The thing about Warren Buffett is that most people don't have as much money as Warren Buffett. He makes being a long-term, strong investor look easy. It is never that easy. But most people make a fundamental mistake: They invest money that they may need soon, or can't afford to put away, then on the first market dive they panic and sell. In short, they make themselves weak holders.
To make saner decisions, you need to put yourself in a position and a frame of mind of a strong holder -- that means investing money for the long term and not wavering on your strategy, which should include buying reasonably priced growth stocks and dollar-cost averaging.
Value Hiker: Not quite sure what you are saying below but it seemed like you were advocating making one huge bet! I would never advocate that, diversity is important and no one stock should be more than 5% of the portfolio, unless you are really trying to shoot the lights out and are prepared for the potential consequences.
Re: Weekend Worrier
tokyogai
5/18/2011 9:33:26 AM
I agree. there is no one size fits all. If everyone did the same thing, the results would also be pretty poor. I think the key is like Buffet and the others. You have to do your own research and come to your own conclusions.
Broadway:
Think this way, Scott shows a common approach for general public, while I just shows my personal approach.
Warren Buffett said that most people who has no time to read annual report, do their own analysis, shall put all their money in index funds, but Buffett never invested in any index fund, he run a very concentrated portfolio, sometime one stock was more than half of his portfolio.
As Scott said before, there is no one investing method that will be suitable for everyone. Proper method is the one fit well with your experience, fund size, and risk tolence.
The hardest part of investing is to know about yourself, and select the best approach for yourself. Whenever in doubt, follow Scott's approach, because it applies to a wider range of audience.
Re: Weekend Worrier
Broadway
5/17/2011 9:09:08 PM
I'd like to see value hiker and Scott face off head ... Is it me or are they pitching diametrically opposed strategies here?
Re: Weekend Worrier
ProfR
5/17/2011 6:25:07 PM
Scott,
I think it would be great to see some ideas on how to put together portfolios within this economic climate.
the hotter the markets become!! Its no secret that summer is the time that people start to engage their money in the markets. Does it really pay off to hit the markets while its hot...lets just keep watching and see what happens
As Scott said, different investor has different approach to investing.
If you like me, a long term value investor, you shall not care about the macro-economy, geo-politics, etc. Your only goal is to find the great business at reasonable price.
It does not matter you have a big bonus or win a lottery. If you can not have a right candidate company now, you just hold on to your cash (put it in T-note or T-bill in most cases), and sit there wait. For how long, who knows, maybe couple of months, maybe couple of years. But when you find the right company, jump in big time, forget about the cliches like diversification, or dollar cost average, that is for faint heart & weak hands.
If you are a trader, you will be an idiot to sit that long on your positions and take a huge position on a single investment. Because for trader, the most important things are to cut loss fast and never bet all your money in one shot.
ProR:
You set aside at least four chunks of money to invest over three years (dollar-cost averaging). UNDER NO CIRCUMSTANCES DO YOU PUT ALL THE MONEY IN AT ONCE. You pick at least 12 stocks over time, using some kind of formula, EIther ours (we use a formula for the IU25 Index), or using something like Greenblatt's Magic Formula.
If you think it is helpful I am thinking of writing a model portfolio series for this Web site to explain to folks a way to do this.
--Scott
Re: Weekend Worrier
ProfR
5/17/2011 4:32:55 PM
I agree that investors need a long term strategy in a market like this. However, let say you just got a bonus and want to invest this now. Where do you put your money?
That's right you have to decide whether you are going to be a trader or a long-term investor. If you are a long-term investor you need as much discipline and patience as Warren Buffet. And you need a strategy. The reason I references Greenblatt's "Little Book That Beats the Market" is because he has a strategy that works in any market -- and he's proven it works.
The strong hands survive, the weak hands fold.
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