Devon, thanks for the reply. I've followed your work on this subject with great interest. The HoldingWinnersSellingLosers1DataMunging and datarave slides[1] were good reads
I read through the vanguard guide, which would be a good intro for beginning investors. There were a few points that stood out to me. On the first page: "... a savings plan may not earn you wealth enhancing returns over the long term and taking into account the impact of inflation the real purchasing power of your money will likely decline. Investing, on the other hand, can help you to both create and preserve your wealth. By taking an appropriate level of risk you may have the the opportunity to earn potentially higher long-term returns. It is important to remember that the value of investments, and the income from them, may fall or rise and investors may get back less than they invested." This concept is what triggered me to start investing instead of just accumulating a savings account, which currently pays nearly zero interest. My analysis to date has primarily just reassured me that some volatility is normal. I also keep getting reassured to ignore daily / weekly / monthly fluctuations. There is a nagging concern that the future won't look anything like that past and it's possible that we'll end up in a 20 year stretch of nearly zero growth or even a decline, but that seems a bit far fetched. I read some comments[2] that reassured me. The top comment suggests that markets need "stoggy old buy/hold/long only investors". We continue to pile money in our equity based 401Ks. That will create buy pressure that should drive prices up over time. I haven't looked at any analysis of retirement rates to estimate the sell-side pressure though. The other major factor is earnings growth and dividend yield. I have no reason to believe that our economy is going to go into a tailspin in the next 20 years (barring a black-swan style event). So, I'm fairly convinced that investing is a good idea for my situation over a 20 year period (for example). The next question becomes what to invest in. I've used financial advisors in the past but I feel there's too much risk of bias in their recommendations. I found that a target date fund for my 401K has been a good fit for my risk tolerance and desired level of activity (near zero). I'm thinking of using a target date fund for long term savings too (e.g. VTHRX) . I can elaborate more on that decision off-list if anyone is interested. Thanks again. It's somewhat awkward to discuss on a public forum but I think the general 'hush hush' of it all makes novices too reliant upon 'professionals' who don't always have our best interests at heart. [1] - http://datarave.github.io/20150324/20150324_Devon_McCormick_Working_with_large_correlation_matrixes_using_j/20150324_Devon_McCormick_Working_with_large_correlation_matrixes_using_j.pdf [2] - https://news.ycombinator.com/item?id=10858771 On Sat, Jan 9, 2016 at 3:08 PM, Devon McCormick <[email protected]> wrote: > Hi Joe - > > I've been wanting to comment on your effort but have not had the time > before now. I've worked in finance for most of my career and I have a CFA > (Chartered Financial Analyst) charter. Currently I help support an > extensive software package, called Clarifi, for doing financial research > oriented toward quant investment strategies. > > As you must be aware, there is extensive literature on this topic. I've > touched on related topics in a couple of things I've presented about J - > http://code.jsoftware.com/wiki/User:Devon_McCormick/Research/HoldingWinnersSellingLosers1DataMunging > and > http://datarave.github.io/20150324/20150324_Devon_McCormick_Working_with_large_correlation_matrixes_using_j/20150324_Devon_McCormick_Working_with_large_correlation_matrixes_using_j.pdf > . This latter is more about using J with large datasets but uses financial > research examples. I've also worked off and on over the past few years on > putting together a comic book for basic investing. > > What Brian mentions about index funds is true - they're the simplest, > cheapest, best-performing investment for most people. The other key things > to understand are diversification and asset allocation. Diversification > aims to reduce volatility by investing in assets with low correlation - > most simply, stocks and bonds. The idea behind asset allocation is to > maintain target percentages of your diversified assets. Typically, this > will be something like a 60/40 stock/bond allocation which you rebalance to > the target infrequently, say once or twice a year. This means doing what > for most people seems counter-intuitive: moving money from your > better-performing asset into the worse-performing one to get back to your > target levels. This is a mechanical way to sell what is pricier and buy > what is cheaper. > > If you want to research this area, perhaps the most fruitful thing you can > do is to look at correlations between returns as well as the distribution > of returns. Also, with the popularity of ETFs, there may be some > interesting areas of study in things like "smart beta" and "sector > rotation" as ETFs are a low-cost way of achieving exposure to more > narrowly-defined factors than you get with broad index investing. > > Here's a basic introduction to investing from Vanguard that looks pretty > good: > https://www.vanguard.co.uk/documents/portal/literature/investment-fundamentals-guide.pdf > . Obviously, they want to sell you their funds but they do have some of > the lowest cost index funds and their advice seems sound. > > Please keep us informed of your progress. > > Regards, > > Devon > > > On Wed, Jan 6, 2016 at 5:44 PM, Joe Bogner <[email protected]> wrote: > >> Thanks for all the feedback. I've created a small application and >> posted it here: >> http://code.jsoftware.com/wiki/User:Joe_Bogner/StockViewer >> >> I will likely improve it and will cross post to programming since >> others may find qt forms with plots useful >> >> >> >> On Wed, Jan 6, 2016 at 1:53 PM, Raul Miller <[email protected]> wrote: >> > On Wed, Jan 6, 2016 at 1:43 PM, Brian Schott <[email protected]> >> wrote: >> >> The investment advice that caught my attention most recently is shown in >> >> the 2013 PBS Frontline video below. It basically suggests to me that >> Index >> >> funds are better than managed funds for most people. (But my own >> experience >> >> with trying an Index fund has corresponded with the really flat 2015 >> year >> >> which has been one of the worst of late.) >> >> >> >> >> http://www.pbs.org/wgbh/frontline/article/index-funds-the-key-to-saving-for-retirement/ >> >> http://www.pbs.org/wgbh/frontline/film/retirement-gamble/ >> > >> > But are you "most people"? >> > >> > (I have been seriously questioning the competence of not only myself, >> > but of the people reporting the news, as well as others. It's pretty >> > clear that there are some competent people out there, somewhere, but >> > they seem to be well hidden... Anyways, I am sort of dubious about a >> > lot of things, recently...). >> > >> > As for the economy, I think it's doing what it's supposed to be doing >> > (which is to say: people are getting food to eat) but beyond that, >> > there have been some really bad long-term indicators, especially in >> > the banking sectors. >> > >> > -- >> > Raul >> > ---------------------------------------------------------------------- >> > For information about J forums see http://www.jsoftware.com/forums.htm >> ---------------------------------------------------------------------- >> For information about J forums see http://www.jsoftware.com/forums.htm >> > > > > -- > > Devon McCormick, CFA > > Quantitative Consultant > ---------------------------------------------------------------------- > For information about J forums see http://www.jsoftware.com/forums.htm ---------------------------------------------------------------------- For information about J forums see http://www.jsoftware.com/forums.htm
