think stock pickers get their backs up is when indexers stray from railing against the mutual fund industry and apply their "overwhelming evidence" arguments towards individual stock pickers or, specifically, dividend investors.


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## Echo (Apr 1, 2011)

This article by Larry Swedroe, although the title says not to rely on dividend strategies, states that there isn't much difference between investing in dividend growth stocks and holding an S&P 500 index fund.

http://www.cbsnews.com/8301-505123_162-57384410/dont-rely-on-dividend-strategies-to-pick-stocks/

"With fast-growing dividends, we saw that such a strategy isn't much different from holding an S&P 500 Index fund. The Vanguard Dividend Appreciation ETF (VIG) even matched the S&P 500's exposure to the size and value factors.

Because of the high interest in this strategy, I decided to dig a bit deeper into the strategy. With assistance from the research team at DFA, we did a quick test in which we started in 1980 and calculated the annual dividends for all the ordinary common shares in the CRSP files. This allowed us to calculate dividend growth rates starting in 1981. We then calculated cap-weighted annual returns for the top 20 percent of the dividend growth ranking each year. Since the growth rates start in 1981, the returns start in 1982. This gives us a 30-year time period for the analysis.

For 1982-2011, the top 20 percent had an average annual return of 12.5 percent and a standard deviation of 17.6 percent. For the same period, the CRSP total market index had an average return of 12.3 percent and a standard deviation of 17.7 percent. The t-statistic (which measures how significant the finding is) on the return difference is 0.21, meaning the difference isn't statistically significant. (Generally, it has to be more than 2 to be statistically significant.)

For the full period, the group provided an annualized return of 11.1 percent versus 10.7 percent for the CRSP total market index. Note that the S&P 500 returned 11.0 percent with a standard deviation of 17.3 percent for the same period. Again, not much of a difference."


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## andrewf (Mar 1, 2010)

Echo said:


> Indexers and stock pickers probably agree on one thing - both approaches are better than an actively managed mutual fund portfolio. Where I think stock pickers get their backs up is when indexers stray from railing against the mutual fund industry and apply their "overwhelming evidence" arguments towards individual stock pickers or, specifically, dividend investors.


Stock picking exposes investors to more risk, and no risk-adjusted return benefit. Just like 90% of the population thinks they are above average drivers, 90% think they are above average stock pickers and are going to beat the market by leaps and bounds.

Alternately, you can index and stop reading charts and financial reports and enjoy your life. Maybe it's a nice hobby, but maybe a better hobby would be one that doesn't put your retirement savings at risk.


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## hboy43 (May 10, 2009)

Hi:

I don't think it much matters index vs stock, most investors lose due to psychology. They can't buy low when it (whether "it" is stock or index) is on sale, and they can't get out or trim back when things get frothy. This is the first order problem all else is subsidiary to it. If you can get past this problem, I don't think it much matters what set of entities one uses in one's investment world as long as you buy more of the laggards and sell down the risers, you will do well. Like an orthogonal set in mathematics chosen to perform mathematical tricks, choose a set of investment vectors that are "orthogonal" (diversified) and carry on. What set you actually choose doesn't have much bearing on the outcome I believe, as long as you rebalance among the selections in the set.

hboy43


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## humble_pie (Jun 7, 2009)

andrewf is a successful investor


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## namelessone (Sep 28, 2012)

If you know how, individidual stocks can out perform index. If you don't, stick with index fund. 
Hint: Stock is partial business ownership.


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## Toronto.gal (Jan 8, 2010)

wwwkp84 said:


> so what's better? Picking stocks with dividends or setting up a ETF couch potato portfolio?


Don't let anyone's comments here persuade you, but rather come to your own conclusion & have your own plan!

If you're Generation Y [very young], then you have lots of time to first read/learn & compare, and then figure out what is your own investment style based on your personal knowledge/objectives/time horizon/risk tolerance/time, etc.

IMHO, a combination strategy is better than a single one, especially in the beginning, as you could learn a lot [if you so desire] by being an active investor, which by no means would it translate into becoming a reckless gambler; far from it!.

There are pros and cons with both, but if what you want is minimal control & decision making, and prefer to be lazy [no offense intended], then the answer should be simple.

Good luck!


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## scomac (Aug 22, 2009)

andrewf said:


> Stock picking exposes investors to more risk, and no risk-adjusted return benefit.


Define risk in this instance?

Notwithstanding my first question, while you maybe able to state categorically that on the whole with alpha being a zero sum game, there can be no _risk-adjusted return benefit_ for less than perfect diversification, there can quite easily be a _risk-adjusted return benefit_ on a case-by-case basis. Despite your attempts to paint this as a case of absolutes, it is not. It is a case of probabilities.


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## doctrine (Sep 30, 2011)

Canadian Couch Potato wrote an interesting article on this earlier this year. You can see it here.


He points out that a lot of dividend investors aren't interested in beating an index; that owning a company directly lets you understand your investment more than an investment product. An investor who feels safer in his investment is less likely to sell when the chips are down, and more likely to buy - which is going to improve their returns dramatically. I don't like a lot of companies in the TSX 60, and could understand why a lot of people might want to get out in a recession. I feel more comfortable in the individual stocks I own - especially when you can see the steady or increasing dividends throughout market 'chaos'.


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## fatcat (Nov 11, 2009)

doctrine said:


> Canadian Couch Potato wrote an interesting article on this earlier this year. You can see it here.
> 
> 
> He points out that a lot of dividend investors aren't interested in beating an index; that owning a company directly lets you understand your investment more than an investment product. An investor who feels safer in his investment is less likely to sell when the chips are down, and more likely to buy - which is going to improve their returns dramatically. I don't like a lot of companies in the TSX 60, and could understand why a lot of people might want to get out in a recession. I feel more comfortable in the individual stocks I own - especially when you can see the steady or increasing dividends throughout market 'chaos'.


great post ... this explains me ... i read swedroes books and thought that indexing is the _research proven way_ to go but have found that i feel disconnected from my investments by using only index funds, since i have started to buy individual companies and moved toward a dividend growth approach, i have enjoyed it more

i am following the connolly / jarislowsky method and trying to build a long-term low-trading portfolio

this feels better to me

i think that in the end, our decisions about our finances remain profoundly irrational (this is one of the major hurdles all investors face)

no matter how many back-tested portfolios are trotted out, in the end we choose the investing philosophy that feels right for our personality, statistics and research be damned

ps. hey donald, i ran your investing philosophy by the old guy who digs cans out of our recycling ... he disagrees


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## Belguy (May 24, 2010)

:sleeping::sleeping::sleeping::sleeping:


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## donald (Apr 18, 2011)

Fatcat,i dont give a sh*t.-I invest seriously and also run a business,both are unplanable...period.
I wish i could plan a to b to c to d to e ect....life dont work that way.

Its like when i started playing hockey when i was 14,you could play only so many shifts until ''it'' happens(getting caught with your head down and the puck in your feet)the snot flys,you get get caught.The coach always tells you go shift,get up,get going,play another shift.

You aint a fatcat.by the way....a suit trying to leave middle class?thought so bud.


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## andrewf (Mar 1, 2010)

scomac said:


> Define risk in this instance?
> 
> Notwithstanding my first question, while you maybe able to state categorically that on the whole with alpha being a zero sum game, there can be no _risk-adjusted return benefit_ for less than perfect diversification, there can quite easily be a _risk-adjusted return benefit_ on a case-by-case basis. Despite your attempts to paint this as a case of absolutes, it is not. It is a case of probabilities.


Risk in the sense of higher volatility, higher potential drawdowns.

I guess the 'on average' is implied, because it is trivially possible to pick portfolios that in retrospect offer much better risk-adjusted returns. 100% AAPL 8 or so years ago is one such.

The only way I'm aware of to increase expected returns on a risk-adjusted basis is diversification, and tilting towards value, size or illiquidity. I haven't seen any compelling evidence that stock picking based on dividend yield, careful examination of companies, moats, tea leaves, dart boards, etc. add value after controlling for these other factors.

Maybe I state things categorically, but I do so just because it is confusing to make statements that are full of hedges and disclaimers. It goes without saying that we don't have a universal theory of asset returns, so to some degree or another, empirical results have to be viewed through some lens of belief or opinion. Some others here make similarly categorical statements. I choose not to dress them up as Aesop fables, etc. Although it has to be said that stock picking doesn't have empirical results on its side, for the most part.


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## andrewf (Mar 1, 2010)

Also, any discussion of risks is inherently probabilistic. A risk is only a risk to the extent it is unknown/random. Once it is known, it is either an issue or not. Maybe that should be spelled out, but I don't want to put fine print in every post where I talk about risk.


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## andrewf (Mar 1, 2010)

humble_pie said:


> andrewf is a smartass successful investor
> you are pretty much a deadbeat loser
> they are **** penny stock addicts headed for the homeless heap


Thanks for the kind words, and for elevating the tenor of discussion in this thread, HP. 

Surely you could have said as much in ten paragraphs of rambling metaphor, no?


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## doctrine (Sep 30, 2011)

A lot of studies have proven that actively managed funds, after fees, do not outperform. Interestingly enough, in most of the cases, the delta is equal to the fees themselves. That would imply that if fees were zero (i.e. self-managed), then active management is at least as good as the index. That makes sense to me, because why should Standard and Poor's be a better stock picker than anyone else - which is what most people buy into when they index.

Unfortunately, there there is ETF to own the entire Canadian publicly traded market, although there are total market US indexes. Owning the whole market is the only real way to avoid active management by indexing companies like S&P. If there was a fund that owned an equal weight of every stock on the Toronto Stock Exchange, I think it would be a much better product than the S&P TSX 60 or 300 - there are nearly 1,500 stocks listed on the TSX.


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## andrewf (Mar 1, 2010)

Equal weight TSX fund would just be a smallcap fund. 

Re: active funds on average matching market returns before fees, this is somewhat a consequence of alpha being zero sum. Of course, there are hedge funds and other investors that aren't included, but hedge funds in aggregate also have poor returns.


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## leoc2 (Dec 28, 2010)

The financial industry needs active investors to generate revenue in order for the passive investors to lay low and make market returns. Boring returns with tolerable risk levels and tolerable volatility is what I need at my stage of life . So I am happy to hear that people want to manage their portfolio because it fulfills their life. So play with options, buy low sell high, and all the best to all passive/active investors in the new year .


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## Sampson (Apr 3, 2009)

While I also have not seen any information suggesting that 'dividend investing' reduces systematic risk, there certainly are studies that show dividend stocks can have higher rates of return. The effect is value driven, not based on the company paying dividends.


