Picking Stocks Like an Owner

I have found and investigated over 1,600 investment strategies.There are many an average investor can use, in which he or she can imagine buying a personal business.

An investor can take the same attitude as any owner would. The strategy can revolve around what an owner wants a company to accomplish. Everyday business worth never enters an owners’ consideration, just making a decent profit while the business is on a growth path.

As for the rest of the stock-pickers in the market who think otherwise: They’re the short-term, quick-buyers and sellers. Most are trading company names. They really have no clue about what the business is, that they are buying and selling. Most of the financial reports they see are little more than hearsay and gossip from Wall Street pundits looking over each others’ shoulders.

There are lots of strategies to choose from. Know them thoroughly before you invest. ( See the Earl J. Weinreb NewsHole® comments.

Seeking Securities Diversification

Studies show approximately how many securities issues need to be in a portfolio for practical diversification. The futility of the attempt becomes evident when you realize that this pursuit is actually a vague effort for most investors.

Diversification to overcome risk varies by investor needs and characteristics. It has relatively little to do with the number of securities in a portfolio, whether there are thirty or 100 or more invested.

Moreover, investors also tend to seek diversification by purchasing several mutual funds. However, in doing so, they may be duplicating a good amount of their portfolios. ( See the Earl J. Weinreb NewsHole® comments.

The Risk of Managed Funds

Investors should consider mutual fund manager risk. They do this when choosing an investment portfolio that's fully and actively managed.

To choose managers, they must rely on past performance which is not reliable, as evidenced by independent research.

Furthermore, many funds use a staff or committee system of a managers, not a single individual. Also, mangers come and go, in a game of musical chairs. ( See the Earl J. Weinreb NewsHole® comments.

Corporate Bonds and Inflation

Keep worrying about corporate bonds you own and the specter of inflation? What will happen to the value of the bonds when interest rates go up?

You get that protection in the form of diversified, low-cost bond funds with shorter duration, that reinvest their income.

I constantly refer to duration, which the financial media unfortunately and ignorantly tends to overlook.

The duration should match the period you intend to hold the bond funds. ( See the Earl J. Weinreb NewsHole® comments.

Picking Stock Winners

It is harder to pick stock winners than you may think from perusing the financial media. Yes, everyone believes they can, but after all the effort, how many successful picks can you really find?

You hear about big stock winners but how many securities lottery winners are available? How many are recognizable early on? It’s always easy to find those who did well-- after the fact.

Furthermore, when you look at these relatively small numbers of winners, you find that they had their periods of struggle. The profit numbers look excellent only after years of market ups and downs. How many investors had the stomach to buy those stocks at their lows and to hold on to them to their highs?

None of the successful securities had gone up in a straight line. Most hit bad cycles when most of the original holders deserted ship and sold.

Market psychology is always a serious factor that dictates the lack of discipline required of investors. Most take what profits they see on the way up, and run. So the odds of achieving huge winnings are even steeper.

401 (k) Post-Job Conversions

What do you do with your 401(k) when you change jobs? When you change jobs you have several options with your 401 (k) retirement plan:

You can roll your money over into your new employer’s plan, if they allow you that privilege.

You can keep money in your old employer’s plan, if permitted.

You can roll your money into traditional IRA plans.

Check your other options, especially because some may apply more specifically to your financial and family situation. Those regulations change from time to time.

Using Wall Street Wisely

I always have made this distinction about Wall Street: It’s simultaneously an investment community and a constant-trading medium. Both are essential.

But trading aspects can go to extremes. When extreme actions occur, there can be potential danger. It is thus essential that the average public understand how Wall Street operates.

I have found from experience that the average investor does well by avoiding trading extremes. That’s possible by sticking to a disciplined, favorite strategy and then forgetting daily market prices. You don’t need constant financial news, unless your investment strategy calls for it. Relatively few strategies do.

Short-term, in-and-out, frenzied trading by the pros is their game, not yours. (See the Earl J. Weinreb NewsHole® comments.)

