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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: John McCarthy who wrote (93425)	1/27/2009 2:06:29 AM
From: benwood	1 Recommendation Read Replies (1) \| Respond to of 116555

Ultimately it must be quite a downer to be right in such a fundamental and contrarian way and still end up losing money. But as most of us saw in October and November, that wasn't hard to have happen.

To: John McCarthy who wrote (93425)	1/27/2009 11:48:31 AM
From: Bill on the Hill	2 Recommendations Read Replies (1) \| Respond to of 116555

Karl Denninger comments on Schiff and trading your own money. market-ticker.org A rather "sharp" and long missive from Mish (who I happen to like) eviscerating Peter Schiff makes clear the problem with chasing "gurus" and listening to them: "I would like to see some proof of that statement. Specifically I would like to see the average returns posted by EuroPacific clients for 2008. I have talked with many who claim they have invested with Schiff and are down anywhere from 40% to 70% in 2008. There are many other such claims on the internet. They are entirely believable for the simple reason Schiff's investment thesis was flat out wrong." Eek. For the record, 2008 annual returns in a diversified S&P 500 index fund were better than that. Bigtime negative but down 40-70%? No. If you had an over-concentration in financials - especially the wrong ones (e.g. WaMu, etc) you could easily have "achieved" that in the US markets, but in a diversified index-based portfolio that tracks the S&P 500 (or just bought it), no. But this sort of "performance" belies the pitfalls of having someone else run your money for you, chief among the problems being that nobody cares about it as much as you do. Mish makes a number of good points in his screed, which I highly recommend that everyone who is a Market Ticker fan go read in full. One of the most-important factors he cites is lack of correlation. I'd like to back off that even a bit more and point to something that most people ignore but definitely should not - and that is beta. What is Beta? Beta is roughly defined as "risk". That is, if you have a Beta of 1.0 against the S&P 500 then your portfolio loses or gains as much as the S&P 500 does. It is my opinion that one of the first rules when figuring out where to stuff your money is what beta you are willing to accept. Many people on Tickerforum are running leveraged trading strategies that have full-portfolio Betas of 2, 3, or even 10! When you're right this is great - when you're wrong you get nailed hard or even wiped out. In a bull market my goal is to maintain a beta of roughly 0.5 (that is, half as risky as the SPX) and yet obtain a long-term multi-year return of 9% or better. But I am "effectively" retired; I live on my portfolio and trading, and if I lose the lot or get hit with a 50% drawdown I'm done in terms of being able to maintain my lifestyle - I will either have to go back to work "full time" doing something (not because I like it but rather because I have to) or accept that I'll be a social-security dude living in a trailer (if Social Security exists in another 20 years!) OR just put a gun in my mouth when the money runs out. Since that's not an acceptable outcome I am much more risk-averse than many. The problem with having someone else run your money is that they can't possibly understand these issues as well as you do. They also don't care as much as you do. They get paid off either commissions or "profit sharing and fees" (in the case of "hedge style" investments); either way they make money whether you do or not. In fact this is the problem with so-called "investment managers" - I've yet to see one that charges you nothing when they lose against some benchmark. That is, if you're in an all-equity portfolio then IMHO you should not pay anything for management if the portfolio on an annual basis cannot beat a benchmark that matches the portfolio's exposure. For many diversified large-cap portfolio strategies the S&P 500 index appears to be a reasonable benchmark. After all, why would you pay anything for management that is less successful on an objective basis than simply buying an unmanaged index that has a one-time all-in cost in a an online brokerage of $20-50 round trip (in and out) to handle a half-million or more in funds, or in fact can be done for zero using a mutual fund company like Vanguard? Such "management structures" are not, to my knowledge, offered - by anyone. Various managers have solicited me over the years and all have said such a structure is "illegal". This, by the way, is a lie - Hedge Funds have something similar in that they have high-watermarks and both performance and base fees, so clearly, such a structure is legal - at least for qualified investors. Yet this is not offered. Why not? The answer is obvious and simple - no manager would survive the first time he lost against the benchmark, and most of them do. He wouldn't get paid and would shortly be out of business. Are there valid reasons to use a "professional manager"? Yes. If you simply don't have time to care for your money, then its a choice. But again, why not simply use a timing signal like the 20/50W that I've outlined in the past and do it yourself? We're talking about something that takes literally 2 minutes a week to watch and moves money once every few years - how much time did you say you didn't have again? You spend more time brushing your teeth Saturday morning than it takes to run a strategy like that, and it's a monster proven winner compared to the clowns who lost half your money - or more - over the last year. For those who want to pay for "superior performance" I argue that you damn well ought to get what you are sold or you shouldn't be charged. There are a few managers who have consistently (in both Bull and Bear markets) beaten the indices and a handful who didn't lose your shirt (and socks!) in this latest drawdown, but you can count the ones with a consistent record of being able to do this on your fingers and toes - although they all claim they can and will. Then of course there is the risk of getting Made-Offed. That's catastrophic, and it happens more than you'd think when you turn over the keys to your treasure chest. The truly bad news is that it only has to happen once to ruin you. For these reasons I have and will run my own money, and refuse to run anyone else's, because I've proved that over more than a decade I can hit those return numbers and live off my portfolio - and I firmly believe that everyone should do it themselves rather than "hire it out." Yes, there are times I underperform my personal benchmarks, but on average the metrics and risk levels are met, and I always know - with certainty - exactly where my money is every night.

To: John McCarthy who wrote (93425)	1/27/2009 9:24:24 PM
From: Proud Deplorable	5 Recommendations Read Replies (1) \| Respond to of 116555

I think Schiff is great and try not to miss anything he says. I believe he is right about most things and is not underestimating the severity of the world financial situation but I realize he isn't perfect. Seems like there is a war going on between analysts these days. He's been dead on wrt real estate. But I didn't follow his advice on investing overseas as I didn't feel right with that assessment of his. By now all the rich speculators are feeling major pain which suits me fine because I am against the concept of flipping homes when people are homeless. Its unethical and represents everything bad about capitalism. Unlike most I see the whole system as rotten and if it collapses and big corporations fail then this is good as it will undo all the bad that's happened in our society in the last 40 years and hopefully eventually bring back free enterprise and ma and pa businesses. Down with Walmart and the rest of the controllers