Zeev's Ideas

[Koikaze]

ZEEV, LONG TERM SECURITY - up to ZEEV:319499, 11/07/04

11/06: (319387) (*COMMENT*)
The STREET is salivating with the hope of SS money coming their way. SS money placed is stocks is, to me, madness. A better solution? Put the money in high yielding, [T-bonds?] with government or private or a combination insurance protection. The money has to be there when due. I'm just tossing out thoughts.
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There is really no problem in putting some of the money od SS in the market, provided that no one is "allowed" to try and do timing, namely change from one class (bonds or stocks) to another class, since 90% will do it wrong (we know that is a fact since "smart people" as well as the public always get extremely bearish at bottoms and extremely bullish at tops). If it was set up that every month (it would be best if the investment would be distributed over the whole month as are disbursements of SS payments), the set aside money buys a given amount of SPY or DIA or even QQQ and that is not changed till retirement, that could provide over the long run good results, even better than inflation protected treasuries. What I don't understand is why can't the SS trust manager do that for everyone, why add another 1% cost to those funds through "managers". That is simply a "gift" to wall street, which has not yet proved it is honest enough to be left with that management task.

The real solution would be to take all the inflow of monies, split in four, 1/4 in TIPS, 1/4, in DIA, 1/4 in SPY and 1/4 in QQQ.

If we let individuals manage entries and exits from one class to another, we end up with 90% of our population not having sufficient SS funds by the time they retire. I think that enough people have lost their 401K and IRA accounts in the last 15 years to prove that management of money smartly, not only takes a lot of time, but is also a question of training most people do not have and will probably never have.


11/06: (319396) (*COMMENT*)
I agree with you about an automatic system of investment for SS funds that is not "managed," but there is no reason to confine such investments to the US markets. For best returns the funds should be invested in a broad worldwide stock index.
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The problems with foreign markets, they are not as well regulated as US markets and because of rapid growth in some emerging markets, the chances of a severe meltdown is critical. I think that US SS money should be invested here, it helps finance growth here and avoid many pitfalls of international markets. Some ETF are quite solid, almost self culling (like the DIA, SPY and QQQ where failing companies are culled and new companies added). These funds should not be invested for maximum returns (which also entail maximum risk), but for higher returns than TIPS, the best long term returns with minimal risk.


11/06: (319399) (*COMMENT*)
Hi Zeev: You offer a thoughful response, yet I must disagree. No serious money, no critical-for-some-money [my thinking only]should go into equities, any equities, ever.
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I woul accept a system that invest only in TIPS. But corporate America is yielding internal rates of returns, on the average that are twice what long term bonds do, so a mixture of the three ETF and TIPS would be a ood long term chpoice, provided no timing exercise are allowed. Even if the market goes nowhere like in the 1966/82 period and the current 2000 to ?, monthly investments of same amounts would eventually yield more than treasuries.


11/06: (319417) (*COMMENT*)
Do you really think that TIPS provide a positive real rate of return, or do you just suggest them as being better than cash?
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Better than cash and over the long term, better than long term treasuries. Of course, the index can be fooled with, but one needs to "live with that". To compensate I suggest including in the pots ETF's representing American economic might, which should provide (if not ill timing of entries and exits is allowed) a return greater than treasuries or tips.


11/06: (319418) (*COMMENT*)

<< The real solution would be to take all the inflow of monies, split in four, 1/4 in TIPS, 1/4, in DIA, 1/4 in SPY and 1/4 in QQQ. >>

Zeev,

Based on this comment, you seem to be long-term bullish the markets. After 1929, it took decades for the market to make new highs. Do you have any estimate as to when the Nasdaq will exceed its 2000 bubble top of 5,000+?

Also, thanks for your response to my question regarding the Real Estate bubble. Am I correct to assume that you are not concerned about FNM and FRE, the accounting irregularities, their derivative positions, and the possible effects on the over-all economy?

Some hype that I have seen (ad for "Strategic Investment" newsletter) says that this will be worse than the 1930's Depression.

http://www.agora-inc.com/reports/DRI/housing910/

The extremity of their claims and their certainty of their occurance do tend to bring their credibility into question.

Thanks - Ken
(*END*)

But you see, if you leak the money in monthly, it does not really matter how long it takes for the Naz to reach 5000 again, a lot of your buying would be under 2000 which will double if and when the naz comes back to 5000. Whether to include the QQQ or not is an interesting question, I would prefer the DIA and SPY, or just the SPY, but that is a separate issue. The QQQ would add some "zing" (it is almost double its bottom in 2002, but still 1/3 of its 120 top in 2000....


11/06: (319420) (*COMMENT*)
"The real solution would be to take all the inflow of monies, split in four, 1/4 in TIPS, 1/4, in DIA, 1/4 in SPY and 1/4 in QQQ."

But who decides what companies go into DIA, SPY and QQQ? Does that automatically give the people who choose the composition of the indices a power that they shouldn't have? And give those companies an automatic and potentially huge investment bonus?
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Actually, the SPY and QQQ are determined every so often almost "automatically" by taking the 500 and 100 largest market caps companies, companies that falter and fall out of the group are culled. Your question might be valid relative to the DIA.


11/06: (319426) (*COMMENT*)
Zeev, I've got two IRA accounts, one a contributory IRA and one was a rollover IRA from a previous employer. I have found that all a person has to to is find one core stock and stick with it for decades.

In my contributory IRA I found KMP, which is up 229% in the eleven years that I've owned it and more importantly raised it's dividend 338%, in that time.

In my rollover IRA I found FITB, which has split eight times, in twenty-four years and is up 4,581% from my split adjusted cost and has raised the dividend 700%, in that time.

I take the funds derived from those dividends to trade other stocks within those IRA's, but I allways hold onto those core holdings, come hell or high water.
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Jim, you belong to the 10% of the population that get rich on account of the other 90% (so do I, but c'est la vie...). In 2000 I suggested some 10 or so core issues to the thread on SI, you'll see that most of them did very well (few were excoriated in time from the group, like TYCO, and more recently AGM and COO). They did quite well despite the bear market and people that decided to go into these issues then would have. COO from $12 to $70, IGT from $5 to $35 (after being taken off around $40 for reentry in the near future around $25), AGM yielded only a double before it was demoted (from $15 to $30, though it did get to $45 in between). POOL from under $5 to above $30, PII from $15 to $65, TBL from under $30 to close to $70, and MO from $25 to $50 (where it was demoted). I think that a diversified core portofolio is better than selecting a single bet. But how do persuade 90% of the population to chose the right combination? I don't know ahead of time which will succeed which will not (SKX was one example that started well, and then faltered and was stopped out till the reentry near $6, but it is no longer showing performance consistency, so it can no longer be considered for the core).