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#1
10-01-2007, 04:12 PM
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10k post
In the other thread I said id cover some questions for a 10k post. Well now I answer them. Im going to start off by answering the financial management questions and then the rest since the finance part generated the most interest.
what are the best ways to increase passive income? Passive income is income you dont have to work for (for those who didnt know). Meaning, while you sit on your ass, you make money. Poker is not passive income. There are only a limited number of ways to make truly passive income as far as I know. These are primarily investing in index funds and buying guaranteed securities such a GIC, bonds, and such. Real Estate is not always passive income although it can be. Often real estate requires constant supervision. These include finding tenants, handling tenants complains, going over paper work and such. While there are companies set up to manage property for you (property managers), they charge for this service. As well, im not even convinced that real estate is a better investment that the stock market. This article ]http://ezinearticles.com/?Returns-on-Real-Estate-vs.-Stock-Market&id=639801[/url] explains that real estate returned 12% from the period 1926-current while stocks returned 11% in the same period (standard cera used for long term comparions in finance). Like any investment however, carefully selected investments can see you outperforming the averages. By the same token, a poorly selected property can under preform the market. Given that, I feel real estate uses too much of your capital in one security to make me feel safe. Diversification is extremely important when talking about your net worth and while it is extremely easy to accomplish that in stocks, it is much harder in real estate. As well there are liquidity issues. And other issues. The point being that real estate is not necessarily a good idea despite what your uncle may tell you. Passive income is not the way to make the most out of your money however, as active management in the stock market can earn you significantly higher than average returns. This is very difficult to do however, and is not recommended for 99% of investors. The reasons are numerous but the most important is the time required to do "your homework" thoroughly. This brings us to index investing and ETFs (exchange traded finds). Index investing recognizes the fact that most actively management mutual funds fail to beat the market long term. I cant link any specific paper off the top of my head but do a quick google search and you will see that this is true. The reason the mutual funds cannot beat the averages despite being run by very smart people who spend their days doing research is primarily because of the way the business is set up. This is explained a bit more in "the intelligent investor" , a great book on investing and the mentality required to invest successfully. I recommend it to everyone. Since mutual funds charge a significant fee every year for managing your money, and they often cannot provide above average returns, what are you paying for? Nothing really. Therefore the trend these days is to move your money over into index funds which work by copying the distribution of the dow, SP 500, nasdaq, ect. This means your results will mirror those indices. Of course, now they have hundred of ETFs so incase you want to buy semconductors because you are bullish on the industry, you can buy the semiconductor ETF which is a representative portfolio of all semiconductor stocks. Here is a thread that explains how you should set up your portfolio by buying only ETFs. I suggest most People read that and follow the advice. Now all that talk is not to say that its impossible to beat the market. People do, and their results are not fluke. They have the ability to pick winning companies and can earn their clients very high yearly returns consistently. Najord Defense found a very good paper on that subject, which he writes about here To sum up, the majority of people should allocate their money in the stock market using the ETF guide above or some variation based on it. However if you find opportunities that can present better than average returns then you should pursue them. However the majority of people should not. 
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#2
10-01-2007, 04:14 PM
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Re: 10k post
Ill answer the other questions when I have more time. For now, ehre is something which DciferThs just wrote which pretty much talk about the same trade off between active management and passive management.