Investing Moods and Sentiments

Moods are relatively long-lasting emotions. Sentiments are shorter-term.

They can affect how stock market cycles react and can precipitate booms and busts.

That is because cycles can easily grow into the fully grown varieties. It is the way minor bear markets start and deeper recessions fester. Given enough impetus and human error, financial meltdowns will eventually occur. ( See the Earl J. Weinreb NewsHole® comments.

Long-Term Investors and the Short-Term Trap

There are two kinds of investors. Traders who need daily quotes which can often be unrealistic. And long-term investors who get misled and potentially hurt, should they wander occasionally into short-term transactions without knowledge of the game they’re in..

Long-term investors who let themselves be guided by volatile daily quotes can always be in for a rocky ride where the odds are tipped against them.

They have obviously lost their strategy and discipline. ( See the Earl J. Weinreb NewsHole® comments.

Often-Confused Securities Analysts

My comments for efforts of the so-called fundamentalist securities analysts who evaluate individual companies, seeking investment opportunities. Distinguish those fundamentalists from technical analysts.

It’s important that you make the distinction; one is involved solely with the operations of the company. The technician has little to do with how the company is run, but primarily with the movement of its securities or the overall market.

To complicate matters most of the time, too many analysts confuse their observations with both points of view. That shows a lack of discipline, which I’ve found is the prime reason most investors, pros and amateur never get optimum odds. . ( See the Earl J. Weinreb NewsHole® comments.

ETFs and Short-Trading Profits

Exchange-traded funds, or ETFs, differ from mutual funds, in that they are traded on exchanges.

From time to time, their securities may be lent for purposes of short selling, It’s a source of added income. The stock-lending profits of such ETF funds can be substantial.

A question on behalf of their stockholders: Do earnings from lending to short sellers go back to shareholders of the ETF, or to its managers?

In some funds, almost all go to the shareholders, while as little as half may be returned to others.

Check your ETF investments, to see how your managers treat such earnings.

Preventing Financial Meltdowns: Mark-to-Market, Part 2

Further to my previous blog with regard to the short-term psychology that permeated the entire useless, extraordinarily expensive, government bailout philosophy, whereby bank and investment company net worth figures were daily devalued to so-called “toxic” levels:

There were defenders on Wall Street for this sham. Some insisted that standard accounting rules were to be defended as if they were cast in stone. After all, the rules became a boon for Wall Street short sellers and the avalanche of traders that make up the financial community. The folks to which the media give far too much attention.

Ever-lower values were thereby created for securities with little or no true market with which to establish real values. And it produced volatility that made for tremendous trading profits among short-term traders who predominate the scene.

This created havoc among all other small and large investors in pension and institutional funds, who look to the long-term and are not interested in daily or even weekly pricing. All true investors got run over by this mark-to-market onslaught.

Along with the economy.

Preventing Financial Meltdowns: Mark-to-Market

Further to my previous blog comments about short-term trading, with its effects on investment odds, and also financial meltdowns:

They usually have to do with pros, even governmental “experts” reacting to problems, usually in a panic mode.

I feel the 2008-2009 financial rescuers, who had come from the financial community, were attuned only to the short term, and thus could not see how caution, by avoiding panic, would overcome our financial problems. They never envisioned the danger of acting in haste.

One major example: The value of collateralized debt obligations, CDOs. or their derivatives, were “marked-to-market,” under so-called fair value accounting. The latter is part of the Generally Accepted Accounting Principles (GAAP) rule in place since the 1990s.

But that rule could easily have been suspended for the emergency. CDOs are not usual items that accountants measure in balance sheets.

As a result, bank and investment company net worth figures were daily devalued to so-called “toxic” levels. Those levels were actually a fiction, brought on by an illiquid market, where true fair value was impossible to determine. The rescuers were blinded by their own personal and business backgrounds.

