Index Funds

  • 12 Dec
    Invested In Index Funds? Your Future Self Will Thank You For Reading This

    Invested In Index Funds? Your Future Self Will Thank You For Reading This

    • I’ll discuss 5 things everyone who’s thinking about investing or has invested in index funds should know.
    • There’s only one way to properly invest in index funds, but few investors are able to stick to the strategy for a long time.
    • Index investing isn’t the cure-all, and proper portfolio allocation should be always applied.



    Introduction

    The predominant investing strategy right now is to invest in index funds which means that you own an index like the S&P 500, which is a basket of the 500 biggest businesses traded in the U.S.

    Owning part of the 500 biggest businesses in the U.S. isn’t a bad thing, but there are a few things you should know before allocating your hard-earned money to index funds. More →

  • 28 Nov
    Here’s Why You Might Want To Rethink Buy & Hold

    Here’s Why You Might Want To Rethink Buy & Hold

    • A buy and hold investing strategy sounds appealing, you buy something, forget about it for 20 years, and wake up rich.
    • However, it’s highly unlikely that such a thing happens.
    • I’ll discuss the main issues and benefits of a buy and hold strategy.



    Introduction

    Buy and hold is one of the most famous investing strategies, made even more famous by Warren Buffett himself.

    For Buffett, the idea behind buy and hold is that all you have to do is buy a wonderful business at a fair price and hold it forever. However, there are many flavors of the buy and hold strategy, and today, we’ll discuss how the strategy as a whole fits in the current environment. More →

  • 16 Oct
    Doing This Could Increase Your Returns By $2.6 Million

    Doing This Could Increase Your Returns By $2.6 Million

    • It’s somehow accepted that stock returns have been between 8% and 10% in the past. That is correct, but only for a short period in history and it’s not true for all markets.
    • We’ll discuss stock returns over the past 100 years globally which will paint a different picture than what the predominant opinion would have you believe.
    • This doesn’t mean stocks are bad investments, you just have to understand how to go about them. After all, it’s your financial life on the line.



    Introduction

    Currently, most financial advisors will state that the best rational investing pattern is to invest in index funds as it’s impossible to beat the market, and that index funds have been a great investment vehicle over time.

    That would be a correct statement, but the returns that are noted by those who are trying to sell you an index fund are cherry-picked from historical examples. But the truth looks a little different. More →

  • 26 Jun
    Don’t Follow The Herd: Why The Majority Of Investors Always Get It Wrong

    Don’t Follow The Herd: Why The Majority Of Investors Always Get It Wrong

    • Consider this, the question always remains the same: “What will my return on investment be?” But the answer changes all the time.
    • Thinking costs energy and humans prefer to let others do the thinking for them. Are you like that?
    • It’s important to know when to use history as a teacher.

    Introduction

    “Whenever you find yourself on the side of the majority, it is time to pause and reflect.” 

    – Mark Twain

    When Albert Einstein was teaching at Oxford University, he gave his senior physics students exactly the same exam he had given them the year before. His assistant was disturbed by such a mistake, but before intervening he asked Einstein whether he actually made a mistake. Einstein replied that the exam was exactly the same. The assistant was even more concerned and asked why he would do such a thing. Einstein replied, “Well, the questions are still the same, but the answers have changed.” More →

  • 21 Jun
    Diversification vs. Concentration

    Diversification vs. Concentration

    • Index funds and diversification have worked extremely well in the past 35 years, however their success can be thanked to geography, as we hear only about the success in the U.S., and to declining interest rates.
    • If the S&P 500 had the same earnings yield as when the Vanguard fund gained traction, it would be at 557 points, yes 77% below current levels.
    • It’s better to wait in cash than buy a diversified index fund now.

    Introduction

    Some investment gurus advocate spreading your portfolio across various asset classes in order to limit your risks for the same return. On the other hand, others say diversification is for idiots and for those who don’t know what they’re doing. I’ll analyze their arguments and see what the best option is for you. More →

  • 27 Apr
    The S&P 500 Only Has Sentiment To Thank For The Gains In The Last 5 Years

    The S&P 500 Only Has Sentiment To Thank For The Gains In The Last 5 Years

    • Positive sentiment alone has added 950 points to the S&P 500 in the last 5 years.
    • The S&P 500 has returned 12% in the last 5 years, but only 4.5% in the last 10 years and just 2.7% in the last 17 years. Don’t let current positive sentiment lead you to such terrible long term returns.
    • The opportunity cost might be significant, but the long term picture of not following the herd looks much better.

