So. I’ve been out of it for awhile, but I’m back now, and I’ll be making appearances here as I can. At the moment I have little or no free time, between work and planning my upcoming wedding. Which reminds me I still need a guest list. So without any further non-sense let’s get into this, and I’ll try and make something that’s rather drab and boring as informative and interesting as I can.
Last week Chris talked about the bond market. This week I’ll be talking briefly about the money market.
Just wanted to make everyone aware that TT over at Retire at 30 has started a Carnival of Investing. For those unaware, blog carnivals are a group of blogs that get together and each week one of the members summarizes the week’s best posts for readers. There’s more information about this carnival from the link (more…)
Last week we heard the news that Google would pay $1 Billion for 5% ownership in AOL. Here are some bullet points from Google’s press release:
- Creating an AOL Marketplace through white labeling of Google’s advertising technology – enabling AOL to sell search advertising directly to advertisers on AOL-owned properties;
- Expanding display advertising throughout the Google network;
- Making AOL content more accessible to Google Web crawlers;
- Collaborating in video search and showcasing AOL’s premium video service within Google Video;
- Enabling Google Talk and AIM instant messaging users to communicate with each other, provided certain conditions are met; and
- Providing AOL marketing credits for its Internet properties.
In The Intelligent Investor, Benjamin Graham encourages investors to divide their holdings among two broad types of investment: bonds and stocks. He recommends dividing an investors’ portfolio between them from 25% to 75%, depending on the investors’ financial goals. Because stocks provide all the glitz and glamour of Hollywood the most investors understand how they work (or at least they think so). However, bonds are the ugly understudy and as a result can be misunderstood.
Because bonds are supposed to play such an important role in our portfolios, this series of articles on bonds will take us through the basics of bonds, describe the type of bonds available, provide links to resources and lay the groundwork for us to begin investing in them. To begin the series we’ll start at the beginning: what are bonds? We’ll go over what they are, how they make money, and basic pricing considerations.
Last Thursday, Chris wrote about Big Mother Mutual Funds and pointed out some reasons why you might not want to buy the “biggest and best” when it comes to mutual funds. Another problem with large mutual funds is that they lose their flexibility to invest in small-cap stocks. These funds are making investments in the tens of millions, which could add up to a sizable percentage of a small-cap’s total shares. It’s hard for a larger investor to make (or pull out of) an investment worth 5% or more of a company.
If large mutual funds won’t invest in small-caps, who will? We will.
Relatively new investors may have heard about ETFs but are still unsure what they are. Well, ETFs, or Exchange Traded Funds, are a type of investment fund that is traded like a stock on the open markets, but typically track an index such as the Nasdaq-100 or S&P 500. First introduced in 1989, ETFs have grown in popularity over the last decade because of their ease to buy and sell, and low expense ratios. However, like any investment, there are pros and cons that the prospective owner should be aware of.
Over the long-term, the S&P 500 beats 80% of actively managed mutual funds (before tax benefits). Because of this fact, prominent investors such as Warren Buffett and Benjamin Graham recommend index funds for defensive investors and those looking to diversify their portfolio. Not only do they provide instant diversification, they also offer the benefit of being simple to own, as it represents owning an already established group of securities selected by finance companies such as Standard & Poor’s, Dow Jones and Nasdaq.
Pulling out of Index Funds?
In last Tuesday’s article, I talked about John Mauldin’s book Bull’s Eye Investing which speculates that we are in the beginning of a secular bear market. I’m just now getting to the part of the book where he talks about what to do about that situation. Among other things, Mauldin suggests buying small-cap stocks for value. Ben Stein suggests this kind of investing in any market: Want Big Returns? Think Small by Ben Stein.
SIRI is Downgraded After a Recent High
I was getting snug in my SIRI investment. Then some bozo at Bank of America downgraded the stock from “neutral” to “sell”.
The Real Returns posted an interesting list of the 20 largest mutual funds, and I thought it was interesting, so let me just mention some things about mutual funds.
A larger mutual fund is typically an indication that the fund is perceived as more desirable, and as a result investors put more and more money into the fund. However, this trend can produce some undesirable side effects.
I’m now four chapters through Bull’s Eye Investing by John Mauldin. I’ll post a full review once I’ve finished the book, but the basic message is that we are in a secular bear market1. What that means is that, despite the fact that in any given year the market could be up or down, over the next 7-15 years the market will post a loss overall. Mauldin asserts that broad investments in the stock market over the next 10 years should expect returns of 0% (if we’re lucky).
Ouch.
Jason and Chris have provided some excellent advice and guidlines when making investments this week. It’s imperative that you know what you’re investing in not only from a personal standpoint, but also from a market perspective. But that alone is not enough, it is imperative that you can differentiate between what you know and what you like. Failing to be able to do so will cost you in the long term.
