Investments: Time For a Contrarian View?
Well, if there's anything that will humble you, it's reading (via Microsoft home page clickbait) about a young (23-year-old) Latino, not even a college graduate. pulling down $230K a year. Most of his income comes from being a utility worker, averaging 60 hours a week, including lucrative overtime. He also has a lawn/snow removal business, not to mention he's started to collect real estate properties; I think 4 now plus an aggressive plan to add 4 or 5 properties a year over the near future. His hope is to be a millionaire by the time he's 30. Yeah, I remember being a newly minted PhD/professor at the age of 30. As a graduate student, I had made out a $15 wedding gift check to my Newman Association friends Rob and Sheila, only to see it bounce. (I thought I had $100 in my account.) I was better off by the time I graduated, thanks to winning one of 4 university-wide competitive fellowships and a small dissertation grant to augment my modest teaching fellow stipend (which barely covered my living and school costs).One of the few good things I did do was max out my 403B benefits during my 5-year career as professor. It was more limited while I was at UTEP, because they figured in I would vest in the university match after my first year; then UTEP stole my $4000, something for which I'll never forgive them. Still, I have multiplied that initial nest egg of original contributions multiple times over the years on my own (self-directed) and I have an above average nest egg (probably not that surprising given the fact I've never been married, don't have a mortgage, and I stayed with my last car, a discontinued Olds for 15 years after paying it off.
Am I an investing "genius"? No. My brokerage vendor points out when I review my performance over the past 10 years I could have done much better just depositing everything in an S&P index fund. This goes beyond, "Why didn't I invest in Microsoft when I was a professor? [I was one of the earliest Microsoft Word users, and I had an early version of Windows on my UWM PC--my procurement, but a standard product install. Google, Apple, or Amazon? " I've cashed out before a stock recovered, I didn't let my winners run (e.g., I might have cashed out after a 7.5% gain, only to see it tack on another 20-30%) I failed to cut bait on my tech investments during the 2000-2002 Nasdaq meltdown. At one point I had a $125K taxable brokerage account. It literally dwindled down about 80%. I'm still applying my capital loss carryover on taxes (you are limited to $3K deduction per year; of course, the feds and the states got their full, immediate share during the late 90's. That brokerage account became a rainy day account during the Great Recession and was liquidated years back.
I have to admit there was a time when my ego was bruised, seeing that my little brother, then a well-paid chemical engineer at Mobil, owned a house in Beaumont and enjoying regular Club Med vacations while I was bouncing $15 checks in Houston. (He never understood why I, with 2 math degrees, never pursued a more lucrative engineering career; the short answer is I had considered it while I was teaching at the Navy Nuclear School after my UT Master's. (Hr's currently building his retirement home in Texas, and I think by the time he retires, he may be eligible for two corporate pensions.) But really, I don't envy other people. The way I look at it is I may not drive a Cadillac, Mercedes or BMW, but I have a decent, comfortable car; I may not eat out very often, but I'm over 70 pounds overweight,
So, going back to the successful 23-year-old Latino described above, I wish him well. He works hard for his money. In fact, my paternal uncle by marriage, a Canuck immigrant, had been a phenomenally successful auto mechanic who was also freelancing on other cars at home. I think he had also started to invest in real estate properties. But he had died fairly young of a heart attack while working on a car (I think before I turned 18 and I was older than my 2 cousins), and my widowed aunt passed just a few years later. He had plenty of life insurance, etc., and my cousins both went to Providence College (although neither was able to find a teaching job with their degrees). Somehow my cousins came under the influence of Pentecostals. (My first girlfriend at OLL also left to join some Pentecostal commune in the Dallas area, so let's just say I don't like Pentecostals.) I was particularly close to Jackie (the older cousin); she would later insist on being called "Jacquie", a more Franco variation. Among other things, Jackie, a decent vocalist, fronted a trio that did gigs like weddings, doing soft rock covers, like The Carpenters' hits. As any familiar reader knows I can be blunt (it's gotten me in trouble on Twitter), and Jacquie didn't like my warnings about the Pentecostals; I never heard from her again. Long story short, my cousins cut themselves off from the family, and the rumor is the Pentecostals had stripped them dry of their inheritances. .Jackie suffered from mental illness and reportedly passed several years back. My younger cousin at last note was working for the Social Security Administration. Despite my late uncle's material success, his daughters never got past being orphaned by their late teens; I remember Jackie attending my maternal grandfather's funeral (around the time I was finishing my UT Master's at 21) and telling me, "There! Now you know what it feels like!" I have no idea what that was about; I never said anything unkind about her folks. I still remember Uncle Pitou; he had dentures and used to manipulate them to the amusement of us young kids.
