Hermes,

I have no problem with your opinion or bringing any alternative strategies to bear.

But it's how you go about doing it.

For one, you put down the mutual fund industry, which just so happens, whether you like it or not, to be how most people can gain access to markets. When you make comments like 12% is ridiculous, or that a mutual fund manager should never lose money, just shows how little you understand how these products (or markets in general) really work.

On one hand, you seem highly educated with some specialized knowledge. That's a great resource for us to have here! On the other hand, you sometimes show disrespect for strategies that have proven to work for decades. Respect is a two-way street. You'd gather a lot more respect for your perspective if you didn't continuously bash an industry that most people frequenting this board rely on.

Second, the only solutions you ever provide are to "invest your way out". This forces consumers to transfer risk to themselves that they may not have to. Basing financial decisions solely on rate of return (or ROI) for average investors may be building a house of cards on shaky ground. The "solution" seems to be to invest better, get a greater return, and all will be fine.

Look, I have many clients with alternative investments, including hedge funds. There is some good in the industry. But painting a picture that is entirely unrealistic is seen as simply a sales pitch. Preach great rates of return all you like, but there are a myriad of books (a few of which I own) documenting HISTORICAL FACTS on how the hedge fund industry operates. If you are going to recommend a solution that involves these types of investments, at least have the courage and professionalism to also recommend that investors fully investigate before investing. What they'll find, is typically higher risk than you let on, and that is what I debate with you on.

Mynion,

I just have a few questions which you may or may not answer (since you claim that I lack knowledge on how markets work):

1. Do you really believe a good manager (regardless of which industry the manager operates in) should loose money on an annual base and if the answer is yes what is an acceptable loss?

2. Do mutual funds really work (as you claim)? What do you base this on (just out of curiosity and not arguing if they do or do not)?

3. Do you think it is possible that there is another investment approach outside of the mutual and hedge fund industry?

4. Do you really feel like a 12% annual ROI is a good return?

5. If we all just recommend mutual funds why should there even be member on this board? Would one member not be sufficient?

One thing I want to clarify:

I have never advised anyone to invest in anything. All I have done is question the entire mutual fund industry and recommend people to think twice before making an investment choice in the mutual fund industry and I do not see nothing wrong with stating my opinion (if it is not ok on this board please let me know so we can avoid long discussion like this and get off track).

I do respect your opinion on the matters we have debated here as you seem to have knowledge on the industry you represent (and not all posters do have that as I have noticed).

I think you know my position on the entire mutual fund industry and if you really feel that it is not respected here and that I do something bad by stating my own opinion let me know, delete my posts and I will cease to post here again (if that will solve the 'problem').

PS: I know more about the mutual fund industry then you may think which is the reason why I have the point of view that I have and why I have no respect for the entire mutual fund industry.

PSS: The alternative idea I offered on this thread in particular was used with a 12% ROI which even the mutual fund industry can accomplish.

[quote=Hermes;6387]
I just have a few questions which you may or may not answer (since you claim that I lack knowledge on how markets work):

1. Do you really believe a good manager (regardless of which industry the manager operates in) should loose money on an annual base and if the answer is yes what is an acceptable loss?

Mutual fund managers, as well as hedge fund managers, can many times have no control over losing money. If individual investors succumb to emotion and take their money out, money managers are FORCED to sell investments they otherwise would not in order to satisfy the withdrawals. This is exactly one of the reasons hedge funds "collapse". Mutual fund managers are not immune to this.

Also, as a mutual fund grows in size, it is forced to buy EVERYTHING. A mutual fund that gets pretty sizeable *has* to buy GE stock, even if the fund manager didn't believe it was a significant asset. This is why many mutual funds have lower rates of return once they grow.

Lastly, the best money managers in the world cannot predict the market. No one can. The market is emotional, and therefore if the market wants to crash or take down stock prices to all time lows, the money manager is slave to it. Money managers have to have 80% of their assets in their investment style, so they can't even go 100% bonds for any length of time even if they wanted to (unless they are a bond fund, of course).