That short-term psychology permeated the entire useless, extraordinarily expensive, bailout philosophy. ( See the Earl J. Weinreb NewsHole® comments.

Advice to Would-be Short-Term Securities Traders

Short-term securities traders will no doubt disagree, but then they have no time to really check independent research that confirms my position.

Short-term, in-and-out, frenzied trading by the pros is not an investment odds enhancer. It’s even what helps foster financial meltdowns once they get underway.

It’s the segment of Wall Street conventional thinking that average, Main Street investors ought to avoid even during normal markets.

Stick to the more long-term medium that Wall Street can offer individuals and institutional investors, who can disregard their conventional short-term instincts.

Financial Recovery Success and Short-Term Efforts

I previously commented that much of the lack of success in financial bailouts can probably be attributed to the fact that our experts come from a community attuned to short-term. On Wall Street, the long-term is a few weeks, despite the grandiose talk of planning used in marketing literature.

This short-term psychology is evident in the manner by which bailout efforts are undertaken during financial emergencies.

Often that error is enforced by government in the form of strict regulation that is actually a reaction to the very short-term panic that such regulation supposedly has been developed to suppress.

Potential solutions in the 2008-2009 financial meltdown probably would have worked over the longer term, had panic not arisen. These are never successful for short-term markets that regulation overlooks.

Financial Bailout Short-Term Efforts

As I mentioned in a previous blog on booms and busts and the role of quants in attempting to prevent them; I see a weakness in math models. It happened with the LTCM breakdown and was a factor in the sub-prime crisis.

There is a common thread among financial breakdowns. They have to do with how the financial community reacts to problems. They panic. Our “experts” who come to the rescue are from the financial community, attuned only to the short term and cannot see how caution, and avoiding impulsive action can overcome the danger of acting in haste,

There was a human error in these past “rescue” instances, other than in mathematical calculations. It had to do with the need for bailout haste.

Has anyone ever questioned the fact that experts we have relied on are all attuned to the short term in their professional areas of expertise?

Wall Street Noise and Short Term Slanting

Wall Street noise, comprised of a constant banter of news and chatter, dispensed by the media in all its forms, is essentially short term.

Moreover, much of that tremendous clutter is disseminated by Wall Street habitués pushing their wares at the public. That’s understandable, also.

But all such commentaries and recommendations tend to rail against long-term strategy because turnover is the wherewithal the financial community makes it real money on.

Keep that in mind, when you invest. ( See the Earl J. Weinreb NewsHole® comments.

Preventing Financial Meltdowns With Models

Vaunted mathematical models have done poorly in preventing financial meltdowns.

Example: The LTCM debacle of 1998 and the sub-prime mortgage disaster of 2008. Could they have been prevented or even mitigated?

These math models were made up by top researchers, mathematicians, and “quants,” who figured they had anticipated all cyclic contingencies.

Yet, bond markets fell apart despite the calculations. Afterward, the quants found they should have looked at contingencies even further back than they had.

But I see a weakness in math models, no matter how much research is done. It happened with the LTCM breakdown and was a factor in the sub-prime crisis.

There is a common thread between the two breakdowns which has to do with how we react to problems in a panic. Our “experts” who come to the rescue are from the financial community, attuned only to the short term and cannot see how caution, and avoiding panic can overcome the danger of acting in haste,

Dodd-Frank Will Never Stop Wall Street Bubbles

Wall Street will never avoid bubbles. No matter how many layers of supervision the statist politicians in Washington lay on.

Particularly because of the cozy relationships in the financial community you have continual, irrational optimism and the other extreme, pessimism, which occur in chronic cycles.

That volatility of psychology affects earnings estimates and market moods and sentiments. It cannot be stopped by fiat. And is responsible for booms and busts.

The Hedge Fund Advantage?

Hedge funds try to make up for their enormous fees by using either esoteric investments or excessive leverage. They use huge amounts of investor capital to achieve this advantage that average investors cannot muster.

