Investing In The Stock Markets: Jumping Completely Back In!

All Into Equities Pie ChartThe fear is palpable now since taking profits when the S&P 500 was at ~1,405.  After about a 4% correction, I allocated 70% of my stable value fund back into equities when the S&P 500 dived to 1,345-1,350.  Too early, I know.  Now, I’ve invested the remaining 30% into the S&P 500 at 1,297-1,300 the morning of 5/23.  We’ve corrected a healthy 8%, a spread wide enough where I’m happy to jump right back in.

The new market concerns are old market concerns:

* Greece and the rest of Europe.

* China slowdown.

* Corporate malfeasance.

* Summer malaise.

* Unemployment.

* Concerns of Mitt Romney winning, making us all fend for ourselves.

During times of intense market panic, you’ve got to ask yourself these questions:

* Who was the dumb ass buying the markets at its peak in March and April?  What made them so bullish?

* What kind of bozo invests the majority of his/her net worth into the markets?  Do they not believe in themselves more than entrusting the fate of their future in uncontrollable circumstances?

* How are dividend buyers feeling now?  You know, the one who says “I don’t care what the market does because I’m getting a 4% yield”?  Making a 4% dividend and losing 10% of your investment is a bad result.

* Is the world really coming to an end?

I care about absolute performance first.  I’d rather be up 2% in a crappy year than outperform the markets by 20%, but still be down 10% for example.  However, if I’m going to lose money, the second best thing is to lose less than everyone else!

REMEMBER, THE GAME IS RIGGED

You should all know by now that the game is rigged.  Underwriter Morgan Stanley telling their institutional investors that they’ve cut estimates, but not disseminating the info to all at the same time is a good example.  What are you going to do about it, file a class action lawsuit if you were one of the retail investors who bought at $38?  Good luck trying to get anything back.

Meanwhile, investors who have at least $100,000 to deploy can invest in a structured product that provides 100% principal protection and 110% participation towards the upside of the Dow Jones Industrial Index over x amount of years.  If shit hits the fan and the market goes down 50% from here, said investor will get all his money back plus a 0.5% annual coupon, which is still better than today’s 0.2-0.3% money market rates!

Meanwhile, for years, our Congressmen and Congresswomen could front run the very bills they were voting on!

INSTEAD OF GETTING MAD, GET MOTIVATED!

You’re never going to become an institutional investor by definition, but you can certainly make and save enough money to invest money with an institutional investor e.g. a hedge fund.  Just know that even institutional investors got hurt by the Facebook deal since they accounted for the lion’s share of the public offering at $38.  They’ll at least have more recourse and knew more about what they were getting themselves into than the typical retail investor.

Even though private wealth companies such as Citibank charge 0.5%-1% annual fees to manage your money, they can buy mutual funds for you that cost 1-1.5% annually for only 0%-0.5% (different class shares), thereby negating much of your annual fees.  In other words, for a net fee of only 0-0.5%, you get someone constantly looking out for your best interests while you get to focus on building your wealth in other ways.

If you have more money, you gain better access.  With better access comes better knowledge.  And with better knowledge comes a higher chance for greater fortunes and stability for you and your children.  In other words, stop messing around!  Once you get into the wealth cycle, it’s hard to lose your edge unless you are a complete idiot.

FIGHT TO EQUAL THE PLAYING FIELD

At a friend’s gathering the other day, the President of the SF Public Library system talked about how libraries help equal the playing field between the haves and the have-nots.  I couldn’t be more supportive of her words and the system in which she presides.  Libraries not only provide a place for our youth to learn and grow, libraries also help empower us with knowledge so we can make better life choices.

The internet is like a library, allowing us to find categories of specific interest at a flick of a button.  The internet is just a tad bit more interactive, with writers who will snap back at nonsensical comments.

I hope that reading this site is as educational for you as it is for me.  I was poor once, but I’ve learned my way out of poverty.  Just keep on reading those books and sites that interest you.  Keep on consuming as much information as possible.  The more you know, the better decisions you will make for the long run.

