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DavidV

Help me with my investment strategy

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I use the term speculation to mean that part of the productive process where one is focussed on forecasting (speculating). This is a conceptual "peeling away" of a process that may not actually be a separate activity. For instance, every investment -- for that matter, every action in life -- can be said to contain an element of speculation. A few classical economists used the term in that sense (and, if my memory serves, so does Graham and Dodd's book).

Thank you. I guess I was just a little jumpy about the way speculation is regarded. Peter Schiff has his followers and he seems to regard speculation in some undefined negative manner.

Speculation is the strictest sense would be a profession. That is, it is something a person would do to earn their daily bread, and I expect if they are good at it, their fortune. But, I do believe you are correct, since speculation is mostly concerned with prices and all investment will be concerned with the price of assets.

Edited by C.W.

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If this was actually possible, I could have retired by now. It takes a Wall Street analyst to make those kinds of predictions - and even they rarely outperform the market.

Well, it's hard. But another factor at play is the sheer size and amount of capital they have to invest. Institutional investors may not invest in smaller companies simply because they have too much capital. I remember Warren Buffet talking about this also...the gist was that, and I am paraphrasing what he said: "it's easy to take $100 or even $1,000,000 and double it, but it's incredibly hard to double up on $1 billion or $100 billion"...in stocks, I think it's more common to see a $2 stock double to $4 than it is to see a $50 stock double to $100. Of course, it's not impossible by any means for the latter to happen...but I'm sure you can imagine the sheer amount of value creation that would have to be done to make Berkshire Hathaway's stock double in value in 12 months versus, say, some small start-up company.

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Here's an update a year later.

2009:

post-1-022634300 1286371996_thumb.png

2010:

post-1-014762400 1286371907_thumb.png

Green is my investment account (stocks), brown and black are my retirement accounts (gold & high-dividend yields).

As you can see, I didn't do as well in 2010 as in 2009. This was unsurprising, since the stocks have rebounded but the economy is not recovering. I'm still beating the S&P by a healthy margin with minimal additional risk.

I've accumulated an excess of cash because I am making some big lifestyle changes and may need it soon. I don't know what a safe near-liquid investment would be though.

Also, I have no bonds - which is a problem, but I don't know enough to pick them yet.

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On 1/23/2009 at 6:52 PM, DavidV said:

My strategy is:

 

  • 1/3 precious metals – Physical bullion, GLD, and mining ETFs
  • 1/3 S&P 500
  • 1/3 foreign stocks & currencies
  • Get a discount warehouse club membership and hoard supplies

 

My assumptions:

 

  • The dollar will fall dramatically, along with most domestic stocks. (0-2 years)
  • Gold will rise (0-3 years)
  • Foreign markets will crash when U.S. debt is discovered to be worthless (0-7 months)
  • Unburdened of worthless U.S. debt, foreign markets will outpace USA (1-10 years)

Have you ever gone back and revisited which parts of that strategy was responsible for the bulk of your returns. Similarly, have you evaluated which of those assumptions turned out well?

I've had cases where my assumptions turn out one way, but the strategy turn out different. Fortuitous when the assumptions prove false, but the strategy still works: which highlights some mistake in the link I was making between assumption and strategy.

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On 8/8/2016 at 7:13 AM, softwareNerd said:

Have you ever gone back and revisited which parts of that strategy was responsible for the bulk of your returns. Similarly, have you evaluated which of those assumptions turned out well?

I've had cases where my assumptions turn out one way, but the strategy turn out different. Fortuitous when the assumptions prove false, but the strategy still works: which highlights some mistake in the link I was making between assumption and strategy.

Let's do that now:

I split my portfolio into 3 equal parts at start of 2009.

I would have done better if I had gone 100% S&P 500.  It's fair to say my doomsday predictions were quite wrong (or at least too early).  I did quite a lot better than the markets in 2009 and 2010, but did not sell when gold crashed in 2013+, and slightly trailed the market from 2011 on when foreign markets stalled while the USA boomed. 
 
In conclusion, while I had some good and bad luck, I mostly matched the overall market.  My superior returns were mostly due to luck.  The one smart thing I did was to invest every penny I had when the market was worst, specifically in the assets which suffered the most.   I that again in January 2016 with similar success.
 
This post and the upcoming one cover the lessons I learned from investing on my own.

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On 8/9/2016 at 3:01 PM, DavidV said:

It's fair to say my doomsday predictions were quite wrong (or at least too early).  I did quite a lot better than the markets in 2009 and 2010, but did not sell when gold crashed in 2013+, and slightly trailed the market from 2011 on when foreign markets stalled while the USA boomed. 

Are you still concerned about the doomsday scneario and holding onto your gold?

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12 hours ago, happiness said:

Are you still concerned about the doomsday scneario and holding onto your gold?

I have this vision of people squirreling away some gold. Then, there's a great depression and a government like Roosevelt's says that everyone must turn in their gold to the Federal reserve. The squirreler does not do so, but does he have the guts to use his gold coins on the black market, trading with some thug, and risking jail-time? Maybe he does. Then, "doomsday" really comes and the thug he did a couple of transactions with comes to his home and simply takes his remaining gold.

I still think one can legitimately buy gold, but one needs to think through the concrete reality of the scenario of any doomsday. Also, I forget whether David mentioned, but his Gold might be something like GLD, which would work in certain types of financial crises, but not in true doomsdays.

Edited by softwareNerd

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