"this seems to pop up constantly. imo there are two different widely known methodologies for involvement int he market. one is passive, strategic, investing (beta). the other is active, tactical, trading (alpha). sometimes the two commingle (i.e. in a mutual fund that has a long bias). sometimes you can separate the two (i.e. investing in an index, using futures to replicate the exposure and take the remaining $ to an uncorrelated alpha generator like a hedge fund...assuming you are good at picking managers and finding a stream like that). the point here is that alpha generation is far more like poker in that it is negative sum costs included. beta is not like poker. you can be "guaranteed" a return by simply placing money in a diversified portfolio and letting it grow. there is no such easily acheivable analogy in poker (the only one that even comes close, bust still isn't, is finding great players who need staking and investing in them. problems here are massive adverse selection and moral hazard: those who need staking are typically not players an investor would like to stake and those who don't need staking are more likely to be the highly successful players in whom an investor would love to invest. moral hazard comes from after the investment. if a player sees his losses as-partially- covered, he/she may engage in behavior that he/she would not have done if tthat money was theirs) anyways, now that i've listed all that out, the similarities between beta and poker are none that i can think of because in the markets, i think picking alpha managers is really freakin ghard, similar to the problems described above with picking winning players. there is no risk premia creation/distribution in the poker world. alpha generation though i think does have some similarities as mentioned in this thread. so if you rephrase the OP to read: "difference between poker and alpha generation" you are far more hard pressed to find a difference. the MAIN one...and a massive one...is that alpha generation is not and will never be normally distributed since the underlying process is both risky AND uncertain (i.e. the overall fundamental risks are unknown even to the participants) wheras poker is mostly just risky (i.e. 52 cards, known distribution) and thus can be modeled in that portfolio sense with a normal distribtuion thanks to the law of large #s (obviously you can start talking about the players and their deviation from their expectation. even with large #s of players, their errors could be correlated if caused by essentially the same psychological forces etc.). but overall, the DRIVER of the process in poker can be normally distributed whereas the DRIVER of the process in trading is not. Barron "
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#3
10-01-2007, 04:43 PM
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Re: 10k post
Are you planning to play pro once ur done with school? If not, how much money would it take for u to do so? IF yes, what do u think u will be doing in 10 years.
I am planning on going pro when I finish my degree this spring (on time). I thought for awhile that I would drop out because the allure of poker money is pretty strong, but I stuck through it primarily because of the limiting effect that would have had on my life. Poker is very profitable and I love it, but im sure after a few years of playing pro I will become very very bored with it. Therefore its crucial to graduate with a solid GPA and CV. Thats something that never made sense to me that I see all the time. People like us, in school, choosing the in between path. Its so stupid, yet probably most of you do it. You play 20-30k hand months in school and get mid to crappy marks. Why? If you quit and went pro you could get twice as many hands and presumably make twice as much money. Most people will cite the fact that they too want a backup plan. But what they dont realize is they havnt provided themselves with one. The job markets can be a surprising place. If you take a few years off to play cards and want to come back at 24, it can be next to impossible to get a good job. The only way to even have a chance is if you excelled at school and have a good resume. if you have a 3.0 GPA and a Bcom or BA who cares? You honestly think anyone would hire you for any sort of attractive job? The only ones available will be starter jobs. These will be low paying jobs that provide very little challenge and stimulation. It would be much more boring than poker. Therefor people trying to do both are shooting themselves in the foot. Figure out what you want and go for it, but give it your all. If that means dropping out with no looking back, fine. If that means, like me, you want the safety net of a degree, then finish school. But dont muddle around lying to yourself that you can get back into the workforce at a respectable place because it just wont happen. The world is becoming more and more specialized all the time and you have to choose what you will focus on as well, because trying to be a jack-of-all-trades will not work in this case for the majority of people. In ten years I have no idea but I imagine I will be managing my own portfolio in the stock market. I believe I have taken steps in the last 3 years that will allow me to do that even after deciding to play professionally for 2-3 years.
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#8
10-01-2007, 05:13 PM
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Re: 10k post
thanks - was looking forward to this
will read later and leave feedback
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#9
10-01-2007, 05:15 PM
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Re: 10k post
Im a college student as well and am really interested in learning all this good stuff in hopes of managing my own portfolio sometime in the future. What would you recommend I do to get started? Im a finance major and am just starting to take my core finance classes but Id really like to study in my free time and learn as much as possible. Any books/articles/websites you recommend?
Thanks
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#10
10-01-2007, 05:17 PM
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Re: 10k post
the big plus in property is leveraging your capital.
for eg. you own a property that you had to make a 20% initial deposit on adn the rest is paid for with a loan. when the value of the property increases, you get the full capital gain and not just the (20%+whatever you've paid off). disclaimer: i haven't seen any of the papers you mentioned where equities vs property is discussed
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