Full Circle’s Mutterings on Money
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30-01-2016, 01:48 PM
Full Circle’s Mutterings on Money
Hello everyone, FC here. Smile

I’m going to attempt to create an ungoing, informative, hopefully humorous and useful thread on money, investing and getting out of the rat race as early as possible. I’m hoping to have a bit of fun with it and perhaps even answer a question or two regarding money matters.

WTF (Who not What) does FC think he is Warren Buffet? Hardly. Warren made his first billion (BILLION) when he was my age, that is to say 56. The rest he made afterwards (another 66 billion), think about that for a minute. Full disclosure, I’m not there yet. Weeping

So getting back to WTF does FC think he is?
Without divulging too much detailed personal information here is a short CV:

University graduate
Worked in the construction and real estate industry for most of my adult life.
Started and owned 3 successful companies.
Running one now, albeit from afar.
Semi-retired since 2009.
Managing personal and family investments for the last 28 years.

Philosophy:
Money = freedom
Averse to losing money
Follower of the LBYM (Living Below Your Means) mantra
Desciple of Diversification
Proponent of Proper Asset Allocation
Champion of Passive Income
Believer in the God of Compounding

That’s the skinny for this OP. In my next post I’ll start my mutterings, feel free to jump in, challenge, ask or say whatever...you know you’re going to anyway Dodgy


Big Grin

“I am quite sure now that often, very often, in matters concerning religion and politics a man’s reasoning powers are not above the monkey’s.”~Mark Twain
“Ocean: A body of water occupying about two-thirds of a world made for man - who has no gills.”~ Ambrose Bierce
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30-01-2016, 01:56 PM
RE: Full Circle’s Mutterings on Money
(30-01-2016 01:48 PM)Full Circle Wrote:  Philosophy:
Money = freedom

Only to the point where it becomes a fixation. Then it is enslaving.

#sigh
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30-01-2016, 02:19 PM (This post was last modified: 31-01-2016 08:40 AM by Full Circle.)
RE: Full Circle’s Mutterings on Money
TALKING HEADS and CRYSTAL BALLS

There is something fundamentally perverse about the guys on TV giving out HOT TIPS (buy buy buy! sell, sell, sell!). You know the ones. Or the panels of experts discussing the latest macro and micro economic trends and what they mean for the price of butter in India (did you know that for years the price of Indian butter and the S&P 500 where almost perfectly correlated?). Like they fucking know, after all if they knew so much they would be bragging on how they crushed the market last year, but they don’t 'cause they didn’t.

Now days I sometimes watch for the sheer entertainment value and not because I’m looking for the next HOT TIP. Speaking of tips here is my 1st one to you; unless you are trading a stock on insider information (illegal) whatever these clowns are touting is already old news and they are looking to unload their positions on the unsuspecting masses (this means you), run as fast as you can from them and their prognostications.

This brings me to CRYSTAL BALLS (no, not those balls). Have you ever read the fine print disclosure at the bottom of every prospectus? It reads;

“PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, AND ANY EXPECTED RETURNS OR HYPOTHETICAL PROJECTIONS MAY NOT REFLECT ACTUAL FUTURE PERFORMANCE. FURTHERMORE, PAST RETURNS MAY REFLECT THE PERFORMANCE OF ASSETS FOR A FINITE TIME, OR DURING A PERIOD OF EXTREME MARKET ACTIVITY. ALL INVESTMENTS INVOLVE RISK AND MAY LOSE MONEY. Past performance is not an indicator of future returns”.

I bring this up because it is very important when you make investment decisions. No one, and I mean no one can guarantee or predict the future of any investment. We can all look at what has happened in the past and project what MAY happen in the future based on that past but it is nothing but an educated guess. Period. Those morons saying that gold is going to tank or oil prices are going to triple by the end of the year might be right once in a while (a broken clock and all that) but never take what pundits say as the Gospel Truth, we all should be as skeptical of financial experts as we are of supernatural claims!

I’ll leave you with a short story.

A corn farmer is debating when to take his crop to market, he wants to get the best price for his corn. He decides to send one of his men to get more information to the Chicago Board of Trade where commodities like corn are sold on the trading floor.

A couple of days later his man calls him.
“So what are they saying?”, the farmer asks.
His man says, “Some think the price of corn is going to go up, some think the price is going to go down. But they all agree that whatever you decide you must act quickly and do it now!”

“I am quite sure now that often, very often, in matters concerning religion and politics a man’s reasoning powers are not above the monkey’s.”~Mark Twain
“Ocean: A body of water occupying about two-thirds of a world made for man - who has no gills.”~ Ambrose Bierce
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30-01-2016, 02:22 PM
RE: Full Circle’s Mutterings on Money
(30-01-2016 01:56 PM)GirlyMan Wrote:  
(30-01-2016 01:48 PM)Full Circle Wrote:  Philosophy:
Money = freedom

Only to the point where it becomes a fixation. Then it is enslaving.

Agreed.

