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Or am I about to take a $150.00 hit? Tell me your thoughts on this "guidance company"
1FutureDDS said:Or am I about to take a $150.00 hit? Tell me your thoughts on this "guidance company"
1FutureDDS said:Or am I about to take a $150.00 hit? Tell me your thoughts on this "guidance company"
Old Dude said:I have some experience with these guys as I am a customer for two of their strategies - value and rule breakers (growth/tech-oriented stocks). Each has significantly outperformed the market over the last 12 months, which is about the length of my membership. That said, you could seriously underperform (or outperform) their returns if you aren't diligent enough to pull the trigger every time they make a recommendation to buy or sell, which is monthly. Also, the more you invest, the less the membership fee weighs you down. In addition, they have a very informative forum with some fairly sophisticated amateur investors so their site can be quite informative. Had to do over agian, I would.
Hope this helps.
etf said:just dump all your money into a decent mutual fund, and pay people to do the work for you
Well, the idea sounds great: hire a professional to manage your money, let the pro do the work, join the wall street elite. However, this ignores that true investing talent is extremely rare (with talent being the ability to consistently outperform the S&P 500)
DavidLetterman said:This is bad advice.
Let me explain why, but I'm basing my reasons on Swensen, so see his book for the exact numbers, which he does cite.
Summarizing his points:
Almost all actively managed mutual funds underperform the S&P 500 by slightly more than the percentage that they charge you to manage your money. Examining the data for active mutual fund results over the past 30 years shows that over 90% UNDERPERFORM the S&P 500 over the long term (20yrs+) and underperform by about the amount of their percentage that they charge investors. So basically, the more you pay for a mutual fund, the more you lose. Even more damning is that that already high percentage is actually understated, as there is a survivor bias for mutual funds that were not quickly dissolved due to poor performance.
Yes, occassionally, some mutual funds beat the market here and there, but almost never consistently (15 years). A handful of fund managers showed real talent (e.g. Peter Lynch), but the percentage is so small and hard to tell that you have no idea who is merely "hot" due to luck vs. "hot" due to skill. Remember, the stock market is a zero sum game. If someone is outperforming the market some one else must also be underperforming. Not all the pros can be winners.
On the flip side, low cost cheap mutual funds such as Vanguard's S&P 500 index fund are shown to be a good value, because they more or less track the market, and they charge a fraction of a percentage vs. 2 to 3%. A fraction of a percentage vs 2 to 3% might seem small, but when compounded annually over many years is actually a huge difference in cost!
Additionally, actively managed funds, by their nature, must pay transaction costs to trade stocks, which again adds to their inefficiency and lowers their yield.
This leads to a natural question:
If mutual funds are so clearly a bad investment, why are they still around?
Well, the idea sounds great: hire a professional to manage your money, let the pro do the work, join the wall street elite. However, this ignores that true investing talent is extremely rare (with talent being the ability to consistently outperform the S&P 500), and also failing to realize that investor/manager interests are not always aligned. Some mutual funds simply make money by gathering assets and taking a percentage. This way, regardless of whether or not they beat the S&P 500, the fund still makes money. Sometimes that is even the point of the mutual fund. Come up with a catchy idea, gather huge amounts of funds from sucker investors, and just take a percentage of that pot. You don't think Wallstreet would be that greedy?
Additionally, most investors fail to realize that they are being suckered because they think that as long as their money has grown bigger over the years, they have won. They do not understand that there is a placebo called an S&P 500 index fund, which could have grown substantially bigger.
Also, sometimes people get lucky and catch their mutual fund on a hot streak, where it is actually beating the S&P 500. The data shows that the majority of these overwelhmingly do not last.
Last, Wallstreet is very good at marketing, and most people are mystified by the stock market. They take advantage.
Much of what I wrote is argued with clear data by Dave Swensen. If you would like to follow up on whether or not what I wrote is valid, I encourage you to research him and find out more about both him and his book. Given his success as manager of Yale's endowment (the highest performing university endowment) I think that makes him trustworthy.
In addition, you will find the same argument in other books such as:
A Random Walk Down Wallstreet, and even Investing for Dummies.
Though really popular, a book that is a complete crock of **** is Rich Dad, Poor Dad. Do not get suckered by that obnoxious nonsense.
mshheaddoc said:I was considering taking some extra money I have an investing it but honestly the amount of time I've heard that you need to follow up on it is too time consuming as a pre-professional or professional student.
For those of you who've done it, what are the negative and positives you've experienced? i'm only looking for above average returns. But is it really worth it for $200 if you only have say $2000 to invest? I was looking at the rule breaker subscriptions.
Thanks for your input. I was just throwing out the the $2000 as an example. What would most see as the optimal amount to necessitate investment where its actually worth it? I'm in it for more making money over the long term, a little here and a little there.DavidLetterman said:One thing that sounds dangerous about the Motley Fool from people's posts is that it encourages frequent trading and market timing. This will mainly enrich stock brokers who receive a transaction fee to place the trade, especially if you only have $2000. Yes, a few people will make a big profit here and there, but a few will also take a huge loss too. That's how the market works. On the whole though, the whole market goes up, so why pay transaction fees?
