It's time for poker players to start putting their money to work.

[Scorpion Man]

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[ QUOTE ]
Tough one. My best shot:
1. Superior access to information (this can be gained legally or illegally or in the "grey" area where many professionals operate some of the time).
2) Superior analysis and understanding of publicly available information (some people understood the implications of the Fed's rate cutting campaign on real estate assets well before others figured it out, for example)

[/ QUOTE ]

Scorpion Man,

Come on, don't put on the "Let me tell about this thing called INVESTING" tone and then say stuff like this to beginning investors. Guys, you really shouldn't be listening to any of this if you want to have real success.

[/ QUOTE ]

OK, I erased the first paragraph I just wrote and I am trying to be Zen in the face of criticism which is not very well thought out.

I was asked what it took to consistently beat the stock market in general -- I did not take this as a "how to" question. I took it as "What do the people who are outperform in the stock market do and what abilities do they have that makes lead to their success over time.

Go ask any good long/short equity manager, show him that list, and ask what he thinks. In the space allotted, its a very precise list.

Beating the market over time in a way that is not defined by luck is extraordinarily difficult. Most people who have done it professionally are centimillionaires. You really think I can explain how they did it precisely in a post?? Can you teach me how to play 25/50NL HU in a single post?

I think you are misconstruing a few things, so to set it straight:
=I did not create this post to say "I can teach you quickly to pick stocks". In many ways its the opposite. I was posting to see if there was an opportunity to create a boutique serving poker players.
=The post you quote was not a "how to". OP asked if his parents had been lucky or good...and I was telling him the factors I would look for since he did not describe what their portfolio had been.

It is difficult to answer many of the questions here in a general fashion because they are coming from 2 types of people (and one of the types is split again)
=many folks want to get into the industry and asking questions from a professional standpoint
=others are asking about the personal portfolios, but really just want very general planning advice around which indexes to buy, etc
=still others are asking about their personal portfolios but have an interest in spending a lot of time learning about stocks

These are different audiences and the answers to them are really different...

I would love to hear, Hawk, what you thought was incorrect about what I posted and what the real way is to "real success" (which I assume you must have had from the tone of your post).

[otctrader]

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Guys, you really shouldn't be listening to any of this if you want to have real success.

[/ QUOTE ]

Ditto; I lost all interest after this -

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happy to bet the "respected" poster I am worth at least 10 and probably 50 times what he is worth

[/ QUOTE ]

To OP - No need to come here and size up your gonads; nobody here doubts you were the BSD at your firm and/or retired with a small fortune, nor do we care.

I suppose threads like this DO add some value in that they raise investing awareness to some extent. The beauty of e-banks, ACH transfers, and discount brokers these days is that one CAN throw their reserve poker bankroll into a liquid ETF (Q's, SPY's, etc...) with transaction costs no larger than pulling out a grand with the Neteller ATM card. Need to throw it back into a poker site? No big deal.

If you can manage your reserve well WRT expected variance, you can maintain exposure in equities with minimal transaction costs vs. leaving money in a crappy money market or short term debt with a real interest rate close to 0% (although I suppose that's better than letting it sit at Party or Neteller).

[Scorpion Man]

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[ QUOTE ]
Guys, you really shouldn't be listening to any of this if you want to have real success.

[/ QUOTE ]

Ditto; I lost all interest after this -

[ QUOTE ]
happy to bet the "respected" poster I am worth at least 10 and probably 50 times what he is worth

[/ QUOTE ]

To OP - No need to come here and size up your gonads; nobody here doubts you were the BSD at your firm and/or retired with a small fortune, nor do we care.


[/ QUOTE ]

Yeah, lost my temper late at night. I apologize.

[hawk59]

Scorpion,

I am a hedge fund manager. I spend zero percent of my time trying to get 'superior access to information', I also spend zero percent of my time thinking about things like the effect of Fed rate cuts or anything else like that. The way the world works is that every so often you'll see a stock where it is very apparent that you have a 95+% chance of making multiples of your money, with very little risk. And the logic behind these stocks is so straightforward that you could explain it to a 10 year old in only a few minutes. They don't come that often, but all you need is a few of these ideas every year, and when you find them you load up. And when you do this your stress level is very low and your returns are very high. People just need to realize they need to ignore everything that they think is important.

[Scorpion Man]

How much money does your fund manage Hawk? Are the primary principal, or are you an employee? The fact is that 95% of the hedge fund world spends a lot of time looking for superior information...for you to dispute that is silly. SAC, one of the top few funds on the planet, spends pretty much all of its time doing that. Disputing me on that point is just argumentative for no reason. I worked for 11 years 13 hours a day in that industry...I have an extensive contact base in the hedge fund world and I know how people spend their time.

On the few ideas every year...I think its very good advice for a professional like you. However, the vast majority (IMO 98%+) of people on these boards are not qualified to make that decision. It was certainly Buffett's approach and its a good one. But the simple fast is that the hedge fund industry, in general, does NOT work that way. Most $1B funds turn over multiple times per year.

"And when you do this your stress level is very low and your returns are very high. People just need to realize they need to ignore everything that they think is important."

To suggest that this is great advice to people on this board is Pollyanna. They cannot execute it.

