Author Topic: Got some advice, hoping you guys can set me straight.  (Read 3144 times)

PolymathPaul

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Got some advice, hoping you guys can set me straight.
« on: April 04, 2014, 12:09:12 PM »
So I was having a friendly debate with a buddy of mine. He's anti-index. He believes that he can managed his account well enough to make money with mutual funds. Here is what he suggested:

Touchstone Sands Capital Growth Fund Class Z, I believe the symbol is PTSGX.

Matthew 25 fund, MXXVX.

Fenimore Asset Management Trust Value Fund

Any Tech Fund or IT services fund

Fidelity Select Software and Computer

I think we are at point where a correction is in site, which means the above will take a hit and Gold will rise. After the 2008/09 crash I put my money in GAMCO Gold Fund Class AAA and Tocqueville Gold Fund. Both performed well while everything else died.


Are these safe bets?

warfreak2

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Re: Got some advice, hoping you guys can set me straight.
« Reply #1 on: April 04, 2014, 12:15:50 PM »
Gold is the longest-running speculative bubble in human history. The idea that Gold will continue to be desired is so ingrained in our culture that it's probably never going to crash all the way in our lifetimes, but it's just a gamble. Also, money put into Gold isn't working to grow businesses or help anyone.

Frankies Girl

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Re: Got some advice, hoping you guys can set me straight.
« Reply #2 on: April 04, 2014, 12:49:47 PM »
Yeah. Um... I am still really new at investing, so I may be way off base, but the following is my opinion and someone else more knowledgeable correct me if I'm wrong.


Your friend is ignoring expense ratios for one thing. Right off the bat, the funds you listed range from 0.82%-1.37%. Which is HIGH and eat up the investing amounts. And just from a quick look on one of them to compare the 5 year returns, Vanguard's total stock index outperformed... meaning that he paid more to earn less.

There was a vid posted within the last few months from Frontline (sorry can't find the original post to credit the poster):
http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/
It's a great story - but the thing that is pertinent to this discussion is the interview with Jack Bogle that starts at about 23:40.
From the video: "Bogle says you've lost almost 2/3 of what you would have" if you're paying something like 2% fees. So even if index investing might trail some of the high flyers every once in a while, if you're consistently paying high fees for basically the same returns +/- a percentage point or two... you're still doing worse than if you just used index funds from the start.


And I agree with warfreak2 on the gold thing.


If your friend sold off his other funds AFTER the 2008 crash, that means he locked in the money lost getting out of funds (selling low) that would have recovered to stick them into the gold. I don't think that was a smart move.   


And then when it comes down to it, how much time and effort and worry do you want to devote to your portfolio? I think index investing bothers folks in general because it is so easy, they think that it either has some sort of a catch to it. Or else if it is THAT easy, then they of course could get better returns just by investing more time and effort into their portfolio.


A few great posts by Jim Collins, who could say it much better than I can...

http://jlcollinsnh.com/2012/01/06/index-funds/

http://jlcollinsnh.com/2013/02/05/stocks-part-xv-index-funds-are-really-just-for-lazy-people-right/

http://jlcollinsnh.com/2011/06/02/why-i-cant-pick-winning-stocks-and-you-cant-either/
« Last Edit: April 04, 2014, 01:47:35 PM by Frankies Girl »

nereo

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Re: Got some advice, hoping you guys can set me straight.
« Reply #3 on: April 04, 2014, 01:06:49 PM »
As Frankie's Girl said, those funds all carry fees higher than I would like, and (worse) they don't have a very good history of performance.  Statistically, 80% of managed funds fail to meet their benchmark over a 5 year period - I have no reason to suspect these might do that.

As for "investing" in gold... that gets alarm bells ringing in my head.  Simply put, an investment is something you hope will be worth more in the future than it is now.  Historically, gold was never meant to be an investment.  It was a hedge against inflation.  It worked because the world supply of gold was more-or-less fixed.  No one could print more gold, and even extensive mining won't drastically increase the world's supply.  If you wanted to make sure that the $1k you had today would basically be worth just as much at a later point in time, gold was a reasonable thing to own.
All of this went out the window a few decades ago when people started speculating on the future value of gold.   Now, in a sort of twisted irony, owning gold can be even more volatile than having a stack full of newly printed $USD.  The fundamental problem with this is that gold still won't produce anything (like a business will), nor will the supply change.  It's entirely driven by demand.

smedleyb

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Re: Got some advice, hoping you guys can set me straight.
« Reply #4 on: April 04, 2014, 01:09:12 PM »
Gold is the longest-running speculative bubble in human history. The idea that Gold will continue to be desired is so ingrained in our culture that it's probably never going to crash all the way in our lifetimes, but it's just a gamble. Also, money put into Gold isn't working to grow businesses or help anyone.

Personally I wish to neither put gold on a pedestal nor consign it to the dustbin of value.   Calling gold "the longest bubble in human history" seems almost contradictory, since bubbles are really momentary explosions in the value of a commodity. 

I tend to be agnostic and view Gold as a godless commodity.  It has bull phases and bear phases and it has times where it spends years doing absolutely nothing.  The key is to figure out where we are in the cycle and play it accordingly.

 


« Last Edit: April 04, 2014, 01:12:12 PM by smedleyb »

PolymathPaul

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Re: Got some advice, hoping you guys can set me straight.
« Reply #5 on: April 04, 2014, 01:34:57 PM »

And then when it comes down to it, how much time and effort and worry do you want to devote to your portfolio? I think index investing bothers folks in general because it is so easy, they think that it either has some sort of a catch to it. Or else if it is THAT easy, then they of course could get better returns just by investing more time and effort into their portfolio.

A few great posts by Jim Collins, who could say it much better than I can...

http://jlcollinsnh.com/2012/01/06/index-funds/

http://jlcollinsnh.com/2013/02/05/stocks-part-xv-index-funds-are-really-just-for-lazy-people-right/

http://jlcollinsnh.com/2011/06/02/why-i-cant-pick-winning-stocks-and-you-cant-either/

I think this is his justification. He think he can beat the market by spending time managing which funds he's investing in.

brewer12345

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Re: Got some advice, hoping you guys can set me straight.
« Reply #6 on: April 04, 2014, 02:25:43 PM »

And then when it comes down to it, how much time and effort and worry do you want to devote to your portfolio? I think index investing bothers folks in general because it is so easy, they think that it either has some sort of a catch to it. Or else if it is THAT easy, then they of course could get better returns just by investing more time and effort into their portfolio.

A few great posts by Jim Collins, who could say it much better than I can...

http://jlcollinsnh.com/2012/01/06/index-funds/

http://jlcollinsnh.com/2013/02/05/stocks-part-xv-index-funds-are-really-just-for-lazy-people-right/

http://jlcollinsnh.com/2011/06/02/why-i-cant-pick-winning-stocks-and-you-cant-either/

I think this is his justification. He think he can beat the market by spending time managing which funds he's investing in.

I think he is smoking some really good shit.