RECOMMENDATION

I encourage everybody to get a handle on their finances by signing up with Personal Capital. They are a free platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different accounts (brokerage, multiple banks, 401K, etc) to track 28 financial accounts. Now, I can just log into Personal Capital to see how my stock accounts are doing, when my CDs are expiring and how my net worth is progressing. The best feature is their free 401K Fee Analyzer which is now saving me over $1,000+ a year in portfolio fees. There’s no better free tool out there for managing your finances and it only takes a minute to sign up.

Regards,

Sam

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. says

    I’m so curious to hear your thoughts on the FB IPO. I was too lazy to buy and having been rather amused watching the fireworks that followed recently.

  2. says

    Education is certainly key. Learning, absorbing, and ultimately applying is what sets some apart from others.

    With the market downturn it does present another good time to buy!

  3. says

    There is a lot of investment products, which guarantee your money back, when the market will fall by 50%.
    The trick is it is a dooms day scenario. Most likely the markets will slip 10-30% and you will get nothing back, apart from losses.

    I used the marked slipage yesterday and bought some of the shares to my advantage. If the panic will be raging I will bu some more again.

    I have my emergency fund, so I will keep on investing in the equities. I have calculated for me it will take 30 years to be able to retire from my income.
    So I am not going anywhere. I think your allocation is sound.

    Have you tried to keep your money in different currencies? FOr me it works out quitte nicely so far.

  4. says

    Education is key, and knowledge is power.
    The more you know, the better you’re off in making the tough decisions.
    Also your allocation is spot on. I’m impressed with the 35% in property. Good job.

  5. says

    I never try to time the market, but my asset allocation seems to hedge some of the risk. My top sectors are biotech, healthcare, technology and the blue chips stocks. I still have some investment in real estate (outside my home) that is holding steady.

  6. says

    There’s still not a whole lot of value out there at current prices. Cash makes up a much larger part of my portfolio now than it has in quite some time, probably ever.

    I’m patient. There aren’t many plays that get me all that excited. And I’m not going to concentrate further by spreading cash around each position in my portfolio. I might do a little stock shopping this weekend.

    • says

      Just got the final terms of the DJ Structured Note. The proposed range was 100-110% of the market participation on the upside. I’ve just got confirmation that it is 115%! Guess they need to make the note juicier given there’s now fear in the market.

      Specifics for today’s launch:
      6 Years term
      100% Principal at Maturity minimum
      0.50% coupon per annum(paid semi-annually)
      Quarterly Averaging
      115% upside participation (of quarterly averages) at maturity
      Strike price: DJ close of 5/24

      I’m going to participate. The question is, how much? What would you do? 100% of all liquidity, 50%, and wait to see if Europe blows up in July and invest more? Need to make a decision in 1 hour. I’m going to do 50% of my liquid cash at minimum. Thx.

      • says

        Sorry, conference call early this AM. Don’t know if an hour has passed.

        Anyway, I’d do 50%. Keep some liquidity on hand for another note. Dow being multinationals and price-weighted is a pretty big deal. BAC and AA are low-value stocks with lots of European exposure in the short-term, so they’re a huge deal for the DJIA.

        115% of 24 quarter performance sounds pretty good.

        • says

          Went 65% in, and keeping the remaining 80K for either the S&P 500 structured note, or any other investments that present itself if Europe blows up this summer.

          The “good” thing, is that the 80K can be leveraged 4X to $320K if I wanted.

        • says

          Sounds like a plan. I only have 2 very high conviction plays, but in the intermediate term they are very much tied to Europe – weak ties I should say, as the “ties” are psychological more so than they are to the business model. These are Ford and ACAS, a business development company, essentially a private equity company. So, again, I’m forced between a rock and a hard place. Buy in at what I know are long-term lows, or wait for a better entry given that it wasn’t too long ago that Europe pushed the S&P500 down to 1100 just 7 months ago? Tough call.

          I didn’t necessarily raise cash by design – I only excited a single stock at what I perceived to be full value. Other was a buyout, so I was forced out. I just hate sitting on cash, but I hate buying into bigger positions knowing full well the market may give me a better price in the future.