I have to be candid as an amateur investor for my retirement: I have little appetite for the extraordinary volatility in the market over the last several weeks. I'm not happy with almost daily Trump tweets roiling markets, unnecessary trade wars, unsustainable deficits, debt, and unfunded liabilities, constant warmongering threats (e.g., to Iran), bond yields are shrinking, stocks seem to be richly valued, the rest of the world seems to be struggling, including the Chinese economy. You can go to almost any financial page and see dire warnings, e.g., of comparisons to the lead up to the 2007-8 Great Recession. Gold bugs are coming out of the woodwork, hyping massive deficits, global trade tensions, the Fed cutting rates, tensions over Iran and Saudi Arabia, etc.
So apparently the Managerial Finance MBA course I aced at UH hasn't made me a financial guru, or I might have retired at 50, like my first brother-in-law aspired to do. Now I'm not providing a blueprint of specific advice, but I do have some general tips:
- Be very wary of fad investments. One classic example are marijuana-based securities. It's not so much I've never been a consumer or advocate. In part, the federal government's adversarial position creates economic uncertainty. Plus, any of the Big Tobacco producers would be capable of destabilizing the industry with its own entry, never mind buying their way into market leadership. I just think that the small investor is likely to get hurt.
- I don't really follow or recommend any financial newsletters. Yes, I do read some premium content but I almost never act on recommendations. I almost always subject recommendations to a variety of technical analyses. I won't chase a stock that's overbought or yields on dividend stocks. Don't catch a falling knife. A perfect example of something that interests me is Boeing. It's a world-class company, and at some point I'll likely take a position in it. But I see it as dead money over the short term.
- Avoid big positions and single companies/securities. I only own one individual company security right now, a former employer. I know it very well. But I'm limiting my position and follow the company's news. I am not married to the stock; there are a variety of reasons and heuristics on when to sell. A big one for me is: would I invest in the company with fresh money today, if I had no current position?
- Cut your losses early. Yes, I'm aware of the fact some stocks do turnaround (eventually). A classic example is IBM in the early 90's before the reign of the Cookie Man. I remember I bought in after a big drop to about $89/share. I caught the falling knife; it must have gone down to the mid-40's, and I remember one analyst saying it should drop down to $29. Long story short, the Cookie Man's prescription worked and I eventually sold at something like $146/share (it rose from there, but I booked a nice profit. But keep in mind these are the exceptions, not the rule. Today, for instance, I cut 3 modest positions (< 5% loss). There wasn't for any specific reason; it just seemed to be dead money; they weren't acting well on good days on Wall Street.
- Consider closed-ended funds. I've become less of a fan of ETFs, because of the these investments include dead money issues in their target market. This doesn't mean that actively-managed mutual funds do that much better--or even as well. But you can often find closed-ended funds selling at a discount to the value of underlying securities. Several weeks back I sold my position in one technology fund when I found it was now selling at a double-digit premium to underlying shares (plus I was concerned about an oversized position in technology issues).
- Consider more balance to your portfolio. With bonds, it's not just yield but capital gains. One analyst noted that boring US bonds had gained in price (vs. yield), enabling over a 20% gain year-to-date. Real estate and precious metals (gold et al.) can also balance against the moves of the stock market. Just a warning here: almost every time I've nibbled at precious metals, it's almost as if holders see my transactions and think it's an indicator to sell. I've almost always had to book a loss. Not big losses, but losses nonetheless.
At the current time, it looks like technology seems to be struggling; there has been discussion about investors shifting from growth to value stocks; my positions in utilities seem to be doing well, relatively speaking. There are a number of investment advisories beating the drums for equities, taking a contrarian attitude towards the wall of worry and pointing out that stocks do well when bond yields shrink.
As always, I'm not a professional financial adviser. Invest at your own risk.
BEB Update
I've been doing periodic updates of my former UH doctoral student office mate, Bruce Breeding since he suffered multiple strokes, including a massive one in early June.
Well, spouse Susan reports from Dallas/Irving (I once lived in Irving) where Bruce is going to more intense, advanced rehabilitation. than his prior facility in south Austin. Susan mentioned in passing so far Blue Cross has paid some $1.2M on Bruce's medical and rehabilitation expenses. She also mentioned that Bruce's work-related insurance would expire next month. I'm not sure where they go from there: COBRA or Medicare?
Bruce continues to exceed expectations, now being able to stand to a walker from his wheelchair for up to 10 minutes. He has had a persistent issue with tolerating liquid nutrition (not on a regular diet yet). His mind is sharp but there are some gaps. He communicates well with others, but he is still frustrated with the limitations of his condition. Susan continues to ask for prayers on Bruce's behalf.
