Concerned for my DIY Investor Dad

[AJDZee]

I'm actually concerned about my father's investing techniques. He retired a few years ago, gets a bit of a pension, but it's not enough to pay the bills so he needs to be managing his retirement savings properly.

He constantly reads investing articles (and has paid subscriptions) that he occasionally sends me. They are riddled with headers like 'Top 10 Predictions' or 'Stock Picks That Can't Lose!' To me they just sound like snake oil salesmen.

Anyone heard of The Stansberry Digest or Daily Wealth Trader? Any value in these?

The other day we were talking about how it's an interesting time for the oil industry and he said to me, "I'm going to invest in oil stocks, but I'm going to wait - I don't think it's hit the bottom yet."

For some reason that struck a nerve with me.
a) as if he knows what oil will bottom out at!
b) even if you've done research and want to invest, do you really have the expectation you're going to put a large investment in at one time and time it perfectly for the very bottom??

He's talks like a starter investor (read: speculator/gambler)... which is forgivable when you ARE starting out and have a small portfolio. But he's working with his life savings here! I have no issue if you're educated on the market, have done your research and feel like the market has presented a buying opportunity. Really irks me he always figures he knows when something with bottom out or reach it's peak.

He was burned big time in 2008. He had to delay his retirement for a couple years because he lost a good chunk of his savings by selling in the big sell-off as well as investing in companies that never recovered and are worth nothing now.

[AJDZee]

Over the years I've tried sending him a bunch of MMM articles and others to educate him on market basics, as well as ETF biased stuff and anything Vanguard. Gave him 'The Four Pillars of Investing'

The funny thing is he's the one that got me investing (and eventually to this site) - after university he got me into trading stocks once I had my first job, which was 2008. So ironically my ROI was 75% in the first year of investing, I still eventually learned what I was doing was not sustainable, but rather I just got really lucky from the time frame I was investing.

[matchewed]

You can lead a horse to water...

[KBecks2]

If this is his temperament, then you may want to point him towards knowledgeable stock advisors.  Talk to him about keeping an emergency fund,  talk to him about having some conservative investments, and not all speculative. Chat about quality, dividend producing companies that have a long track record of increasing dividends. 

Maybe your dad does not want to be an index investor, and that is OK, it is his money.  Just encourage him to be careful with it. 

This is something that interests and excited him and that is OK.  Encourage him to hold his companies long term and not be a trader.  Wealth comes from long holding periods of quality companies.  I personally love Jim Cramer, caution - he covers a LOT of stocks - but if you focus in on his favorites and the things he has in his charitable trust, those are good solid companies.

Which newsletters is he into?  Point him toward Jim Cramer's podcast, book Get Rich Carefully,  and The Motley Fool Stock Advisor, Income Investor, and Options/Pro (I use Pro as my main advisory service and those guys are smart/successful/disciplined).  Try to get him towards stocks that are maybe a little boring, but they aren't going to go broke - Berkshire Hathatway, Wells Fargo, Starbucks, Johnson & Johnson, Disney, Under Armor,  etc.   If he wants to buy oil, he should buy a BIG oil company, like XOM.  They aren't going to go broke.  Always focus your discussions around company quality, and holding on to his investments and not hopping from one stock to the other.

It could be a lot of fun to talk stocks with your Dad.  Do your best and enjoy the experience with him. 

If he is talking a lot, that is OK, if he is trading a lot, that is not so great.  Especially with a portfolio where there is no new money coming in, he needs a portfolio that will generate income and appreciation.  He needs a fairly conservative portfolio. 

[Spork]

I am going to wildly speculate that this will be a problem whether he is DIY or not. 

This is how my dad acts when he invests on his own.... and when he hires expensive, trusted advisors, they see a sucker coming a mile away and he gets the same result.

My dad has been a pretty high earner forever and has worked near 24x7x365.  This combo means he has a reasonable stash.  Now... had he been a smart investor, he would have an obscene stash.  Advisors have milked an enormous sum from him over the years.

What I'm trying to say: the problem is likely deeper than his ability to DIY.  He probably has a fundamental lack of understanding and/or he has the gambler "I'm going to hit it big on the next toss of the dice" mentality.

[yojiveturkey]

I don't know who you are. But how did You write exactly my story here in the form of a question?! :)  That is exactly my Dad, down to the newsletters he subscribes to and subsequently forwards to me.  He even took out some equity in the house (against my and my mothers recommendation) right before the crash, to invest.  On the bright side he has made most (or all and then some) back (as far as I know).  However I don't know what lessons he has learned from all that. 

There is another bright side;  he got me into investing when I was 21ish (now 35).  That, or earlier of course, is the best time to get some hard knocks investing.  You learn quick, and are young enough to take it as a life lesson, while having enough time to make up for it.  If your dad is like mine, all you can do is talk about the things you have learned, while making it your lessons and what you are doing, without making it seem like you are trying to tell him what to do.  I am working towards FI (thanks MMM!), but Love my line of work (pilot), so don't particularly want to RE.  My view on my dad;  his biggest investment was in his children. Because I will be FI soon (5 yrs to go is the plan), I will be happy to help out with him and my mom if needs be.  I'm hoping this is not the case but it's a pretty good insurance policy.  I realize that this forum contributors are MMM readers and many want to RE.  So this is just my two cents.

