Occupy Wall Street Sept 17 2011

[Bonam]

Some people just should not be in equity markets at all, especially those with short time horizons.

I've been experimenting with various types of trading over the last few months, and I've actually found this to not be the case. Contrary to common wisdom, once I started to learn the ropes a bit, I quickly realized that day trading is actually one of the safest things you can do with the markets. That's about as short as the time horizon gets, besides HFT.

[Bonam]

Depends on the mutual fund....nobody invests on average. Morningstar ratings is one accepted method for determining winners from losers. Front loaded funds are not the usual employee 401k/403b experience, which enjoy very low fees by design.

Not talking about the load. Many funds indeed are no longer loaded. But they all still have management expenses, usually expressed by the MER, which is usually in the range of about 2%.

[jacee]

After being explained how hedge funds work, all you can say is money has no morality???

Outstanding

I was responding to cybercoma. Nothing to do with you.

[bush_cheney2004]

Not talking about the load. Many funds indeed are no longer loaded. But they all still have management expenses, usually expressed by the MER, which is usually in the range of about 2%.

True, but your average Fidelity Investments account holder does not sweat that. Retirement products are sold with very low fee structures to huge employee based accounts. It's not like an individual investor experience.

[bush_cheney2004]

I've been experimenting with various types of trading over the last few months, and I've actually found this to not be the case. Contrary to common wisdom, once I started to learn the ropes a bit, I quickly realized that day trading is actually one of the safest things you can do with the markets. That's about as short as the time horizon gets, besides HFT.

But you have to invest the time to manage that, and can afford to lose it all. People closing in on retirement should not risk large portions of their portfolios in the stock market, and surely not by daytrading unless they have the stomach for that and accept the risk. Those who really want to gamble will open margin accounts and risk their homes.

[Bonam]

True, but your average Fidelity Investments account holder does not sweat that. Retirement products are sold with very low fee structures to huge employee based accounts. It's not like an individual investor experience.

Umm, just browse through these Fidelity funds right here:

http://fundresearch.fidelity.com/mutual-funds/category-performance-annual-total-returns/STK

Click to the fees tab and you will see what they are. They are required to be disclosed by law. The fee structure is built into the fund returns, you can't get a discount. I am not talking about any additional fees besides the ones that are directly built into the fund returns.

By the way, feel free to take the average of the first column on the page I linked and compare it to the returns of the market this year. Not only did the funds not outperform the market, they lagged slightly behind it.

[Bonam]

But you have to invest the time to manage that, and can afford to lose it all. People closing in on retirement should not risk large portions of their portfolios in the stock market, and surely not by daytrading unless they have the stomach for that and accept the risk. Those who really want to gamble will open margin accounts and risk their homes.

But that's just what I'm saying, if you learn a bit about short term trading, you know to cut your losses at an acceptable level. Your risk is defined, and contained, and will not be exceeded by more than a few cents if you follow the rules you set up for yourself, barring extraordinary circumstances (mass hardware failure at your brokerage which then refuses to compensate you).

On the other hand, a long term investor would have lost ~20% of their account value in August.

The risk in holding positions for longer periods of time is inherently higher, since positions can obviously change in value much more over the long term than they can over the short term.

You are right though, frequent direct trading requires much more time and research than just sticking your money in a black box (mutual fund) and hoping for the best.

Edited October 19, 2011 by Bonam

[bush_cheney2004]

Click to the fees tab and you will see what they are. They are required to be disclosed by law. The fee structure is built into the fund returns, you can't get a discount. I am not talking about any additional fees besides the ones that are directly built into the fund returns.

The fees are still low, depending on the fund. Not sure what you are getting at vis-a-vis the average 401k/403b investor. They do not care about the fee because it is part of the fund returns.

By the way, feel free to take the average of the first column on the page I linked and compare it to the returns of the market this year. Not only did the funds not outperform the market, they lagged slightly behind it.

That's OK...people can also invest in index funds. Again, nobody invests on average.

[Bonam]

The fees are still low, depending on the fund. Not sure what you are getting at vis-a-vis the average 401k/403b investor. They do not care about the fee because it is part of the fund returns.

If they don't care, they are not understanding how things work. The fee lowers the fund's returns. Alternatives such as ETFs are not similarly burdened and will outperform mutual funds.

Again, nobody invests on average.

So you think people picking funds for their 401k accounts are wisely picking mutual funds that outperform the market? If they are capable of picking such funds, which is harder than picking stocks that outperform the market, why don't they just cut out the middle man and make a killing in the market directly? Answer: because they can't, and their choice of fund is generally no better than random. Fund returns across the thousands of mutual funds follow a Maxwellian distribution, so random is average.

