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Old 12-12-2007, 08:12   #1
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Red face Investing for Indepedant wealth

Howdy,

Just started this thread, for the people on the Cruising with Children forum who are interested in investing.

My advice, if your financial adviser or mutual fund manager isn't giving you good returns, look for another one. Having a good fund manager yielded 10% better returns and a more diverse and less risky portfolio for myself. Plus they can set you up with things like wrap accounts and other tricks which can really save you in the long run. And you can spend more time sailing, and less time watching the market.

best,
Jason
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Old 12-12-2007, 08:53   #2
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So, no more lottery tickets?

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Old 12-12-2007, 09:19   #3
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The key to the market is knowing when to sell.

A University of Michigan study revealed in looking at more than 430,000 recommendations that brokers issue buy recommendations versus sell recommendations on the order of 35:1.

Caveat investor...
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Old 12-12-2007, 10:33   #4
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Initially I was a little pissed that my posts got deleted from that other thread once I tried to defend myself.

24%. :-)
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Old 12-12-2007, 10:34   #5
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Originally Posted by Ex-Calif View Post
The key to the market is knowing when to sell.

A University of Michigan study revealed in looking at more than 430,000 recommendations that brokers issue buy recommendations versus sell recommendations on the order of 35:1.

Caveat investor...
One of my favorite lines is "the market has correctly predicted 9 out of the last three recessions."
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Old 12-12-2007, 10:46   #6
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I didn't see this new thread when I posted over on the other one ("costs per year of cruising with family"). My post there probably belongs here (and I sure don't want to start over), so:
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The figures rebel heart has given are accurate. Seafox and Wheels are also correct that the Janus Contrarian Fund's average performance since inception (Feb '00) is 11.88%.

What does it all mean? Well, as the prospectus says,
"Data presented reflects past performance, which is no guarantee of future results and investment results and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, current performance may be higher or lower than the performance shown. . . . "

Wheels and Seafox are also correct that the Kiwi dollar is one of the world's strongest currencies, at the moment. By setting rates high relative to the rest of the world, the RBNZ (Royal Bank of New Zealand, NZ's central bank) has made the Kiwi dollar one of the world's most attractive investments for those who pursue the Yen carry trade.

The Yen carry trade is an investment strategy whereby a person borrows a sum of money in Japanese Yen (because of its incredibly low interest rate of .5%), and invests the borrowed funds in higher yielding currencies such as the NZ$ at 8.75%. The investor captures the difference in yield as his profit.

It looks like a no-brainer investment with a guaranteed return of 8.25% - so what's not to like? The inherent risk in this strategy is the forex uncertainty; i.e. the possibility that the rate of exchange between the two currencies will move adversely (Yen strengthen, Kiwi dollar weaken), thereby quickly eating into the interest rate differential before the investor can "un-wind" his position.

Further complicating the trade is that most people engaging in the carry trade do so by leveraging their investment. Leverage of 10:1 is not uncommon in the carry trade. If an investor borrows the equivalent of $1,000,000 US in Japanese Yen, and uses the funds to purchase the equivalent of $10,000,000 US worth of Kiwi Treasury Bonds paying 8.75%, he will earn $825,000 in interest differential (8.75% minus 0.5% times $10,000,000) each year he keeps the trade in place. He can thus re-pay his Yen debt in little more than a year, but it will be the longest year of his life.

If the Japanese maintain their incredibly low interest rate in an effort to keep their currency weak (virtually a necessity in an economy so dependent on exports), the carry trade is almost risk-free. However, an investor is exposed to incredible risk in the event the Japanese change their policy, and raise interest rates. See, for example: A Meltdown From The Yen-Carry Trade? - Forbes.com

The Forex (foreign exchange) Market is always moving, and in these uncertain times the swings can be fast and furious. Even a small change in interest rate policy can have an enormous impact on a highly-leveraged investment like the carry trade, and if you happen to be on the wrong side of the bet, you can be wiped out in a heartbeat.

Will the Japanese raise their rates at some point? Absolutely. Will the RBNZ lower rates at some point? Without a doubt.

High interest rates attract a flood of foreign capital, but eventually strangle the domestic economy. When enough people lose their jobs, increasingly intense political pressure forces the central bank to begin lowering rates to stimulate the economy and get people working (and earning and spending) again. As rates head down, all of that hot foreign capital is withdrawn, as the carry trade crowd moves it to the then-current strong (i.e. high-yielding) currency.