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## Toronto.gal (Jan 8, 2010)

andrewf said:


> Thanks for the kind words, and for elevating the tenor of discussion in this thread, HP.


*Andrew: *when you're being sarcastic yourself, then you should be prepared for same in return. 

Donald said: 'indexer's want to explore but they just cant out of fear of failure. Embrace failure---its always present in life......We all fail @ times in everything---good luck in perfection--dont exist---if that makes sense.'

Your response: 'Right... indexers are cowards, just like the people who prefer not to play blackjack, buy lottery tickets, etc. Everyone who doesn't spend their savings on lottery tickets is a coward...'

How did the above response 'elevate the tenor of discussion'?


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## Toronto.gal (Jan 8, 2010)

And btw *Andrew:* in the obviously sarcastic manner that you used the word 'cowards' to describe the indexer group, so too, had been the 'deadbeat loser addicts headed for the homeless heap' comment, but meant [sarcastically] at the active investors, not you. At least that is how I interpreted such a comment, so it was not a personal attack, merely a sarcastic post [just like yours had been].

*Donald:* I think that you misinterpreted *fatcat* as well.


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## fatcat (Nov 11, 2009)

donald said:


> Only a douche bag would have the ''handle'' fatcat...poser.peroid.


 did you mean "period" ... i can never understand bad spelling when a spell checker is so close at hand (and you don't even have to think, just click) ... 

little did i know i was up against the master of the bon-mot ... thankfully, you spelled "douche" correctly

i was trying to say that too much risk and too little planning puts you at risk for having nothing at all when the game closes out (you know, when you get old and can't earn) and you might end up eating cat food or digging for returnables

perhaps i was a little too sarcastic and clearly hit a nerve (or two) ... my apologies for that

consider that you might be a little touchy and would be wise to take a lesson from your namesake, the duck, who was famous for both his temper and his loquacity, neither of which served him well

too often he quacked before he thought, and would have been wise not to quack at all ... think about it, that's all i'm saying


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## humble_pie (Jun 7, 2009)

andrewf said:


> On average, the stockpickers are full of ****. Alpha is zero sum, before the cost of trading/management. The trouble is telling which ones are which.



andrewf how did your offending more than half the members of the forum by calling them ****s possibly improve the tenor of anything ?

your clumsy camouflage with the 4 asterisks does not work. Please stop insulting the members with obscenities.

oh, & stop whining to the moderators.


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## Toronto.gal (Jan 8, 2010)

humble_pie said:


> your clumsy camouflage with the 4 asterisks does not work.


I had missed that post/insult, lol.

Perhaps it had not even been a 'camouflage', but the automatic bad language filter?


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## humble_pie (Jun 7, 2009)

Toronto.gal said:


> I had missed that post/insult, lol.
> 
> Perhaps it had not even been a 'camouflage', but the automatic bad language filter?



actually andrewf said that "the stockpickers are full of ****."

that's why i wrote the epigram. It was to focus on the absurdity of attacking stockpickers as so much ess aitch eye tee.

do U like being called full of ess aitch eye tee, t.gal ? i for one do not. I'm sure others do not.


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## namelessone (Sep 28, 2012)

I do not mind name calling. Name calling doesn't change who I am. In fact, my stock picks are full of GEMs that offer higher return, lower volatility, less chance of down turn than the market average. Give a few of my picks: SJ.TO, NKE, FAST, compare them to the index for 5 to 10 years. It's even better to combine options with deep value play. I'd like to get paid 3-5% per month to wait. Thanks to all that persuaded me into options. I find it funny when I told my sister I started playing with options. Her instance response was" Oh...it's dangerous".

Over diversification is the protection against ignorance and the lack of desire to learn.


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## humble_pie (Jun 7, 2009)

nameless it's funny you mention options, i was showing a couple option threads here to a senior options educator at the OCC in chicago ... he liked that lephturn gave a link to their education website ... he said that the cmf options group here in this forum is absolutely the only one in the whole of north america to be a generous, cooperative, sharing bunch of people ... the only such group he's ever even heard of, let alone seen.

so ... nameless ... U are welcome in the options threads ... but there are rules. Rule Numero Uno, never, ever call anybody full of ****, an ess aitch eye tee, or anything even remotely similar.

rule Numero Due, sincerely try to help others at all times. As we do. In the options threads.


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## Belguy (May 24, 2010)

I wonder how the tenor of these forums would change if you actually had to reveal your REAL name instead of using a pseudonym??

Maybe a good resolution for 2013 is to not enter any comments that you wouldn't be prepared to sign your real name to.

It's called civility.eaceful::smile-new::calm::joyous:


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## mrPPincer (Nov 21, 2011)

wow, mz pie, I really don't get where all the hostility is coming from.
hboy43's comment in post #41* above was thought out and brought forward a couple of interesting concepts.
Am I missing something? Your response calling him a deadbeat loser for that did seem totally out of character for you.

Now, somebody should do it, so I'll be the one, no need for anybody to take personal offense here, but I'm gonna hafta call bull ess-aitch-eye-tee on those 3-5% per month returns.
Are those risk adjusted consistant returns? (kidding)
3% per month compounded would add up to 42.6% annual returns
5% per month compounded would add up to 79.6% annual returns
and you can do this while you wait? awesome!
where do I sign up? We could be funding the colonization of mars within the next decade!

all jokes aside people are trying to be generous, cooperative, and sharing over here in the div/vs/couchpotato thread too and name-calling is just as unwelcome as in the options thread, also please don't confuse someone calling bull**** on something, if they see it as such.. with a personal attack, they are not the same thing imho.


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## MoneyGal (Apr 24, 2009)

Belguy said:


> I wonder how the tenor of these forums would change if you actually had to reveal your REAL name instead of using a pseudonym??
> 
> Maybe a good resolution for 2013 is to not enter any comments that you wouldn't be prepared to sign your real name to.
> 
> It's called civility.eaceful::smile-new::calm:


I'd like that.


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## humble_pie (Jun 7, 2009)

mrPPincer said:


> wow, mz pie, I really don't get where all the hostility is coming from.
> hboy43's comment in post #41* above was thought out and brought forward a couple of interesting concepts.
> Am I missing something? Your response calling him a deadbeat loser for that did seem totally out of character for you.



lol i see my mocking epigram didn't work, at least not with some people. It was based on the classic triad, i am british racing green, you are medium emerald, he is the palest shade of chartreuse. It was written from the point of view of andrewf. The purpose was to call into question, in a lighthearted way, his shocking attack on stockpicking forum members as "full of ****."

mister pincer i hardly see that you know what you are talking about. Why don't you read the thread carefully instead of bursting out with an ill-thought-out rant. Some of the words you are ranting about are not even present in this thread.

no one could support careful, individual stock picking more than i do. I have the utmost respect for hboy & for every other senior stockpicker in this forum & they all know this. I have, in fact, received a PM from hboy in the past thanking me for my comments & support for a post of his. Many of the skills & knowledge the stockpickers freely share on this forum far surpass the capabilities of so-called professional portfolio managers, imho. 

nothing whatsoever in my epigram leads to hboy or any other successful stockpicker in this forum. The purpose of the epigram was to mock an erring member - andrewf - who make the mistake of attacking forum members who invest in individual stocks as "full of ****." It was transparently clear that what he intended to convey was that these members are full of ****.

i was shocked by this violent remark & i remain shocked that the moderators did not delete it.


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## mrPPincer (Nov 21, 2011)

ok, reread some of the earlier posts in the thread and in the context, it seems h_pie's comment in post #42 was intended as sarcasm, but that was not immediately obvious if you hadn't kept track of everybodies stance on active/passive investing, which is probably why a moderator took action and edited it, because it did come across as pretty friggin rude otherwise, still, I do agree that a little civility would go a long way towards continuing a constructive dialog around here.


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## humble_pie (Jun 7, 2009)

mrPPincer said:


> ... I do agree that a little civility would go a long way towards continuing a constructive dialog around here.


please tell that to andrewf

nobody wants to hear forum members attacked as full of the ess word


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## mrPPincer (Nov 21, 2011)

ok, but, if we can agree that it's a zero sum game, and 90% of what we hear from stock pickers is how they've been beating the index by x% etc, it could appear that as a whole they are full of malarkey, however, this would I guess be an incorrect generalization, because people will tend to keep silent about losses, and that does not make the ones speaking up about their successes full of **** , so point taken.


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## Toronto.gal (Jan 8, 2010)

humble_pie said:


> actually andrewf said that "the stockpickers are full of ****."


Yes, he made it perfectly clear what he meant; it was a definite & direct insult to all stock-pickers, but I doubt any such picker reported him, lol. 

How about apologizing to all SPs Andrew?

Mr. Belguy, you're not so angelic either, but at least you're funny.


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## fatcat (Nov 11, 2009)

mrPPincer said:


> ok, but, if we can agree that it's a zero sum game, and 90% of what we hear from stock pickers is how they've been beating the index by x% etc, it could appear that as a whole they are full of malarkey, however, this would I guess be an incorrect generalization, because people will tend to keep silent about losses, and that does not make the ones speaking up about their successes full of **** , so point taken.


well said, i can never understand how this is supposed to work ... 

i am supposed to believe that some people can sit at home and manage their own portfolios so well that they consistently beat the market and know how to consistently pick winners 

yet somehow instead of _vastly increasing their returns_ by managing other peoples money as well as their own, they decide "no, i'd rather just beat the index consistently with only my own money while sitting at home in front of my computer" ... 

i just don't get it ... i don't believe people do it ...

they are either a) bending the truth or b) keeping lousy track of their actual numbers or c) forgetting their losses or more likely all three

alright, now let the flaming begin

perhaps we can turn this into an all-insults-all-the-time thread ...


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## humble_pie (Jun 7, 2009)

gosh mister pincer i've got $37,811.56 in my tfsa after injecting the usual 20k over 4 years & never withdrawing anything.

so it's a plain, simple, crystal-clear comparison.

now tell me please how 20k in indexed couch potatoes has done since 2 january 2009.

PS you do sound extremely angry. Are U jealous, perhaps ? that would be so foolish of you. You see, this is probably the only forum anywhere in north america where a big bunch of sophisticated & successful investors - as in truly, madly, rich investors - are willing & able to help others. Even to teach others, if necessary. All for free. Just about every single day, you can see suggestions here that you'd pay $400 an hour to receive downtown. It's totally amazing.

but the comedy is that some people insist on reacting with the same violent rage & insults you are displaying here tonight.

as you know, in the recent past i've helped you - a lot - with several issues that you had. In turn you posted up a message of outlandish praise, saying i should write a book, etc. One wonders what has come over you.

mister pincer there is a fantastic amount for you to learn here if you'd just clear the angry red rage out of your eyes. Did you see that priceless tip from hboy upthread, for example ? or were you so worked up that you missed it ?


