How does 34% growth per year sound since 1995 sound using the above strategy
high growth is very strongly correlated to risk. it is much easier psychologically to take big risks with a small PF, or if one is quite young, since there is not so much to lose and more time to earn it back through savings.
with increasing PF size, it eventually becomes impossible to replace PF through savings, so safety is naturally a higher priority. but making that switch in mentality, from gambler to steward, is not easy. i was leveraged 800-1000% most of 1999. the next year i was 100% equities without leverage for most of the year. a couple years later i rarely went above 50% equities. now rarely above 35%.
but there are other problems with a larger PF--we don't live in a simple world anymore, where you can trust that the dollar will be worth something in the future. therefore, it's hard (for me at least) to regard most bonds as a no-brainer.
heck, we are now even seeing spreads blow out on USTs to record levels. verily i say unto you, there is no place to hide.
me personally, i have a real hard time holding USD, especially since Paulson et al decided to nationalize the GSEs. so, i split my "cash" between JPY and teh shiny. however, my costs being in USD this inevitably leads to "tracking error" and one must be prepared to ride out the bumps.
If you've have the time to daily monitor positions and are comfortable with research, you can generate fantastic returns holding only 4 - 5 stocks
i like holding a small number of stocks myself, mainly due to laziness and also because i only like large-cap high-dividend-paying energy cos, so the pool is limited -g-. but, i have no illusions that the market can be easily beaten forever.
for all the people who think they are smarter than the market, you have not accomplished what Bill Miller accomplished. he beat the market 15 years in a row running a large mutual fund. if anyone could have confidence in his future prospects for beating the market, it would be him. if past were prologue, this guy would be the safest bet. but he underperformed SPX in 2006 (breaking his streak) and is down around 30% YTD (and that's before today's shellacking). as a result, his fund has now UNDERperformed the SPX over the past decade.
moral of story: you can beat the market fairly consistingly, or even very consistently, for a long time, only to have your ass more than handed to you over a short time period and there goes the early retirement.
so, we should try to keep some humility as active investors. personally, i consider it a fool's errand and a mug's game, but i'm doing it nonetheless. why? because i think peak oil changes everything. i think active investing is probably a bad idea in a steady-as-she-goes world, where there is steady 3-4% real growth in US GDP (honest GDP, not the fake kind put out by our govt; cf. shadowstats), but if one assumes peak oil is real then real GDP will start to contract, which is bad for just about every non-energy company in the SPX. also, with all of our financials troubles in the US, one has to wonder how long USD and other paper currencies will retain value.
i have no idea whether it will be better in the long run to do the active investing thing, but regular passive indexing has not done very well this decade, while doing "obvious" things like going long energy, gold, and shorting ABX/CRE/financials have done well, though with plenty of hiccups.
it's almost been TOO easy to do well this decade. either there are WAY too many morons running professional money (and thus leaving low-hanging froot to us amateurs), or we live in lucky times.
in any case, i don't trust it to continue. although it hasn't happened to me yet this decade, i expect to get hammered one of these years. it's unnatural for something like energy strategy to win every year. |