[maxtower]

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Buying individual stocks is too risky to be done with money crucial to your retirement. If you think you have a talent for picking stocks, you probably want to put 80% of your savings into a diversified portfolio of non-correlated assets (think domestic and foreign stocks, real estate, bonds, commodities). Dollar cost average into your positions and rebalance once a year.
Then try picking stocks with your remaining 20%. If you are good at it, you're individual stock selections' returns will quickly surpass your earnings from your safe money.

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I don't agree with this...in your 20s there is no such thing as money that is crucial to your retirement.

Now, buying stocks when you have no idea what you are doing is another matter entirely.

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Actually, you're incorrect. Because of compounding, money saved when you are 20 is worth far more than money saved when you are over 30. Think about it this way...
If you had a good job where you could save $20k/year, you would have $200,000 saved by the time you are 30. With 9% compounding (assuming diversified portfolio), you would have around $300,000. If your plan is to retire when you are 50, you wouldn't have to save another dime. Spend your whole salary and just let compounding over the next 20 years bring you to 1.7 million. Saving money from ages 30-40 in this way would not allow you to stop saving from 40-50 and still retire with the same nest egg even if you could sock away $30,000 instead of $20k. You would have $700k less.

[Newt_Buggs]

two more questions:
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I am talking about developing lifetime habits of saving and investing, as well as developing a lifetime relationship with a financial advisor (something that most people desperately need and few do).

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I've now read several times that getting a trustworthy financial advisor is important. What exactly does a financial advisor do? My life is pretty simple at the moment since my expenses are very low and I don't have a mortgage or anything like that so I'de mainly be looking for someone to help me invest. Would an advisor be able to do anything that I couldn't do on my own by just buying index funds?


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all of the talent has gone to the hedge fund industry.

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When I did some research on my own it wasn't difficult to come to the conclusion that generally index funds are better than mutual funds. But you've mentioned more than once how much better hedge funds are than mutual. Do you have any recommendations on where to start in choosing a good one?

[fflaque]

most financial advisors don't know what they are doing, they just sell what they are told to sell.

[maxtower]

Newt,
A financial advisor will almost certainly do worse than you could on your own in a few index funds. A lot of financial advisors get paid by directing you to loaded mutual funds or if they are buying individual stocks for you then they get paid by charging you a percentage (maybe 1) of your assets. These fees would put them in the hole against a low cost index fund right off the bat, and it would be very difficult to recover unless they got lucky or had some kind of real stock picking skill that Scorpion refers to. Unfortunately anyone with real stock picking skill would not be available to you unless you had a very high networth. Since they can beat the market, their only incentive to work for someone else would be to get access to larger amounts of money than they would otherwise have, increasing their returns. Basically financial planners are only out there to guide the "my mom" types of people who know they should invest, but are too scared to do it on their own and therefore are willing (or unknowingly do so) to pay someone else to do it for them.

If you invest in index funds across several different asset classes (stocks, bonds, real estate, foreign, maybe commodities) thats really all you can do, without spending a lot of time trying to pick stocks and hoping you are the one with the luck or skill who can beat the market.

Max

[Scorpion Man]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Buying individual stocks is too risky to be done with money crucial to your retirement. If you think you have a talent for picking stocks, you probably want to put 80% of your savings into a diversified portfolio of non-correlated assets (think domestic and foreign stocks, real estate, bonds, commodities). Dollar cost average into your positions and rebalance once a year.
Then try picking stocks with your remaining 20%. If you are good at it, you're individual stock selections' returns will quickly surpass your earnings from your safe money.

[/ QUOTE ]

I don't agree with this...in your 20s there is no such thing as money that is crucial to your retirement.

Now, buying stocks when you have no idea what you are doing is another matter entirely.

[/ QUOTE ]

Actually, you're incorrect. Because of compounding, money saved when you are 20 is worth far more than money saved when you are over 30. Think about it this way...
If you had a good job where you could save $20k/year, you would have $200,000 saved by the time you are 30. With 9% compounding (assuming diversified portfolio), you would have around $300,000. If your plan is to retire when you are 50, you wouldn't have to save another dime. Spend your whole salary and just let compounding over the next 20 years bring you to 1.7 million. Saving money from ages 30-40 in this way would not allow you to stop saving from 40-50 and still retire with the same nest egg even if you could sock away $30,000 instead of $20k. You would have $700k less.

[/ QUOTE ]

I have to admit that I am puzzled as to why folks are in the "you are incorrect" camp instead of the hmmmm, that seems different than what I have heard before, can you explain why you are saying that?

It is just not as simple as you are making it out to be. Of course money compounds over time. We are talking about risk and reward. More money saved earlier at higher rates is better...that is indisputable. But we are talking about trade offs. You are assuming certain rates of return...one of the reasons I ended where I did was that I took a more aggressive approach when I could afford the risk and had a much bigger stock market "BR" than others by the time I was 30. My point about age was that you can withstand the downswings MUCH better at a young age for 2 reasons...you have time to make it back up and your assets are usually small in relation to your earnings base. 9% compounding is nice. I compounded at more like 25% for a lot of years. And, as you point out, it is a HUGE difference to do that young.

Oh. And $1.7m is not within spitting distance of retiring money unless you live in montana. even then it would suck. And you are not inflation adjusting. Much of the return you are assuming is from inflation. $1.7m in 30 yrs is (off top of my head i am sure its wrong) more like $600-700k today.