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## Toronto.gal (Jan 8, 2010)

fatcat said:


> 1. i am supposed to believe that some people can sit at home and manage their own portfolios so well...
> 2. they decide "no, i'd rather just beat the index consistently with only my own money while sitting at home in front of my computer" ...
> 3. they are either a) bending the truth or b) keeping lousy track of their actual numbers or c) forgetting their losses or more likely all three


1. No, we are all free to believe whatever we want/makes sense to us.

2. Maybe some people have large enough portfolios to keep them plenty busy/maybe some make the money they need/want & would not want to have to answer to anyone, etc., etc. 

3. What else would you expect from an anonymous/public forum, the truth and nothing but the truth from how many members?


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## mrPPincer (Nov 21, 2011)

dear humble, I think you're beatinjg a dead horse here, please reread my last post carefully, also there is no anger on my part at all, although I must admit to a little jealousness, I do wish my TFSA was $37,811.56 as well, but maybe, someday with everyone's help here I could have returns like that.
I do appreciate your help and knowledge as you know, and try to share the valuable knowledge that I've learned when the opportunity arises as well, be it what it may, but I do have some.

Just one correction here humble_p,


humble_pie said:


> Some of the words you are ranting about are not even present in this thread.


all the words I was referring to in my ill thought out rant are still in the thread at present; see your mocking epigram quoted in it's entirety in post #53 above, and the monthly 3-5% returns I was referring to is still presently unedited in post #64 above.


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## fatcat (Nov 11, 2009)

> *Originally Posted by Toronto.gal* No, we are all free to believe whatever we want/makes sense to us.
> 
> 2. Maybe some people have large enough portfolios to keep them plenty busy/maybe some make the money they need/want & would not want to have to answer to anyone, etc., etc.
> 
> 3. What else would you expect from an anonymous/public forum, the truth and nothing but the truth from how many members?


well, i for one have learned a LOT from this forum
from you and pie and dog and argo and cc
and many others
a LOT

it's a great forum ... 
maybe we've all got fiscal-cliff-crankiness


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## humble_pie (Jun 7, 2009)

mrPPincer said:


> Just one correction here humble_p,
> 
> all the words I was referring to in my ill thought out rant are still in the thread at present


no they are not. At one point you said it was OK to call something "bullshit" if that's what it was. In fact that word did not appear in andrewf's offensive post.

what i was objecting to was an attack on stockpicking forum members that they are "full of ****," meaning full of ****.

oh & i'm not beating a dead horse. I think it's repellant that people whom i've spent time helping as a volunteer would respond the way you have responded.


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## humble_pie (Jun 7, 2009)

fatcat said:


> ... i am supposed to believe that some people can sit at home and manage their own portfolios so well that they consistently beat the market and know how to consistently pick winners
> 
> yet somehow instead of _vastly increasing their returns_ by managing other peoples money as well as their own, they decide "no, i'd rather just beat the index consistently with only my own money while sitting at home in front of my computer" ...
> 
> i just don't get it ... i don't believe people do it



fatcat it's time you *did* get it. I have no desire to manage other people's money. Never have, never will. I do my own, try to teach my kids, that's it.

i also try to help other people in this forum & luckily some have responded very well. It was a thrill for me to see argo & avrex doing strategies in less than a year that took me years to figure out. It's a thrill to see some of their remarks, along with GOB's, & to marvel at how quickly & how perfectly they've understood everything. The joke in my family is that the cmf strangers tend to learn quite a bit better than my own kids !

however, mean-speaking people like yourself are truly a puzzle.

what are you getting for yourself, cat, out of rants like this ? i've helped you, too, when you were setting up to gambit your currencies a while ago. Is it your intention now to deliberately cut yourself off from support or assistance in the future ? because that's where your outburst is heading ...

.


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## namelessone (Sep 28, 2012)

For the 3-5%/m, this is the estimated return for a strategy that I thought up, it should not be something new. It's possible but not guaranteed.
It's combining deeply under-valued stocks with options. These kind of opportunties are rare. Let's say I want to buy a deeply undervalued stock and willing to hold for long term for it to appreciate. Instead of buying it and hoping it to double in the future, I buy it and collect x% per month by selling options to other people(It's like providing service). My risk is reduced return and possible further downside. But with x% protection per month, downside is somewhat hedged. The result is instead of getting 100% total return, I maybe getting smoother but reduced 60% total return. The problem with undervalued stocks, they maybe remain undervalued for LONG time. 

For some people volatility is risk, for me it's opportunity. Like when I bought XRE at $7 in 2009 when everyone is selling, it's not for faint of heart. The real risk for me is the probability of permant loss.


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## fatcat (Nov 11, 2009)

humble_pie said:


> fatcat it's time you *did* get it. I have no desire to manage other people's money. Never have, never will. I do my own, try to teach my kids, that's it.
> 
> i also try to help other people in this forum & luckily some have responded very well. It was a thrill for me to see argo & avrex doing strategies in less than a year that took me years to figure out. It's a thrill to see some of their remarks, along with GOB's, & to marvel at how quickly & how perfectly they've understood everything. The joke in my family is that the cmf strangers tend to learn quite a bit better than my own kids !
> 
> ...


i am "mean speaking" and "ranting" ? come on pie, take a deep breath my friend ... 

in a post above i specifically named you as having helped me and it was exactly that currency conversion that i had in mind when i did so, it was very helpful and i believe i thanked you for it ... i also remember reading some of your stuff on covered calls with great interest 

my longer comment about people who beat the market was in no way aimed at you ... 

i don't hear you bragging about all your winners all the time ... you talk about _how_ you do things mainly

i do hear people drop in here regularly and spout off with a long list of their winners and their latest spectacular maneuver and it gets tiring that's all ... i flatly don't believe it ... i stand by everything i said

now, please don't think that comment is aimed at you ...


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## mrPPincer (Nov 21, 2011)

Look, h_p, you seem to be extremely angry of late, and it seems I'm at the brunt of your attention atm, so fine, have at it, but your rage seems to be based on 
1. my misunderstanding of the nature of the sarcasm in your (now admin-edited) mocking epigram and my response to it, which you can't seem to let go of, but if you look at my following posts you can see that after rereading the thread I realised the intent in which you meant it, and posted a caveat immediately afterwards, although it landed in after your response did; and now;
2. my use of the term calling bull**** on something in that earlier post where I apparrently so hugely offended the holy church of active investors. FYI that is a commonly used term here in north america, and is used when someone sees something that seems not quite right. I used that term irt to the numbers in the post quoted below and I did ask everyone to please not take offense when I did so.



namelessone said:


> I do not mind name calling. Name calling doesn't change who I am. In fact, my stock picks are full of GEMs that offer higher return, lower volatility, less chance of down turn than the market average. Give a few of my picks: SJ.TO, NKE, FAST, compare them to the index for 5 to 10 years. It's even better to combine options with deep value play. I'd like to get paid 3-5% per month to wait. Thanks to all that persuaded me into options. I find it funny when I told my sister I started playing with options. Her instance response was" Oh...it's dangerous".
> 
> Over diversification is the protection against ignorance and the lack of desire to learn.


I do apologise to have so deeply offended you H_pie, it was certainly not expected and I can't help but feel that you are taking things a little personally, which is certainly not intended.
Please don't peg me as a strict adherant to either camp, my mind is open to learning and maximising returns while managing risk to the best of my ability and look I forward to many more fruitful discussions here.


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## Toronto.gal (Jan 8, 2010)

There is no perfect system and no perfect investor, period! Heck, even Warren Buffett bought BAC higher than I did [I wonder if that makes me a sophisticated investor, or a champion liar, lol]. 

'To be a good investor, *you have to make doubt a part of your creed *and make double-checking a ritual.' 

http://www.investopedia.com/articles/basics/07/10commandments.asp#axzz2GVdiEFHe


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## andrewf (Mar 1, 2010)

humble_pie said:


> andrewf how did your offending more than half the members of the forum by calling them ****s possibly improve the tenor of anything ?
> 
> your clumsy camouflage with the 4 asterisks does not work. Please stop insulting the members with obscenities.
> 
> oh, & stop whining to the moderators.


I was playing on an earlier comment (#28 by scomac). My comment was not directed at any individual, not group of individuals as a whole. Surely you don't deny that there are some out there who like to talk about successes and forget failures. That's human nature.

I didn't mention anything to the moderators about this post of yours or any others. Contain your paranoia. I quoted your comment for posterity, though.


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## andrewf (Mar 1, 2010)

humble_pie said:


> actually andrewf said that "the stockpickers are full of ****."
> 
> that's why i wrote the epigram. It was to focus on the absurdity of attacking stockpickers as so much ess aitch eye tee.
> 
> do U like being called full of ess aitch eye tee, t.gal ? i for one do not. I'm sure others do not.


If you want to quote me, quote me in context. You are twisting what I said by leaving out the part where I said "on average", followed by a sentence of explanation.

I see that my comment stirred you into a blind fury. I'm a bit surprised--I don't think what I said is controversial. Stock pickers pick stocks because they think they can beat the market. The trouble is, not all of them can. So some can and do (like yourself, as you claim) and surely as a pure result of their cunning and skill and no luck at all, while an unfortunate few underperform _necessarily_, surely as a result of their weak character and lack of wisdom and no amount of random bad luck, since alpha is zero sum. Every dollar of your TFSA's excess return vs a similar market indexed portfolio came out of the pocket of some other active stock picker who pales beside your brilliance. Would be that we all were better than average drivers, nicer than average people, and better than average investors. Maybe if you redouble your efforts, you can achieve that goal of making every stock picker outperform the market. I'll cheer you along as you go.