They can get into situations such as short selling and derivatives and unusual techniques. They get involved with leveraged buyouts and exotic ventures that vary, for instance, from the film industry to buying life insurance settlement funds.

But then risks are much higher. Too high, in relation to the potential gains. The hedge funds really do not compensate their investors for exorbitant risk, as they do their fund managers for their efforts.

Future Securities Prospects

Independent analytical outfits who are able to do a better job at securities research are hard-put to find clients among the financial professionals who are willing to buy a decent analytical product from them. Many are leaving the business. Why?

The average analyst will correctly tell you that stocks have risen, on average, about 10% over the long-term. But that has been in the past. Unless interest rates in the future remain extremely low, chances are that the future stock market will not earn this past figure. Some researchers have projected an average return of only 6%, and much less for the future.

True, some financial academics claim that price earnings ratios for stocks are relatively low and this bodes well for the future of the stock market. My investigations over the years have told me that price/earnings are a terrible measuring tool. What is a high or low P/E is simply too relative and too dependent on other important factors, including interest rates.

And let’s not forget the specter of future inflation because of our extraordinary budget deficits.

Employees On Their Own Retirement Path

Nowadays, employers contribute retirement funds each year, and the employee takes responsibility for investing.

Employer contributions are in the form of 401 (k) s. In the past, the employer would be responsible for the management of the funds. The employee can now add personal investments to what the employer contributes.

The bottom line: The employee today has to bear the investment responsibility.

So, it’s important that you pay attention to a viable mix of possible low-cost, diversified investment tools. ( See the Earl J. Weinreb NewsHole® comments.

Disciplined Strategy

I have investigated the discipline of strategy use. Discipline is much more essential than strategy usage and upsets the market timing plans of the overwhelming majority of investors, professionals as well as just amateurs.

Iron-clad discipline must be part of each strategy. The reason to buy a security has to be an integral part of the eventual reason to sell. That’s discipline. But it isn’t easy to maintain when you're a Main Street investor having to contend with media noise.

That consists of the usual panoply of opinions, most of which are broker, “adviser,” or salesmen-oriented. inaccurate or biased. ( See the Earl J. Weinreb NewsHole® comments.

There is Gold and There’s Gold

Purveyors of gold investments often sell one type without discussing various other forms that you can buy. Or whether everyone ought to be buying gold, even with inflation looming. The public never gets full information, nor the pros and cons of gold ownership.

After all, gold can be in bullion or bars, or coins. And if the latter, they can be rare, or bought just for content. In either instance, they must be stored for safety, and preferably insured.

Furthermore, gold values can be had in mining shares or in the form if mutual funds or ETFs.

There is lots of confusion, and the fear of not getting it exactly right. And I haven’t even gotten to whether gold pricing today is a bubble or not.

You Hardly Hear About Stock Losers

It is harder to pick stock winners than you may think from reading some of the financial media. Yes, everyone believes they can, when you read what the advisers, analysts and other stock and bond touts have to say.

But after all their effort, how many real winners do the media really find? You hear about big stock and bond winning predictors in the media. , But with every investigative effort, we discover there are far, far more losers. ( See the Earl J. Weinreb NewsHole® comments.

Obsessing With TIPS

TIPS are bonds issued by the federal government through a bank, broker, or the Treasury, for five, ten and twenty year maturities. Their value grows to the extent of inflation. TIPS also are bought in mutual funds and ETFs.

Investors seek inflation protection more than interest, which is relatively low right now. With little current inflation, returns are insignificant. Potential inflation makes for their investor attraction.

State and local taxes do not apply on U.S. Treasury obligations. However, additional interest paid because of inflation will be subject to federal taxes.

But why buy them? I have never considered TIPS a valid bond inflation advantage, despite the mass of what I feel is publish-by-rote-publicity that TIPS receive in the financial media.

Moreover, you can get inflation protection elsewhere. Even with other bond funds, yielding much higher returns. The public has to learn how to use principles of “duration” which the media is remiss in ever fully explaining, ( See the Earl J. Weinreb NewsHole® comments.

