Author Topic: "How to make money in the stock market" - Why MMM is wrong.  (Read 5476 times)

Buffaloski Boris

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #50 on: March 04, 2020, 03:19:57 PM »
First, I am a 26yr old Canadian ...  I studied/work in finance and have read pretty much every possible books on investing for individual investors ...
You "work in finance" at age 26.  To clarify, you are not an authority on finance, correct?

We mostly agree that diversification is important.  Where it is least important is in the United States.  If you market cap weight the entire world, the U.S. holds more than half the world's market cap.  You can browse any "Total World" or "All Countries Index", and U.S. alone will comprise over 50% of the index / fund.
I respectfully disagree. If the US market tanks compared to the rest of the world, then youíll be very happy for that Non US diversification. The US market has been running high compared to the rest of the world for a long time now. Itís not the norm for it to stay that way. The US market compared to other world markets is also relatively pricey.

Buffaloski Boris

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #51 on: March 04, 2020, 03:27:46 PM »
OK, I'm going to be a condescending Gen-X-er here. I haven't had my coffee, and my patience for the millionth iteration of the same argument is low.

OP, keep reading. Your thesis statement is nothing new. There have been many, many discussions and arguments around how much international exposure is "correct" above and beyond what's baked into the US stock market indices.

Read more, post less.

Oh nonsense.  The OP is a noob, and if there is anything that MMMrs seem to love, itís razzing noobs who arenít quite up to speed. This one happens to be quite bright, well-read, and has a different spin on things.

I consider myself lucky if I learn one new thing on a thread. Iím counting at least 2 new things. A new all in one fund at Vanguard that Iím embarrassed I didnít already know about, and a cool link to read thanks to Norway. And the thread is young.

markpst

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #52 on: March 04, 2020, 05:13:03 PM »
Here is an argument (actually 6 arguments) for global investing.

https://mebfaber.com/2020/01/10/the-case-for-global-investing/

An interesting piece from the post:
While the US is the largest developed market, its size relative to the entire global equity market has fluctuated over time and was as low as 29% in the 1980s




nereo

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #53 on: March 04, 2020, 05:38:42 PM »
Here is an argument (actually 6 arguments) for global investing.


the graphic you posted seems to show that thereís no clear Ďwinnerí in terms of allocation, at least not looking at each calendar-decade.  Sometimes the US does better than a global position, others not so much. 

Buffaloski Boris

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #54 on: March 04, 2020, 06:17:45 PM »
Here is an argument (actually 6 arguments) for global investing.


the graphic you posted seems to show that thereís no clear Ďwinnerí in terms of allocation, at least not looking at each calendar-decade.  Sometimes the US does better than a global position, others not so much.

That graphic is a great argument for diversification across countries. You never know which one is going to end up at the top. Or the bottom.

Telecaster

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #55 on: March 04, 2020, 07:12:12 PM »
That graphic is a great argument for diversification across countries. You never know which one is going to end up at the top. Or the bottom.

Agreed on that point.  But boy, the whole post was a stream-of-consciousness series of unrelated facts.  If the author had any idea what he was talking about, he sure did a good job keeping it concealed from the reader. 

celerystalks

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #56 on: March 04, 2020, 07:52:16 PM »

The goal was not to come out as condescending, or to appear as a figure of authority, just so that people know where I come from/background.. I may have missed the mark there :') I was 15 I think when the last crisis happened,so the meager $5K salary/yr did not leave anything to invest after booze expenses..

Money for investments should come before money spent on frivolous things. It is the essence of ďpay yourself first.Ē I personally max out retirement accounts and set up an allotment from my paycheck directly to my brokerage account.  So my full paycheck does not ever appear in my checking account tempting me to spend it.  I spend what is left over after investing..

Radagast

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #57 on: March 04, 2020, 09:09:12 PM »
Click-bait title aside, I 100% agree with your asset allocation to the point that it is the default I would recommend to a Canadian investor down to the nearest tee, though I may keep the "ex-North America" as a single chunk (though I don't know what funds are available, I'm not even Canadian). In fact, except for a probably desirable over-weight to Canada, your allocation is not far from 75% global cap-weighted equities / 25% bonds.