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## thenegotiator (May 23, 2012)

Toronto.gal said:


> There is no perfect system and no perfect investor, period! Heck, even Warren Buffett bought BAC higher than I did [I wonder if that makes me a sophisticated investor, or a champion liar, lol].
> 
> 'To be a good investor, *you have to make doubt a part of your creed *and make double-checking a ritual.'
> 
> http://www.investopedia.com/articles/basics/07/10commandments.asp#axzz2GVdiEFHe



wow.
i cannot believe i missed this whole thread?
impressive as to how criticism can become rampage.
impressive.
i am not here to defend nobody but the truth has to be said
Mr. pie and i have an old problem.
we do not like each other.
period.
nevertheless as an option trader amongst others here he knows his options strategy.
By all means I do respect people like him and lepthurn even though Mr.
pie thinks that I am full of **** which does not bother me anymore.
I think i do not bother him either atm.
nevertheless his strategies in options are good.
he is also right about the small group of options traders here.
they know how to do their stuff.
I am not an option trader.
at best i hedge my bets with OTM puts.
i do not chase stock direction.
I have my own methodology in the commodities futures mkt.
i am not here to make anyone rich either, but sometimes u read something of value.
T.gal .... happy New year:encouragement:

.


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## kcowan (Jul 1, 2010)

> Would be that we all were better than average drivers, nicer than average people, and better than average investors. Maybe if you redouble your efforts, you can achieve that goal of making every stock picker outperform the market. I'll cheer you along as you go.


I think there is a case to be made that active participants in CMF are not average in investing skills. At least their facility to use analysis tools appears to be in the top 10% of the population.

HNY to everyone here!


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## My Own Advisor (Sep 24, 2012)

I'm with kcowan. Even if you have heard about CMF, means you're likely ahead of the rest of the class.

HNY indeed...I hope everyone has a successful 2013!


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## humble_pie (Jun 7, 2009)

lol the trolls & the frequently banned abusers have taken over

what with all the newly-recruited index militants, it looks like poor forum is entering its twilight years of decline ... inevitable ... it has been fun, though

(aside to andrew: there's a world of difference between your conjuring of a filthy obscenity & scomac's. Scomac used the asterisk abbreviation to make fun of himself & fellow stock pickers. This is more than fine. It's humourous, kindly & endearing. You used the asterisk abbreviation to insult your opponents. It's ugly, foul-mouthed & offensive.)

(aside to kcowan: i've always admired your long-term lulu & apple picks, please carry on)

successful stock pickers in this forum - & there are many - have set forth different methodologies as they go about choosing their investments. At least 2 members have described powerful financial analytical skills, which have helped them create winning portfolios. 

i have a different approach, having been trained as a journo & being therefore a good investigator. I look for the holistic story. I study the people in a company, how trustworthy & how competent they are, what is their business plan, what are the surrounding geopolitics, how likely are they to achieve success. As in journalism, it's a question of getting the story. Usually it's necessary to dig deep.

options players or anybody else who is sincerely interested in finding, investigating & picking successful small caps, you know how to find me


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## Toronto.gal (Jan 8, 2010)

thenegotiator said:


> 1. i cannot believe i missed this whole thread?.
> 2. the small group of options traders here. they know how to do their stuff.
> 3. have my own methodology in the commodities futures mkt.
> 4. i am not here to make anyone rich either
> 5. T.gal .... happy New year:encouragement:


1. As Castro/Chavez might say: más vale tarde que nunca!  [better late than never]
2. Boy, do they ever; they annoy me with their smarts sometimes. :rolleyes2: 
3. That's the nice thing about a forum like this, everyone has a little something to offer/share. Futures market is in my future for now. 
4. Those that may be here [or anywhere else] just for that reason, ie: to take short-cuts to $$$, won't make it. We're here to mostly share knowledge.
5. To you and everyone else as well!


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## Toronto.gal (Jan 8, 2010)

kcowan said:


> I think there is a case to be made that active participants in CMF are not average in investing skills. At least their facility to use analysis tools appears to be in the top 10% of the population.


+1.

One can learn a piece of investing from various individuals [active and semi-active] & this is very important. I mostly learned the basics [from where one ought to start] from a tiny book before moving to more complex ones. However, the fact of the matter is that a very small group here offer a wealth of complex knowledge to the rest of us [not for bragging, just for helping], and not just once in a blue moon, but on a regular basis, and that is indeed priceless. What I care about, and what I appreciate is what I can learn from them, and given that the highly informative help is offered for free, it's the information that should be appreciated most, not the person's character/patience, etc., as this is no JK class. 

A little sarcasm & even rudeness [from myself included], is to be expected from public forums from time to time, especially as misunderstandings easily take place, and as we have seen a couple of times just on this thread alone, but there is really no need for personal insults and malice even [rarely the latter one on this forum]. A little tolerance & understanding & less picking/mocking others can go a long way. Ignoring those you dislike is much better IMO, especially when those you dislike may have never attacked you in any way, and not even spoken to you in some cases [not mature to jump on the bandwagon]. 

My sincere thanks to the active/passive investors who taught me something new since I joined almost 3 years ago [mostly the former group]. 

Happy:


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## Toronto.gal (Jan 8, 2010)

humble_pie said:


> 1. it looks like poor forum is entering its twilight years of decline ... inevitable ... it has been fun, though
> 2. I study the people in a company, how trustworthy & how competent they are... it's a question of getting the story.


1. If certain valuable members here, the ones that taught me a heap of lessons, were to leave, I would be very disappointed and would agree that the forum would not be as interesting/informative [would be difficult to replace for sure].

2. One of the many lessons I learned from you. 'Getting the story' is what is all about and you can't do that with an ostrich mentality [no offense intended].


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## kcowan (Jul 1, 2010)

humble_pie said:


> anybody else who is sincerely interested in finding, investigating & picking successful small caps, you know how to find me


I invested in many small caps when I was in my accumulation years. The most successful was Jones Soda. Bought at 0.88 and sold at 37. Met the CEO and knew how he thought. But now I am more conservative. Also met the Lulu founder when they were a small cap. I was concerned when Chip was pushed out but it seems it was unfounded.


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## PuckiTwo (Oct 26, 2011)

humble_pie said:


> i have a different approach, having been trained as a journo & being therefore a good investigator. I look for the holistic story. I study the people in a company, how trustworthy & how competent they are, what is their business plan, what are the surrounding geopolitics, how likely are they to achieve success. As in journalism, it's a question of getting the story. Usually it's necessary to dig deep.


﻿
And as such a person you are very valuable to experienced and new investors alike. Investigative research is a talent not found so easily. Rudolf Augstein, founder of "Der Spiegel" was one of those. He spoke his mind, he didn't let anybody of the hook, wasn't intimidated by chancellors, foreign intruders, didn't care about opponents, critics, anything and anybody.
Like Humble Pie he dug deep and unearthed problems the public would not have learned otherwise - true journalism which comes to the surface in many of Humble's posts. Not what we see too often nowadays - larifari yahoofroth one-size-fits-all.

But that's not all that makes Humble so special. I don't dare to judge his option skills (this will be on my future wish list). But as a newcomer to DIY investing and relative newish to CMF I was one of the lucky beneficiaries of his emphatic comments to lesser experienced investors. Individualized empathy! (am just implementing his ideas)

Those people are rare - and we have to cherish them. Happy New Year and a peaceful and invigorating 2013. Pucki.


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## HaroldCrump (Jun 10, 2009)

Oh please, let us not end the year on such a note.
It would be a tragedy of gigantic proportions if someone like humble_pie were to decide to leave the forum because of such a poor choice of words and comments by some folks.

I don't think there is even one poster who can say they haven't benefited in some form or another from humble_pie's infinite experience and wisdom.
Be it options strategies, currency gambits, hidden brokerage quirks and fees, deep insight into certain small cap stocks, you name it - surely everyone is better off in some way or another, whether they realize it or not.

The foregone debate between index investing and stock picking is unfortunate indeed, in the direction it went into.
Some folks use phrases such as s*t too lightly, have a large stock of them, and dish it out at every opportunity, not realizing that these are offensive words.
Esp. when directed at individuals, and not inanimate objects, such as toasters or weather.

To address a specific comment by andrewf, about stock pickers _on average_ not being able to outperform the major market indices, please keep in mind that all the glorious managed high fee mutual funds are part of that group as well.
It is a proven fact that the vast majority of managed mutual funds underperform major indices across long periods of time, and no one single fund has managed to outperform year after year.
Very few exceptions are there (such as Peter Lynch's original fund).

Therefore, it is plausible that a large number of small, individual investors can outperform anemic indices like TSX, MSCI, and S&P - while the large managed mutual funds from the likes of Investors Group, Manulife, etc. continue to underperform year after year.

So I say let those guys race each other to the bottom, while small investors like us with modest 5, 6 or low 7 figure portfolios work outside the mainstream system, and beat the market.


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## Toronto.gal (Jan 8, 2010)

Great intro./body and *conclusion* Harold! :biggrin:


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## fatcat (Nov 11, 2009)

let's remember that cmf was founded by a very smart indexer
yet much of the action on the forum is by traders and pickers, not surprisingly since indexers don't really have much to talk about except their yearly rebalancing
pickers do have more fun

the _truth_ about investing is an elusive and shifting target
it seems very hard to come up with a system that is absolutely best for everyone
we should all invest according to our own personalities and needs
and hopefully sleep well at night

i really like this forum a lot and have learned _much_ from many of you
it has always been the most civilized of all the forums i participate in
like harold i don't want to see us close out 2012 on a nasty note

so, happy new year and a prosperous 2013 to _everyone_


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## Toronto.gal (Jan 8, 2010)

fatcat said:


> 1. yet much of the action on the forum is by traders and pickers, not surprisingly since *indexers don't really have much to talk about*
> 2. pickers do have more fun


1. Another words, the forum would be less informative [and boring even] as a result. A forum without the right contribution & mix of people, would not survive very long, no matter who founded it.

2. Learning to invest and grow your money is not really about fun; we're not hyper, but serious pickers! :02.47-tranquillity: 










No such thing.


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## doctrine (Sep 30, 2011)

The major difference between indexing and investing in individual companies, in my opinion, is the ability to purchase on valuation. You have to wait years for market crashes to be able to purchase an index at a reasonable valuation - you're buying into all the stocks, and they could be incredibly overvalued. Look at all the stocks S&P added to the indexes in the late 90's, with P/E's in the stratosphere. Not happening anymore? Amazon's P/E is rising faster than a rocket (somewhere north of 200), a company I wouldn't dream of purchasing a single stock in, yet anyone with a S&P 500 index fund is a part owner. Investing in individual companies allows you to pick your margin of safety by investing in companies at reasonable valuations. It's not new news that purchasing any company above a P/E of 15 has significant risk of reducing future returns - Benjamin Graham wrote about it in the 1940's.