    Introduction

    I know that if I buy a stock with a price to earnings (P/E) ratio of 10 and stable future business prospects, my very long-term return should be around 10%, plus inflation and eventual growth. If I buy a stock at a P/E ratio of 5, my returns will be around 20%, while if I buy a stock with a P/E ratio of 20, my returns will be around 5%. It’s as simple as that, in the long term. More →

  • 26 Apr
    If You’re An Investor, Now’s The Time To Get Out Of The S&P 500, Index Funds, & ETFs

    If You’re An Investor, Now’s The Time To Get Out Of The S&P 500, Index Funds, & ETFs

    • If you only look at averages, passive investing will always outperform active due to lower fees, but you can only expect average returns.
    • The market is skewed and inefficient due to huge flows into passive funds, outflows from active funds which should be doing the thinking, and euphoric management doing large stock buybacks. This creates a highly risky situation.
    • Avoid owning index funds, ETFs, and stocks that are largely owned by passive funds.

    Introduction

    There are two investing worlds. One is the world of active investing where the fund manager you hired analyzes company after company and invests in those they think are the best. The passive manager simply disperses your funds over an index where you will perform exactly as the market performs. With passive investing, fundamentals, dividends, growth, sales, scandals, and business trends don’t matter at all. More →

  • 19 Apr
    The Next Bear Market Is Coming. Here’s Where It Will Start.

    The Next Bear Market Is Coming. Here’s Where It Will Start.

    • $2 billion a day flows into Vanguard to be mindlessly invested in the market through index funds.
    • When the only reason people invest is because staying on the sidelines means getting sore while others get rich, it usually spells trouble ahead.
    • When the investors plowing $2 billion per day understand what are they buying at extreme valuations, the next bear market will arrive and it will be terrible as the buying reverses to selling.

    Introduction

    A recent The New York Times article described how Vanguard, the $4.2 trillion mutual fund, is the fastest growing fund due to the attractiveness of passive investment vehicles and the average 0.12% fee the fund charges. The low fee is something I applaud as I strongly believe fees in the financial world should be minimal or performance related where nothing is paid if the manager doesn’t deliver. More →

  • 15 Mar
    There’s Only One Reason The Markets Are Rising & Nothing Can Be Done About It

    There’s Only One Reason The Markets Are Rising & Nothing Can Be Done About It

    • Everybody knows the market is extremely overvalued and risky, but nobody cares as long as it goes up.
    • Funds keep flowing into U.S. equities despite the fundamentals. This will be very painful when the trend reverses.

    Introduction

    We all know that in the long run, our investment returns are perfectly correlated to the underlying performance of the businesses we own in relation to the price we pay for ownership. If the price is high, our returns will be weak. If what we buy is cheap in relation to underlying earnings, our returns will be great or even amazing. This is a universal truth. However, there are some issues with it.

    The first is that even if most agree on the strong correlation between earnings and stock returns, very few like to think about the long term and instead prefer to only think about the short term. In the short term, stock returns are driven by equity flows and there is nothing that we can do about it even if it has been statistically proven that long term returns are perfectly correlated to underlying earnings and the greatest investors, like Ray Dalio and Warren Buffett, keep reminding us of this fact. More →

  • 07 Mar
    The Superinvestors Of Graham And Doddsville – Is Buffett A Hypocrite?

    The Superinvestors Of Graham And Doddsville – Is Buffett A Hypocrite?

    • According to Warren Buffet in 1984, investing and beating the market is simple: just use value investing and a margin of safety.
    • For this market, value investing is irrelevant. However if things change, value investing will become essential.
    • Spoiler alert: What I’ve written in this article you will either immediately like or totally disregard. Unfortunately, the latter will have a negative impact on your wealth.

    Introduction

    One short, 15-page article holds more investing insight than all the content published by the media in a year. It’s Warren Buffett’s article The Superinvestors of Graham and Doddsville.

    As the article was written in 1984, it gives you the real, non-political and unconstrained Buffett. Today’s Buffet is a hypocrite because he is forced to say index funds are a good investment even though stocks are at valuations he would never approve of. He has become so big that anything opposite to positive statements would lead to a possible market meltdown. Plus, don’t be confused by the fact that he recently bought $12 billion of stocks, as he bought into extremely cheap sectors, you can read more about that here.

    Today, I’ll summarize Buffett’s article and put it into today’s context. More →

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