I've started dabbling with Yahoo's finance feature, which allows you to create and track a financial portfolio. I'm just starting with it now, and I'll be tinkering with it further. If I were investing real money, I'd do detailed research and actively seek informed advice (but not paid advice, frankly, unless you're paying a lot for it), insider information, etc. As it is, I'm betting on secular trends in most cases, although I may proxy these with individual stocks.

I won't post breakdowns yet but there is roughly a 35% cash position. Once I add some more positions and fix some allocation numbers, I will do rebalancing on a regular basis. (Well, if I can stay inerested longer than a week.) Also, I will decide on some exit criteria for when to get out of a bad bet, although in practice for me a lot of that is intuition, awareness of general conditions, etc.

This is not a properly hedged portfolio. Rather, it is a series of directional bets and is therefore rather risky.

Here's what I'm in right now:

SHORT on:
British pound
UK gilt
Mittal Steel
S&P/TSX composite
Whole Foods Markets

LONG on:
Swiss Franc
Timberland
some small Canadian wind energy stocks

I haven't taken a position on Canadian bonds. Interest rates are expected to rise, which should drive down bonds. But I expect Canadian equities to crater soon, which normally would drive bonds up. So if I were a sophisticated trader maybe I would bet on increasing bond volatility next year. Or something like that.

Steel I decided was not going to continue its appreciation, because it was vulnerable to any number of changes in the global economy. Any global downturn would slow Chinese demand for steel, leaving a glut in the market. China's domestic economy, at some point, is due for a correction. I decided all this about 10 days ago. Today there was news that Chinese steel production has increased dramatically, slackening demand from foreign producers. Supposedly this is going to hit smaller producers harder and Mittal Steel, which has been hoovering up plants all over the world, will be big enough to have monopoly pricing power. However, my reading is that Mittal is overreaching, and the slump in steel will leave it exposed. Right now Mittal's stock value is reaching for the sky, but I would definitely be short in that position in real life.

Wind energy--I think that in the near future we will see regulatory changes that make it much easier for independent wind producers and cooperatives to set up in major domestic markets (Ontario e.g.). Therefore I would be bullish on companies situated to take advantage of that. It's a small market and any major expansion is a question of multiples of the existing market.

Whole Foods. This is just ridiculously overpriced, unless there's some buyout I don't know about. Short short short.

Timberland. By sheer coincidence, I "bought" this at the very very bottom of its 52 week range -- it was plummeting when I "bought" it. Right now Timberland's crazy appreciation (13% in the ten days since I "bought" it) is keeping my portfolio in the black but to be honest, I have no particular reason to believe this long term bet is a good one. What exactly lies under the strength of the stock? I actually picked this because it is one of the best employers in the "great places to work survey" and the top ten in these every year have greatly outperformed the broader market. Timberland has had a nice run of it as a brand in recent years, but perhaps their time is soon to end. So I might take profits and get out of this once it gets back up near its 100 day moving average (which would be a 25% "profit" for me.)

Certainly, in the real world, I think more knowledgeable investors exploit the credulity and ignorance of less knowledgeable investors. Also, I think competent, affordable financial advisors who have your best interests at heart are rare. The intrinsic conflict of interest in the position -- profiting at your expense through churning and so on -- is generally supplanted by a second-order conflict of interest, where their interest is in doing due diligence and conforming to securities laws. As a result, and as a result of high levels of ignorance among financial advisors, most advisors don't give advice worth anything.

You might as well just park your equity money in a basket of index funds that hedge with cyclical/counter-cyclical stocks etc. A couple of brochures on investing would be enough to tell you that type of thing.

Here's a classic example - Brady bonds. They're secondary bonds that securitize Third World debt. So you can actually buy these things and essentially gamble that the African nation du jour will be able to come up with the interest payments to make your pocket get fatter.

So yes, it might be a rational addition to your portfolio, but it comes with the ethical cost of knowing you personally profit from countries repaying loans they may not really be able to afford.

Me, if I ever have a pile of money it goes all into Canada Savings Bonds and other Canadian government bonds. (Well, possibly also a no-load index fund, but the stock market's kind of moving sideways it seems)

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Originally posted by rasmus raven:
You might as well just park your equity money in a basket of index funds that hedge with cyclical/counter-cyclical stocks etc. A couple of brochures on investing would be enough to tell you that type of thing.

But an easy way to avoid all of this is simply to keep money in Canada Savings bonds and the money market. Sure your returns are usually lower than other markets, but the risk of ruin is almost zero, and no one is going to exploit you or make you feel like a victim.

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Depending on the age of the investor, putting a significant percentage of your money in a broad index fund of stocks is the better way to see reasonable growth. Over a short-term period of time (a few years) stock can be (and have been) outperformed by bonds. But, over the long term, stocks always outperform bonds.