Edited October 19, 2011 by Bonam

[bush_cheney2004]

But that's just what I'm saying, if you learn a bit about short term trading, you know to cut your losses at an acceptable level. Your risk is defined, and contained, and will not be exceeded by more than a few cents if you follow the rules you set up for yourself, barring extraordinary circumstances (mass hardware failure at your brokerage which then refuses to compensate you).

The average investor will not/can not do this. The days of paying a broker to do it is also passe except for high value portfolios. For the inexperienced or uneducated, the stock market is just gambling without free drinks.

On the other hand, a long term investor would have lost ~20% of their account value in August.

You can still lose that much on stop loss sell orders. Trade doesn't always execute at the stop loss price.

The risk in holding positions for longer periods of time is inherently higher, since positions can obviously change in value much more over the long term than they can over the short term.

That's OK for the average investor who will not invest the time to babysit a portfolio or individual equities. Mutual fund risk is less than with individual stocks...on average.

[Bonam]

The average investor will not/can not do this. The days of paying a broker to do it is also passe except for high value portfolios. For the inexperienced or uneducated, the stock market is just gambling without free drinks.

Agreed.

You can still lose that much on stop loss sell orders. Trade doesn't always execute at the stop loss price.

Yes, that's why I added the "barring extraordinary circumstances" caveat. The reality is, if you trade a liquid instrument and use any half-decent brokerage, your stop orders will be filled within a penny or two of your stop price. If the stop fails to execute because of an error on the part of the broker, most will compensate you, as they want to keep your business.

That's OK for the average investor who will not invest the time to babysit a portfolio or individual equities. Mutual fund risk is less than with individual stocks...on average.

Yes... and the risks of broad index ETFs are just as low, or even lower, and the returns are higher... on average.

Edited October 19, 2011 by Bonam

[bush_cheney2004]

If they don't care, they are not understanding how things work. The fee lowers the fund's returns. Alternatives such as ETFs are not similarly burdened and will outperform mutual funds.

I am talking about the average employee with a retirement investment product sponsored by his/her employer. They are not hedge fund managers or sharks trying to make a killing in the market. Fees that are at or lower than Lipper averages are quite acceptable and not deemed to be a rip-off like days long ago.

So you think people picking funds for their 401k accounts are wisely picking mutual funds that outperform the market? If they are capable of picking such funds, which is harder than picking stocks that outperform the market, why don't they just cut out the middle man and make a killing in the market directly? Answer: because they can't,

Not at all...perhaps you don't understand the employee 401k experience. They are presented a fixed set of sponsored funds and options, not the entire universe of mutual funds or ETFs. These are highly regulated products and quite "boring" by design. Some are just money market accounts as safe havens.

and their choice of fund is generally no better than random. Fund returns across the thousands of mutual funds follow a Maxwellian distribution, so random is average.

Again, nobody invests on average.

Edited October 19, 2011 by bush_cheney2004

[bush_cheney2004]

Yes, that's why I added the "barring extraordinary circumstances" caveat. The reality is, if you trade a liquid instrument and use any half-decent brokerage, your stop orders will be filled within a penny or two of your stop price. If the stop fails to execute because of an error on the part of the broker, most will compensate you, as they want to keep your business.

Not if the sell order was executed promptly but too late for a fast decline in price. Happened to me with Best Buy stock about ten years ago. People think they are 100% protected on the down side but that ain't always the case.

Yes... and the risks of broad index ETFs are just as low, or even lower, and the returns are higher... on average.

ETFs are enjoying trendy attention, but many consider them to be CDOs waiting to implode.

Edited October 19, 2011 by bush_cheney2004

[Bonam]

I am talking about the average employee with a retirement investment product sponsored by his/her employer. They are not hedge fund managers or sharks trying to make a killing in the market. Fees that are at or lower than Lipper averages are quite acceptable and deemd to be a rip-off like days long ago.

Not at all...perhaps you don't understand the employee 401k experience. They are presents a fixed set of sponsored funds and options, not the entire universe of mutual funds or ETFs. These are highly regulated products and quite "boring" by design. Some are just money market accounts as safe havens.

That's all fine. People can invest in whatever they have access to, whatever is "sponsored", whatever let's them sleep at night. I'm not gonna stop them. My point was simply that mutual funds are generally an inferior investment product to exchange traded funds today. ETFs offer the same advantages (diversification, risk reduction, etc) while minimizing costs, resulting in higher returns on average.

[Bonam]

Not if the sell order was executed promptly but too late for a fast proce decline. Happened to me with Best Buy stock about ten years ago. People think they are 100% protected on the down side but that ain't always the case.

Use a stop limit order? Anyway, 10 years ago is a long time. Resting stop orders execute in microseconds now.

ETFs are enjoying trendy attention, but many consider them to be CDOs waiting to implode.

