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S.Korean stocks tumble to end at near 4-wk low, won at 2-wk low

News KOSPI - Mié, 09/06/2017 - 08:56
S.Korean stocks tumble to end at near 4-wk low, won at 2-wk low
Economic Times - Sep 6, 2017 The Korea Composite Stock Price Index (KOSPI) closed down 0.3 per cent at 2,319.82 points, the lowest closing level since Aug. 11. S.Korea stocks fall again on worries about North Korea - Reuters
Categorías: Noticias sobre Indices

¿De verdad Singapur es un milagro económico?

LaVueltaAlGrfico - Mié, 09/06/2017 - 07:46
Es necesario tomarse algún tiempo para ver cosas nuevas, inspirarse, abrir la mente y por supuesto descansar. En estas vacaciones he podido visitar algunos lugares del sudeste asiático y como digo siempre a todo el mundo cuando vuelvo de esta parte del globo: “el sudeste asiático nunca defrauda”. Hoy me gustaría hablaros del milagro económico que representa Singapur, una ciudad estado de

Frequently Asked Questions: Morningstar Rating for Funds

Morningstar Noticias (Ingles) - Mar, 09/05/2017 - 20:00
We look at some of the most common questions about the Star rating for mutual funds.
Categorías: Articulos sobre fondos

36 Obvious Investment Truths

http://awealthofcommonsense.com - Mar, 09/05/2017 - 14:45
I saw the following headline on CNBC last week: This was the first response that popped into my head, as shared on Twitter: If you're worried about protecting against 5% corrections you shouldn't be invested in stocks in the first place https://t.co/jDmpLHfxSS— Ben Carlson (@awealthofcs) August 31, 2017 This is fairly simple, and some would say obvious, advice on the markets but sometimes investors need to ...

The Cobra Effect

https://ofdollarsanddata.com - Mar, 09/05/2017 - 12:50
The Law of Unintended Consequences and the Risk of Owning BondsPhoto: Pixabay

When the British occupied India under colonial rule in the mid to late nineteenth century, they had a problem — Cobras. These venomous snakes were numerous in India and, unsurprisingly, the British were not fond of them. As a result, the British government set up a program by which they would pay anyone to bring them a dead cobra. Initially, this worked wonders as dead cobras started flooding in. However, after some time, the British discovered that some of the Indians had played a trick on them.

Indians looking to cash in on the cobra buyback program setup cobra farms to breed cobras. These cobras were killed and given to the British for the bounty. As soon as the British discovered this cobra farming scheme, they ended the buyback program. Indian cobra farmers, with no other use for the cobras, abandoned their operations and set the cobras free. As a result, the number of cobras in India increased.

This is called the cobra effect and perfectly illustrates the law of unintended consequences. While no one knows if this story is true, there are plenty of examples that mirror its result, namely, individuals making decisions to cause one outcome to occur can accidentally cause the opposite. The cobra effect is hard to foresee before hand and appears quite often in the investing world. And that is what I am here to talk about today.

If we took a high level tour of the greatest investing blunders of all time, I would argue that they all suffered from the cobra effect. Given that the strict objective of investing is to get wealthier, I cannot imagine a more unintended outcome than losing vast sums of money. However, I don’t want to talk about get rich quick schemes or penny stocks. The cobra I want to talk about today is bonds.

What words come to your mind when I say “bonds”? Safety? Low risk? Principal preservation? These are all generally true…in the short run. Over longer periods of time, bonds have simply been ineffective at building wealth. And with today’s very low yields, your return on bonds after inflation and taxes is essentially 0%. So, unless you require 0% returns going forward (i.e. you have more money than you could ever need), you need to hold ample amount of equities. For example, the average real return on 10-year U.S. bonds from 1928–2016 was 2%:

While this isn’t 0%, this 2% is being heavily skewed by the higher bond returns starting in the early 1980s. If we look at the returns by decade you can see that for 4 decades, starting in 1940 and ending in the late 1970s, annualized bond returns were negative or close to 0%!