Comments From a Financial Author

Many authors of how-to financial books are tied into Wall Street in some way. If they are not procuring their own advisory accounts, they are selling them for others. Some investment product. From only one point of view, when there are pros and cons to every investment strategy I’ve ever investigated.

These authors could be offering the reader investment suggestion or brokerage services, whatever sells, once they get known through the book they have authored. They rarely cite actual independent research they have done or the reputable work of those without an axe to grind.

It’s fine to be a financial author with financial theories. Where’s the real research?

Market Timing Success

I always discuss the foolishness of attempting to time buying and selling securities. Occasionally, investors can luck out in such efforts. But this success can only be accidental; most timers never get out at the highs they claim, nor back into the market in time

They get media play, but check independent research and you find the market timers are generally not the success they purport to be. ( See the Earl J. Weinreb NewsHole® comments.

Trading Strategies

The purpose of my investigations of literally thousands of independent studies of strategies and investing techniques has helped me delve into ways to simplify investment techniques and permit a more successful approach to trading and investing.

Not all the panaceas that you usually read and hear about are as they are reported by the media.

I have found from experience that the average investor, as opposed to pros, does well by avoiding trading extremes. That’s possible by sticking to a disciplined, favorite strategy and then forgetting daily market prices. You don’t need constant financial news, unless your investment strategy calls for it. Relatively few strategies do. ( See the Earl J. Weinreb NewsHole® comments.

Misleading Stock Averages

I repeat what I often have to say about realistic stock potential:

They have returned about 7% above the rate of inflation for the past two hundred years. And in twenty year periods, they have outperformed bonds about 90% of the time. Yet, that figure is misleading.

These statistics conceal important facts. Someone who had invested at the market peak in 1929 would have had to wait until 1998 to reach a return of 10% on their money. (That would include dividends.) This is an after-inflation yearly return of 7%. Actual returns will differ greatly, depending on the time you actually begin investing in the market.

An S & P 500 investor from 1929 through 1949 received an after-inflation return of about 4.5%. An S & P 500 investor starting in 1932, and holding on until 1951, received an after-inflation annual return of about 10.8%. That works out to over 6% more per year.

Disciplined Strategy

The Dow Industrial Average contains some of the largest, soundest companies, and cannot be considered speculative. Yet, the market all the time will be highly volatile. So, added pressures exist for tempting frequent buying and selling.

This may be great for professionals who make up 80% and more of the market, but it can be disastrous for average investors subject to the influenced that induce market timing.

The solution? Disciplined strategy. ( See the Earl J. Weinreb NewsHole® comments.

Increasing Investment Odds

My objective has always been to increase the odds of success for all investors. Investing need not be a toss-up type of game where an investor has to outsmart someone else in order to win more often than not. All you need for investment success is better odds, not surefire winners.

What is therefore needed to accomplish all that is a special discipline. That means a strict avoidance of the media and Wall Street/financial industry distractions and noise. The latter constantly bombard the investor from all sides.

Knowing why and how to avoid these distractions, along with how to cope in the jungle-like investment environment or “noise” are the keys to investment success.

Keep Investment Strategies Simple

Investment strategies should be tailored to individual preferences and needs. What tips the odds for each investor is the discipline employed in the use of strategy. Every investor has built into the purpose for the purchase of a security, the reason to sell it. Discipline from the original intent guides that sale.

Most importantly, strategies cannot be intermingled. You sell a stock when the purpose for which you bought it no longer holds. But there must have been only one purpose. If it was excellent earnings growth and that stopped , then sell.

Note; Low price earnings is too nebulous, vague and variable, to be a disciplined strategy

Media Reportage of Big Investment Coups

The financial media often report on killings made by some of the big financial operators and hedge funds as if following them is instructive for the average reader.