Regarding the newsletters;  I kind of agree, the headers are dramatic and trying to induce fear.  People your dad and my dad's age got hit with the recession at a very poor time in their lives, so they are trying to hit it big with that magical stock pick/techniques where you can make 25%-%1,100. I don't usually read the newsletters as I have my own ideas about investing, but there are some good (extremely conservative),  techniques that I've learned about because of these forwarded newsletters. Covered calls are the main one.  I think Jacob at ERE talks some about these techniques.  Selling covered calls are a good way to boost your dividend (like) income with the only downside risk is opportunity cost if your block of stocks gets called at expiration. 

Summing up;  I don't think I'm going to change my dad suddenly, but like a glacier slow persistence is much more effective.  The newsletters (like anything in life) has lessons that are definitely valuable.  However I have a positive attitude on the future/economy so if it's selling fear that's a red flag for me.  Timing the market is a futile technique. Good luck!

[tarheeldan]

Stansberry? Hmm... http://en.m.wikipedia.org/wiki/Porter_Stansberry

[Indexer]

Everytime he sends you one of these reply with an article completely trashing DIY investing results.  They are easy to find.

I'm having a hard time finding it right now, but several months ago I remember reading an article about how badly 'stock picker' magazines underperformed.  They took 200 of these subscription based stock pickers and tracked their results for I want to say 10 years.  If memory serves(I wish I had the article!) only 12 outperformed the S&P 500 over that period, and only 2 of them by enough to actually matter.

There is also the following article which shows active fund managers have done horrible compared to their indexes not only over time, but especially in 2014.  If the guys with PHDs, staffs of analysts, CFAs, million dollar bonuses, etc. can't beat an index why should a novice think he can do better?  Thats like betting your entire life savings you are going to beat Kobe Bryant in a one on one game of basketball.  No... just no.

http://blogs.wsj.com/moneybeat/2014/11/28/as-indexes-soar-active-stock-pickers-cant-get-off-the-ground/


PS.  The experts think oil will end up at...

Merrill Lynch thinks it will go to:  $35
Jim Cramer(back in oct):  $70
Goldman Sachs 2015 prediction(back in oct):   $75
Citibank called the bottom at:  $67

These are the groups who get 'paid' to know this.  The only one that hasn't already been proven wrong just in the past week was the outlandish estimate of $35.

[AJDZee]

It could be a lot of fun to talk stocks with your Dad.  Do your best and enjoy the experience with him. 

If he is talking a lot, that is OK, if he is trading a lot, that is not so great.  Especially with a portfolio where there is no new money coming in, he needs a portfolio that will generate income and appreciation.  He needs a fairly conservative portfolio.

It is really fun talking to my dad about investments, certainly don't want that to change. We've been doing it ever since I caught the bug 10 years ago when I first started investing.

And you make a good point, I think he just talks more than he trades. (I honestly don't know what he buys or how much savings my parents have or even their overall financial situation......but that a whole other thread haha)

[AJDZee]

I am going to wildly speculate that this will be a problem whether he is DIY or not. 

This is how my dad acts when he invests on his own.... and when he hires expensive, trusted advisors, they see a sucker coming a mile away and he gets the same result.

My dad has been a pretty high earner forever and has worked near 24x7x365.  This combo means he has a reasonable stash.  Now... had he been a smart investor, he would have an obscene stash.  Advisors have milked an enormous sum from him over the years.

What I'm trying to say: the problem is likely deeper than his ability to DIY.  He probably has a fundamental lack of understanding and/or he has the gambler "I'm going to hit it big on the next toss of the dice" mentality.

^ Yes! This!!! Your last phrase put it perfectly 'I'm gunna hit it big next time'  That's the exact context I hear when talking with him. I don't think it's intentional - I think he's missed the basic concept of investing vs gambling/speculating.

Sounds like your dad has put this FA kids through college  lol

The last conversation I had my dad mentioned he's decided to take his investments away from his long time advisor (yay!) and do it on his own (d'oh!). This is probably what prompted me to vent via this forum. Shit just got real. Although getting ripped off, the funds with the advisor were most likely diversified and relatively safe.

[AJDZee]

Stansberry? Hmm... http://en.m.wikipedia.org/wiki/Porter_Stansberry

Interesting... very glad you showed me that. *copy - paste - reply to his last email* 

"Oh is this the guy you've subscribed to?"    lol

[AJDZee]

I don't know who you are. But how did You write exactly my story here in the form of a question?! :)  That is exactly my Dad, down to the newsletters he subscribes to and subsequently forwards to me.  He even took out some equity in the house (against my and my mothers recommendation) right before the crash, to invest.  On the bright side he has made most (or all and then some) back (as far as I know).  However I don't know what lessons he has learned from all that. 