As you can see, besides the 1980s where bond yields were through the roof, the long term record for bonds is quite unimpressive. Therefore, all of your long term capital preservation and growth will need to come via equities or equity-like investments (i.e. REITs, etc.).

So how does the cobra effect occur with bonds? Retirees, scared of losing principal, might shift all of their assets into CDs and Treasuries for “safety.” For the first decade or so 100% in bonds works fine, but, as the retiree ages, the scourge of inflation and taxes slowly dwindle away their nest age and the probability of running out of money starts to sky rocket. The decision to provide safety has made the retiree less safe in the long run. Nick Murray puts it best in his book Simple Wealth, Inevitable Wealth:

You can have blissful emotional and financial security on this end of your remaining lifetime — right here, right now. We’ll get you some money market funds, a six-month CD, Treasury bills, and maybe some very high grade corporate bonds maturing in the next five years. The number of currency units you’ve got will hardly fluctuate at all. You’ll get a little current income, and you will sleep like a baby. Of course, one day — and that day may not come for twenty years or more — you’ll run out of money. Perfect security on this end of your investing lifetime; total insecurity (indeed, disaster) on the other end.

He continues (emphasis his):

There is no such thing as no risk. There’s only this choice of what to risk, and when to risk it.

The risk of owning bonds shows up later in your investment life, while the risk of owning equities can show up much earlier. And why should we expect anything different? As someone who wants to build and keep wealth, you should expect to go through a handful of periods where you might be down 40%+. This is the nature of investing. If you don’t want the volatility, then you deserve the meager result you will surely obtain. In the case of a 100% bond portfolio, we could re-imagine a famous Benjamin Franklin quote:

Those who give up return for security deserve neither return nor security.

How To Use Bonds Effectively

For the record, I am not against holding bonds in a portfolio. I am just against holding 100% bonds, unless you have sufficient capital such that your returns don’t matter. I also can’t tell you what % of your portfolio should be in bonds, as this would require me to know your goals, temperament, and individual circumstances. However, I can say with some level of certainty that bonds will not be a builder of wealth going forward.

Despite the bad rap I have given to bonds, I do think there are effective ways of using them. For example, I currently hold ~20% of my net worth in bonds though I am only 27. Some might say that is stupid given the amount of time I have for equity compounding, but I hold bonds for 2 reasons:

  1. To dampen volatility during downturns.
  2. As a form of liquidity to rebalance back into stocks during these downturns.

Since investing is primarily a behavioral exercise, not an analytical one, bonds can act as a form of insurance against panicking when there is blood in the streets. The fact is that I don’t know how I will react during a 30%+ drawdown, since I haven’t experienced one yet. Therefore, I am using my bonds as an experiment on myself to see how I will react when a larger drawdown does eventually occur. If I play it cool, I will likely reduce my bond exposure in the future. The key is to know yourself as an investor. Thank you for reading!

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This is post 37. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data

Disclaimer

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. The postings on this site are my own and do not necessarily reflect the views of my employer. Please read my “About” page for more information.

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The Cobra Effect was originally published in Of Dollars And Data on Medium, where people are continuing the conversation by highlighting and responding to this story.

S. Korean Stock Market Shaken by North Korean Nuke Test

News KOSPI - Mar, 09/05/2017 - 02:11
S. Korean Stock Market Shaken by North Korean Nuke Test
HuffPost - Sep 5, 2017 The domestic stock market was shaken up by North Korea's 6th nuclear test on Sunday. The KOSPI (Korea Composite Stock Price Index) opened at about 40 points lower than the previous trading day and closed at 2,329.65, down 1.19% from Friday.
Categorías: Noticias sobre Indices

Artículos recomendados para inversores 207

academiadeinversion.com - Lun, 09/04/2017 - 06:35

Recopilación de artículos recomendados para inversores en general y, en especial, para los seguidores del value investing, volumen 207.