          This has to be the worst year ever for analysts. Market is at or near fair value, and earnings beats won’t be as regular in 2012 as they were in 2011. Tough comparables in the near-term. For me, I really dislike that small caps have been on a tear. That’s the space I know really well, and unfortunately, there is not NEARLY as much value in small caps relative to 1-2 years ago. I generally dislike large cap value (even though large caps appear to offer better pricing at the moment) because they pretty much just wobble with inflows/outflows – and buyout opportunities (my focus) in large caps just don’t exist. There isn’t much interest in swallowing $10B+ deals right now.

          I’m leaning towards keeping the cash around through summer. As usual, I’m not remotely diversified, so that plays a part in my desire to hold cash.

          I’ve said it a bazillion times on this blog, but the markets really need more M&A activity to move higher over the next 2 years. Given the low cost of debt, you’d think LBO + strategic buyers would be having a field day right now.

  7. says

    I had absolutely no interest in buying Facebook and still don’t. I’m sure there are people out there who will make a lot of money on the stock, but I just don’t like investing in single names anymore. I’ve got some ETFs I want to liquidate so I’m holding out for a strong up swing. So I might be waiting for a while, but hopefully not!

  8. Investor Junkie says

    I’m with JT. I don’t think this is completely over yet. I’ve already sold what I wanted to sell. Any new cash I’ve added to my accounts, has been sitting on the sidelines until I find investments I like. Like Warren Buffett’s analogy: investing is like baseball. you don’t have to swing at every pitch.

  9. San Diego says

    I was one of the “dumb ass[es] buying the markets at its peak in March and April” :) I moved jobs in Feburary and as such had a 401k from my previous employeer that I rolled over into a Roll over IRA through Schwab during this time period. The Roll Over IRA is managed by a team of investors at Schwab which I thought was great since a team of investors is probably going to do a better job at staying in touch with the market and keeping a diversified portfolio than I would. I have lost about 7% since buying into the managed fund…ouch! However, I don’t really look at it like Im losing money because I don’t plan on touching this retirement money for at least 35 years, perhaps this is a simplistic, narrow minded viewpoint as I could have waited to invest in the fund until now but hindsight is 20/20 and I didn’t find the financial samurai blog until after moving my money around ;) Oh well live and learn.

  10. says

    My net worth is probably 50% property and 50% stock market. However, the property is my house and is therefore not generating any income. I’d rather look at my portfolio without my principal residence which is mostly in the market. I am not so worried about the down turns as I tend to buy more in those times – and yes I get the dividends to buy more as well :). The thing with markets is that they bounce back so depending on your investing horizon, and your re-balancing strategy, down markets are usually good.

    As a Canadian, I have actually been buying more US investments and have more of my portfolio with the US currency – as the US economy gets better, so will the US dollar. I also want to diversify more since the Canadian market is limited with financial and resource companies.

    As I am approaching a certain portfolio size, I am starting to add more to bonds and I would love to have real estate in the future (Vancouver happens to be pricey for that right now).

  11. says

    I just bought into my first two funds OUTSIDE of my retirement scheme. :D They’re both weighted toward international shares. I have no idea what the markets are going to do, but this is a financial goal I’ve been wanting to tick off, even if I’m only starting with a few hundred bucks.

  12. says

    I continue to DCA to build positions and use historic dividend yield as a parameter to use what to buy and how much to buy. I am currently adding to energy, mineral, and a defensive consumer staples positions now. I have a long term focus and use market downturns to buy more aggressively. The further the market goes down, the more I buy. My goal is to have monthly dividend income pay my monthly mortgage payment within 3 years :)

  13. Ash says

    Im about 8% in stocks, 8% cash and rest in real estate. I vastly added to my stock portfolio in the past 2 weeks and will buy more with further dips. Im long certain stocks and will trade others in the near future. Its a great time to buy stocks. Didn’t Buffet say “Be greedy when others are fearful”?

  14. John says

    Sam, why not do Dollar cost averaging at a monthly interval instead of the constant buy/sell? Are you that confident of your ability to catch the tops and the bottoms of the market?

    • says

      Because I have little patience, and I like to bet big.

      I’m outperforming the market by 5-6% right now, so to lock in that outperformance I’ve got to invest everything to stay indexed to the market.

      I’ve got more fire power behind outside the 401K for this summer which will go into some structured notes.

