patrick.net

One problem I have with bonds is that they are denominated in units of fiat currency.

Another problem is the risk of bankruptcy. It happens. Even Treasuries, well, I remember when Trump suggested giving a haircut to holders of US Treasury debt. It could happen.

At least with stocks, we own an equity slice (sliver) of the company, regardless of the value of the fiat currency that's used to "price" it.

Mutual funds are the essence of investing.
You can't buy stocks yourself and be properly diversified unless you have thousands of dollars.
The minimum investment at Vanguard is $3000; at Fidelity it's $100 for some of their funds.

One of my mutual funds at Vanguard charges me $500/$100,000 invested, per year.
Others charge more; still it's not a bad deal for professional management.
The guy managing my fund is likely a Stanford, UPenn or Harvard MBA with years of experience.

I have a few bucks in a Fidelity Zero fund which charges me $0/year management fee. It's a gimmick but it's OK.
Over the long time periods studied, a balanced fund gives a reasonable return compared to 100% stocks but at lower risk or "fluctuation".
One fund which I own is Vanguard Wellington, one of the oldest mutual funds in the USA, it's balanced 60:40 stocks;bonds.
Rising interest rates will make bond values drop; I have two funds which are just bonds and their NAV is lower since they started raising rates.
However, I use that interest to have spending money so I don't worry if the NAV fluctuates down a little bit.
I have dabbled buying individual stocks which has been fun; my home run was AAPL.
John Deere and Microsoft are good too.
BABA (everyone LOVED this stock) sucks; WFC (Buffet loved it) sucks; ROKU was good then took a dive.
I think if you don't like bonds stocks which pay dividends are pretty good to own.

https://www.msn.com/en-us/money/markets/more-pain-to-come-for-stocks-as-s-p-500-likely-to-bottom-around-3-300-interactive-brokers-founder-says/ar-AA120dR6

‘More pain to come’ for stocks as S&P 500 likely to bottom around 3,300, Interactive Brokers’ founder says

“I think there is more pain to come. I expect the market to bottom out around 3,300. As interest rates indicate today, the Fed still has quite a bit of work to do,” — Thomas Peterffy, chairman and founder of Interactive Brokers

clambo says

Mutual funds are the essence of investing.

I'm with you, clambo.

Like with the bonds, bankruptcy is a tangible risk with individual stocks. To diversity I use the index funds.

If I had the resources to build a diverse portfolio of stocks (maybe I do), it would be a full time job keeping track. Easier to pay the itsy bitsy management fee at Vanguard (and Fidelity) for their index funds.

Because I am a Lazy Ass.

"You know, we think diversification is—as practiced generally—makes very little sense for anyone that knows what they're doing...it is a protection against ignorance. - Warren Buffett

Bond funds haven't fared so well in this environment. So, the 60/40 portfolio has been a guaranteed loss in this environment. Index funds had their run, but in a bear market, I don't see the point. I've been running with inverse funds on each index this year and outright shorting non profitable tech stocks. I think the best way to hedge market downside is to open up short positions.

Diversity is a protection against the unknown events which will make you lose your money.
Some mutual funds are more diverse than others which may own fewer than 100 stocks.
Buffet also said Wells Fargo was his favorite stock.

Anecdote about non-diversification:
My father's ancestors founded Wachovia Bank. He inherited some shares. I advised him to sell the shares and buy a mutual fund. I said to just walk into a Fidelity store nearby and buy a stock or balanced mutual fund. If he needed any help, to call me when he was there.
He did not follow my advice and in late 2008 he lost $600,000 because Wachovia became almost worthless.
He got a penny on the dollar in Wells Fargo shares.
He was well into his 80's when this happened so he continued to work to "make back" that $600,000.

Diversification also ensures you lose money in broad market selloffs. Although, I might argue, with no exposure to the short side, you lack diversification.

clambo says

Diversity is a protection against the unknown events which will make you lose your money.
Some mutual funds are more diverse than others which may own fewer than 100 stocks.
Buffet also said Wells Fargo was his favorite stock.

Anecdote about non-diversification:
My father's ancestors founded Wachovia Bank. He inherited some shares. I advised him to sell the shares and buy a mutual fund. I said to just walk into a Fidelity store nearby and buy a stock or balanced mutual fund. If he needed any help, to call me when he was there.
He did not follow my advice and in late 2008 he lost $600,000 because Wachovia became almost worthless.
He got a penny on the dollar in Wells Fargo shares.
He was well into his 80's when this happened so he continued to work to "make back" that $600,000.

Something like this happened with my dad. I kept telling him to do something about it, but if he sold he'd have a tax bill, which he was loathe to pay.

I told him, well if you're so worried about that, sell a portion each year. Or sell half, you'll only be half wrong (or half right). Nope. Didn't want to pay the tax. The company went bankrupt and the shares turned to vapor.