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## andrewf (Mar 1, 2010)

humble_pie said:


> (aside to andrew: there's a world of difference between your conjuring of a filthy obscenity & scomac's. Scomac used the asterisk abbreviation to make fun of himself & fellow stock pickers. This is more than fine. It's humourous, kindly & endearing. You used the asterisk abbreviation to insult your opponents. It's ugly, foul-mouthed & offensive.)


HP, you sound like you have come unhinged. You know nothing of my intent, only what you read (or misread) into my comment. For some reason you see war in every disagreement. This is an internet forum dedicated to personal finance and investing. This is not a religious war. You don't need to go on crusade to defend your tribe from imaginary enemies.

Of course, I should know better than to respond to your trolling.


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## olivaw (Nov 21, 2010)

Last day of the year - what better day to accuse each other of coming unhinged..........

I went from being a mostly active investors to a moderately passive index investor. My efforts now go towards increasing my saving rates instead of chasing returns. Most of my friends are over 50. Most are passive index investors. We spend more time discussing portfolio allocation than we spend discussing individual stocks.

I don't know a single person who went from being an index investor to a stock picker for any length of time. Are there any investors on here who abandoned their index/portfolio allocation model in favour of becoming a stock picker? Are there any investors who stuck with it for over a decade - through a bear market or two? Have you measured your IRR and by how much did you beat the market?


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## thenegotiator (May 23, 2012)

humble_pie said:


> lol the trolls & the frequently banned abusers have taken over
> 
> what with all the newly-recruited index militants, it looks like poor forum is entering its twilight years of decline ... inevitable ... it has been fun, though
> 
> ...



Mr. Pie.
like i said before and i have been trying to break the ice with ya at no avail but ur ego is bigger than anything else.
still calling me a troll and a banned abuser.
that is indeed ur problem.
remember the 1 dollar natural gas handle last year between u and equityval?
where is equity val the almighty natural gas GURU?
remember the bashing on TRP?
whatever man.
u are impressively arrogant and i cannot imagine how someone would be able to even live with ya.
I already said my good bye to the one individual here that i do like.
smart woman.
learns from every crumb thrown out here.
You think u are the almighty on earth but no u have to always be arrogant no matter who talks to ya.
i think u call that being a narcisist right?
do u look at urself in the mirror everyday and say.... i am the greatest.
not a fan of andrewf at all.
this one is definitely another classy arrogant.
either way .
get a life.
obviously my last post because ur buddies will ban me after that for my LANGUAGE lol.
get a life .


and by the way
i AM a successful stock picker for last year.
all coal stocks at their bottom
CCo
UUU.
AMD I failed.
and plus more not worth to mention.
and by the way i made a ton of money on natural gas since the 1.9 low this year when ur almighty knowledgeable equityval called for a lower price.
.
ur kind make me stronger because i see no problem in calling people out on their trades.
u are not used to that because u definitely are not a futures trader.


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## mrPPincer (Nov 21, 2011)

olivaw my story is somewhat similar.
I actually started out many years ago by picking a diversified basket of about seven stocks thanks to a few generous lessons on the basics from an old high-school buddy's dad.
This was back in the days when you had to look everything up in the newspaper and brokerage fees were over $30 and you had to phone in your orders.

There was a lot less access to good information available in a timely basis and a stock picker had to have nerves of steel.
I decided I didn't and made the move to mutual funds, starting with some that looked to have a good track record, and then slowly finding ones that had better MERs as well as decent track records, and when index funds started to become available I shifted towards them, and then 100% td e-funds when I discovered them.

The entire time that I was using mutual funds I did use asset allocation.
This year I opened up 3 new discount brokerage accounts and loaded up on vanguard etfs and some reit stock but I did keep one td mutual fund account active for cost-free rebalancing.

Moving forward I have been attempting to educate myself on the use of options strategies, with many thanks to Humble Pie and freinds over in the options threads.
Also on the agenda for me for 2013 is to learn some fundamental analysis basics and how to run a good spreadsheet program in order to properly track and sort by different categories etc. and quantify.
It would be interesting to see if my antics have resulted in beating a suitable set of benchmarks.


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## dogcom (May 23, 2009)

Personally I like humble pie and andrewf and I have had arguments or disagreements with them both. I think they should both stay around the forum along with belguy because I enjoy what they bring to the table. Like T.gal said it is a public forum and you can expect a little rudeness here and there. Although I think I have much worse arguments with my family then I would ever have here.

As far as indexing and stock picking I use them both and yes I do trade. I use to buy and hold but I have found I do much better if I play it a bit but not to much. Indexing is still better I think then stock picking unless you can really be sure of what you are buying. Of course many on here have the ability to stock pick and do better but like someone said in the overall scheme of things it doesn't add up to a very high percentage.


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## Belguy (May 24, 2010)

To each his own, but the reason that I am a 'Couch Potato' investor is that I enjoy none of the chores outlined in the post above, including option strategies, fundamental analysis, and pouring over spreadsheets. I have no interest in doing the research necessary to know which stocks to invest in, when to buy them, how long to hold them, and when to sell them. If this type of thing turns your crank, then more power to you. I happen to prefer to spend my spare time watching cartoons. I spend next to no time on my portfolio aside from periodically rebalancing it. I also strongly believe that getting your asset allocation right according to your personal circumstances and risk tolerance is more important than which individual investments you select. Also, I am approaching 70 years of age and, generally speaking, as you age, you become more conservative in your thinking.

Happy New Year to one and all.


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## jgueld (Jan 28, 2011)

Hi all,
I'm just a kid when it comes to investing who knows that he doesn't know, so my investing is hesitant and tepid but learning both by reading these forums and more formally. This thread interested me because it was describing two different strategies of investing (dividend vs "couch potatoe"). When approaching such threads (length) I tend to read the first few and then the last few - gives me a sense of the thread.
What do I find here is bunch of really thinned skinned people judging each other instead of the laying out their rationale for supporting their methodology - sic. In the day it was called bickering.
I appreciate the odd person who describes their rationale - bully for you.
Sorry, I blow up sometimes - I'll go back to listening. Thank you.


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## Belguy (May 24, 2010)

I used to argue that the 'Couch Potato' style of index investing was the ONLY way to invest but I have come around to the thinking that there is no one correct way to invest. A lot of it depends on your own particular circumstances, interests, skills, age, time horizon etc. etc. Now, my only argument is that 'Couch Potato' investing fits my particular circumstances, interests, skills, age and time horizon. If I was a younger investor with a long time horizon and was just starting my portfolio management, I might go in an entirely different direction if I had the interest and personality to do so.

To each his own. Happy New Year and good health to one and all no matter your investment beliefs.


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## Belguy (May 24, 2010)

I just calculated my return on my 'Couch Potato' portfolio for 2012. My asset allocation is 50 per cent equities/40 per cent fixed income/10 per cent cash. During the year, I traded only for rebalancing purposes as I consider myself a buy-and-hold, through all market conditions, investor.

My total return, including dividends, was 6.25% which is within my target range. I am a retired investor.

My greatest dilemma now is what to do about my fixed income allocation when I do my rebalancing this month given the low yield expectations for bonds going forward. I am thinking of sticking with a corporate bond ETF which holds short duration bonds. I don't expect much of a return from this part of my portfolio but it will provide some stability should equities have another volatile year.


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## Jungle (Feb 17, 2010)

They've been saying bonds will die now for several years. Interest rates are not going up soon. They've already said they are pretty much staying put until job growth comes. I would not try and time that. 

Besides, funds like XBB are a good mix of high quality corporate and gov bonds. Can't really get better than that and all your eggs are not in "one" bond basket. 

I really like that new vanguard bond fund: VAB. Pretty much the same as XBB, but cheaper.


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## andrewf (Mar 1, 2010)

jgueld said:


> Hi all,
> I'm just a kid when it comes to investing who knows that he doesn't know, so my investing is hesitant and tepid but learning both by reading these forums and more formally. This thread interested me because it was describing two different strategies of investing (dividend vs "couch potatoe"). When approaching such threads (length) I tend to read the first few and then the last few - gives me a sense of the thread.
> What do I find here is bunch of really thinned skinned people judging each other instead of the laying out their rationale for supporting their methodology - sic. In the day it was called bickering.
> I appreciate the odd person who describes their rationale - bully for you.
> Sorry, I blow up sometimes - I'll go back to listening. Thank you.


I think you're right. To the extend I am responsible for sidetracking this thread, I apologize.

I don't think there is anything inherently wrong with dividend investing or stock picking. But I suspect the most successful (a priori) investors of this type end up approximately tracking indexes and keeping their costs low by sampling. I sometimes challenge people who are investing for yield to make them think. I worry too that some stock pickers might be giving false hope to new investors about their prospects of significantly outperforming the indexes. On average, for every winner there has to be a loser.


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## namelessone (Sep 28, 2012)

I completly missed the title of the thread.
A business is not neccessary a good business to own just because it pays dividend. It could pays high dividend while declining. A good example is Yellowpage!


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## Belguy (May 24, 2010)

Beware of many of the highest dividend payers!! Maybe, for a variety of potential reasons, they have to pay a higher than average dividend just to attract investors--just before they have to slash their dividend prior to going out of business.:eek2::eek2::eek2::eek2:

http://www.forbes.com/sites/energys...f-dangers-in-the-hunt-for-strong-dividends/2/


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## andrewf (Mar 1, 2010)

Companies don't control their dividend yield. They can contol their payout ratio, but the market sets prices, and thus the dividend yield.


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## Toronto.gal (Jan 8, 2010)

For newbies:

*Dividend Yield* = amount received in relation to the price of the stock.
*The calculating formula* = annual dividend per share ÷ by the stock's price. 

Example:

- current annual MFC dividend = $.52 cents
- current MFC share price = $13.64
- $.52 cents ÷ by $13.64 = dividend yield of 3.81%

Purely chasing high yield can indeed burn you! 

High quality earnings [like CDN banks] = good dividends/yield.

There’s always the possibility, however, of dividends being reduced [as the case with MFC], or cut completely.


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## Belguy (May 24, 2010)

It's interesting, at this time of year, that I don't see forum participants talking about their portfolio returns for the past year. Is this because they are reluctant to brag or disappointed enough not to want to talk about it?

My own total portfolio gain, all in, was 6.25 per cent.


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## Sampson (Apr 3, 2009)

Belguy said:


> It's interesting, at this time of year, that I don't see forum participants talking about their portfolio returns for the past year.


?!?

One of the hottest threads on the boards is about 2012 investment returns. 1,116 views in a day. I'm guessing there are not that many posters for precisely some of the psychological reasons you mention. Who even knows how people are calculating their returns. I'll bet people are all doing it differently.