Dan (ex-calif) mentioned that commodities are "Lamborghini to Hyundai to Lamborghini" investments. This is true, but it's not because commodities are inherently riskier, or more volatile, than, say, stocks. It's true because of the incredible leverage offered in commodity investing.

An investment of as little as 5% can control a commodity contract - that's 20:1 leverage. Investing $1000 to control $20,000 worth of some commodity means that a movement of 5% either doubles one's investment, or wipes it out. If a person had invested $20,000 in that same $20,000 contract, the 5% move would only mean that it is now worth either $21,000 or $19,000 - not a major impact on the investment, nor a cause for either euphoria or depression.

The potentially devastating effects of over-leveraging an investment are currently on display in the American housing market (and will be coming soon to the British and other recently "hot" markets). Even those who put 20% down and took out conventional fixed-rate mortgages have had their investment effectively wiped-out if the value of their home has fallen by 20%, and they're forced to sell. So it won't be just bad credit risks (most of whom made far less than 20% down payments) who see their real estate fantasies go up in smoke.

TaoJones
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Old 12-12-2007, 21:14   #7
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Also more and more commodity trading is being done by computers. This is taking humans out of the system but makes it almost impossible for casual investors to keep up.
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Old 12-12-2007, 21:43   #8
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Originally Posted by rebel heart View Post
Initially I was a little pissed that my posts got deleted from that other thread once I tried to defend myself.

24%. :-)
I am sure you will get over it. Better than being "pissed on"
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Old 12-12-2007, 21:45   #9
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Also more and more commodity trading is being done by computers. This is taking humans out of the system but makes it almost impossible for casual investors to keep up.
I think it has made it easier for us to trade. I used to have to wait for the newspaper to come each day to see what my shares were doing. No I can check online at any time and buy and sell online at the click of a button.
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Old 13-12-2007, 00:09   #10
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You don't want to be in commodities anyway. It's a zero sum game minus the steep commissions.
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Old 13-12-2007, 02:29   #11
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Quote:
Originally Posted by Ex-Calif View Post
The key to the market is knowing when to sell.

A University of Michigan study revealed in looking at more than 430,000 recommendations that brokers issue buy recommendations versus sell recommendations on the order of 35:1.

Caveat investor...

Actually in most situations the secret is knowing when to Buy. When you Buy correctly... selling is generally not a problem.

As a Broker in Real Estate... I have always observed that many wantabee investors always target making the largest profit percent on the sale... when the highest profits are almost always available at the point of purchase... While possible more difficult to determine... it is the target for most real investors... ask Warren!!
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Old 13-12-2007, 06:21   #12
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I approached early retirement by being an investor and not a trader. Im very happy with an IRR of better than 10% since my first investment in 1987(six months prior to Black Monday).
I prefer to analyze a company deeply once and then just do a quarterly check up rather than worrying every day. I got in to that trader craze once and trader commodities. Sure made some money but it was just too much damn work, Id rather be sailing.
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Old 13-12-2007, 07:32   #13
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What's cool is that I FINALLY find this thread interesting! ha ha ha

I tend to agree with all TaoJones posted. Also, I have some capital (FINALLY!) from selling the boat I'm getting ready to dump into the market. Personal feeling is I'll wait until the current "turbulence" shows signs of being at its worst before diving in.

Anybody else have their cash on the sidelines for the moment waiting a bit?
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Old 13-12-2007, 07:32   #14
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The approach we use, is to find a good money manager in a major firm, park your money there and go sailing!

FWIW, we use UBS (formerly Paine Webber). Return is very good, even with the fees being higher than we'd like.

They also pay our bills and take care of a lot of the stuff that we'd need to figure out how to do while cruising. If anything unexpected develops, they email us immediately or call us (via Sailmail or Iridium if we're at anchor or underway). Basically they run for us a service commonly called a "Family Office".

We also use the Internet to do our banking securely and use St. Brendan's Island to get our regular mail.

Regards,
Bill
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Old 13-12-2007, 07:33   #15
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And I forgot that our formula is a "Balanced Portfolio" so we weather the market ups and downs quite fine.
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