Re: Unique financial nuggets
Actually I would start with Common sense on mutual funds. New imperatives for the intelligent investor.
By John C Bogle (the father of low cost index funds)
Warren Buffet rates is as cogent honest - a must read for every investor.
If there is one book I would suggest this. A disciplined keep it simple approach.
Re: Unique financial nuggets
So we now have
905 stocks
355 bonds
145 cash
1405 total
Now by 2009 stock mkt drops by 60 pct so 362 in stocks..
Bond mkt increases 30 pct. So 463 bonds
Cash increases 10 pct. So 160 cash.
985 total
Stocks 37 pct. So add 28 pct of 985. Or 280..
Bonds 47 pct. So subtract 22 pct or 220.
Cash 16 pct. Subtract 6 pct. Or 60.
So transfer 220 from bonds and 69 from cash to stocks.
Buy more when sticks r low. Sell more when bonds and cash r high. Buy low sell high. Perfect.
So stocks 650
Bonds 250
Cash 100
Re: Unique financial nuggets
Note some rounding error. Total shoukd be 985 not 1000.
Note that even though stock mkt dropped 60 pct, the total money hasn't changed since 2003. In spite of that precipitous drop. Benefit of diversification.
Re: Unique financial nuggets
Also note u would have put monthly amount that would be in same proportion as ur asset allocation. Thus buying more shares as they drop. So as a long term investor you should hope the market remains low while u r investing. Sound counter intuitive. Point is don't panic when mkt goes down. Consider that a positive.
Re: Unique financial nuggets
Esp when u rebalance
Re: Unique financial nuggets
Now fast forward to July 28 2014. Mkt at 1980 approx. Rise is 2.8 x. Excluding dividends. Which adds up to avg of 2.5 pct times 5 or 12 pct rounded. So that is 2.92 x. Or 192 pct increase. Let us round to 3 x. (I am assuming all dividends given as additional shares).
In the same time bonds increased 30 pct. I am guessing. Quite close I would imagine. And cash by 10 pct.
So cash is now 650 times 3 or 1950.
Bonds 250 times 1.3 or 325
Cash 110
Total 2325
From 1000 in 2003. Not bad.
Cash is now 1950/2325 or 81 pct.
Bonds 325/2325 or 14 pct
Cash 110/2325 or 5 pct.
Sell 16pct of total worth stocks and now distribute 11 pct into bonds and 5 pct to cash. Sell high buy low.
This is rebalance.
Re: Unique financial nuggets
Of course u would do t hu is say once each year. Pick any random date and rebalance. Stick to same date each year
Re: Unique financial nuggets
Let me see if I can make sense. When people think the economy is doing well, they tend to invest in stock ( meaning in companies contributing to the economy ). When they think economy is not doing well, they take the money from stock market and buy gold. That is why when the stock goes down, gold is going up, coz there is demand for goal.
This works well, if you stay with the underlying assumption that the amount of money is fixed ( or relatively fixed ). It goes out the door, if the fed starts printing money. Then you will need an economist or someone insane to explain what happens and why.
Thank you. Very helpful.
Re: Unique financial nuggets
P IMCO Bond Total Return portfolio ETF outperformed it's mutual fund counterpart when it was initially launched. In the 1st yr it returned 8 pct while the mutual fund returned 6 pct. How is it possible that with the same holdings it kicked the ash of its alter ego?
Re: Unique financial nuggets
The answer will be posted tomorrow. In the highly interactive spirit of this collaborative thread, gentle readers who know the answer or want to research it may do so and post their on the money inputs. We will back 9 PM local standard time with our response.
Re: Unique financial nuggets
Apparently, the pricing of bonds upon purchase was done one way, and subsequent pricing done in another. The subsequent pricing method assigned a greater value than the first method. Thus "boosting" the return compared to the mutual fund, which used a consistent pricing model.
Media is already stating Bill Gross, the PIMCO leader I'd probably not at fault.
guess for him to be at fault his name should 4 end Rajratnam or Gupta
Source was wsj earlier this week.
Re: Unique financial nuggets
A thread in CAFE stated by OYMWA on shopping deals for this season inspired us to revive this thread. The OP in that thread cleverly implied that with valuations sky high, buyer beware.
The discussions led to Oil stocks that were beaten down due to crude prices falling thru the roof, but not yet near the basement. Ideas were tossed.around. posters got excited abt low valuations and high yield. A balance sheet discussion also ensued.
Re: Unique financial nuggets
In the Dec 1 issue of WSJ Jason Zweig spoke of irrational extremes in mkts. In 2008 oil reached 145$/barrel. Goldman extrapolated and projected 200. Another saw the price reaching 300 dollars per barrel.
Re: Unique financial nuggets
What happened next was predictable - gold fell to 30 $/barrel by end of 2008. At that point analysts started to race and come up with projections lower than 30$/b.
Re: Unique financial nuggets
What happened next was predictable. (Why does this feel like de ja vu)
Oil jumped back to 110 by end of 2013 (from my memory).
Oil has fallen 38 pct in 5 months.
Re: Unique financial nuggets
What happened next is predictable. (Why does this feel like de ja vu again)
Analysts are now predicting much lower prices.
Moral of the story - be skeptical when someone forecasts boom AFTER huge boom. And forecasts bust, after huge bust (not what you are thinking)
Re: Unique financial nuggets
Coming closer to home, gold peaked at 1800 in 2011. And folks here were bullish about it.
Gold recently was at 1120, and now at 1200.
Re: Unique financial nuggets
US 10 yr Treasury bonds 1.9 pct yield.
Spain and a Portugal yields even lower. Just 3 yrs ago they were yielding abt 10 pct. Would have been great time to take that calculated risk.
German 10 yr Bunds 0.49 pct. Japan 0.28 pct.
Brent 51.
WTI 48.5
5 yrs from now people will look back at Big Oil and probably kick themselves for not picking up company is with good balance sheet.
Re: Unique financial nuggets
#AlertReader](http://www.paklinks.com/gs/usertag.php?do=list&action=hash&hash=AlertReader) Muqawwee123 pointed out the Nuggets thread needed to be resurrected. We are glad to serve.
How about those miniscule yield in the Eurozone. 3 yrs ago Portugal Italy Greece bonds would have given u double digit yields for 10 yrs govt issues bonds. Now they are at about 1.5 pct. And Germany? Around 0.3 pct for 10 yrs. And negative years for one year.
What’s up with that? Apparently this has caused increase in dividend paying sticks in europe. But that would be off topic for this post.
The us 10 yr yields 2.1 pct. While still low, this is much higher. Thus investors r flocking to us bonds.
Some for last week wsj. Some from memory. We don’t make notn up.
Re: Unique financial nuggets
Just remembered another detail - a German bond due 2024 I think is selling at 1550 with par at 1000. Based on its yield the interest payments thru 2024 is abt 1551. So 99.6 pct of what the investor gets back is paid up front!
Can #AlertReader](http://www.paklinks.com/gs/usertag.php?do=list&action=hash&hash=AlertReader) spell bubbal?