From my personal viewpoint it allows me to pursue my passions with limited reservations. I’ve made the sacrifices, taken the risks and now the payoff is I get to dictate what my days will be like instead of a boss.

“I am quite sure now that often, very often, in matters concerning religion and politics a man’s reasoning powers are not above the monkey’s.”~Mark Twain
“Ocean: A body of water occupying about two-thirds of a world made for man - who has no gills.”~ Ambrose Bierce
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30-01-2016, 02:45 PM
RE: Full Circle’s Mutterings on Money
(30-01-2016 02:22 PM)Full Circle Wrote:  I’ve made the sacrifices, taken the risks and now the payoff is I get to dictate what my days will be like instead of a boss.

[Image: math.jpg]

#sigh
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31-01-2016, 08:33 AM (This post was last modified: 31-01-2016 08:41 AM by Full Circle.)
RE: Full Circle’s Mutterings on Money
THE EFFICIENT FRONTIER

In 1952 Harry Markowitz wrote a paper showing that by owning multiple and lowly correlated* asset classes like both stocks and bonds you could have a higher return on your investments with less risk. A beautiful thing.

Everyone has heard that you should own both stocks and bonds but the why is not always clear. So without further ado here is a simple graph showing what this looks like. I’m a visual person and if you are too these graphs help.

The X axis (horizontal) is Risk (also known as standard deviation). (Low risk to the left, higher to the right along the axis)
The Y axis (vertical) is Returns (also known as dead presidents). (Low returns at the bottom, higher returns up the axis)

[Image: image_2.png]

If you were to start with a portfolio of only 10 yr treasuries your annualized return (historically speaking) would be about 6% and the risk is about 7% (we’ll talk more about Standard Deviation and Sigmas later). As you add stocks to the mix, up to about 25%, your returns increase and your risk decreases! Perhaps the only “free lunch” in the investment world.

Thereafter as you continue to increase the stock portion of the overall portfolio returns continue to increase but so does risk (again, measured in standard deviation).

So the question for each of you becomes, how much risk are you willing to take to gain the most money?
Another way of asking this is how much pain can you tolerate over time to have the highest returns?
Yet another way of asking is for every $1,000 you have in the market how much value could you stand to see it lose before freaking out and selling it all? $50? $100? $500?

Most people overestimate their tolerance for risk, I know I have in the past. Like I said in my OP, I’m averse to losing money and I’m a wimp when it comes to seeing the value of my hard-earned money drop. So for me I don’t feel comfortable having more than 35%-40% in stocks (also known as equities) and I’m willing to forgo higher returns so I can sleep at night. We each have different levels of risk tolerance and there are ways to measure this.

Here’s my 2nd tip, the hardest thing about managing your money is managing yourself while managing your money.

I’ll go over what the pain of losses might look like in my next post when I discuss risk in the form of standard deviation and sigmas.

*correlation = how closely two different asset classes such as stocks and bonds mimic each other’s risk and returns.

“I am quite sure now that often, very often, in matters concerning religion and politics a man’s reasoning powers are not above the monkey’s.”~Mark Twain
“Ocean: A body of water occupying about two-thirds of a world made for man - who has no gills.”~ Ambrose Bierce
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31-01-2016, 08:50 AM
RE: Full Circle’s Mutterings on Money
You lost me at "money".

Tongue

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31-01-2016, 08:53 AM
RE: Full Circle’s Mutterings on Money
Quick Rant.

I want to know where the fuck where the classes in high school and college on how to properly invest and handle money?

I remember home-ec class where they taught you to write checks but not how to make the checking account grow. I suppose the old joke, “How can I be out of money, I still have checks”, applies here.

Anyway, all I know is that I had to learn the hard way and teach myself pretty much everything about investing and seeing money for what it really is, a tool. Period.

Once I started seeing it as such the veil lifted and I could then make better decisions. Hopefully for a few of you out there I’ll be able to help you the way I wish someone had helped me all those years ago.

End rant. Carry on.

“I am quite sure now that often, very often, in matters concerning religion and politics a man’s reasoning powers are not above the monkey’s.”~Mark Twain
“Ocean: A body of water occupying about two-thirds of a world made for man - who has no gills.”~ Ambrose Bierce
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31-01-2016, 08:54 AM
RE: Full Circle’s Mutterings on Money
(31-01-2016 08:50 AM)DLJ Wrote:  You lost me at "money".

Tongue

Quiet in the back row!

Anyway you deal with Bhats or some such currency, monopoly money as it were.

“I am quite sure now that often, very often, in matters concerning religion and politics a man’s reasoning powers are not above the monkey’s.”~Mark Twain
“Ocean: A body of water occupying about two-thirds of a world made for man - who has no gills.”~ Ambrose Bierce
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31-01-2016, 09:16 AM
RE: Full Circle’s Mutterings on Money
You are 56. What are your personal plans for the future? It matters, it is important to know what one aspires to do and when.

[Image: dobie.png]Science is the process we've designed to be responsible for generating our best guess as to what the fuck is going on. Girly Man
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