2. Do mutual funds really work (as you claim)? What do you base this on (just out of curiosity and not arguing if they do or do not)?

Mutual funds (including index funds and ETFs) are the most efficient way to invest in any market. Do they work? Yes. If they didn't, the market is great at designing products that will. It is individual investor behavior and emotional decision making that causes greater volatility in markets and inappropriate investment decisions.

Remember, hedge funds were created to basically short the market, providing a hedge against equity investments and profit from both market cycles in a portfolio. Because of the strong Bull market before the tech bubble, hedge funds sought strategies to capitalize on the bull run (it was the only way they could acquire assets). Today the hedge fund industry is basically an unregulated mutual fund industry focused on alternative investments strategies not allowable or inflexible by traditional mutual funds.

3. Do you think it is possible that there is another investment approach outside of the mutual and hedge fund industry?

Yes, I study them all the time. I own books on all of them. My office has a library that will rival some attorney offices. My clients use many strategies, including those that involve commodities, options, margin leverage, currency trading, hedge funds, tax shelters, DPP's, REIT's, etc. all in both US and international markets.

Would an average investor be involved in some of these? Sure. But these are play areas for experienced investors who likely know more about what they are doing than the average person. They'll get taken to the cleaners.

4. Do you really feel like a 12% annual ROI is a good return?

12% as a REAL net rate of return, NOT average rate of return, would be solid for the average investor. Why? Because it keeps them ahead of inflation, technological change, and planned obsolescence, which are key erosion factors of wealth. So yes, I do. Could someone do better? Sure. But the average person does not have the knowledge, experience, or wisdom necessary to navigate those waters. Not only do you have to know how to make money, but you also have to know how to protect it, and at what economic cost, with all risk factors.

5. If we all just recommend mutual funds why should there even be member on this board? Would one member not be sufficient?

Because mutual funds in and of themselves are NOT the solution. In fact, NO PRODUCT is the solution. The solutions people are looking for are strategy. It's about the right strategies, eventually involving products that fit the solution. All too often people flock to product (401k, 529, etc) to solve their problem, instead of developing a strategy. Once a strategy is in place, then you go find the product that fits your strategy. If your strategy required a 50% annual rate of return, obviously there are few products that could accomplish that. But you CAN develop strategies with several products involved to ensure the strategy succeeds. For example, if you have the right protection in place, there's nothing wrong with hedge funds. But if you are an average investor that does not have protection in place, then if the hedge fund investment fails then not only did your investment fail, but your family is left unprotected.

One thing I want to clarify:
I have never advised anyone to invest in anything. All I have done is question the entire mutual fund industry and recommend people to think twice before making an investment choice in the mutual fund industry and I do not see nothing wrong with stating my opinion (if it is not ok on this board please let me know so we can avoid long discussion like this and get off track).

Your opinion is fine, but the way you go about it seems like you are fishing for business instead of providing your opinion. It's not the message, it's the delivery.

I do respect your opinion on the matters we have debated here as you seem to have knowledge on the industry you represent (and not all posters do have that as I have noticed).

This is a message board for those that are looking for advice, and therefore are uneducated or misinformed about certain topics. If they knew what was the best course of action, they wouldn't need to post it here. Most of the professionals I know don't want to "waste their time" on a message board giving free general advice. They don't see profit in it. Personally, I could care less about profit.

I think you know my position on the entire mutual fund industry and if you really feel that it is not respected here and that I do something bad by stating my own opinion let me know, delete my posts and I will cease to post here again (if that will solve the 'problem').

No need to do that, really.

PS: I know more about the mutual fund industry then you may think which is the reason why I have the point of view that I have and why I have no respect for the entire mutual fund industry.

Probably, you just sometimes don't show it. I know more than I reveal, too.

Thank you for answering the questions. I just wanted to know your opinion on those matters. Of course I do not agree with everything you said but you already knew that.

I don't fish for business so I try to change the delivery of my message.

I think the big issue on this discussion is that someone who feels comfortable spending their time exploring investment options and devoting their full time to them may have a reasonably good eye for balancing opportunity vs risk and manage it successfully.

