Author Topic: Stupid Investing Tricks  (Read 2594 times)

MystryBox

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Stupid Investing Tricks
« on: October 29, 2017, 01:21:59 PM »
I only recently found MMM as I was researching early retirement.  Unfortunately I've spent most of my working life doing some things the non-mustachian way.  I've always avoided debt, limited spending, maxed out my 401k, and saved into taxable accounts, but I've also spent decades looking for ways to outperform the indexes.  I know it's considered a fools game to think you can outperform the market long term, but I guess I'm ok with being a fool.  In this post I wanted to share a bit what I do and see if anyone else tries to beat the market.

I have alternative assets like cryptos, but here I'm talking about mainstream investments.  I've tried a number of things in my mainstream brokerage account over the decades, most of which haven't beaten the S&P 500, however I've had success for a number of years now.  I currently invest 100% of my account into a short term fixed income ETF.  It only returns around 1.5% at the moment but it is very price stable so I view it as similar to cash. I prefer to invest in indexes (for all the same reasons seen around this website), but I use a timing strategy that has me invested about half the time--hopefully when the index is rising.  When the strategy is active I take a position in S&P 500 futures (usually to about 2x leveraged to my account value) which uses just a small amount of margin and is inexpensive to carry.  As the futures trades generate cash I buy more short term fixed income ETF shares.  Futures only capture price movement and not S&P 500 dividends, so I view the fixed income ETF dividends as making up for much of the lost S&P 500 dividends.

After reading some of the posts around here I've been kicking around the idea of using a low volatility structured portfolio like a variant of The Golden Butterfly in place of the short term fixed income ETF.

So there it is...  timing, leverage, futures--all the dumb things that smart investors should avoid.  Is anyone else here a moron like me?  What do you do to (hopefully) beat the market?

harvestbook

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Re: Stupid Investing Tricks
« Reply #1 on: October 29, 2017, 01:27:09 PM »
I just admit that I am a moron and can't beat the market, so I just try to get the market returns as cheaply as possible. All that other stuff sounds like miserable work.

MystryBox

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Re: Stupid Investing Tricks
« Reply #2 on: October 29, 2017, 01:27:48 PM »
I just admit that I am a a moron and can't beat the market, so I just try to get the market returns as cheaply as possible. All that other stuff sounds like miserable work.

It is work but I enjoy it.

Heckler

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Re: Stupid Investing Tricks
« Reply #3 on: October 29, 2017, 01:54:00 PM »
Please describe what a Futures is for the rest of us morons. 


(Seriously, I'd like to learn for the sake of learning)

MystryBox

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Re: Stupid Investing Tricks
« Reply #4 on: October 29, 2017, 02:26:00 PM »
Futures contracts are a financial instrument used to get leverage on some underlying asset (for example the S&P 500) inexpensively and without tying up much capital.  In simple terms it's basically a bet between two parties where each side agrees to pay the other side a certain amount of money depending on how the underlying asset moves.  So if you buy a futures contract on the S&P 500, you're entering into a bet with another trader (who sold the contract you bought) that the S&P 500 will go up.  Every point the index goes up you make some amount of money (e.g. $25) from him, and every point it goes down you lose that amount of money to him.

They have some nice properties:
- You buy and sell them simply, sort of like stock, and they make gains/losses similar to holding the underlying asset.
- They are inexpensive to buy and sell.  You can often buy/sell a contract for $1 or two, which beats the heck out of commissions for stocks and funds. 
- They don't tie up as much money, or give you leverage depending on how you want to view it.  For example you can essentially control $100,000 of the S&P 500 and need to hold less than $10,000 in your account as collateral for the futures contract (though that would be insane in most circumstances). 
- They are simple to do taxes on, you basically only need to deal with a final annual gain/loss and don't detail each buy/sell.  They are short-term gains though.
- They aren't included in pattern day trading rules, and other sorts of restrictions aimed at typical investors.

But basically if you don't know why you'd want them, you don't want them.  They are very definitely not mustachian.
« Last Edit: October 29, 2017, 02:28:14 PM by MystryBox »

marty998

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Re: Stupid Investing Tricks
« Reply #5 on: October 29, 2017, 02:30:22 PM »
It's a contract to buy something at a future date in time at a price struck today.

e.g. you buy 1000 wool* futures at $10 each today to settle in 6 months time. In 6 months the price of wool might be $20, but you only have to pay $10,000. You can choose to "cash out" prior to settlement by selling 1000 wool futures at the prevailing market price.

In practice, most futures contracts are not settled.