La entrada Artículos recomendados para inversores 207 aparece primero en Academia de Inversión - Aprende value investing desde cero.

South Korea: Stocks, won slide as North Korea's sixth nuclear test sparks ...

News KOSPI - Lun, 09/04/2017 - 04:37
South Korea: Stocks, won slide as North Korea's sixth nuclear test sparks ...
THE BUSINESS TIMES - Sep 4, 2017 [SEOUL] South Korean shares and the won fell early on Monday as North Korea's sixth and most powerful nuclear test to date sent the local bourse to a three week low. Asian stocks decline for 2nd day amid Korea jitters - Waco Tribune-Herald
Categorías: Noticias sobre Indices

Laboring Longer: What You Need to Know

Morningstar Noticias (Ingles) - Dom, 09/03/2017 - 13:00
Working longer can deliver powerful financial benefits; the key is to be realistic about it.
Categorías: Articulos sobre fondos

Not All Moats Are Created Equal

Morningstar Noticias (Ingles) - Dom, 09/03/2017 - 13:00
Some sources of moats are more potent than others.
Categorías: Articulos sobre fondos

Sunday Papers: May secretly agrees £50bn Brexit bill

Citywire wealth-manager - Dom, 09/03/2017 - 07:28
And Google is to be hit with record EU fine over claims of phone software abuse.
Categorías: Noticias economicas

Sunday Papers: May secretly agrees £50bn Brexit bill

Citywire new-model-adviser - Dom, 09/03/2017 - 07:28
And Google is to be hit with record EU fine over claims of phone software abuse.
Categorías: Noticias economicas

Sunday Papers: May secretly agrees £50bn Brexit bill

Citiwyre Money - Dom, 09/03/2017 - 07:28
And Google is to be hit with record EU fine over claims of phone software abuse.
Categorías: Noticias economicas

An Alternative Solution to the Retirement Crisis

http://awealthofcommonsense.com - Dom, 09/03/2017 - 04:52
After writing about some of the reasons for the potential retirement crisis a few weeks ago I gave the standard prescription for the solution for most retirees — a combination of working longer, living on less, and reducing expectations for their retirement dreams. Then I received an email from a two of my retired readers, Edd and Cynthia, who took a different approach — they retired abroad. Like many others, ...

Old Mutual Wealth splits OMGI ahead of managed separation

Citywire wealth-manager - Sáb, 09/02/2017 - 21:42
Old Mutual Wealth has split its fund management arm into two distinct parts, as it prepares for its managed separation.
Categorías: Noticias economicas

Economic Moats Matter: Here's the Evidence

Morningstar Noticias (Ingles) - Sáb, 09/02/2017 - 13:00
Seeking companies with competitive advantages and attractive valuations has led to smart investing.
Categorías: Articulos sobre fondos

Weekly Wrap: All Eyes on Aftermath of Harvey

Morningstar Noticias (Ingles) - Sáb, 09/02/2017 - 13:00
The storm in Texas led us to consider the impact on the energy and insurance sectors. Plus, expect a slowdown at Best Buy.
Categorías: Articulos sobre fondos

Morningstar Runs the Numbers

Morningstar Noticias (Ingles) - Sáb, 09/02/2017 - 13:00
We take a numerical look through this week's Morningstar research. Plus, our most popular articles and videos for the week ended Sept. 1.
Categorías: Articulos sobre fondos

Saturday Papers: Manufacturers defy Brexit gloom

Citywire wealth-manager - Sáb, 09/02/2017 - 07:32
And Indivior's market value crashes by £1 billion as US court paves way for rival treatments for opioid addiction.
Categorías: Noticias economicas

Saturday Papers: Manufacturers defy Brexit gloom

Citywire new-model-adviser - Sáb, 09/02/2017 - 07:32
And Indivior's market value crashes by £1 billion as US court paves way for rival treatments for opioid addiction.
Categorías: Noticias economicas

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