An ETF is simply an investment in a basket of stocks (or other underlying instruments). There is nothing there to implode in a stock ETF besides the underlying stocks. And if the underlying stocks implode, so do the mutual funds that invest in them.

Obviously, I am not talking about leveraged ETFs, inverse ETFs, ETFs on futures and commodities, volatility ETFs, currency ETFs, etc.

I am simply comparing mutual funds that invest in stocks with ETFs that invest in stocks.

Edited October 19, 2011 by Bonam

[bush_cheney2004]

Use a stop limit order? Anyway, 10 years ago is a long time. Resting stop orders execute in microseconds now.

Yes...and the other problem with stop limit sells is that they can guarantee a loss!

I am simply comparing mutual funds that invest in stocks with ETFs that invest in stocks.

ETF's have been around since the early 90's, but do not come anywhere near the dollar volume of traditional mutual funds. They have been popular as of late, and may be more popular with employer based programs as time goes on.

Edited October 19, 2011 by bush_cheney2004

[Bonam]

ETF's have been around since the early 90's, but do not come anywhere near the dollar volume of traditional mutual funds. They have been popular as of late, and may be more popular with employer based programs as time goes on.

Mutual funds largely invest in ETFs now too, especially the ones that try to track indices and charge low fees. They are often nothing more than a repackaged ETF with an extra layer of fees. And yes, ETFs are gaining in usage as they represent a cheap and easy way to diversify one's investments.

In the broader picture, the downside of the wide adoption of ETFs has been the increasing correlation between various market instruments. For example, stocks that use to move somewhat independently of each other now all move almost identically since ETFs invest in them equally. Increased correlation makes it more difficult to diversify away risk. However, this is a broad evolution of the nature of the markets, not really something an individual investor can affect.

[bush_cheney2004]

That's all fine. People can invest in whatever they have access to, whatever is "sponsored", whatever let's them sleep at night. I'm not gonna stop them. My point was simply that mutual funds are generally an inferior investment product to exchange traded funds today. ETFs offer the same advantages (diversification, risk reduction, etc) while minimizing costs, resulting in higher returns on average.

If you say so...I'm not gonna sweat it....the average employee has to use sponsored plans to get the tax deferred advantages. Individual investing is a different ballgame. Frankly, for my cash accounts I prefer more trade action than with funds of any kind, and for our retirement portfolio, market timing has returned the best results of all. March 2009 was a gift from the Wall Street gods.

[Bonam]

Yes...and the other problem with stop limit sells is that they can guarantee a loss!

Not really. The loss is already there when the order gets executed. What they do is realize the loss that you've already incurred. Anyway, a stop can just as easily be used to lock in a profit as to limit a loss.

[bush_cheney2004]

Not really. The loss is already there when the order gets executed. What they do is realize the loss that you've already incurred. Anyway, a stop can just as easily be used to lock in a profit as to limit a loss.

Sure, but human nature loathes the loss more than missing a few additional dollars gain. Nobody buys at the lowest price or sells at the highest. Greed can be as bad as stupidity.

[Bonam]

If you say so...I'm not gonna sweat it....the average employee has to use sponsored plans to get the tax deferred advantages.

There are plenty of different ways to save for retirement in a tax-advantaged way.

Individual investing is a different ballgame. Frankly, for my cash accounts I prefer more trade action than with funds of any kind

Day trading ETFs provides plenty of "action" for me, just as much as trading individual stocks would. You can certainly trade futures or forex if you want more action though.

March 2009 was a gift from the Wall Street gods.

True. Same with August 2011 imo.

[Bonam]

Nobody buys at the lowest price or sells at the highest.

Well, somebody does. A stock price only exists if a transaction happened at the price.

[bush_cheney2004]

Well, somebody does. A stock price only exists if a transaction happened at the price.

Okay....the last price actually fluctuates between bid and ask price. That somebody will not likely be you or me, or nearly anyone else.

[bush_cheney2004]

There are plenty of different ways to save for retirement in a tax-advantaged way.

Not for joe employee drawing payroll check. He wants that company match.

Day trading ETFs provides plenty of "action" for me, just as much as trading individual stocks would. You can certainly trade futures or forex if you want more action though.

ETF's have no "soul"....not as much personality like a company's stock. It's like kissing a sister.

True. Same with August 2011 imo.

Small potatoes compared to 2009.

[Bonam]

Okay....the last price actually fluctuates between bid and ask price.

Well, on a high volume instrument like a popular stock or index ETF, the bid-ask spread is usually 1 cent, so the last price is usually either at the bid or ask, not between them.

That somebody will not likely be you or me, or nearly anyone else.

Depends on the timeframe you are looking at. If you are trading price oscillations on the few minute timescale, your chance of hitting an exact low or high is a lot higher.

Edited October 19, 2011 by Bonam