Andrew Tobias
example: It is a fact that 90% or more of the people who play the commodities game get burned. (Location 165)
Gold itself pays no interest and costs money to insure. It is a hedge against inflation, all right, and a handy way to buy passage to Liechtenstein, or wherever it is we’re all supposed to flee to when the much ballyhooed collapse finally materializes. But if you’re looking for an inflation hedge, you might do better with stocks (even a gold stock or two) or real estate. In the long run, they will rise with inflation, too. And in the short run, they pay dividends and rent. (Location 237)
The bottom line, if you want to cut straight to the chase, is that most people should do their stock-market investing through no-load index funds—mutual funds that don’t attempt to actively pick the best stocks, (Location 2291)
The “nifty fifty,” these stocks were called—“glamour” stocks, “one-decision” stocks (you just had to decide to buy them; you would never sell them, no matter what price you could get). The group included such indisputably fine companies as Polaroid, Disney, Avon, Merrill Lynch, Xerox, and Coca-Cola. (Location 2351)
Subject to the caveats and additional suggestions in the next chapters, here’s the most sensible way for most people to invest in stocks: (Location 2395)
“Business looks good.” It always looks good at the peaks. (Location 2430)
Then, as short-term money instruments such as Treasury bills become more yield-attractive, the stock market begins to groan as the switching away from stocks accelerates, aided in no small part by the illiquidity in overly optimistic investors’ portfolios [investors, that is, who have spent all their money on stocks already, and now have no more cash with which to buy any (Location 2433)
Diversify over time by not investing all at once. Spread your investments out to smooth the peaks and valleys of the market. A lifetime of periodic investments—adding to your investment fund $100 a month or $750 a month or whatever you can comfortably afford—is the ticket to financial security. (Location 2449)
In truth, your fondest wish should be for a long and devastating bear market to begin right after you start your periodic investments. (Location 2476)
But by and large, for your long-term money, “buy and hold” is the way to go. (Location 2489)
Five years ago he published The Little Book That Beats the Market. Despite my initial horror at his concept of a “magic formula,” I was won over. (Location 2572)
What Joel would have you (Location 2577)
consider, in effect, is an index-fund-plus, where the “plus” comes from including in your basket of stocks only good businesses selling at low valuations. And he has an easy way for you to find them. (Location 2577)
Joel’s formula looks for businesses that have a high return on capital (that’s what makes a business good) yet sell at low multiples relative to other such businesses. And it adjusts for things neither you nor I would have the time or sophistication to take into account. (Location 2584)
Now he has launched “Formula Investing” mutual funds (both domestic and international). Their annual expenses are a full point higher than you’d pay with a basic index fund. But in this case, over time, in a tax-sheltered account, the differential could prove worth it. Visit formulainvesting.com to learn more. (Location 2591)
Be wary of high-fliers and stocks that “everyone” likes, even though they may be the stocks of outstanding companies. (Location 2594)
Thus it’s necessary to keep the p/e figure in perspective, taking an average of the last several years’ earnings and thinking more in terms of the future than the past. This is particularly true with companies—autos, cement, construction, paper, and many others—whose profits rise and fall in cycles. (Location 2638)
Far better, if you ask me, to stick to Forbes and Barron’s. The editors of these magazines have always stressed a level-headed, value-oriented approach to investing. (Location 2656)
Buy value and hold it. Don’t switch in and out. Don’t try to outsmart the market. (Location 2668)
Sell only when a stock has gone up so much that you feel it no (Location 2669)
longer represents a good value. (Location 2669)
If you have both taxable and tax-sheltered portfolios, keep your riskiest holdings outside your tax-sheltered accounts. (Location 2673)
It’s the less speculative securities, for the most part, that you should stick in your tax-sheltered accounts. (Location 2677)
The random walk theory holds that you cannot predict the price of a stock by (Location 2751)
looking back at charts that show where it has been (“technical analysis”) or by studying the business prospects of the underlying company (“fundamental analysis”). On any given day, a given stock—or the market as a whole—is as likely to go up as down. The reason, according to this theory, is that the stock market is “efficient.” As soon as a new bit of information becomes known about a company (or the world), it is reflected almost immediately in the price of the stock (or the market). By the time that bit of information filters down to you or me or much of anyone else, it is already reflected in the price of the stock. It has been “discounted.” (Location 2752)
Occasionally companies will have two classes of common stock, (Location 2887)
the “A” shares and the “B” shares, where the only difference between the two is voting rights. Otherwise, the two shares are treated identically. Their share of profits is the same, any dividends are the same, and if that great day ever comes that the company is acquired by some bigger company at a magnificent price, both classes of stock get it. As a result, the two classes of stock generally trade for about the same price, with minor variations. (Location 2888)
If even this seems too hard, just choose a no-load mutual fund family and split your windfall a quarter, a quarter, a quarter, a quarter among a broadly diversified U.S. stock fund, a broadly diversified international fund, a Treasury fund, and a commodity futures fund.* Rebalance the accounts on your birthday each year to keep the amounts in each of the categories about equal. (Location 3592)
Samuelson, Nobel-prize winning economist, in a column he wrote for Newsweek. Someone else does the research, someone else does the worrying, someone else holds your certificates and provides a record of your dividends and capital gains for tax purposes. “What you lose is the daydream of that one big killing. What you gain is sleep.” (Location 3611)
Morningstar, which knows as much about mutual funds as anyone, assigns funds “stars”—and fund families eagerly run ads touting their five-star funds. The only problem is that Morningstar’s own studies show these ratings don’t have a great deal of predictive value, except that one-star funds, the lousy ones, tend to stay lousy. And that’s because they tend to have the highest expenses dragging them down, year in and year out. (Studies have shown that funds with low expenses consistently outperform funds with high expenses.) (Location 3644)
This is a very simple concept but profound: just by investing all the money you have earmarked for the stock market in the Vanguard Index Trust, you will generally do better than most bank trust departments, mutual fund managers, and private investors—with far less effort! (Location 3656)
There are also now ETFs that index various parts of the bond market. The best broad index fund is the Vanguard Total Bond Market ETF (BND, with an expense ratio of just 0.12%). (Location 3713)
with a few mouse clicks, transfer to your Fidelity Charitable Gift Fund to avoid capital gains tax and get a nice tax deduction as you fund your charitable giving. (Location 3756)
If you anticipate a classic depression—I don’t—then you want to buy long-term Treasury bonds. In a classic depression, interest rates will fall to near zero, and you will have what everybody wants: something completely safe that actually pays you an income. (Location 3760)
could become what Paul Volcker has called the mirror image of the last one: falling energy prices, falling inflation, falling interest rates, rising productivity, rising real wages, rising employment. I make no secret of being partial to the optimistic scenario. I think we’ve laid a technological base that places us, potentially at least, on the brink of unparalleled prosperity.” (Location 3773)
So keep enough powder dry in banks or TIPS to endure what could be a nasty spill and “average down” each time we have one. (Location 3780)
I, for one, like living a little better every year. In fact, I believe happiness lies less in how much you have than in which way you’re headed.* Which is a strong argument for saving something each year rather than see your net worth slip backward; (Location 3804)
For remember: a luxury once sampled becomes a necessity. It’s not so bad living on a low floor—until you’ve had a view. (Location 3807)