I consider myself to be a relatively conservative investor and I have half of my retirement accounts in stock index funds.

one, understand how the tax system impacts investment (invest in a home, there is no capital gains tax/understand how tremendously high tax rates on interest income will impact your return). two, try to pick stocks that are part of your daily life, 'live' your investment. three, never, ever sell a stock that is going up but always sell when it has fallen by 10%, even if you just bought it (never average down, a broker's language for 'oops i blew it'). fourth, only borrow to invest, never ever to consume (no credit card debt ever!).

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Originally posted by rasmus raven:
Certainly, in the real world, I think more knowledgeable investors exploit the credulity and ignorance of less knowledgeable investors.

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Of course, rasmus: that's how the system is able to produce a small cadre of very wealthy people. There's a huge mass of people (it was probably larger during the mutual fund mania of the 1990s, but most of that capital has since been used up) bankrolling the ventures of modern robber barons, who instead of forcing people to give up their money, simply cajole it out of them through clever publicity and a rotating bevy of 'portfolio experts'. But a lot of people have been burned by this - after all, we have not become a nation of wealthy barbers. Instead of being fuelled by an influx of capital, we are now a civilization fuelled by debt.

I hate to pop your probabilities bubble, but from my point of view, investment has as much to do with the pure science of statistics as it does with biochemistry.

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I hate to pop your probabilities bubble, but from my point of view, investment has as much to do with the pure science of statistics as it does with biochemistry.

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edited to add: I did this once before (when I took out a life insurance policy early on in Ottawa) and I know when I accept the cash surrender amount, the policy is cancelled.

[ 09 November 2005: Message edited by: Boom Boom ]

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Originally posted by brebis noire:
I guess I was reading that into your post, sorry. Maybe it was all the talk of 'betting', 'securities laws' and such. I know a guy who did that type of experiment, except with his own real money, and from his expectations of how things were supposed to work out - based on history, probabilities, market laws, and such - the upshot was that he lost most of his money and he's still trying to get it back. It's been about 4 years now.

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Well, there are people who are better and worse at it. I don't believe in the efficiency of the market. I do believe there are talented investors. I just think the vast majority of investors are not.

I know someone who is a full time investor. He spends his time researching and getting to know a small number of companies. He talks to employees, visits the workplaces, etc. He can do this because he is a large shareholder in these companies and also has some connections. To some extent, this is the Buffet model of investing. This person I know is consistently successful and has been so for 10 years or so.(Paul Samuelson, the leading exponent of the "efficient market" orthodoxy, has nevertheless long been invested in Buffet's Berkshire Hathaway.)

But there are also technical ways of making money off the market. It works far more than economic orthodoxy predicts it should. However, it seems to me that most such trades are predominantly done by banks and wealthy investors or hedge funds trading on their own account. What banks can do with mutual fund money, for example, is quite restricted.

If we speak of mutual funds and fund managers, the performance of most of these falls into a distribution that is more or less consistent with broader market trends, if anything, skewed to the worse side rather than the better. There are exceptions that achieve consistent results for year after year, like Ed Thorpe's several hedge funds.

You can try contacting the company directly without going through the broker. I don't know if they can/will answer your question or not.

Note that the cash surrender value of a life policy is usually (always?) a terrible deal on pure economic terms. There is a very strong argument founded in basic mathematics why you should not cash in the policy.

First, the cash surrender value is not a function of the face value of the policy. It's a function of the cash buildup within the policy - in effect, the premiums you have paid over the years, less expenses (which includes brokerage - if you've got a whole life policy the broker was probably paid more in commissions for that first year than you paid in premium) plus interest, less insurance charges. If the policy has been around for many years, this may be a reasonable amount. If the policy is relatively new, it's probably close to zero.

After having said all that, since the premium is a function of the policy face it is quite possible to say that the cash surrender value is simply X% of the amount insured multiplied by the number of years it has been inforce. This is not set by law and I seriously doubt any company can be forced to repurchase a policy. There are actually classes of life insurance that are refered to as "lapse supported" because, while the premium charged on any given policy is not sufficient to cover the cost of claims, sufficiently many people will lapse the policy (i.e., drop coverage and never collect) that the totality of premiums is sufficient to cover the claims that will be made by those that stay in the program.

Having said that there is a secondary market for life insurance policies. Stripped to it's bare essentials there are investment groups that purchase life policies from someone like yourself at a discounted value, take over paying the premiums, and when the insured dies, collect the proceeds. The earliest versions of these were called Viatical Settlements and were actually set up to allow very ill people an opportunity to cash in their life policies for significantly more than could be realized if the patient surrendered the policy to the original company. Most of those entities lost their shirts because advances in medical technology resulted in the people living a lot longer than expected. The current generation of products is called "life settlements" and while it doesn't focus on particularly ill people it does target elderly people that really don't need their insurance policies any more - if you're 70 and have no heirs you have no need for insurance.

BoomBoom - I don't know if you'd qualify for something like this but you might want to check. Do a Google for life settlements and see if there is someone in your area that does that sort of thing.

http://www.businessweek.com/magazine/content/05_44/b3957136.htm

Talk about easy to find - should have done the Google before I posted.