I know in business small outfits can often capitalise faster and more effectively than big corporations precisely because they are smaller, faster, learner - kind of like a rodent vs dinosaur scenario. However, once the dinosaurs move, they carry unmatched momentum.

However, a lot of people looking to invest just don't want a hands on approach that will mean dedicating a huge amount of time to constantly eyeing the markets - a big reason for choosing mutual funds, ETF's, etc, is precisely because the daily decision making process can be delegated to someone else believed able to make such decisions.

So, for many people, it's simpler and easy to determine a strategy and then invest in funds that follow their personal strategy (presuming they have specific asset allocation strategies in place).

Neither approach is inherently better or worse than the other - it's simply a choice of options according to how investing can work around current lifestyle requirements.

I know I certainly wouldn't have time to study the markets in depth everyday - in fact, it would cost me money in real terms if employment time that should be used for generating regular income were used instead for returns on investments.

2c.

Brian wrote:
Actually Brian I thought this thread was something about the original poster saving $30,000 over three years and wanting to get married and buy a home.

It is preposterous, contradictory and not grounded in reality that someone whose goal is to buy a home is now going to take that money and invest it in speculative investment practices that may increase the risk of loss and wait for their Hedge Fund ship to come in as they continue to pay rent.

It simply doesn't work that way in actuality.

__________________
Gary Spicuzza, *SAFE
Copyright 1956.
No Rights Reserved.
*Self Appointed Financial Expert

Interesting that now you qualify a mutual fund as a speculative investment.

I just take a wild guess but the only acceptable investment is an annual annuity, right?

Ridiculous, at least in my opinion.

Hermes this thread was about someone who saved $30,000 over a three year period and wants to buy a home.

Annuities are absolutely THE most inappropriate financial vehicle for someone whose stated purpose is to use those funds to purchase housing in the near future.

Additionally if $30,000 is all the money one has to their name and represents their life's savings then that person DOES NOT have enough money to invest in an annuity.

Annuities are a place to put your money after you've made your money.

NOBODY is going to get rich by investing in annuities, that's not an annuity's purpose.

But since you brought up the subject and because I hold a *SAFE designation I thought I'd share a typical client statement with you from last year.

Yes, I know, a 16.54% Return on Investment is pathetic and Mr. Philip Client WILL NOT come close to that this year, however, all principal and interest is safe and sound and the absolute worst thing that could happen would be a 0% interest credit.

Please remember a 25% loss in one year will require a 47% gain the next year to just stay even with a SAFE investment that's just limping along at 5% per year.



*SAFE = Self Appointed Financial Expert

Best regards,

__________________
Gary Spicuzza, *SAFE
Copyright 1956.
No Rights Reserved.
*Self Appointed Financial Expert

Hermes,
I am very interested in your line of thinking. I agree there is many problems with how our society is told to manage their finances. I personally want to be a "sovereign individual", meaning completely financially independent. Could you be more specific in your methodology, I am willing to listen to everyone's point of view as long as the back it up with logic and reason.

A quick blurb about me. I am a student (20 years old) of electrical engineering. I plan on transferring to commerce next term and eventually getting a MBA:Finance and a CFA. My current regime for learning about the market, economics and finance is as follows daily: listen to several economics podcasts on the way to school, avidly follow marketwatch.com, reuters.com, finance.google.com, wsj.com, and discuss business ideas, stocks and political events daily with my father and friends. I just subscribed to the economist. I also read the "The Sovereign Individual" by Rees-Mogg and Davidson (which really inspired me, I absolutely love their reasoning and fiscally conservative thinking). I also read "The Intelligent Investor" by Benjamin Graham (didn't grasp much of it, but i read it awhile ago, I plan on re-reading it.) I eventually want to become a fund manager or something to do with investment banking. If you are indeed making 20%+ ROI annually I would be very interested in hearing your approaches, your logic and some incite to an up and comer . Anyone else's advice would be greatly appreciated as well.

belding_j

PS. And guys I love these type of debates, truly makes everyone involved understand at the very least their own opinions better! But keep in mind when you criticize someone they ego's will be bruised and they will try to justify their opinion instead of logically deciding the best course of action. So be conscious of your own ego as well as others. As the book "How to win friends and influence people" said "we are creatures of emotion, not logic" or something to that extent.