*Oil, gold, wheat, whatever your poison.

I watch markets every day but even I can't think of anything worse than being 49 and having to trade like that to manage my investments. Sort of thing you do when you're a 19 year old know-it-all, not 49 (sorry).

MystryBox

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Re: Stupid Investing Tricks
« Reply #6 on: October 29, 2017, 02:45:14 PM »

I watch markets every day but even I can't think of anything worse than being 49 and having to trade like that to manage my investments. Sort of thing you do when you're a 19 year old know-it-all, not 49 (sorry).

Once you know how they work they aren't much different than just buying an index ETF, at least for trades of a few months or less.  Meanwhile they save me hundreds of dollars in commissions every year and allow me make additional interest on money that would otherwise be tied up in an index fund or ETF.

But yeah I get your point.  Though futures are nothing compared to crypto.  Keeping up with crypto is farking insane. 

theolympians

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Re: Stupid Investing Tricks
« Reply #7 on: October 29, 2017, 02:57:26 PM »
Geesh, the way it's described, it looks just like gambling.

MystryBox

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Re: Stupid Investing Tricks
« Reply #8 on: October 29, 2017, 03:09:11 PM »
Geesh, the way it's described, it looks just like gambling.

It literally is structured like gambling, in that there are two sides of the contract basically making a bet with each other.  However it acts like holding an index fund acts...   as the index goes up your account value goes up, and vice versa when the index goes down. 

To be clear I'm not recommending futures to anyone.  They are generally not useful for the typical long term investor. I was just curious if anyone else is doing anything wacky like I am...
« Last Edit: October 29, 2017, 03:12:01 PM by MystryBox »

Heckler

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Re: Stupid Investing Tricks
« Reply #9 on: October 29, 2017, 10:28:08 PM »
Thanks!  So yeah, gambling.  But you're right that I'm also gambling with VTI, but don't leverage.

It sounds like a similar concept as the now worthless stock options my company gave me as a bonus, except I would had to pay them on top of being worthless.   No thanks.

SeattleCPA

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Re: Stupid Investing Tricks
« Reply #10 on: October 30, 2017, 07:19:35 AM »
Regarding the impact of leverage on your portfolio, people can use both cfiresim and firecalc to model this.

The trick is to set your bonds percentage to a negative percentage. I.e., if you want to invest 150% of what you actually hold in equities, enter the equities percentage as 150% and then the bonds percentage as -50%.

I discussed this hack at a blog post a while back: Portfolio Leverage Modeling with cFIREsim and FIRECalc

But this general comment: my personal feeling is there's not magic with the financial leverage thing just a gearing up of risk.

P.S. MysteryBox, would highly recommend you read David Swensen's book on alternative asset investing, "Pioneering Portfolio Management," to dig into the details of successfully investing in these asset classes.
« Last Edit: October 30, 2017, 07:22:00 AM by SeattleCPA »

talltexan

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Re: Stupid Investing Tricks
« Reply #11 on: October 30, 2017, 08:54:36 AM »
It sounds like you believe you're equalling market returns through this market timing approach.

Do you think you're taking less risk or more risk than a simple buy/hold?

Are you confident you can stick with the approach if the environment should change radically? Is there a sequence of events in which a fairly normal downward movement could wipe you out?

Car Jack

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Re: Stupid Investing Tricks
« Reply #12 on: October 30, 2017, 09:29:35 AM »
Sorry to sound like a Vanguard commercial, but what I do is:

Invest in a well diversified portfolio of low cost funds/ETFs at the asset allocation that makes sense for me.

I could care less if I beat the "market".  I do move my reward money in my Fidelity credit card to my Roth account.  Oh, and credit card churning and some manufactured spending shenanigans, but I have zero interest in timing, using leverage or gambling.  Waste of time and money.

boarder42

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Re: Stupid Investing Tricks
« Reply #13 on: October 30, 2017, 09:55:42 AM »
the smartest investor of all time tells you to not try to beat the market .  i'll just stick with what he says.  I started trading at 10 and it took me 17 years to find this blog within 2 months my etrade accounts were at vanguard and it was a load of stress and worry off my shoulders.

MrSpendy

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Re: Stupid Investing Tricks
« Reply #14 on: October 30, 2017, 10:28:18 AM »
would it be fair to say you are trying to run a levered trend following strategy?

http://etfdb.com/etf-education/trend-following-101/
https://www.efficient.com/pdfs/A_Century_of_Evidence_on_Trend-Following_Investing.pdf

Please explain your "timing model"