Few questions?

[Summer]

>I have been thinking, why do everyone retire with relatively a large sum money when they can't even walk properly at age 65 like this.

Uh, your view of aging is distorted. That couple is waaay older than 65; they're probably over 80. And usually people who can't walk properly at age 65 don't have a large sum of money. And half of people at age 65 have barely anything saved.

But my thinking stays valid regardless. It really is like saving sex till later in life. Whether you are weaker or stronger at that later age doesn't matter.

[Summer]

slimicy made a very good point a couple posts back. It is not necessary to "beat the market" to be a successful investor. Unless you want to go from being broke to owning second homes in Monaco and the Caymans before age 30. If that is your plan then you have to be the investing equivalent of a lottery winner. But if you just want to own a decent home and get out of the rat race by sometime in early/midlife with enough money that you can live within your own definition of dignity and comfort, a sensible plan and patience to stay the course will get your there most of the time. The key to being on the early side of that (for most of us) is to work the other side of the equation, to learn how to build a lifestyle of contentment without reliance on large amounts of money. The thing about risk is that sometimes the potential becomes reality. I can only stomach it in moderate doses.

I like the way you think. If you think about it in a ERE sense you could see that I can live the Monaco and Cayman islands lifestyle without having to own second homes there. Much like many people do. Only billionaires (three sigmas) own things.

The better approach would be to simply say "How much do I need to [INSERT YOUR OWN GOAL]?"

Thanks.

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All this is great. I feel like my eyes have been opened.

[Summer]

I have one more question that arose from my reading on investing. Why haven't you considered the very large derivative markets as investable and rely heavily and almost completely on ETFs? Why no derivatives? Aren't they good for risk management? Please don't quote Warrant Buffet here as a defence for not using derivatives though.

[JL13]

@Summer

Basically because it's not worth the trouble. A few hand-selected companies can be completely hands off and provide an (albeit lumpy) 11% return.

If I wanted to increase that to 20%, I'd probably do tax-lien investing as I have more of a mind for it, but at my asset base (low 6 figures), it's more profitable to take that 5-10 hours a week and devote it to something else.

Derivatives I guess you can structure them to make money but, why are you in such a hurry? And do you have enough faith that:
1.) The future price movements you predict will actually occur AND
2.) That other people will respond the way you predict them to?

I for one can't tell the future. Brazil just got downgraded to junk last week. I didn't know that was happening, but if you told me with 100% certainty that that was going to happen, how would I know whether it would affect equity markets in the US? DId it? Who knows? Greece almost goes bankrupt and the market drops 7%, Brazil almost goes bankrupt and we have a +2% week. I don't know enough to use derivative to take advantage of this nonsense, and I don't care to spend my time thinking about it.

I know with near certainty that Coca-Cola is not going bankrupt, and that it's CEO and millions of employees are working hard every day for me to make me money. I sleep well at night. If I owned a derivative, there is no one, no one, who is looking after that investment but me. It doesn't inherently produce any value, there are no sales, no profits, and it's price movements are based on the decisions of some coked-up 22 year old MBA on wal-street. He can also &%$# with the price of KO in the short term, but he can't permanently destroy my capital.

[Summer]

@J_L13
What you say is valid. Except when they are used for risk management.

[JL13]

Depends on how you define risk. Are you talking about risk of volatility or risk of capital loss?

[Summer]

Both really. But I don't want to argue with you. Even though capital preservation is important it isn't the main goal for some of us.

[JL13]

It sounds like you've got a plan. Why don't you share it with us in a journal or separate post?

[George the original one]

There's a concept in gambling and investing that applies: are you being paid for the amount of risk you are taking. With gambling, it is easy to calculate the odds (e.g. red/black roulette), but investing & horse race handicapping is fuzzier. The stock market is fuzzy and the derivitives market is even fuzzier (partially because, like options, there are fewer buyers/sellers to trade with).

So, normal investors are generally comfortable with the stock market fuzziness and some even have an idea of whether they're being paid for their risks. But of those that understand their stock market risks can judge the derivitives?

[Summer]

I never said capital preservation isn't a goal of mine. But in a scale of one to five it is a three and capital appreciation is at a five while current income at a four throughout the most of the investment horizon.

[trfie]

Why in the world do you think that Buffett is 3-sigma?? I don't think you know very much about Buffett.

Edit: I see you also asked how Buffett views himself, so I see that you do not know very much about Buffett. He very well knows how many sigma he is, but he constantly plays down his ability in interviews.

[Summer]

Why in the world do you think that Buffett is 3-sigma?? I don't think you know very much about Buffett.

Edit: I see you also asked how Buffett views himself, so I see that you do not know very much about Buffett. He very well knows how many sigma he is, but he constantly plays down his ability in interviews.

Yes, I don't think I know my Warren Buffet very well.

[jennypenny]

@Summer--Read The Snowball. It's pretty good. I'm not a Buffett fan, but it's hard to deny his basic formula of work hard, never stop learning, and do your own research.

[Summer]

@Summer--Read The Snowball. It's pretty good. I'm not a Buffett fan, but it's hard to deny his basic formula of work hard, never stop learning, and do your own research.

Thanks. I have already read it.