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#1
08-10-2007, 09:58 PM
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Re: Jim Cramer\'s nephew gives awful advice too
[ QUOTE ]
For example, I work for a Kellogg business school professor during school. One of the things I do is to make a spreadsheet detailing his trading gains and losses. He basically follows Kramer's advice, and those positions that he has followed his advice have lost him quite a bit of money. [/ QUOTE ] Ummm...if you're a business prof. at Kellogg, why the [censored] are you following Cramer's picks? I suddenly feel a lot better about myself. 
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#2
08-10-2007, 01:39 AM
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Re: Jim Cramer\'s nephew gives awful advice too
[ QUOTE ]
This is pretty sound advice. I'm 23, work in finance, and know a number of people who basically do this. [/ QUOTE ] Elaborate on "work in finance". [ QUOTE ] The reason to speculate is very simple: you are compensated for higher risk with higher returns. This is why on average, US bonds return worse than US stocks, and Emerging Market stocks do better than US stocks. If you are 20 and not planning on retiring until your 60s, then you can afford to handle volatility in your retirement portfolio. Your goal should thus be to maximize your returns, not to worry about risk adjusted returns. [/ QUOTE ] What you miss is that active trading of volatile stocks is not equal to buying emerging market index funds. Following the article's advice you have a bunch of financially challenged, inexperienced investors aggressively trying to beat the market. How does this end well for the majority of them? J
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#3
08-10-2007, 02:02 AM
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Re: Jim Cramer\'s nephew gives awful advice too
[ QUOTE ]
[ QUOTE ] This is pretty sound advice. I'm 23, work in finance, and know a number of people who basically do this. [/ QUOTE ] Elaborate on "work in finance". [/ QUOTE ] aka, works for one of the top finance shops. [ QUOTE ] [ QUOTE ] The reason to speculate is very simple: you are compensated for higher risk with higher returns. This is why on average, US bonds return worse than US stocks, and Emerging Market stocks do better than US stocks. If you are 20 and not planning on retiring until your 60s, then you can afford to handle volatility in your retirement portfolio. Your goal should thus be to maximize your returns, not to worry about risk adjusted returns. [/ QUOTE ] What you miss is that active trading of volatile stocks is not equal to buying emerging market index funds. Following the article's advice you have a bunch of financially challenged, inexperienced investors aggressively trying to beat the market. How does this end well for the majority of them? J [/ QUOTE ] i didn't read the article, but i can see what rsliu is getting at. his point is not to go willy nilly taking on non-diversifiable trading risk (for the sake of having a more risky portfolio). his poitn is that it may be the case that owning a diversified optimal portfolio is dominated by an absolute riskier risk premium collection strategy that concentrates on higher risk (and thus higher reward, but lower sharpe ratio) investments. i.e. imagine 2 portfolios: portfolio A) .6 sharpe ratio targeted at 10% risk annually...think aboutt he portfolio i'm always blabbering on about portfolio B) .35 sharpe ratio targeted at 20% risk annually...think about a emerging market, small cap, growth dominated, leveraged portfolio which portfolio will return more over rolling 5, 10, 20, 30, or 40 year periods? i don't know, but it may be the case that the drawdown induced losses from the riskier strategy are offset by the compounded gains during good periods for the riskier, higher rewarding portfolio. EDITted to make the portfolio's returns not equal (expected return on portfolio A=6%/year B=7%/year) rsliu makes a good point and one that warrants further investigating via simulation and backtesting. Barron
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#4
08-10-2007, 06:20 PM
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Re: Jim Cramer\'s nephew gives awful advice too
[ QUOTE ]
What you miss is that active trading of volatile stocks is not equal to buying emerging market index funds. [/ QUOTE ] ...what's your point? In other news, bananas don't taste like oranges and anyone who tells you they do is dead wrong. What exactly are you trying to say? [ QUOTE ] Following the article's advice you have a bunch of young financially challenged, inexperienced investors aggressively trying to beat the market. How does this end well for the majority of them? [/ QUOTE ] It ends well for the majority of them in that they are still at a point in their lives where accumulation of experience and knowledge is a lot more important than paper profits or growing a "nest egg," and the only sure way of doing that is to get out there and fall flat on your face a couple of times. Once they have that experience, their odds of becoming successful investors down the road increase exponentially. Kirk
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#5
08-10-2007, 06:57 PM
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Re: Jim Cramer\'s nephew gives awful advice too
[ QUOTE ]
It ends well for the majority of them in that they are still at a point in their lives where accumulation of experience and knowledge is a lot more important than paper profits or growing a "nest egg," and the only sure way of doing that is to get out there and fall flat on your face a couple of times. Once they have that experience, their odds of becoming successful investors down the road increase exponentially. Kirk [/ QUOTE ] People like to claim that you have to fail a few times to really be successful or have a chance at being successful. I don't get that at all. Why do you feel that way?