That said, realize it is just one of infinite possible reasonable allocations.  There is also good reason to support a "life-cycle" strategy, where an investor starts heavily in stocks, then adds bonds approaching retirement, than transitions back into a heavily stocks portfolio. For example, the PortfolioVisualizer link below shows the rational for going all in on the S&P500 when just getting started. The 15 years from 1999 to 2014 would not be remembered by anybody as a great time for the S&P500. Yet, for a person dollar cost averaging a regular paycheck, by the end of this period the S&P500 would have come out ahead of the US approximation of your portfolio. Pay especially close attention to 'money-weighted" versus "time-weighted" returns (MWRR and TWRR), because that is where the magic happens. That is because for a person just getting started, risk and opportunity are like the same thing.

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=2&startYear=1985&firstMonth=1&endYear=2014&lastMonth=9&calendarAligned=true&initialAmount=1000&annualOperation=1&annualAdjustment=1000&inflationAdjusted=true&annualPercentage=0.0&frequency=2&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&showYield=false&reinvestDividends=true&benchmark=VFINX&symbol1=VEIEX&allocation1_1=12.5&symbol2=VTSMX&allocation2_1=45&symbol3=VTMGX&allocation3_1=17.5&symbol4=VBMFX&allocation4_1=25
« Last Edit: March 04, 2020, 09:18:09 PM by Radagast »

Telecaster

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #58 on: March 04, 2020, 09:15:16 PM »

The goal was not to come out as condescending, or to appear as a figure of authority, just so that people know where I come from/background.. I may have missed the mark there :') I was 15 I think when the last crisis happened,so the meager $5K salary/yr did not leave anything to invest after booze expenses..

Money for investments should come before money spent on frivolous things. It is the essence of ďpay yourself first.Ē I personally max out retirement accounts and set up an allotment from my paycheck directly to my brokerage account.  So my full paycheck does not ever appear in my checking account tempting me to spend it.  I spend what is left over after investing..

Dude, he was 15.  He gets a pass for sub-optimal spending at that age.  If he's 35 then yeah, face punch.   

flipboard

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #59 on: March 04, 2020, 11:49:53 PM »
So yea, I think it's worth dumbing it down, because that 20% effort gets people moving in the right direction for 80% of the benefit, and they can split hairs with optimization once they get their feet under them

It's actually like 98% of the benefit, maybe even more depending on how you look at it.   Over about the last 50 years, 100% US equities beat an 80/20 diversified portfolio, but with more volatility.   So, a blended port makes the drops were less gut wrenching, but you wind up with a smaller final portfolio value.  Which of those is more valuable to you?  Up do the individual.

So yeah, if you are going to write a one page blog post on how to get started investing, fire and forget on VTI is pretty good advice.
US hasn't done bad for the last 50 years. That's cherry-picking - just because it's been one way for 50 years means nothing. How have they done for the last 400 years?

If you're going to propose a fire and forget strategy, VT and its equivalents is what you really should be advising if you aren't biased.

Uturn

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #60 on: March 05, 2020, 05:59:30 AM »
US hasn't done bad for the last 50 years. That's cherry-picking - just because it's been one way for 50 years means nothing. How have they done for the last 400 years?

I haven't backtested, but I would assume the US market returns were not that great 400 years ago.

habanero

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #61 on: March 05, 2020, 06:21:12 AM »
One of the main points from the article I linked to earlier is the strong recency-bias, especially when looking at very long time horizons. The last 40 years have been great for US equities and the last 10 have been spectacular for bonds and equities at the same time. The 10-year annualized returns of the S&P and the Vanguard Extended Duration Treasury ETF (20-30 yrs maturities) have been pretty much the same. So you would have the same return from risk-free long-term lending to uncle Sam than from one of the best bull runs in equities in the history. This is not very likely to be the case again with the low bond yields around now (admittingly cherry-picking a point on the bond curve).

« Last Edit: March 05, 2020, 08:06:17 AM by habaneroNorway »

thunderball

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #62 on: March 05, 2020, 12:08:08 PM »
US hasn't done bad for the last 50 years. That's cherry-picking - just because it's been one way for 50 years means nothing. How have they done for the last 400 years?

I haven't backtested, but I would assume the US market returns were not that great 400 years ago.

LOL!  The MMM Forum needs a Like button.

Bernard

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #63 on: March 05, 2020, 02:15:41 PM »
Nobody knows what the future will bring, but if one diversifies in order to reduce the risk of great losses, the preparation should include surviving the invasion of an alien race that wants to harvest humans for food. Spending money on a nuke-proof fallout shelter and investing heavily in Virgin Galactic stock are both paramount parts of that strategy.