Gary,

I think we got side-tracked from the original question asked.

As far as returns are concerned, it is really up to the individual. If the individual is satisfied with the returns earned and if they fit the strategy of the investor then the mission is accomplished.

That's why I always say there is no right or wrong investment strategy just a good and a bad strategy and the definition of good and bad is completely up to the individual.

The one thing that should be pointed out when you mention returns of about 5% is that inflation will eat away most of those.

Each individual needs to decide which approach is the best for their strategy.

I do like your 'description' of SAFE (I guess we can debate what 'SAFE' is but in the end it will be once again an individual definition).

belding_j,

I think you made a good point when you said that you read the books that you do because you like their approach/logic etc. It is very imortant, regardless of which strategy you choose to follow/implement, that you are comfortable with the strategy.

One thing that you should keep in mind when you follow the news sources that you mentioned (or any other source) is that once a story breaks there it is too late to capitalize from an investment point of view.

Discussions of investment ideas with friends/family etc. can be interesting but there is a saying that when your cab-driver gives you 'investment advice' it is too late as well.

When you get advice/information etc. make sure that the source that hands out the information does fit with your own approach and that you can agree on the major aspects of the strategy.

The markets are big enough for all strategies and every investor/company has their own set of guidelines/strategies etc. which they follow. If I have said it once I have said it a thousand times:

There is no right or wrong investment strategy just a good and bad investment strategy and the definition of good and bad is up to the individual to define.

It seems that you have decided which 'road to travel' and now you 'just' have to travel that road. Financial independence is very simple to achieve but it is not easy which is why the majority will never achieve that.

I wish you good luck with your investment career.

Hermes wrote:
Hermes while there's no denying inflation exists, for a 3% rate of inflation to totally affect any one person they would have to buy each and every item that went into the inflation calculation EACH AND EVERY YEAR.

People simply do not buy a new car, a house and other durable goods that go into the Gubments inflation calculation EACH AND EVERY YEAR.

belding_j wrote:
belding_j, Hermes and I decided a few threads ago to agree to disagree.

He loves it!

Look I created a "new" Financial Services Professional Designation SAFE and now he wants to debate what "SAFE" is.

Next we'll be debating the definition of "is"



Gary Spicuzza, SAFE


SAFE = Self Appointed Financial Expert

__________________
Gary Spicuzza, *SAFE
Copyright 1956.
No Rights Reserved.
*Self Appointed Financial Expert

Hermes,
Reacting to the market as opposed to predicting the market are two very different things. I agree that when the news breaks or you hear it from someone its too late. But I am simply gathering information and developing an intuitive understanding of the relationships of the market forces. I only speak to my friends because they are highly intelligent and very interested in the market. I think it is good to have a group of tight knit "investor friends" that can grow up together. Anyways its more the point of talking about it, because talking about it gets each of us thinking about it. We are slowly unraveling the tightly twisted ball of yarn, trying to see what connects to what. I was hoping you guys had some more specifics, where you do your research? What types of stocks you invest in? What I would really love is for someone to put them selves out there and dissect a stock they previously had picked, and that worked out, and try and give their reasoning and calculations. Prvt msg me if you'd rather keep it more confidential. We could even dissect it as a group each people putting their opinion and why. Anyone else recommend some great books they have read lately?

Gary,

as far as inflation is concerend I think that food and energy inflation has the biggest impact (yes, I know the government and the Fed likes to exclude those items and focus on core inflation...but look who heads the Fed...). Healthcare inflation should not be ignored either.

Those are costs that every consumer has to face and are amid the biggest day-to-day expenses.

I did not want to discuss with you what your 'new' FSP Designation 'SAFE' is but (and more as a joke) suggested to discuss what 'safe' is as far as investments are concerned (because we would totally disagree but that will follow our 'agreement' to disagree).