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## dogcom (May 23, 2009)

My return was about 28 percent last year and I did the buy high and sell low routine and traded my face off. My first priority last year was preserving my money so losing trades were sold off quickly. In 2011 my return was probably 5 percent or less and that was because I lacked patience which I definitely improved in 2012. My returns this year would have been higher but wasn't because I still haven't improved my patience enough.


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## My Own Advisor (Sep 24, 2012)

You and me both dogcom. Owning more indexed products like VTI is helping me though. Bought some in December to rebalance and it jumped today.


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## Jungle (Feb 17, 2010)

Sampson said:


> ?!?
> 
> One of the hottest threads on the boards is about 2012 investment returns. 1,116 views in a day. I'm guessing there are not that many posters for precisely some of the psychological reasons you mention. *Who even knows how people are calculating their returns. I'll bet people are all doing it differently*.


Exactly. I see some rough estimates, subtracting contributions and using basic total return. 

I will only accept XIRR for our returns. THis way you know your returns are proper and it's industry standard.


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## dogcom (May 23, 2009)

My own advisor I owned FIE since mid year as a index type of hold and last year I had XTR. The US stuff is better but I shy away from currency risk and friction from trading currencies at least at this time. 

My number one thing is I don't expect anything from any company or investment and trade and hold according to that. I think unless you know everything there is to know about a company then you don't know enough so you trade accordingly. You can trust solid companies enough to trade and hold them with your eye on the sell trigger. On the not so solid companies it is all on hype, technicals and your finger on the sell trigger.


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## kyboch (Dec 23, 2011)

Dividend growth investors swear by it. Index investors swear by it. It's hard to figure which way to go. For me I do both. I decided that index investing is the best evidence based investing method and over time is the best ay to go. But it's real nice to collect dividends too. I do both. I have 25% in VUS, 10% in ZRE, 10% in CHB, 10% in VEF, 20% in XBB. I really love all those ETFs but especially VUS, it's automatic exposure to the total US stock market hedged to the Canadian dollar. It basically holds VTI which holds 3306 stocks and it's cheap, I think it is a great representation of the US market.

For my Canadian equity exposure I used to hold it all in XIC. But then I started thinking....the Canadian stock market is so poorly diversified being mostly financials and energy stocks that it seemed kind of pointless to hold XIC as the TSX is just not a complete enough index. So for my 25% Canadian I hold 26 individual dividend paying Canadian stocks. It would be similar to something like ZDV or CDZ but minus the lousy stocks. So far my picks overall are doing really good, much better than XIC and marginally better than both CDZ and ZDV, and after my initial purchases the MER is 0.

There you have it, who said you have to do one or the other when you can do both. I am very happy with my portfolio after months of farting around I have finally come onto something that I really like. I feel like I have all the bases covered and the costs are super low. Indexing is a great plan but it is BORING MAN! Picking a few stocks is fun and keeps your head in the game and you just can't beat those cash dividends!


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## Belguy (May 24, 2010)

For someone like me, boring is the way to go!!

Said what?:untroubled::sleeping::wink::friendly_wink:

We totally boring folk just like to buy the lowest fee index funds and then hold them forever trading only as needed for rebalancing purposes.

Could you do better over the long term? Maybe but more likely not for all of your good efforts and hard work but the best of luck trying.

But I do admit that the method I recommend is deathly, deathly boring.


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## londoncalling (Sep 17, 2011)

The beauty of holding boring old index ETF's is that it gives you tons of time to read the G&M and post smileys on forums. :tongue-new::biggrin::hopelessness::encouragement:... Sorry Belguy... Couldn't resist the opportunity to poke a little fun at one of my favorite members... I agree with the above post about being able to do both... The world is not black or white... we can be passive, dividend investors, long term and swing or day traders all at once.

I most certainly agree with you Mr. Belguy about invesing in a manner that matches your style, horizon and needs... To paraphrase Neil Young:


Keep on trading/investing/holding in the free world!

Cheers


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## doctrine (Sep 30, 2011)

Investing in companies directly can be a passive exercise as well. I enjoy having the companies do all the work, while I get my payments every month (or every three months) like clockwork. I haven't added to any positions in the last month, and I've had the best month on record - the key was to be positioned early in companies with great valuations, of which there are plenty to choose from!


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## thenegotiator (May 23, 2012)

Belguy?

that is not you is it ?:tongue-new:
from 20k to 2 million.

just joking:biggrin:

http://www.bloomberg.com/video/this...llion-you-can-too-piX08ijaQ7WeFEyhxEau8g.html


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## kcowan (Jul 1, 2010)

Make sure you know your limitations

Good advice and a regular cheklist to ensure your are not kidding yourself.


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## YYC (Nov 12, 2012)

kcowan said:


> Make sure you know your limitations
> 
> Good advice and a regular cheklist to ensure your are not kidding yourself.



I love that guy's disclaimer under his post:

"Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous."

Funny stuff.


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## hboy43 (May 10, 2009)

doctrine said:


> Investing in companies directly can be a passive exercise as well!


I made exactly zero additions or deletions to my harem last year. The 5 or 6 trades last year were all existing positions added to or trimmed.

hboy43


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## Belguy (May 24, 2010)

hboy43 said:


> I made exactly zero additions or deletions to my harem last year. The 5 or 6 trades last year were all existing positions added to or trimmed.
> 
> hboy43


:sleeping::sleeping::sleeping::sleeping:


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## hboy43 (May 10, 2009)

Belguy said:


> :sleeping::sleeping::sleeping::sleeping:


I don't follow, I am boring to you?

hboy43


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## scomac (Aug 22, 2009)

hboy43 said:


> I don't follow, I am boring to you?
> 
> hboy43


No that's not it; he doesn't care. BG is convinced his way is superior, despite his relentless complaints about performance and those of us who have claimed to do better with alternative methods are simply full of beans. :suspicion:


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## humble_pie (Jun 7, 2009)

Ami Partners, owned in part by TD bank, is a respected investment manager that has been serving canadian pension funds & institutional clients since 1959.

it was Ami's quantitative indexation strategies, sold to TD asset management in 1996, that helped drive the TD's launch of the first-ever suite of popular retail index products in canada.

in a recent phone interview, Ami's vice-president Craig Labbett said that popular index funds designed for retail investors outperformed only during the 2nd half of the 1990s because of the extreme overweighting of Nortel & other technology stocks within indexes at that time.

meanwhile, managed funds were - wisely, as it would turn out - choosing to hold less nortel & less tech; therefore active fund managers tended to underperform indexes during that period, Labbett pointed out.

the AMI veep said that, today, pension funds & institutional clients tend to choose active fund managers for their canadian equities portions because statistics maintained by the canadian pension industry show 5-year, 7-year & 10-year outperformance results for active managers when compared to index funds.

however, the most recent 3-year results are reversing this trend, Labbett added.

in a final note, Labbett said that performance results for US equity funds & north american bond funds do not show any clear outperformance trend for either indexers or active managers.

the pie's takeaway from all this: for more than 10 years, the index-vs-active-manager race has been running neck-&-neck.

parties attempting to claim that index funds outperform managed funds are inventing a fiction, imho.

parties particularly claiming that index funds outperform "over a lifetime" are doubling the fiction imho, since no studies exist over such a long time frame. Popular index products designed for canadian retail investors only debuted in the mid-to-late 1990s. That's less than 16 years ago.


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## andrewf (Mar 1, 2010)

Is that before or after fees?

The skeptic in me also wonders whether Canadian equities are a special case.


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## fatcat (Nov 11, 2009)

andrewf said:


> Is that before or after fees?
> 
> The skeptic in me also wonders whether Canadian equities are a special case.


my question also, i assume pie is saying after fees otherwise it wouldn't be a fair comparison ... also, the TSX is so overweight in the big 3 sectors compared to the SP500 which is more balanced


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## uptoolate (Oct 9, 2011)

andrewf said:


> Is that before or after fees?


And also after taxes?


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## hboy43 (May 10, 2009)

scomac said:


> No that's not it; he doesn't care. BG is convinced his way is superior, despite his relentless complaints about performance and those of us who have claimed to do better with alternative methods are simply full of beans. :suspicion:


Could be, still I'd like to hear it from him. It really isn't fair to leave something hanging there that can be construed as an attack and then not clarify.

hboy43


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## Sampson (Apr 3, 2009)

hboy43 said:


> It really isn't fair to leave something hanging there that can be construed as an attack and then not clarify.
> 
> hboy43


Your post really shouldn't be so boring to Belguy any way. I think the word "trade" triggered the reaction. If you replaced it with, I reallocated funds 6 times during the year (which is exactly what you did), then perhaps Belguy would have smiled and discussed the rebalancing trades of his own.

Really, I expect someone following a simple Couch Potato indexing strategy to be happiest when trades are made to rebalance. It means you get to sell off outperformers and more those funds into asset classes that have underperformed. Also, it means that having various asset classes in the portfolio is working, in that they are showing low or negative correlations. For a Couch Potato, this is as fun as it gets. :encouragement::chuncky::encouragement::chuncky:


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## andrewf (Mar 1, 2010)

^Maybe he's happiest when he's not worrying about his portfolio.


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## Belguy (May 24, 2010)

Buy, hold, rebalance and prosper.

:sleeping::sleeping::sleeping:


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## Rusty O'Toole (Feb 1, 2012)

To address the question of active investing versus indexing. Warren Buffet was asked this question.

His answer was, buy Ben Graham's book, learn to buy value stocks, do your own research, everyone he knows who took this approach did well and no one lost a substantial amount of money.

To the question, what if you don't want to do all that work?

His answer was, index everything.

Have seen basically the same answer over and over again from top ranked investors. Learn to invest, do your homework, spend as much time as you can on the markets. If you don't want to do that, put your money in index funds and go play golf.

It is also sobering when you look at the careers of legendary investors like Sir John Templeton, Peter Lynch, and Jack Dreyfus and learn that they became legends in the stock world by averaging 10% to 12% over a period of 20 to 30 years.

The king of investors, Warren Buffet, beat everybody and became a multi billionaire by averaging 20% or 22%. But a recent study points out that he had the advantage of leverage using the cash from his insurance companies. This multiplied his returns by a factor of 1.6:1. If you divide 20% by 1.6 you get 12.5%. Impressive but not that far above other top investors.

I have also seen statements by successful investors who analyzed their own results over a period of 10 or 15 years, and came to the conclusion that for all the difference it made, they may as well have put their money into index ETFs and gone fishing. They absolutely hate this idea because they love picking stocks, but it is true.