[ 09 November 2005: Message edited by: abnormal ]

I cashed in a life policy 30 years ago that my parents took on me - I needed the cash, got $3500.00. Had no dependents.

My current policy was taken out by my employer in my name as a working benefit - the employer paid into it, I own the policy. I have no dependents. I'd like to take out a mortgage using whatever proceeds I can get, even if it's nowhere near the value of the policy itself.

So, let’s say you’ve got $25,000 today and can save $5,000 per year at 4% annually. In 25 years, you’d have about $275,000.

If you invested in a broad-based stock index fund, you’d likely see at least a 6% annual return (based on historical stock returns over time). That would leave you with an investment 25 years from now of $380,000. If the average is 8% (which is, I believe, far less than the indexed stock fund average return over the last ten years), you’d have about $535,000.

While individual stocks are risky in the short-term, a long-term investment in a broad-based stock index is not.

That being said, I have about 25% of my money in bonds and the rest in stocks. As I get closer to retirement, I’ll gradually increase the percentage in bonds.

If you will have $500,000 twenty-five years from now and assuming an inflation rate is 3% for the next 25 years, then that $500,000 would be like having about $240,000 in today's dollars.

If you invested that $500,000 in something that paid three percent (i.e., exactly matched inflation) you'd have something worth $500,000 (or the equivalent purchasing power) in 25 years. If you found something that paid 4% (i.e., 100 bp over inflation) you'd end up with the equivalent of $636,000 [roughly $1.33 million nominal].

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Originally posted by abnormal:
Sven,

If you invested that $500,000 in something that paid three percent (i.e., exactly matched inflation) you'd have something worth $500,000 (or the equivalent purchasing power) in 25 years. If you found something that paid 4% (i.e., 100 bp over inflation) you'd end up with the equivalent of $636,000 [roughly $1.33 million nominal].

If you don't want to second guess inflation you can always look at TIPS or some such.

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That assumes that you have $500,000 today to invest!

But, assuming that, you're largely right. If you have $500,000 already and you invest it at the rate of inflation, the purchasing power of your investment in 25 years would remain the same (i.e., the equivalent of having $500,000 today).

However, if the 3% is in the form of dividends (and not capital gains), you'd have to have an investment that exceeded the inflation rate because of the taxes you'd be paying on that current income (so that your after-tax rate could be maintained at 3%).

In addition, you have to take into account future inflation. If you're living off the interest on $500,000 (say, 14,400 per year) because you've invested your money so that your annual income exactly mirrors the inflation rate, that $14,400 in income that you'll have ten years from now would be like having an annual income of only about $10,700 per year.

But, putting aside the assumption that a person already has $500,000, if a young person, today, is looking to have saved $500,000 (in year 2030 dollars) in 25 years, the value of that savings in today's dollars (assuming a 3% inflation rate) would be the equivalent of today's retiree having only $240,000.

[ 09 November 2005: Message edited by: Sven ]

Oh, and if anyone thinks that having $240,000 to live off of is "a lot of money", then consider this: Investing that $240,000 at 5% and amortizing the balance (so that you live off of all of the interest and part of the principal each year), you'd have $17,000 to live each year for thirty years and then you'd have nothing left. And, again, the value of that final $17,000 payment twenty five years later would be like having $8,000 to live on today).

[ 09 November 2005: Message edited by: Sven ]

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Originally posted by Boom Boom:
Many things are so expensive nowadays (ie: house, car, education) that it's my opinion you need to be making close to a six-figure income to really build up a savings account that will carry you through a rainy day and beyond.

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Over the past dozen years or so, I've gradually been adding equities to my modest retirement nest egg so that I'm now close to a 50/50 split between fixed income securities (GICs, term deposits) and equities (mostly mutual funds, though I occasionally dabble in individual stocks).

The results over 12 years are that I've achieved a yearly return of 7% on equities compared to about 5.5% on GIC type investments.

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Originally posted by John K:
Unlike RR, I wouldn't recommend dabbling in currencies or the futures market unless you've got a lot more time to dedicate to doing the research than I do at the present time.

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Hey rasmus raven have you read this article in moneysense.ca titled "The genius next door: how small investors beat the market."
Here are 4 investors who beat the market and tell how they did it.

It was a great article talking about 4 different investment strategies done by amateurs who came out on top.

Sterling expected to weaken further

UK rate debate continues

Bank of England keeps rates unchanged

Whole Foods stock hit by sharp decline in profits (today)

Mittal steel third quarter profits drop sharply (yesterday)

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Mittal Steel third-quarter profit drops
Wednesday November 9, 3:56 pm ET
By Steve James

NEW YORK (Reuters) - Mittal Steel (NYSE:MT - News; Amsterdam:ISPA.AS - News), the world's largest steelmaker, on Wednesday reported a sharp fall in third-quarter profit as prices slipped and demand driven by Chinese economic expansion cooled.

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