Last, its also hard to asset allocate with only $2000, so again your best bet would be to find a Vanguard low cost mutual fund that more or less tracks the market.
mshheaddoc said:Thanks for your input. I was just throwing out the the $2000 as an example. What would most see as the optimal amount to necessitate investment where its actually worth it? I'm in it for more making money over the long term, a little here and a little there.
I already have a few key stocks and I'm looking to add to them for a long-haul. I most likely wouldn't pull the trigger so maybe this isn't the way to go.
I suppose I'll stick to it the old fashion way of investigating stocks and watching P/E.
DavidLetterman said:One thing that sounds dangerous about the Motley Fool from people's posts is that it encourages frequent trading and market timing. This will mainly enrich stock brokers who receive a transaction fee to place the trade, especially if you only have $2000. Yes, a few people will make a big profit here and there, but a few will also take a huge loss too. That's how the market works. On the whole though, the whole market goes up, so why pay transaction fees?
luke77 said:While I agree that this poster should put his $2000 in an index fund, your characterization of the MF's investing strategy is incorrect. Although they have a few different services, their general philosophy is to focus on buying 6-10 stocks, normally small to mid-cap companies, and holding them for 5+ years or until the underlying business has fundamentally changed in a negative manner. Their process has absolutely nothing to do with market timing, frequent trading, or even TA.
I also disagree that if they were any good it would eliminate the very inefficiencies they are trying to exploit. Even if the Motley Fool has a few hundred or thousand small investors that buy based on their recommendations, their combined sales/purchases can't compare with those of a large mutual or hedge fund. In addition, even if they beat the market they are not good enough that the entire market is going to buy/sell based on their recommendation - they are not stock market gods, although you do get that idea from their marketing materials. They are, however, very good at what they do, and for someone with $10,000 or more to invest I think their services are worth the money.
DavidLetterman said:About efficiency, if they had a record of always beating the market, people would notice, and they would have a much bigger following. Beating the market is very hard, so people who give out correct advice on how to do so would have a huge following.
And again, if they had top advisors, who offerred truly skilled advice, some fund would pluck them away. Why wouldn't they? I'd imagine a fund could pay much better than an online newsletter. Most top analysts at I-banks get plucked, so I would assume the same would happen for online newsletters. Maybe the MF is written by top analysts who are doing this to help people out. However, since they charge, I doubt this.
Has the motley fool ever put their skills to the test and opened their own fund. If not, why not? If so, how has it done? My guess is that they wouldn't simply because it would risk exposing that they really aren't as good as they claim. A failing fund would kill subscription sales.
Still, I bet the motley fool does have a lot of great info and is probably a lot of fun to read. If someone wanted to invest their 10,000 all in stocks, and really enjoyed picking stocks and got enjoyment from doing it. Sure. Sign up for the Motley Fool. In that context, it is worth it. However, I highly doubt its users will consistently beat the market, and certainly not by the large margins that its marketing implies.
luke77 said:You may be right. I don't subscribe to their service, but I do use the message boards. The company is billed as pro-individual investor and anti-managed mutual fund (because of the high fees/loads, and the fact that 90% don't beat the market), so it would be a bit hypocritical if they simply opened a mutual or hedge fund. Their reasoning is that they can focus on 10 stocks that they really, really believe in, but a mutual fund cannot because they manage so much money that they must diversify by necessity. You will never see a mutual fund that only owns 10 stocks - most own at least 30, or more - and for this reason it is almost impossible for fund managers, even very smart ones, to beat the market. Their advantage lies in their smallness.
I can't say for sure that they will beat the market over the next 10 years, but if I had a good chunk of money to invest I would bet on them over an index.
etf said:first, i'm pretty sure that the minimum at most vanguard funds is $3000, so if you wanted to get into say the vanguard total stock market index fund, you'd probably be better off buying the ETF (symbol: VTI) (disclaimer: ETF is my username, so it might be a conflict of interest). however, etfs are best for lump sum purchases, so if you plan on periodically adding more, you'd be better off with the fund (no commission). second, while using an index fund is ok, i don't think you'd be taking on an inordinate amount of risk by going with actively managed - ASSUMING that you go to a fund with a good manager (like primecap, for example).
DavidLetterman said:You are right about the $3000 minimum, and so an etf would be a good choice. And you are right that Primecap has been a very successful fund. My problem with actively managed funds is that they tend to charge high fees, but Vanguard does offer low cost alternatives. Primecap is cheap for an actively managed fund. While its fees are more than twice as expensive as the SP 500 index, its performance has surpassed those costs. It has been a great fund.
Unfortunately, most actively managed mutual funds don't make up for their higher fees, making most actively managed mutual funds a rip off.
etf said:yup. as long as you go with funds from vanguard or fidelity you should be ok. both have lots of funds with stellar managers, and charge low management fees, that, as you said, are more than paid for by the margin by which they beat the s&p.