There is another bright side;  he got me into investing when I was 21ish (now 35).  That, or earlier of course, is the best time to get some hard knocks investing.  You learn quick, and are young enough to take it as a life lesson, while having enough time to make up for it.  If your dad is like mine, all you can do is talk about the things you have learned, while making it your lessons and what you are doing, without making it seem like you are trying to tell him what to do.  I am working towards FI (thanks MMM!), but Love my line of work (pilot), so don't particularly want to RE.  My view on my dad;  his biggest investment was in his children. Because I will be FI soon (5 yrs to go is the plan), I will be happy to help out with him and my mom if needs be.  I'm hoping this is not the case but it's a pretty good insurance policy.  I realize that this forum contributors are MMM readers and many want to RE.  So this is just my two cents.

Regarding the newsletters;  I kind of agree, the headers are dramatic and trying to induce fear.  People your dad and my dad's age got hit with the recession at a very poor time in their lives, so they are trying to hit it big with that magical stock pick/techniques where you can make 25%-%1,100. I don't usually read the newsletters as I have my own ideas about investing, but there are some good (extremely conservative),  techniques that I've learned about because of these forwarded newsletters. Covered calls are the main one.  I think Jacob at ERE talks some about these techniques.  Selling covered calls are a good way to boost your dividend (like) income with the only downside risk is opportunity cost if your block of stocks gets called at expiration. 

Summing up;  I don't think I'm going to change my dad suddenly, but like a glacier slow persistence is much more effective.  The newsletters (like anything in life) has lessons that are definitely valuable.  However I have a positive attitude on the future/economy so if it's selling fear that's a red flag for me.  Timing the market is a futile technique. Good luck!

That's hilarious - you and I have the same life  hahaha
Not so hilarious is him taking out equity before the crash. Again, I don't know the actual impact to my dad's portfolio because although he talk a lot about the market, we don't go into detail on our holdings for some reason (not that I have a problem with it)

My dad also is talking a lot about puts/covered calls (not surprising they are reading the same material) He explained it to me, and I understood the concept, I understand it's a real legit thing... it just seemed like it wasn't for me, it was for someone who had a bit more time to sit at the computer (like my dad).

Much like you I also let him know my progress and success stories from taking MMM (and other) advice.

[AJDZee]

Everytime he sends you one of these reply with an article completely trashing DIY investing results.  They are easy to find.

I'm having a hard time finding it right now, but several months ago I remember reading an article about how badly 'stock picker' magazines underperformed.  They took 200 of these subscription based stock pickers and tracked their results for I want to say 10 years.  If memory serves(I wish I had the article!) only 12 outperformed the S&P 500 over that period, and only 2 of them by enough to actually matter.

There is also the following article which shows active fund managers have done horrible compared to their indexes not only over time, but especially in 2014.  If the guys with PHDs, staffs of analysts, CFAs, million dollar bonuses, etc. can't beat an index why should a novice think he can do better?  Thats like betting your entire life savings you are going to beat Kobe Bryant in a one on one game of basketball.  No... just no.

http://blogs.wsj.com/moneybeat/2014/11/28/as-indexes-soar-active-stock-pickers-cant-get-off-the-ground/


PS.  The experts think oil will end up at...

Merrill Lynch thinks it will go to:  $35
Jim Cramer(back in oct):  $70
Goldman Sachs 2015 prediction(back in oct):   $75
Citibank called the bottom at:  $67

These are the groups who get 'paid' to know this.  The only one that hasn't already been proven wrong just in the past week was the outlandish estimate of $35.

Great advice. I feel like if I were to show him that article you mentioned along with your exact post it might chip away at his stubborn ways. (is 'investing pride' or 'money pride' a thing?)

[hodedofome]

You won't make money from newsletters, sorry. And I'm an active trader telling you this. It's ok to get ideas from others, but that's all they are, ideas. For you to have the conviction you need to stick with a strategy, you have to do the research yourself.

[Dodge]

When I hear people talk like this, I ask, "Not counting contributions, how much has your portfolio grown since the year I was born?"

I wait for an answer, then throw IndexView at them:

http://www.mrmoneymustache.com/2014/08/25/indexview/

[AJDZee]

When I hear people talk like this, I ask, "Not counting contributions, how much has your portfolio grown since the year I was born?"

I wait for an answer, then throw IndexView at them:

http://www.mrmoneymustache.com/2014/08/25/indexview/

Thank you for re-introducing me to that resource!

[JetBlast]

My father in law subscribes to some of these. Whenever we chat he likes to ask what I've been buying in my play money portfolio. Last one he told me about was him buying some Royal Dutch Shell for the dividend, of course immediately afterward oil prices face planted. I wonder which newsletter turned him on to that hot tip.

DW has little interest in the market and trading, and thankfully the advice she's received from her dad hasn't been too bad. Her portfolio is with Vanguard, and her dad lets her use his password for a newsletter that gives her confidence to at least invest and stay in the market, the no-load fund advisor. If you're need to follow a newsletter it's not too bad of one, though I'd prefer fewer actively managed funds.

[wtjbatman]

To give credit, Goldman Sachs did call the crash in gold prices this year. Not that it means much, but I found it interesting :)