Of late, there have been threads about Gold, Real Estate etc as to if this is the time to buy. Fears about the European Sovereign debt has also caused a lot of alarm, with people leaving the stock market in droves. It appears the outflow from US stock market hit a high recently, similar to outflows during March-April of 2009.
So what is your investment philosophy? Are you a long term investor, picking up assets out of favor, or do you focus on econmic developments to guide your investment selections? Does momentum play a role in your investment decisons, or are you a strictly bottom-up person - assigning value to the asset and picking it up if the price goes well below your assigned value?
I am not an 'investor' as of now as I am trying to go for another house, but if I get some extra cash for investing I'll stay out of the market in short term, wait till the index drops significantly. I have tried 'day-trading' but unfortunately you can't do much with little cash, you only get to play with little stocks. If market drops below 11k I'll probably throw in little cash for long term, and keep buying everytime it drops 500 or so points.
Picking up stocks for their individual dips is very risky, you have to be very watchful for the stock, for the related sector, competitors as well global impact on the company/sector.
^ Nice approach. Buying the entire market is always safer than taking risks with individual stocks. And buying on the way down is a time tested strategy.
It appears in the US, home prices may be at bottom - interest rates low, nice time to buy I think.
If you had cash, you said you would still stay out of the market short term. I assume due to Eurozone crisis. That is one pt where I may differ. Put little bit now since valuations are reasonable. And if market drops, put little at a time. 5 years from now, IMO the current prices will seem like a bargain.
^ Nice approach. Buying the entire market is always safer than taking risks with individual stocks. And buying on the way down is a time tested strategy.
It appears in the US, home prices may be at bottom - interest rates low, nice time to buy I think.
If you had cash, you said you would still stay out of the market short term. I assume due to Eurozone crisis. That is one pt where I may differ. Put little bit now since valuations are reasonable. And if market drops, put little at a time. 5 years from now, IMO the current prices will seem like a bargain.
Good luck with that house purchase!
Eurozone crisis will probably show bigger impact in spring time though there may be a bit of excitement/craziness to push the market to 12,500-13,000 levels but I don't think it will be sustainable.
The risk with this strategy is the market does not provide a warning before a move up or down. If one considers current levels (as od 2 days) ago reasonable, it may be prudent to at least establish some position, with a goal of increasing that position if and when the market drops.
Otherwise it becomes a 100% market timing strategy, with a decision to stay out of the market due to macro-economic reasons.
My investment philosophy is to fill my pillow case with the hard-earned money and sleep over it.
It is the safest, least risky yet effective way of investment, since, i dont need to buy a pillow
I have never been an aggressive investor may be because I am a risk avers-er by nature. So for me it's always had been long, secure and sure shot investments. The other golden rule is Diversification so I have invested in real estate, precious metal and stocks here in US and other countries.
**invest your health and wealth in an stealth investment called 'in the path of God'...you will never suffer a loss and you'll be paid back hundreds times more on the Day of Judgement when NO other investments, currencies will be of any use/benefit. :) agree? :)
in Urdu it's said: *Khudaa kii raah meN lag jaao daame, dirame aur suKhane!!!* :)
**
I think there is a saying - diversification is the only free lunch. Of course, one should have an asset allocation strategy based on one's own risk tolerance. And then start building up the asset allocation levels to preset targets. So if one's asset allocation for gold was 5%, and due to recent run up, it has run up to 15%, maybe time to sell (not due to any knowledge where Gold will go, but just to bring the asset allocation back in line with target).
If you guys get a chance, do read Burton Malkiel's piece in the opinion page of Thursday Jan 5 Wall Street Journal. Here are key pts:
1) This year US treasurys ivervalued - 10 yr at 2% yield, barely keeps pace with inflation
2) US high quality bonds - yeld 3% again too low
3) Europe debt - too much risk
4) US stock market - divident yield 2%, earnings or div growth 5% = 7% expected return assuming P/E constant
4a) P/E is in low double digits - undervalued - so room for P/E increase to juice up returns
4b) so just buy a Total market index fund or etf - low fees
5) If in retirement, you can buy fund tilted towards dividend paying stocks
6) eemerging market bonds also are attractive - their debt/gdp is much lower than developed world
7) emerging mkt stocks market also attractive - historically their P/E is 1.2 times S&P500. Now they ar 0.8 times
8) China debt/gdp only 0.17. also housing bubble there is overstated - high population and migration to cities can absorb this bubble
9) US single family housing attractive, mortgage rates very low - affordability has never been better
10) control cost - buy index funds or etfs or actively managed funds with low cost
Today's WSJ had a nice piece on pension plans for companies. While pensions plans are less common than say 2 decades ago, some of the older companies still have pension plans. And several of them are underfunded. And some overstate the expected future returns for the assets in the pension plans. For example, General Mills and Hewlett Packard are assuming a return of 8.5% per year. They have about 50/50 in stocks and bonds (I am oversimplifyng - they have bonds, real estate etc ). Bonds are yielding 2% (10 yr treasury). Assuming price stays flat, expect 2% return from them. So to get 8% overall return, need 14% return from stocks!!
As comparison, Berkshire Hathaway (Buffett) has expectd return of 7% - 70/30 stock bonds. Hence they need only 9% from stocks to get to their 7% overall target.
If expected return cannot be met by Gen Mills and HP )which is an almost certain possibility) their future earnings will take a big hit.
So it is good to look at pension obliations and the stated expected rate of return (available from thei SEC filings or Annual report I think).