MustacheAndaHalf

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #64 on: March 05, 2020, 06:17:22 PM »
First, I am a 26yr old Canadian ...  I studied/work in finance and have read pretty much every possible books on investing for individual investors ...
You "work in finance" at age 26.  To clarify, you are not an authority on finance, correct?

We mostly agree that diversification is important.  Where it is least important is in the United States.  If you market cap weight the entire world, the U.S. holds more than half the world's market cap.  You can browse any "Total World" or "All Countries Index", and U.S. alone will comprise over 50% of the index / fund.
I respectfully disagree. If the US market tanks compared to the rest of the world, then youíll be very happy for that Non US diversification. The US market has been running high compared to the rest of the world for a long time now. Itís not the norm for it to stay that way. The US market compared to other world markets is also relatively pricey.
I think you misread my comment.  It is better to hold 100% US stocks, than 100% of another country's stocks.  So for example 100% Canadian stocks or 100% Italian stocks would both be even worse than 100% US Stocks.  That's why I said "where it is least important" after stating "we mostly agree that diversification is important".

Buffaloski Boris

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #65 on: March 05, 2020, 06:22:47 PM »
First, I am a 26yr old Canadian ...  I studied/work in finance and have read pretty much every possible books on investing for individual investors ...
You "work in finance" at age 26.  To clarify, you are not an authority on finance, correct?

We mostly agree that diversification is important.  Where it is least important is in the United States.  If you market cap weight the entire world, the U.S. holds more than half the world's market cap.  You can browse any "Total World" or "All Countries Index", and U.S. alone will comprise over 50% of the index / fund.
I respectfully disagree. If the US market tanks compared to the rest of the world, then youíll be very happy for that Non US diversification. The US market has been running high compared to the rest of the world for a long time now. Itís not the norm for it to stay that way. The US market compared to other world markets is also relatively pricey.
I think you misread my comment.  It is better to hold 100% US stocks, than 100% of another country's stocks.  So for example 100% Canadian stocks or 100% Italian stocks would both be even worse than 100% US Stocks.  That's why I said "where it is least important" after stating "we mostly agree that diversification is important".

I did misread it.  My bad. 

SeattleCPA

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #66 on: March 05, 2020, 09:27:08 PM »
TLDR: Everyone is jumping on the S&P500 bandwagon and bloggers including MMM recommends it, ignoring proper portfolio asset allocation.

The above statement seems inaccurate.

I don't think MMM really recommends it, does he? I recall a blog post and comments where he politely debates this with Jim Collins, pointing as I remember it, to the pretty convincing math of modern portfolio theory... (I'm sorry, I can't find that post right now otherwise I'd provide link. But I came away thinking clearly MMM believes in MPT.)

Large swaths of the Bogleheads community understand and use MPT too. Even if a core, vocal contingent don't. (I dug into this subject a bit here... Bogleheads Investment Philosophy: Problems with a Popular Approach.)

You know what I think are better and more accurate statements? That investor skill really varies. That most folks are still learning to better understand financial market risk. That relatively few people know a lot about portfolio construction. But happily that lots of folks are learning more and more and becoming smarter, savvier investors...

BTW, if you haven't yet read through the "Rate of Return of Everything" paper, you'll find that illuminating. And it may further influence your own thinking. (Here are my thoughts on the "rate of return of everything" paper: Lessons from the Rate of Return of Everything Paper and my graphical summary of some of the data sets shown: Rate of Return of Everything Line Charts. )

And this late postscript: The more I think about the above TLDR reference to bloggers, the more I think about all the bloggers I read who (a) both show real sophistication in their investing but (b) also understand that their readers possess varying degrees of readiness to implement certain strategies and concepts. For example:

Boglehead Siamond recently refreshed the Bogleheads piece on investing around world... Extremely insightful and useful: https://www.bogleheads.org/blog/2020/03/02/50-years-of-investing-in-the-world-part-1/

Tyler of Portfolio Charts does great work... https://portfoliocharts.com/commentary/ BTW, I'm going to ever go "permanent portfolio"-y... or golden butterfly-y but gosh Tyler's investing ideas are backed up with incredibly sophisticated understanding of investment risk. BTW I say that even though I don't agree with everything he thinks. (Which he would also surely say about me.)