However, the average investor does not have the funds, nor credit to emulate what big investors and hedge funds attempt in the markets.

The ability to borrow the necessary capital would be impossible on the terms needed. Professional have access to the multi-millions in credit for the purpose.

It makes for good, almost fiction reading for most investors who read or tune in. But it does something else. It poorly educates the mass public into thinking about financial strategy.

The Risk of Taking Media Advice

Apropos of my recent blogs on investment risks:

There is also risk of taking media investment advice. Investment advice in the media is invariably offered to all without qualifying distinctions, whether you be a professional or ordinary investor. The same to folks in their 80s and 90s as well as those ages 20 and 30.

So read between the lines carefully, as the information most likely will not apply to your age level. Nor, for that matter, your level of risk accommodation.

Investor Adviser Stupidity

I recently had a blog on the subject of investment risk.

You have sheer stupidity that goes far beyond investment risk, when those with a modicum of investment intelligence have to rely on an investment adviser.

Example: Paying 1½ to 2% or more of your assets as a minimum charge to investment advisers can represent as much as 15%, 20% and much more of your annual investment income.

That’s outright foolish; you will be receiving little practical advice in return. Unless you have never heard of unmanaged, indexed mutual funds or ETFS, what sense does it make losing that much of your investment income every year? ( See the Earl J. Weinreb NewsHole® comments.

Mutual Fund Management Risk

There are lots of forms of investment risk form. One has to do about who may be managing your mutual fund portfolio.

Investors should consider manager risk (though I personally recommend indexed funds). They are at risk in this way by choosing an investment portfolio that's fully and actively managed.

But what happens if your investment manager leaves or fails to do as well as in the past? That is manager risk and it can't be measured by past statistics alone. ( See the Earl J. Weinreb NewsHole® comments.

Investment Risk

Risk evaluation goes beyond statistical numbers, such as standard deviation. That’s a fancy term used by financial pros looking at investment portfolios.

Standard deviation need not concern individual, everyday, non-professional investors. But if you want to know, it’s the return you get from gains and losses you may expect about two thirds of the time over a year.

A well designed portfolio will consider your acceptable risk or 'risk tolerance.' Your investment time objective, age, personal psychology and investment goals are other considerations.

To avoid basic investment risk, seek out low-cost, unmanaged mutual funds or exchange-traded-funds (ETFs), those indexed to foreign and domestic standards you want to emulate. One example would be the S&P 500. ( See the Earl J. Weinreb NewsHole® comments.

Balancing Investment Portfolios

It’s evident that most investment advisers are not really certain how many stocks and bonds go into what can be considered a “balanced” investment portfolio. Certainly, an indexed, unmanaged mutual fund or an indexed ETF, will provide sufficient diversification.

But what about market risk?

What had been a simple assumption prior to the 2008-2009 financial meltdown is now subject to lots of conjecture. That’s due to the fact both stocks and bonds fell in unison at that time. And they are reacting differently during the current recovery. ( See the Earl J. Weinreb NewsHole® comments.

Media Gurus

The media create the analyst and advisory gurus who expound much of the doubtful and expensive investment strategies extant.

That advice should be avoided for many reasons having to do with accuracy and the law of supply/demand. Too many investors acting on the same advice bring on herd-like market conditions which sway short-term market pricing against investors.

To discipline this goal of avoiding the adverse effect of media gurus, you have to learn how to eliminate media noise from your life. To do so, minimize the amount of investment comments you read or listen to, and take them all with a grain of salt.

Timing the Market a Mirage

Despite the media’s encouragement, with its constant reportage enticing its public on suggestions about timing markets, repeated independent research has shown that market timing does not consistently work.

Yes, luck and chance with regard to time of market entry plays a major role. But allocation of assets and discipline of strategy are more important to investment success, rather than anecdotal accounts of who accidentally struck it rich while buying and selling on personal whim. ( See the Earl Weinreb NewsHole® comments.

