Investment Help

If you are seeking investment help, look at the video here on my services. If you are seeking a different approach to managing your assets, you have landed at the right spot. I am a fee-only advisor registered in the State of Maryland, charge less than half the going rate for investment management, and seek to teach individuals how to manage their own assets using low-cost indexed exchange traded funds. Please call or email me if interested in further details. My website is at If you are new to investing, take a look at the "DIY Investor Newbie" posts here by typing "newbie" in the search box above to the left. These take you through the basics of what you need to know in getting started on doing your own investing.

Sunday, June 13, 2010

Investment Musings

My basic recommendation is that investors invest at least 80% of their retirement funds in broad-based, low fee, low turnover exchange traded funds as determined by a systematic asset allocation approach that takes into account risk tolerance. This strategy overcomes the damaging impact of emotions driving the investment process in periods of extreme volatility. Defeating emotions defeats the primary long-term factor causing underperformance. Stated bluntly - it defeats getting whipsawed, i.e. buying high and selling low.

But what about those who want to "play" the market with the other 20%. I'm in this group as well as a couple you wouldn't expect - Charles Ellis (author of the classic "Winning at the Loser's Game") and Burton Malkiel (author of "A Random Walk Down Wall Street" and cataloger of evidence related to the Efficient Markets Hypothesis).

What have I learned from experience that I can offer for this 20%?

First, keep the investment in any single name to 5% and less of total assets unless there are extraordinary circumstances. If your cousin reveals that his penny stock company is announcing the cure tomorrow for all types of cancer, disregard this point and even the first paragraph--otherwise, diversify.

Second, remember that you don't have to be "all or none." For a long time I had been, and then I had a stock that I had held for over a year that had been under water from day 1. It was a biotech stock; and although I agreed with most analysts that the sector was promising, I never felt I completely understood the company. I would read about the drugs in the pipeline etc, but really didn't feel like I could explain exactly what they were involved with. In other words, they weren't exactly Krispy Kreme.

Anyways, in the library one night, in a state of boredom, I punched the stock up online to see where it had closed; and all of a sudden, trumpets started to blare and clouds parted. It was up 8 points, giving me a real nice profit at a time I could use a winner. I excitedly consulted a friend and told him I was mixed between blowing it out and holding it to see where it went. Moreover,there was really nothing in the news that explained the pop. My friend (take a bow, Andy) told me there was a third choice. You guessed it - he asked me to consider selling half. He said, "Why not play with the house's money." This was a Duh!! moment for me. This advice has served me well over the years both for stocks making surprise jumps or drops. It comes into play especially when there is a move and you are not sure why.

A final point that has helped me is to determine my actions ahead of time and then to follow through. In the tuition that is typically paid to learn investing, there is the so-called round trip where you buy a stock, it moves to a nice profit and then starts the slow descent to the runway with you kicking yourself all the way as it slowly drops back to cost and inevitably (this is what Mr. Market does!) below. Today, if I buy 300 shares of XYZ at $20, I make a mental note that, if it hits $25 or so, I'll let go 100 shares, say. And then I follow through. Where this really pays off is when you can follow through and buy a stock after it has dropped.


  1. I like your strategy of playing with house money too, but I'm too risk intolerant to "play" with any of my investment portfolio.



  2. Roshawn-
    Thanks for stopping by. Being risk intolerant is not a bad thing. I'm saying that if you want to buy individual companies or go away from the basic structure limit it to 20% max.
    There may come a day where you use some product or service and it impresses you so much that you think to yourself "...if this company is publicly traded maybe I should pick up a couple hundred of shares". Even then you need a thought out approach.

  3. i know you were kidding but a pro like you shouldn't even joke about insider trading like that. not funny. and undermines your "credibility" completely. work with a guy who doesn't even know what insider trading is? not likely.

  4. re: Anonymous
    I'm not sure what you're referring to. Maybe you misread what I said or I expressed myself poorly. I've never had insider information. Please be more specific about what you're referring to and I'll try to clear it up.