  15. Chris says

    Well, to answer your questions, I think I avoided transactions during the March/April timeframe.
    Although as a partial dividend investor, I’m feeling pretty good. You see, I got in to SDRL right around $32/share for 200 shares, and their most recent dividend makes my portion amount to 12.125%/yr. Not to mention it is still above where I bought it, only adding to my portfolio increase. So, I feel pretty comfortable with that right now!!! :-)

    And while I did buy 25 shares of FB @ $40, I’m ok with it for right now, since I’ve still got another 13.5 years or so until retirement (or at least the 15 mortgage is paid off), give or take a little. :-)

  16. James says

    Sam,

    What are the downsides of your structured notes? If the firm goes under your investment is not protected correct?

    • says

      Correct. If Citibank goes under, I become a creditor to Citibank.

      The world will be a fascinating place if Citi goes under! Do you think the chances of it going under are higher or lower since the crisis?

      • James says

        I think the chances are low but the low risk-very high impact case is still worth considering. I was wondering since I am interested in these structures notes as well, is this the only risk/downside? Other than this worst case scenario the maximum loss in your investment is 0?

        Thanks

        • says

          Maximum loss for most things is 0, unless you have leverage.

          After 2008-2010, I think the chances have become even slimmer for our nation’s largest banks to fail. Balance sheets are much stronger, and lending requirements much more stringent.

          Good luck!

  17. says

    I still dont have much in the way of investments, but am working on it. My roth IRA was bought in march 11, and still isnt above the level I paid. I did start working with lending club and am averaging a return rate of north 10% which will be good, but because of the nature of the site I didnt put too much cash in there. Considering JPM after the hedging debacle, but it hasnt quite got low enough for me.

  18. JW @ AllThingsFinance says

    I’m not convinced now is the time to jump back into equities. The fundamentals seem sound, but the technicals don’t look good. According to a five year chart, the S&P will decline or continue to be flat until Fall of this year. I don’t think it’s a coincidence that the time frame lines up with November elections.

    • says

      Nobody knows the future. All I know is that if I jump right back in now, I have guaranteed myself a 5-6% outperformance, no matter what the markets do. That said, I think the markets close higher end of year than now.

  19. Darwin's Money says

    Kudos to you Sam for publishing your market moves. It’s something I think readers enjoy following (even though you criticized me for publishing my portfolio moves last year but whatever :). Anyway, on a broad basis, you are this confident you can beat the market long-term by picking macro trends? For long-term retirement money, etc. I stay 100% long for decades, then I’ll shift out of stocks a bit as I enter my 50s.

    • says

      I lay my allocation all out there! Whether the market goes up or down, folks can look back at the trail to see what’s up. I won’t cherry pick my winners or losers, frankly b/c I’m just into asset allocation. I’ve laid out my entire 401K asset allocation. That’s the biggest thing in the long run.

      I’m pretty confident, until I lose of course. Right now, it’s a mathematical certainty of a 5-6% outperformance, no matter what the market does now that I’ve jumped back in. I think the market is higher end of year than now. We shall see!

      BTW, still concerned about inflation? 10 year yield is at 1.75%!

  20. BusyExecutiveMoneyBlog says

    Sam…I agree with your thesis very much. I also think the portion about the asset allocation is the key info here. The reality is that most of us are too heavily invested in the stock market, or real estate or bank accounts. Balance is the key. If I’m honest, I’m probably too much in cash right now, but that will resolve itself once I redeploy some funds back into the market.

  21. says

    Another key thing to ask yourself is : When do I need this money?

    If you’re investing for retirement, and that’s 10-15 years or more away, then there’s less reason to panic.

    On the flip side, if you’re less than 10 years away from your goals you should invest in assets that don’t fluctuate so much, so there’s nothing to feel panicky about.

    I remember hearing the horror stories about boomers nearing retirement in 2008 who had their savings wiped out. The common lament was that the 401(k) was a failed experiment. But in reality, people should have been questioning why a person so close to retirement was so heavily invested in the market at the time?

    The lesson I learned from 2008 is to have 1-3 years of retirement living expenses in CDs or cash equivalents, and the rest in the market at various levels of risk to provide growth for the later years, but preserve what’s needed in the short term.

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