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In our fourth annual investing issue, we talk to 12 investors, from Bay Street to Wall Street to Silicon Valley, about how to make money now, their worst moves, best advice and favourite reads—plus a few dire warnings and sunny predictions, too. Indeed, our 2014 crop of legends runs the gamut in terms of outlook. Peter Schiff—a.k.a. Dr. Doom, the guy who called the housing market crisis—is bracing for an even more catastrophic collapse of the U.S. economy than we saw in 2008. Meanwhile, famed Wharton School professor Jeremy Siegel, author of the “buy and hold bible,” Stocks for the Long Run, is counting on the Dow to gain as much as 15% in the coming year. The one thing they all agree on: Think long-term.
Donald Yacktman
Peter Schiff
Jeremy Grantham
Charles Brandes
James O’Shaughnessy
Peter Thiel
Satish Rai
Jeremy Siegel
Geraldine Weiss
Bill Miller
Gerry Schwartz
Rob Arnott
© 2015 Mutual Fund Observer. All rights reserved.
© 2015 Mutual Fund Observer. All rights reserved. Powered by Vanilla
Comments
Peter Schiff: "I am a 50-year-old guy with a family, but I would go with all equities, precious metals and little bonds. I’d buy more gold stocks and bullion because of how cheap they are. Also, buy dividend-paying foreign equities and get into emerging markets."
Charles Brandes: "I don’t know if your readers would believe this, but if you have a period of time for your investments shorter than three to five years, you’re not an investor. You’re a speculator."
Satish Rai: "People haven’t figured out that they need to take on a different risk profile. They believe that, as you get closer to retirement, you should shift money from equities to fixed income. That’s all based on the 30-year bull market in bonds we’ve been through, not looking forward. In this environment—in which interest rates are low—fixed income is going to give you 0% capital appreciation."
James O'Shaughnessy: "Extrapolating the bond market’s fantastic performance since 1981 into the future. We think long-term bonds will be going into a multidecade bear market, and we’re urging investors to invest only in short-term bonds. My entire adult life has been lived in a bull market for bonds. But bonds can be very risky, especially over long periods. If you’d started investing in 20-year bonds in 1940, by 1981, you would have had about a 63% real total loss on the portfolio. I’m not saying don’t buy bonds; I’m saying be careful which bonds you buy."
Thank you for linking the write.
About this quote: "Charles Brandes: "I don’t know if your readers would believe this, but if you have a period of time for your investments shorter than three to five years, you’re not an investor. You’re a speculator."
I'm likely too tired and cold tonight; but my take of these words is buy whatever suits one, and hold it at least 3 years.
The words are interesting, but I would appreciate your consideration of the meaning.
Pillow time here.
Thank you.
Catch
About this quote: "Charles Brandes: "I don’t know if your readers would believe this, but if you have a period of time for your investments shorter than three to five years, you’re not an investor. You’re a speculator."
I'm likely too tired and cold tonight; but my take of these words is buy whatever suits one, and hold it at least 3 years.
The words are interesting, but I would appreciate your consideration of the meaning.
Pillow time here.
Thank you.
Catch
---
First, What's wrong with "speculation" within the larger context of some overall plan? To me, the term implies taking a calculated near-term risk in pursuit of an out-sized near-term gain (which can than be rolled into one's more diversified holdings). Suspect this happens all the time in most markets, with the highly volatile ones like venture capital, emerging markets and commodities among the most commonly used.
The mutual fund industry is well aware of speculative investing by fund holders and has gone to great measures in recent years to prevent "skimming" of funds' gains by savvy investors willing to buy low and than dump a fund after short term gains (a reason behind early redemption fees, prohibitions against selling and repurchasing within 30 days, fair value pricing, etc.). Actually, these same fund sponsors deserve much of the blame for investor short-sightedness when they design and promote such narrow geographic and sector offerings as "Africa and the Middle East" or "3-D Printing". (I assume the second will be available in both color and B&W:-)
The actual preferred holding period for longer term investments (which I'd agree should comprise the bulk of most people's holdings) is subject to debate. No one has a crystal ball in that regard. Buffett has commented that "forever" is the best time-frame. Looking at some of our board discussions, I'd say anything longer than 18 months may qualify. In many cases, brokerage fees and tax considerations affect that decision. (One of the nice things about no-load funds held at a fund house within a tax-shelter is these constraints do not normally apply.) The IRS currently considers cap gains on investments held longer than one year to be "long term" gains - at variance from Brande's three-year assessment of a long term investment.
Like many here, I adhere to a long-standing (and probably overly complex) plan with different branches, sleeves, legs, components (or whatever else one prefers to call them) allotted set percentages within the overall portfolio and rebalanced occasionally. So, the task for me is to find good low cost funds that fit these various components. If I find such a fund - say perhaps a natural resource fund that fits that area - than I'm very loath to sell it unless the fund changes significantly or management proves inept at execution. Some of my funds now date back to around 20 years ago when I abandoned my plan-appointed advisor and started doing my own research and planning.
Hope this provides one answer to the question that Mr. Brandes (and you) proffer.
Regards
You're right; there's plenty wrong with that scenario.
There is nothing magical about 3 or 5 or 10 years. It doesn't correspond to any market cycles, length of bull or bear markets, economic or business cycles or for that matter ANYTHING that is quantifiable to justify it.
These puritanical rules of holding for a long time come from an attempt to discourage what might be an alternative instead - frequent trading based on emotions, fear, greed, insufficient due diligence or understanding of what one is buying if it is considered short term, etc. For most people, such an alternative will likely destroy portfolios. The longer you encourage someone to hold, less likely they are to meddle unproductively. That is the only rationale for holding something for long terms. It is a more acceptable form of proscribing than saying you will do stupid things if you keep trading in and out. Same reason why religions weave stories behind actions that they want to discourage for practical reasons like not eating otherwise beneficial animals or not eating infection-ridden animals, not changing spouses frequently, etc.
The context for people with large amounts of money who can afford to wait out any downdraft or even complete loss of value in any one instrument without it creating a catastrophic financial problem is very different from a retail investor whose bet on any one instrument going bad can create a non-trivial financial problem.
But the puritanical prescription appeals to fund managers who need plausible rationalizations for short term underperformance and insecure retail investors who find anything more than just buying and holding daunting and are insecure enough about that forced choice that they have to label and brand as bad any behavior that they are afraid will make others happier/richer/etc. Same reason why fundamentalists try so hard to impose their choices on others.
The time to buy is when an instrument is researched sufficiently to have an investment thesis that suggests growth in value and the time to sell is when that investment thesis no longer holds. The latter could happen in one week or in 10 years, like I said, there is no magical time frame that suddenly converts an instrument from being speculative to being an investment. At least, not in any way that is justifiable. The investment thesis could be diversification over uncorrelated instruments, deflation expectation, drawdown protection, etc. Those very theses don't necessarily stay valid "forever".
I generally avoid engaging M* zealots, also Bogleheads, though I read to find out more info.
Thank you for your time with this. I can rationalize speculation and investing, too.
Mr. Brandes had a thought process going there somwhere, I suspect; but I sure didn't get the drift of the words as written.
Our holdings are not what they were 3-5 years ago for the most part and all may be different in 5 years. A plan is a plan, regardless.
Take care,
Catch