Asset Allocation Facts

By employing the advantages of assets allocation well-qualified, time-tested research has shown that the bulk of investment success can be attributed to expert asset allocation. The other 10% or so is due to security selection and market luck.

This is a major blow to those who claim they can constantly outsmart each other by artful securities selection and market timing. (See the Earl Weinreb NewsHole® comments.)

Central Bank Independence

Central banks were set up on the premise that it would be best for a country to keep its financial system from undue political influences.

Over time, politicians have let their natural tendency to exert influence produce financial and economic pressures. It generally is harmful to change objective banking independence, particularly during stressful times.

Major global central banks are not doing well with regard to their current national financial crises,

In the U.S., the Federal Reserve Bank, which always has been loosely supervised by Congress, appears to be more under the influence of the White House and its fiscal policy than it had ever been in past administrations.

The Fed now goes more deeply into the American economy than it had before, aside from the additional Dodd-Frank legislation.

Invest or Trade in Proper ETFs

Un-managed ETFs or exchange traded funds, that follow or track various indexes, are a low-cost way of diversifying investments.

Apart from fulfilling your investment purpose, be sure to buy seasoned funds that have been around for awhile.

ETFs can sometimes be costly to trade. A big buy or sell order can adjust that price. That is, to a premium where the price is higher than underlying assets, or a discount, if the price is lower than the net asset value or NAV of that ETF. New, smaller ETFs may have this problem, which generally disappear when the fund is around a few years and has grown in size. You can check to see what the stated, recorded amounts of premium or discounts are on average.

Human Behavior Investing

Quite a bit of research exists on human investment behavior. Personal psychology has lots to do with the way securities markets operate.

I have mentioned in past comments, my studies and evaluations of over 1,600 investment strategies, and their pros and cons. In addition, I have always said there is no one strategy I have found better than any other. What makes for investment success is strict discipline of strategy use.

Furthermore, discipline can be mastered, with proper personalized control over the psychological hazards that beset investors.

I would suggest Main Street and Wall Street investors alike look at the work done by Kahneman and Tversky on investing behavior. It will provide a glimpse of how investors think, often to their disadvantage.

Psychology does affect the way folks make securities market decisions, by affecting the discipline I suggest.

Securities Earnings Potential

Stocks have returned about 7% above the rate of inflation for the past two hundred years. And in twenty year periods, they have outperformed bonds about 90% of the time.

However, these statistics conceal important facts. Someone who had invested at the market peak in 1929 would have had to wait until 1998 to reach a return of 10% on their money. That would include dividends. This is an after-inflation yearly return of 7%. Actual returns will differ greatly, depending on the time you actually begin investing in the market.

An S & P 500 investor from 1929 through 1949 received an after-inflation return of about 4.5%. An S & P 500 investor starting in 1932, and holding on until 1951, received an after-inflation annual return of about 10.8%. That works out to over 6% more per year.

Luck and chance with regard to time of market entry plays a major role, so be mindful of the danger of relying on averages.

Investors are lulled into complacency with the false knowledge acquired about “average” returns. They hear what securities have earned on average going back years, and they then project the figures into the future.

Overhauling Derivatives

Remember the big noise about derivatives, such as interest rate swaps and credit default swaps? Along with their connection with subprime mortgages and collateralized debt obligations? With their role in the financial meltdown? And how they had to overhauled and re-regulated?

Well, lengthy investigations were made, and Congress made its conclusions with the Dodd-Frank legislation.

The upshot? Draconian regulation was not necessary after all. The derivative markets continue to operate pretty much as they had before the ruckus that had little to do with derivatives as investment instruments. The fine-tuning was not earth-shattering after all.

The Japanese Economy

We know of of the corporate growth of Hitachi and Nissin Foods but the Japanese economy has been flat and practically dormant for the past twenty or so years. This has been the case despite huge Japanese government spending, In fact, Japan public debt is now over 200% of GDP.

Unfortunately, it does not appear their economy will recover anytime soon.