I hate this whole line of thinking too. There is something in human nature that makes me think I should be able to beat the average if I really try. But it is obvious not everybody can beat the average. That's what the average is.

So, if you can consistently do better than average over a period of time (not just a kid with hot dice) you have done something very few have mastered.

I wish this was not true, but have been forced to admit, after years of reading about the stock market, it is hard to refute.


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## jcgd (Oct 30, 2011)

$10,000 compounded yearly at 8% over 30 years = $110,231.76
$10,000 compounded yearly at 12.5% over 30 years = $425,210.82
$10,000 compounded yearly at 22% over 30 years = $7,350,951.89

Being a good investor can be very lucrative.


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## Rusty O'Toole (Feb 1, 2012)

You said it jcgd. The problem is being that good, and that consistent, over that period of time.

I know I am not a genius stock market master. They make 10% to 12% consistently. The chance of me being that good, or that lucky, is practically nil.

Could I make 8%? Maybe. But if I can make that much indexing why should I knock myself out? All the books say that over a long time period, the stock market goes up 8% or 9% a year on average. So why not just buy the averages and go fishing? Or, buy dividend stocks, lock them in a safety deposit box and go play golf?


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## uptoolate (Oct 9, 2011)

See you guys on the golf course! :encouragement:


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## fatcat (Nov 11, 2009)

jcgd said:


> $10,000 compounded yearly at 8% over 30 years = $110,231.76
> $10,000 compounded yearly at 12.5% over 30 years = $425,210.82
> $10,000 compounded yearly at 22% over 30 years = $7,350,951.89
> 
> Being a good investor can be very lucrative.


on the other hand, being a poor investor can be costly. 
$10,000.00 used to purchase a stock that loses 50% of it's value in a year returns $-5000.00 in a year. :encouragement:


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## Sampson (Apr 3, 2009)

Rusty O'Toole said:


> I know I am not a genius stock market master. They make 10% to 12% consistently.


Are you should about that? Perhaps they make 100% one year, then 2% for then next 10 years.


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## namelessone (Sep 28, 2012)

Here's Berkshire Hathaway 10 years historical return vs S&P. No they don't make consistent return every year but they out perform the market in 5 to 10 years. The longer the time period, the bigger the gap due to compounding. 

It's far easier for a person with less than 500k capital to out perform the market in the long term than someone with couple hundred billions. (diminishing returns).


Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BRK(%) . S&P(%). out performance(%)
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 (9.1) 15.6
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6.2) (11.9) 5.7
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.0 (22.1) 32.1
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.0 28.7 (7.7)
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5 10.9 (.4)
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 4.9 1.5
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.4 15.8 2.6
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.0 5.5 5.5
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9.6) (37.0) 27.4
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.8 26.5 (6.7)
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.0 15.1 (2.1)
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 2.1 2.5


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## doctrine (Sep 30, 2011)

> Are you should about that? Perhaps they make 100% one year, then 2% for then next 10 years.


This is my experience with stocks. They tend to stay in a range and then suddenly jump, often 30 to 40% in a short period of time. That is the danger for a long term investor of not being invested - you may miss the boat. Look at Canadian Pacific. It took 5 years for CP to break its 2007 high, which it did in early November. But because of the higher revenue and earnings they have and the better P/E multiple, they didn't pull back, they increased another 23%. That's the advantage of the buy-hold-prosper technique. It's nice to check your monthly or quarterly returns and see 1 or 2 stocks with 30%+ gains.


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## My Own Advisor (Sep 24, 2012)

Excellent point doctrine. 

I don't care too much about any one stock going down 10-20% for a period of time. If they are a good company, they will rebound. In the meantime, I'm buying the company on the cheap with dividends being reinvested. When the company is "back", I continue to get paid via dividends and in some cases, get a dividend increase. 

Buy and monitor 15-20 CDN dividend paying stocks, and index everything else in the portfolio. Best of both worlds.


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## jcgd (Oct 30, 2011)

Rusty O'Toole said:


> You said it jcgd. The problem is being that good, and that consistent, over that period of time.
> 
> I know I am not a genius stock market master. They make 10% to 12% consistently. The chance of me being that good, or that lucky, is practically nil.
> 
> Could I make 8%? Maybe. But if I can make that much indexing why should I knock myself out? All the books say that over a long time period, the stock market goes up 8% or 9% a year on average. So why not just buy the averages and go fishing? Or, buy dividend stocks, lock them in a safety deposit box and go play golf?


I hear you. But you wouldn't exactly be busting your butt for nothing. You are are working towards a substantial premium for the work. Even if you can eek out another .5% or 1% you are talking the difference between just retiring, and retiring rich. 



fatcat said:


> on the other hand, being a poor investor can be costly.
> $10,000.00 used to purchase a stock that loses 50% of it's value in a year returns $-5000.00 in a year. :encouragement:


Very costly. I've lost what I consider a huge amount of money on one stock. My good choices have been more than enough to make up so far though. Knock on wood. Learning is expensive. Hopefully I don't have to take the course twice. :hopelessness:

Everyone keeps saying, "it's a zero sum game", "how can I beat all these pros?", and I don't know about you guys, but were you always under the average on everything you've done? I'm sure some of you were better at math than the majority. Or better at statistics than the average. I was pretty good at most things I've ever done that was not physical. Being in the top 20% of everything else, why should I assume I would be in the bottom 50% of stock picking? It's a zero sum game so the average is the market return which is usually (but doesn't have to be) around 8%/yr. So unless it truly is all luck, it's worth a shot. Actually, if it IS all luck coach potato would make the most sense, but hey, it's still 50/50 that you'd beat that by throwing darts. 

So assuming I'm not worse than average, and my hand is not forced by any reasons other than my own, theoretically I should easily beat the average. I'll let you know in 30-40 years if this hypothesis was correct. All I know is your best chance is average with couch potato. By definition, if you out perform, you are doing it wrong!


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## zylon (Oct 27, 2010)

I don't know who started this "zero sum game" idea; 
it sounds like another "boiling frog" story to me;
so I looked it up.

Here is what I found:










http://www.investopedia.com/terms/z/zero-sumgame.asp#axzz2HnRcgL00


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## humble_pie (Jun 7, 2009)

i disagree with the definition of options as zero sum. New contracts are added to & subtracted from options markets by option specialists every day. Sometimes every hour. No option specialist is arbitrarily limited to any specific number of options in any class or series. This is an ignorant notion. In fact, the market maker is limited only by his willingness to use his capitalization at the exchange.

furthermore, an option trader's counterparty is always the exchange itself, never any individual fixed counterparty. It's my understanding that a fixed & individualized counterparty applies to the futures market, though.

whoever buys or sells an option trader's contracts on the other side of his trade has probably changed hands to somebody else hours or even seconds later. At all times, the trader's position is guaranteed by the exchange which has dealt the option. In that sense, exchange-traded options are widely viewed as safer than privately-traded futures.

as for the mantras that "options are a zero sum game" or "stocks are a zero sum game," typically these are followed by misleading and/or emotionally charged statements that these are "mugs' games" or else they are "picking the pockets" of other investors. Both are irrational comments imho.


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## jcgd (Oct 30, 2011)

I agree Zylon. I don't mean it's a true zero sum, because the market as a whole moves up over time, at least in history. I suppose it's a *around* +8% sum game.

Even these 8% or 10% or what have you numbers are not even the markets as a whole, just the returns of somebody else's collection of stocks. DIJA, SP500, TSX, etc. Most of these don't even make sense. Weighted by share price? Weighted by market cap? Maybe it's not logical, but I believe in equal weightings of individual securities. The true benchmark, in my opinion, is inflation because the most important goal is to keep the value of our money. Beyond this is a bonus and it is a personal decision as to whether you want to grow your money, or just keep pace with inflation. Keeping pace isn't really the goal of investing. Investing is real return, put money to work and get more money for it later. What is the meaning (for lack of better word) of an index that weights it's securities by share price? For some reason it may outperform other collections or under perform them. Why should I compare my return to them? It's only a comparison now that I can roughly own them myself. So am I trying to beat the index that has done the best overall, for as long as history is recorded? The only benchmark that is for sure is inflation.

You can't have zero some when the value of the security is increasing, not just by inflation, but by having its own return on equity.


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## namelessone (Sep 28, 2012)

Investopedia doesn't understand what options are. :biggrin:
Car/fire insurance is zero sum game?
Ponzi scheme is the truly zero sum game.

I don't think stock market creates wealth. It's the underlying businesses of the stocks that create wealth.


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## doctrine (Sep 30, 2011)

My Own Advisor said:


> Excellent point doctrine.
> 
> I don't care too much about any one stock going down 10-20% for a period of time.


Exactly. If you have 5 stocks, one will typically surprise you (gain 50%), 3 will typically do ok (5-10%) and one will almost certainly go down 10-20% or maybe more. And occasionally one will skyrocket. The unlimited gain potential of stocks, and the maximum loss of only 100% for an individual position means that it's not hard to make money over the long run. Especially if you don't have more than 5% in one company. I could afford to lose 1 of 20 companies to complete bankruptcy every year and still break even or maybe even still make money - and it rarely happens.


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## namelessone (Sep 28, 2012)

Don't forget the companies in the index also have probability of go down 50% or even bankrupt, look at Nortel, RIM, Manulife. Manulife loss 60% over the past 5 years and still not recovered.
It's false sense of safety because you are not even aware what's going on under the index.


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## fatcat (Nov 11, 2009)

namelessone said:


> Here's Berkshire Hathaway 10 years historical return vs S&P. No they don't make consistent return every year but they out perform the market in 5 to 10 years. The longer the time period, the bigger the gap due to compounding.
> 
> It's far easier for a person with less than 500k capital to out perform the market in the long term than someone with couple hundred billions. (diminishing returns).
> 
> ...


it's all about the time frame ... without that, none of this makes sense ...the longer the time frame the harder it is to beat the market

the reason is simple, like many things in life, investing is essentially predicting the future ... 

and we know that the longer we go out in time, the harder it becomes to accurately predict the future and it is a fairly consistent relationship ... the weather being a well known example of this 

beating the market over a long frame of time means predicting the future with a high degree of accuracy for a long period of time and no one has shown that they can do this well at all ... 

it remains extremely difficult to do, the future is simply too complex

you can have a hot streak, but sooner or later, it will break down and you will revert to the mean


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## jcgd (Oct 30, 2011)

fatcat said:


> you can have a hot streak, but sooner or later, it will break down and you will revert to the mean


Why? You say this, but what does one investor have to do with the mean? You are saying that my returns eventually have to revert to the same returns of another collection of stocks. Why is this? 

