The Art of Losing Money

If we avoid the losersAny chump can bet all their money on a single stock and get wiped out. But it takes a special kind of genius to invest and consistently lose money in the market. They follow one mistake with another, compounding their losses with opportunity cost. To avoid the same fate, we can steal a few lessons in how to lose money from the great investors who came before us.

Warren Buffett repeats his two simple rules often:

Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.

Easy enough. I use the same rules in Vegas and I swear it never fails.

But you know better. Right?

Never losing is impossible. Anyone who tells you different is lying. The great investors know losing is part of investing. They lose money better than anyone. Continue Reading…

Updated Asset Class, Sector, and Country Returns for 2014

Who guessed long-term Treasuries would be the best asset class to own? That 2014 would be the year of the REIT? Or Utilities, the most boring sector ever, would sit on top of the S&P. If anything, last year’s end results prove again – you’re better off with a long-term perspective because trying to predict the next six to twelve months is down right hard. And tweaking your portfolio because of short-term predictions can get messy.

Had you guessed, and acted on, 2014 being the year of falling interest rates, a stronger dollar, crashing oil, and geopolitical risks, then you had a great year. Had you guessed wrong, it could look terrible.

But if you stuck with a diverse portfolio you had another decent year. The good thing about decent years – they’re never great or terrible but they add up over time. Continue Reading…

Remember Your Investment Horizon

Investment HorizonWhen the markets start acting crazy, remembering your investment horizon puts everything back into perspective. Fears in Europe, the economy, unemployment, and a few hundred other data sets all add to the daily swings of the market. But you can lower your risk to these issues by building your portfolio around a strict investment time horizon.

So are we heading for a repeat of last year? Or are the recent headlines another gut check for every investor out there? More importantly, should it really matter?

All that noise breeds a shortsighted view of your money. What is different today that affects your investment risk? The answer should be “Nothing” if your portfolio is built around your investment horizon. Continue Reading…

15 Year Look At Asset Class, Sector, And Country Returns

Tables comparing investment returns are nothing new. Fund companies and other financial institutions have used them for years to argue for or against different investing ideas. Though, the problem is most tables are either stuck inside a PDF file or quickly become a giant mess of colored tiles that make it hard to read. I thought I’d take the concept, clean it up, and take it a step further.

The idea started about a month ago with an article about contrarian investing. The article took a contrarian look at past performance across three areas – asset class, sectors, and countries. Continue Reading…

Expected Return: Avoid The Seduction of Big Numbers

When it comes to expected return, we love big numbers. We gravitate to it like paparazzi to a celebrity. We do it with performance and projections because it sells.

But there’s one tiny problem. Our expectations change with the market.

A while back I covered how asset allocation lowers volatility. In it, I showed how four different asset mixes performed against an all stock and an all bond portfolio. It looked like the graph below. It showed how volatility lowers as you decrease the amount of stocks in your portfolio. But did it?

Of course it did. It was a simple exercise to prove a point. But it also showed how much better an all stock portfolio performed over the same period. Continue Reading…