He got his wish. He didn't have to pay the tax.

theoakman says

Diversification also ensures you lose money in broad market selloffs. Although, I might argue, with no exposure to the short side, you lack diversification.

Too lazy, Hipster.

We reach a point where the value of the reinvested dividends exceeds the original amount we invested.

B.A.C.A.H. says

Because I am a Lazy Ass.

It's not being a lazy ass. It is acknowledging that the markets are always rigged, and you aren't in on the rig and can't possibly compete with insider trading (a la Pelosi) or sophisticated AI machine timing. The best you can do is tie your boat to a diversified pier and let the tides make the decisions.

The dartboard portfolio published for a while by the WSJ, in which random darts thrown at a basket portfolio, outperformed the suits and 'experts' the majority of the time, is what convinced me.

The Federal Reserve didn't cause inflation, they don't give free money away, Congress does.
Does your government "stimulus check" have "Federal Reserve" on it?
No, it has US Treasury on it.
Interactive brokers guy can say whatever he likes, but the Federal Reserve can only wreck the economy.
You're at the barbecue and you have a fat fire: "hey someone pass me the squirt bottle with water."
Powell runs over and throws a bucket of water on the grill: "There, I fixed it!"

B.A.C.A.H. says

theoakman says

Diversification also ensures you lose money in broad market selloffs. Although, I might argue, with no exposure to the short side, you lack diversification.

Too lazy, Hipster.

We reach a point where the value of the reinvested dividends exceeds the original amount we invested.

This - DRIP always on individual stocks. I've held CanRoys for several years, and despite the swings, the 8% dividends reinvested more than makes up for the dips.

How To Hold A Stock For 20+ Years

https://acquirersmultiple.com/2022/11/joel-tillinghast-how-to-hold-a-stock-for-20-years/

Don’t judge a stock by its price!

https://economictimes.indiatimes.com/markets/stocks/news/dont-judge-a-stock-by-its-price-thats-one-of-tillinghasts-stock-picking-secrets/articleshow/82115552.cms

DD214 says

How To Hold A Stock For 20+ Years

Buy stock, and don't sell it for 20 years. Easy enough to do it. I've done it many times. It's easy enough to buy a stock and collect dividends for decades. I don't know why someone feels the need to write an article about it.

zzyzzx says

It's easy enough to buy a stock and collect dividends for decades. I don't know why someone feels the need to write an article about it.

LOL!

Outlook for 2023: The stock market will ‘easily’ fall to ‘pre-COVID levels’ – Gareth Soloway

https://biz.crast.net/outlook-for-2023-the-stock-market-will-easily-fall-to-pre-covid-levels-gareth-soloway/

Windfalls await investors in ammunition. There may be a great future in defense production, thanks to near-empty armories

https://asiatimes.com/2022/12/windfalls-await-investors-in-ammunition/

Then again on the other hand

South Korea trade deficit heralds coming global crisis. Previous two Korean trade deficit peaks presaged major economic and financial crises in 1997 and 2008

https://asiatimes.com/2022/12/south-korea-trade-deficit-heralds-coming-global-crisis/

DD214 says

South Korea trade deficit heralds coming global crisis.

I read the below section, and expect electronics to get further hammered in 2023 and 2024. There was a buying binge from 2020 to 2022 of computers, TV's, etc. Look at the Intel stock chart. Its going to take a few years to recover.

==========================================

"In January-August 2022, semiconductor exports fell by 49.4% from 2021 to $36.2 billion. Semiconductor exports accounted for 7.7% of South Korea’s total exports in 2022, down from 17.7% in 2021. This is the biggest drop among all South Korean export categories.

China is South Korea’s main export destination for semiconductor-related products. In recent years, China has imported over 40% of South Korea’s semiconductors. In the first eight months of 2022, South Korea exported $12.2 billion of semiconductors to China, a year-on-year decrease of 58.9% from 2021."

ad says

https://www.msn.com/en-us/money/markets/more-pain-to-come-for-stocks-as-s-p-500-likely-to-bottom-around-3-300-interactive-brokers-founder-says/ar-AA120dR6

‘More pain to come’ for stocks as S&P 500 likely to bottom around 3,300, Interactive Brokers’ founder says

“I think there is more pain to come. I expect the market to bottom out around 3,300. As interest rates indicate today, the Fed still has quite a bit of work to do,” — Thomas Peterffy, chairman and founder of Interactive Brokers

Did he put an expiration date on this particular prediction?

RWSGFY says

Did he put an expiration date on this particular prediction?

Good point, as the article quoted Thomas Peterffy in September 2022. The S&P 500 dropped to 3490 in October 2022, which is about 28% below its all time high of 4818 and close to the February 2020 (pre - pandemic) all time high.

The real or inflation adjusted return of the S&P 500 is negative from February 2020 to October 2022 accounting for inflation.

So I would say the October 2022 correction was the market's response to Federal Reserve policies; and the response is based on 6 to 12 months from October 2022.

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