The problem for the U.S. is that the Obama administration has been on a path to “stimulate” the American economy, much the same way the Japanese did their's two decades ago. That is, spend and borrow their way to prosperity they have failed to achieve.

Blame Bankers?

Listening to public comments and opinions of those from all walks of life, most folks know little about finance and banking. Politicians on the left are among this group of the financially ignorant. If they knew more about finance, they would not be intellectually on the left.

Thus, it’s entirely understandable that bashing bankers is fashionable, especially during tough economic times. Finding scapegoats is handy. It makes up for any guilt politicians may have in helping foment economic distress.

Government excesses, such as poor fiscal policy from the White House and monetary policy from the Federal Reserve, most often produce economic problems, not bankers who become bystanders by necessity and happenstance.

What else succeeds as political ploys when all else fails? Blame bankers! Most folks haven’t a clue to disagree.

Media Portfolio Advice

Giving advice on investment portfolios without regard to a client’s age, family condition, and needs, is ridiculous. Everyone has a different investing time horizon and current and future income needs. Those factors affect the choice of securities. In turn, they influence the percentage ownership and type of stocks or bonds to be held. And where bonds are chosen, the “duration” of the bonds used.

I would strongly advise everyone to be fully aware of what duration is and how it works. Very few media pundits write on the practical use of bond duration and its adaptation to take advantage of inflation, rather than avoidance of inflation.

Much of the practical value of media portfolio advice is, unfortunately, used merely to fill up space and not to enlighten.

Credit Card Debt Reduction

When you hear a credit card balance reduction ad, two points will probably never be mentioned about credit card use.

One: you pay income tax on any amount of debt you have reduced. Therefore, cutting that balance is not as simple as it may appear. Reduce your balance by $4,000 and it’s as if you had a taxable gain.

Two: you have hurt your credit standing by resorting to such debt reduction. This may not bother you at first, but it may eventually cost you.

Another point: How many folks who have so much credit card debt, that they have to resort to drastic measures, are actually permanently getting out of debt?

You can be sure their spending habits will be getting them into the same situation again in a few years.

12b-1 Mutual Fund Fees

Most funds no longer charge 12b-1 mutual fund fees but they are still around. These were originally permitted by the SEC to allow marketing to new investors.

These actually represent a small sales load that adds up over the years. The 12b-1 charges originally were used to pay fees for the distribution of funds by brokers. But they still persist even when brokers are not involved, but are ostensibly used for sales and marketing.

My suggestion: Avoid mutual funds that charge them. Those fees become significant deductions from your accumulated holdings over the years.

High Frequency Trading

Small investors benefit from a reduction in trading costs, High-frequency trading helps, despite much of the notoriety it’s getting in the media. Among costs are the bid-ask spread.

A wide spread means the fund must pay significantly more to acquire a stock than it could sell it for.

High- frequency trading has reduced this cost by narrowing spreads, Generally, wide spreads are seen as inefficient, with buyers and sellers having difficulty agreeing on an accurate price. Narrow spreads mean the market is working better.

Another transaction cost arises from the fact that a fund's huge trades can drive prices up or down by tipping the balance of supply and demand. High-frequency trading has helped reduce "market-impact" cost by making it easier to break big trades into many little ones while transacting them very quickly,

Trading costs from spreads and market impact have been cut in half over the past decade, From 0.5% of the trade amount for big company stocks to 0.25%. For small stocks, trading costs have dropped from 1% to 0.5%. In addition, high-frequency trading helps bring out hidden liquidity.

The positives seem to outweigh the purported negatives

Don’t Overdo Credit Card Balance Transfers

Should you get offers from credit card companies to transfer your current outstanding balance to another card because of lower charges, you may be easily tempted. Especially if you have good credit, and those offers are frequently in the mail.

But remember, you may be hurting your credit score, should you take the bait.

When you make lots of credit card transfers it appears you may be applying for fresh credit.That tends to hurt your credit card score.