You're saying there is no point in purchasing things on sale, because over the long run I'll end up paying a fair price anyway if I try to buy on sale long enough.


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## fatcat (Nov 11, 2009)

jcgd said:


> Why? You say this, but what does one investor have to do with the mean? You are saying that my returns eventually have to revert to the same returns of another collection of stocks. Why is this?
> 
> You're saying there is no point in purchasing things on sale, because over the long run I'll end up paying a fair price anyway if I try to buy on sale long enough.


no, i am saying you better purchase some things on sale because inevitably you will overpay for other things ... the variability in the stock market is virtually infinite ... the index of the market is the most accurate predictor of the future ... it is the "average future" and the longer you invest, the closer you will come to this average

in truth, to really beat the market you would be better off doing your research and placing all your bets on a single company, that would give you the best chance of beating the market

every single trade you make is effectively another guess about the future

the more guesses you make, the more likely you are to end up at the "average future mean" ... the market as a whole


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## namelessone (Sep 28, 2012)

I'll say it in a simple terms. 
If the average companies earns 8% ROI, and a group of companies A earns 13% ROI in the long term. The longer the time frame, the more the average looks like a flat line plotted on a graph compared to the group of companies A due to compounding. 

The term "Revert back to the mean" means when a stock is over priced or under priced, it'll revert back to it's fair valuation sooner or later.
Just because a company is performing well doesn't mean it's over priced. 




fatcat said:


> it's all about the time frame ... without that, none of this makes sense ...the longer the time frame the harder it is to beat the market
> 
> the reason is simple, like many things in life, investing is essentially predicting the future ...
> 
> ...


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## jcgd (Oct 30, 2011)

So what return does the market usually make? Not a single index, but every single company that is publicly traded and equally weighted. Sticking to a single country is fine, but I've never seen a full market return, myself. That would be the mean, or the benchmark to beat. 

I still don't understand though, what forces there are that would now be forcing me to over pay for securities if I only try to buy undervalued securities and have been doing so for a long time. You guys are saying that just because I HAVE been successful buying undervalued for a long period I will have to accidentally start buying over priced securities just so I reset to the mean. 

It's like saying that because I got deals on the last ten vehicles I've owned I better not buy any more because I will need to revert to the mean and over pay on them eventually.


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## fatcat (Nov 11, 2009)

each time you buy or sell a security, you are making a guess at the future value of the security

it's not like a GIC where there is no guesswork, you know the future value of your investment precisely, it isn't even a guess, though it is a guess against alternatives (though in a sense, you are guessing that the company and/or government will be around to reimburse you)

but essentially a stock purchase or sale is a guess about future value, regardless of the track record of the stock or the management, it's a guess because an infinite variety of factors will determine the future price

the more guesses you make, the more you will come closest to evening out the good guesses with the bad

this i why i said buying a single company gives you a better chance of beating the market because single companies have much more reduced probabilities and outcomes to cope with and some of them exhibit a high degree of skill in predicting this future and also, you are just making a single trade and only have to predict the future once

if you are managing a portfolio and are a "stock picker", i.e. buying and selling securities to generate income and capital appreciation, you are making many, many guesses about the future and the more guesses anyone in any field makes about the future, the more likely they are to be wrong about as often as they are to be right

and they will then do about as well as everyone else, no better no worse

if you try to predict the flip of a coin, you will see that the more times you flip it the greater is the probability that you will end up getting it right 50% of the time and wrong 50% of the time

over a long enough time frame. like say 20 years, investing will show the same result, you will guess right about the same number of times as you guess wrong (buy cheap versus overpay)


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## Belguy (May 24, 2010)

Couch Potato investing is good enough for me and if it is good enough for me, it should be good enough for everybody else!!

anda::cat::teapot::monkey:


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## jcgd (Oct 30, 2011)

Okay, okay. I guess I understand what you are saying. I wouldn't use a coin flip to explain it though. If you asked me what I think the chances of a coin flip are I would say 50/50. If you said I had to pick one I would say I couldn't, because the chances are 50/50. If you said I get five flips and I get to pick a side, and it only has to come up once for me to win, I would pick one and take my chances. They are not the same thing. Flipping a coin and picking a side has no margin of safety. 

If I'm going to put money on the coin flip, I would require one side of the coin to be weighted, or I would require more than a single flip to get my side.

You are saying the choices are random. You are saying I cannot pick an undervalued security. You are saying I think I'm picking one, but I'm actually not and it is simply luck that it was undervalued in hindsight. You are saying Warren Buffett has never picked and undervalued security with respect to any skill on his part. He has simply been lucky nearly every time he has bought a stock and if he could live long enough, his "lucky" streak would end and his under performance would negate all prior out performance. 

Am I still not getting it, or am I understanding you perfectly and we disagree? Also, thanks for the discussion so far. I love different points of view.


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## fatcat (Nov 11, 2009)

yes, let me agree with your last part ... it has been an interesting thread and i have enjoyed it a lot

it's also clear to me that this is a debate which neither side will win ... we are coming from different perspectives

as your last post indicates, we _see_ things differently ... the pickers vs. indexers debate will continue on into the long night 

re. buffett, he is a something of a special case since has made his money lately by owning entire companies, not by stock picking ... betting on a single company seems to me to not fall under the rule of "stock picking" since the known variables in any business are fewer than the market as a whole and also, there are clearly individuals who have special skills to understand the developments (and the future) in certain fields and industries and if you couple that with good corporate skills, you can get a world beating company

my argument about stock picking is essentially that the market is so large and the variables so many, that it more resembles guessing about the future than it does say, making an educated guess on whether people will like to use a tablet computer (as steve jobs did with the ipad) or whether television is a good medium to promote insurance (buffet and geico)

clearly there are some people who have very good talents for investing in the stock market but i have yet to see any real proof that any of them can consistently, year-after-year, beat the market as whole, eventually they will get dragged down and their overall-total-return will move close to the market, this would seem to be true the longer the time frame of investing

i will definitely issue a mea culpa if and when anyone present some evidence to prove me wrong


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## jcgd (Oct 30, 2011)

Okay, now I understand fully. Although I'm not really sure you could prove it. Just as the market is so large, and the variable so large and many, I don't know how you'd quantify it to prove it either way. I do see what you are saying. I don't believe I agree 100%, but I definitely do to a degree. 

The single and only issue I have with coach potato is that you can literally only match the market return. There is no chance to over or under perform. Stock picking has every issue except for those. You cannot match the market return, in a literal sense. If you and the market get 12%, they are not related. Different means, same end. But now there is a possibility of beating or not beating the benchmark.

I think the key to doing well picking stocks is to over simplify things. Disregard all the variable that are like white noise. Find out the true variables and concentrate on them. Just like in mathematics, a simple equation will be more accurate. The more variables you account for, the more chances you have to be wrong, and the more you WILL be wrong. Focus on things that are out of whack, but will more than likely return to "normal". 

Whereas you believe long term is harder to estimate, I think long term is easier. Everything trends up over time (usually) so if something is down, and the business has not changed, it is likely that down the road it will be back up. I do agree though, that when the business changes, it is harder to calculate the outcome. Apple disrupted, and who knows who, or when, they will be disrupted. And if history is any indication (it is, and isn't), the business will be disrupted again.

Better to focus on bubble gum or razor blades. Or advisor fees. :encouragement:


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## namelessone (Sep 28, 2012)

Re: Uncertainty of future
Choose stocks that're more stable in nature.
Avoid stocks that're unstable in nature.(e.g high tech)


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## thenegotiator (May 23, 2012)

Belguy said:


> Couch Potato investing is good enough for me and if it is good enough for me, it should be good enough for everybody else!!
> 
> you know what.
> i am getting sick of trading.
> ...


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## leeder (Jan 28, 2012)

I'm a core & explore guy. My RRSP and TFSA portfolios (core) are made up of indices. However, I have less focus on Canadian index on it just because my non-registered (explore) is made up mostly of dividend paying large cap Canadian equities. Recently I did purchase some small/mid cap Canadian stocks in my non-registered portfolio that pay dividends to amp up the capital appreciation opportunity.

Now here's my two cents: According to topic of this entire thread, it seems like one should either invest in one or another. Why try to restrict oneself on index investing or dividend investing? There are pros and cons for both. Choose the one that you think fits your investment style the best. Analyzing historical results of both approaches means nothing. They are historical results and will not necessarily predict the future. One approach may work well; the other may fail miserably in the next decade. If you want something coming back to you consistently but have less capital appreciation than normal, then go with dividend investing. If you want to track the performance of the indices, then go for couch potato. If you want to do both, do both!


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## thenegotiator (May 23, 2012)

^ I deffinittely cannot disagree with ur arguments above.
I do not see a problem to track the indexes.
in the long run and aside from noise the mkts do go higher.
i am not an index investor .
i am a trader after the mkt collapse.
just because I have made a choice to be a trader.
can I beat the system for the next 10 years ahead of me ?
i cannot answer that.
for now i am not doing bad.


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## jcgd (Oct 30, 2011)

thenegotiator said:


> for now i am not doing bad.


And that's all you have to go off. I told myself I have five years to prove I can pick stocks - to myself. Three years in a row I return less than my benchmark index and I'm out. If I make it through year five whether I continue will be whether I beat the index overall and whether the difference was worth the effort.


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## thenegotiator (May 23, 2012)

I think u can return more than 10% a year if u trade.
so far so good.
i actually could have done better if i had not committed naive moves like as an example i gave AMD.
that was a fair chunk of money loss.
other than that it is a ok.
remember that my main focus is another area though.
most of my time i dedicate to natural gas trading.
the tech area initiation and tuition that i paid is part of the game.
i also lost money in natural gas several times .
one cannot win at all times in any trade.
interestingly enough , last year , natural gas hedge funds had a very difficult year.
that did make me feel a lot better because i cannot even try to think that i am better than a professional natural gas trader.
actually the larger amount of my gains were after the lows were in for natural gas.
in a very short period also.
everybody was reluctant to accept that the summer fundamentals changed.
the ones that did made big money.
several factors started to pop in the mkt and i was very very bulish.
it paid off really well.


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## andrewf (Mar 1, 2010)

Hedge funds, aka dumb beta. Pay 20 and 2 for market returns...


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## My Own Advisor (Sep 24, 2012)

@leeder, totally agree.


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