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#6
08-10-2007, 09:42 PM
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Re: Jim Cramer\'s nephew gives awful advice too
[ QUOTE ]
People like to claim that you have to fail a few times to really be successful or have a chance at being successful. I don't get that at all. Why do you feel that way? [/ QUOTE ] Because the people that have tried something and were instantly successful at it - while they do exist - are outliers on the chart of human experience. The vast majority of us have had to try something over and over, and fail over and over, before we learned enough from our mistakes to succeed in the chosen field. More importantly, though, the experience teaches perseverence (sp?) and makes you emotionally tougher for when in the future everything goes against you all at once, as things usually. Having had the experience of trying, failing, and then eventually succeeding in the past gives you the psychological fortitude to withstand the swings when they happen again. On the other hand, someone that just took something up and was instantly successful at it simply wouldn't know how to deal with a bad streak because he hasn't had the experience... yet. I'm sorry if all of this sounds like some psycho-babble but I really do believe it to be true. Kirk
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#7
08-10-2007, 02:03 AM
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Re: Jim Cramer\'s nephew gives awful advice too
[ QUOTE ]
This is pretty sound advice. I'm 23, work in finance, and know a number of people who basically do this. The reason to speculate is very simple: you are compensated for higher risk with higher returns. This is why on average, US bonds return worse than US stocks, and Emerging Market stocks do better than US stocks. If you are 20 and not planning on retiring until your 60s, then you can afford to handle volatility in your retirement portfolio. Your goal should thus be to maximize your returns, not to worry about risk adjusted returns. [/ QUOTE ] No. What he is saying is basically buy random small cap stocks and gamble. Then if you lose, you start over with a "conservative" philosophy at 35. Well here is the issue with that. If you invest the $2000 he says is all you can save at 25 each year and get 10% returns, at age 65 you will have $1,170,198.03. (Start 3 years earlier right out of college and you have $1,584,661.41). If you get the same returns saving the same amount starting at age 35, you have $419,562.35. (Got that using a calculator on moneychimp.com, ignores taxes and inflation). Um, that is pretty significant. In fact, you would have to save nearly $5,700 a year in order to start saving at age 35 and have the same $1.1 MM at age 65 that you would have if you start at age 25 and save just $2000 per year. Now, for the sake of argument, you could use probabilities to see what you might end up with if you speculate. For example, if you give yourself a 25% chance to earn 20% returns for those first 10 years saving and speculating $2000 each year, and 50% chance to break even, and a 25% chance to lose 20%, (and then passively invested at 10% returns with $2000 annual contributions for the next 35 years) you would have about the same as if you just passively invested from age 25. And you'd have done a whole lot more work picking those stocks. NOTE: you might object to my percentages, I just pulled them out of my ass. If anyone has better ones to use, go for it. I'd say passively going for the index fund returns is the better bet for most people who either don't have time or don't have the ability to really research speculative stocks. Also, what do you when you say you "work in finance"? This is a finance board - we know what the different jobs are here.
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#8
08-10-2007, 02:06 AM
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Re: Jim Cramer\'s nephew gives awful advice too
I think it's a good article. The average subscriber to thestreet.com is orders of magnitude more market savvy than the typical schmuck buying Money at Safeway to read their ten-thousandth article on how to buy index funds.
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