Mike Piper of Oblivious Investor? His soft-spoken, low-key recommendation is a global all-in-one fund--which he's convinced me is a great idea because it's so widely practical and so scale-able. E.g., https://obliviousinvestor.com/what-to-do-with-your-portfolio-about-a-likely-pandemic/

So the one final thing I'd say is hidden in all of these financially sophisticated bloggers is they don't ram their sophistication down your throat. They all get that most folks are just getting started investing... that most of their audience doesn't have so much money that getting complex makes much difference... that all of us should still be learning.
« Last Edit: March 06, 2020, 07:28:11 AM by SeattleCPA »

AdrianC

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #67 on: March 06, 2020, 12:53:23 PM »

Mike Piper of Oblivious Investor? His soft-spoken, low-key recommendation is a global all-in-one fund--which he's convinced me is a great idea because it's so widely practical and so scale-able. E.g., https://obliviousinvestor.com/what-to-do-with-your-portfolio-about-a-likely-pandemic/

Ooh, ooh...

"Because some people have asked: no, we have not made any changes to our asset allocation. Itís still 100% Vanguard LifeStrategy Growth (which is 80% stock, 20% bond)."

I rec it to everyone <80 years old. My 89 year old father-in-law we have in LifeStrategy Moderate Growth (60/40).

SeattleCPA

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #68 on: March 09, 2020, 07:44:19 AM »

Mike Piper of Oblivious Investor? His soft-spoken, low-key recommendation is a global all-in-one fund--which he's convinced me is a great idea because it's so widely practical and so scale-able. E.g., https://obliviousinvestor.com/what-to-do-with-your-portfolio-about-a-likely-pandemic/

Ooh, ooh...

"Because some people have asked: no, we have not made any changes to our asset allocation. Itís still 100% Vanguard LifeStrategy Growth (which is 80% stock, 20% bond)."

I rec it to everyone <80 years old. My 89 year old father-in-law we have in LifeStrategy Moderate Growth (60/40).

For their tax-deferred accounts, I have my 80-year-old parents in a target retirement income fund. For their taxable accounts, I have them in the LifeStrategy that's 80% stocks and 20% bonds. (This puts their overall allocation at 50-50 just for the record.)

I like the Life Strategy funds...

nereo

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Re: "How to make money in the stock market" - Why MMM is wrong.
« Reply #69 on: March 09, 2020, 09:04:03 AM »
TLDR: Everyone is jumping on the S&P500 bandwagon and bloggers including MMM recommends it, ignoring proper portfolio asset allocation.

The above statement seems inaccurate.

I don't think MMM really recommends it, does he? I recall a blog post and comments where he politely debates this with Jim Collins, pointing as I remember it, to the pretty convincing math of modern portfolio theory...

this whole thread is filled with inaccuracies, including the OP's erroneous statement that MMM invests and recommends investing only in an SP500 index fund from Vanguard.

The post that OP seems to be referencing (link here) certainly talks about the SP500, but explicitly mentions VTI, or Vanguard's Total Stock Market ETF.
But this isn't the limit of what MMM owns, nor is it all that he recommends others own. 
Spending just a few minutes skimming his blog posts one can see that he has much of his money in Betterment in a 90/10 AA, and owns both VTI (Total US Market) as well as VXUS (Total International Stock).  But the investment strategy isnt' limited to US/International stocks and bonds - long time readers will immediately note Pete's real-estate portfolio. He both owns rental properties and has bought several homes which he has flipped, writing about his experiences (including one of his biggest financial mistakes).

But a broader point is that his advice isn't "wrong" and you cannot (incorrectly) cherry-pick a few lines from a single post and make that declaration. This forum and the community he founded isn't even one based dedicated to financial investing. Spending a great deal of time microanalyzing one's portfolio is antithetical to the underlying point of mustachianism (glibly summarized as "financial independent through baddasity).  In short, it's about getting the maximum amount of benefit from each one of your hard earned dollars.  As he wrote early on, if you carve out the BS daily spending that don't actually bring any value to your life, and avoid some of the worst financial mistakes people make (e.g. leasing a way-too-fancy car or living with hair-on-fire debt), you can form financial habits that will leave you better all around (not just financially).  What precisely you invest in is less important that the habit of investing continuously throughout your earning years.  To that end simple index funds (i.e. the 3-fund portfolios discussed at lenght) or even a two-fund total-market-index + bond funds are "good enough" to reach this goal.