Daily S&P 500 INDEX TRACKER

[Hoop]

5. You can still make tons of money in the stock market even if you under-perform the market index.

Could you explain that a bit more please? Thanks.

Hi Belg..I responded to the other but not you..don't feel offended but you did ask a very hard question .

I'll take the chance, not to go completely off topic on this thread

Boring... that statement could be true during secular bull market cycles...however as the rising/falling of the tides tend to raise/lower all boats you can safety say that during the secular bear cycles if you underperform the market you lose money..At the moment many of the 1st world sharemarkets including the S&P500 are in a Secular Bear cycle and have been for 13 years now...this is the main reason why you hear many advisers and brokers not recommending the Buy and Hold Strategy now as B&H performs poorly during secular bear cycles.

Receiving a lump sum pension at the time of a cyclic bottom of a sharemarket during a secular bear cycle could be seen as theoretically the only way a B&H strategy would make money, but no-one apart from the fatalists would ever think of piling all their hard earned money that they need for the rest of their life into a sharemarket that is in capitulating turmoil. Even when the bottom has passed nobody knows that, as the new pensioner have seen previous rallies before and they have all been sucker rallies.. wisdom says "stay out"

I agree in full that one should use a strategy that they best feel comfortable with.

However...Boring you have an unusual psychological profile....I think most of us would lose lots of sleep being totally invested during a bear market with the fear of the unknown..especially during the c-wave..just the thought of waking up every morning and seeing another 1.5% knocked off my ever decreasing capital and another announcement by a company that due to hard times they are lowering/suspending the next dividend...just makes me shudder

..a worse thought... Having this "Smart" idea of realising your losses, let the market fall without you, and put what's left of my money in a bank on fixed deposit then wake up the next morning to hear the news that your bank has gone "tits up".

EDIT: List of Failed US Banks

[boring]

Thanks Hoop, I do have an unusual psychological profile and I take pride in that. A lot of how I think I put down to my mentors and personal development coaches I have had the honour to work with over my lifetime. I also enjoy our discussions about our different approaches. I certainly understand and appreciate your approach, it's very sound as well.

My strategy is not a capital appreciation strategy, it's a growing passive income strategy. Most are told to invest in growth companies so you have a huge nest egg at 65 years old, all while reallocating your growing funds over time to more conservative bonds. Then apply the 4% withdrawal rule on retirement and hope you don't outlive your money. This is the "traditional" message from financial planners.

My mentor always told me to "start with the end in mind". So when I thought about my financial freedom end point, I wanted a continuous, sustainable, and growing flow of passive income that would exceed by living and discretionary expenditure, as well as having money left over to continue to be a net buyer of stocks. So the dividend-growth strategy was right up my alley, and I have used this strategy for a couple of decades. This means I have remained invested all through secular bull and bear markets. But people have to understand that I can only invest in a certain type of company.

As mentioned, most companies in the S&P dividend aristocrat index and the NASDAQ Dividend Achievers index are large capitalised, steady-eddy dividend growth payers. When I look at the yields on original purchase cost for some of my long-term holdings, you can easily end up with a 20% yield. Warren Buffet gets his original purchase cost of his Coke shares back every single year in the form of dividend payments.

This is why I say you can still make tons of money in the stock market, even if you under-perform the indexes over a long period of time, because the indexes are capital indexes and don't take into account dividends. And dividends can be a huge component of market return over the long-term.

When it comes to secular bear markets, the share price of large dividend-growth companies tend to hold up well at the beginning of the correction, but then start a slow secular price decline. This is how it is important in this strategy to remain a "net buyer" of stocks. Yields on dividend-paying companies rise, you get more income, all while waiting for the secular bull market to return.

If I was smart enough to sell my entire portfolio before the beginning of a secular bear market, I would need to put that money somewhere in order to make a decent income. Usually, (not always), bond yields become very low as the reserve banks respond to weakness in the economy by reducing interest rates. that's why boring, stodgy dividend-paying companies have been so successful over the last few years, those ruddy retired-boomers are seeking yield.

To mitigate bear markets using this strategy, you need to make sure your dividend-paying company has a payout ratio of less than 60%, has a track record of still increasing dividend payments during previous recessions (because of the payout ratio margin of safety). It is also key that the income you earn from dividends, has money left over for reinvestment. This is how you can combat the psychological influence of falling share prices. Because you are a net buyer of stocks, you can pick up good solid dividend-paying stocks cheaper and at a higher yield.

The other thing to note is that I am an Australian resident, so capital gains tax applies. That's why I want to avoid a selling if possible, because that would trigger a significant capital gain payment for some of the shares I have owned for 2 decades. I believe you don't have that issue in New Zealand, so it is easier to apply the stop-loss capital preservation strategy.

When it comes to reinvesting dividends, I actually have a systematic quantitative method that helps me work out how much stock to buy, and how much to set aside in cash for future purchases. That's because in a raging bull market, stocks become expensive. Over the last 12 months, I have only been able to re-invest 20% of funds, so I'm retaining the 80% of reinvestment moneys as cash. That is because dividend-yields are historically low. So I'm waiting for the next secular bear market so I can put this cash to good use.

I'm not trying to convince anyone that this is a superior strategy, nor is it original. I'm just letting people know that this is a strategy that his worked well for me over the last 2 decades, where I have experienced several bull and bear markets. People can take out of it what they want. If someone thinks "that's a crap strategy, I really like mine better", then these posts have been of service to people, because it has reaffirmed their belief in their own strategy.

To be fair, there are quite a few nuances to my strategy, I have a personal white paper documenting my strategy that is 80 pages long. I treat my investing as a business and follow my entry, exit and monitoring rules religiously. At the end of the day, it's my livelihood, and I'd go hungry if I fail.

Van Tharp has always said you invest and trade your beliefs about the stock market. When it comes to trading, both Van Tharp and Schwager's research show that the best traders in the world use all sorts of different systems, so psychology is the differentiating factor on whether you are successful or not.

[cyclist]

Boring. A couple of exceptionally well written posts.

Your strategy seems to be in common with that taken by the writers of some of the popular financial independence blogs, www.bravenewlife.com being one of my favourites.

I am slowly entering the sharemarket after watching markets for many years, but not participating. Blogs like the above have helped me realise I have been neglecting the investment side of the FI equation. I can see myself taking a similar strategy as you, although I am entering the market very gently at the moment, for the same reasons you are current holding your excess dividends as cash.

[Hoop]

I agree with cyclist ....yes a quality post and thanks for you time to write it and share your investment discipline with us. I hope others STers see this post as your methods are valuable..
I enjoyed the debate.
cheers
Hoop

[boring]

Thank you Cyclist and Hoop. I love an exchange of ideas.

I am always heartened to hear from posters such as Cyclist who are embarking on their trading/investment journey. I'm sure experienced investments and traders such as Hoop will concur, the trading/investment journey is a most rewarding and sometimes frustrating journey. You really get to discover some insights about yourself and how you handle uncertainty, fear and greed. I'm sure neither of us could imagine life without participating in the markets.

Cyclist, if you are interested in a dividend-growth strategy for attaining long-term financial freedom, I will share the following poignant Chinese proverb: "The best time to plant a tree was 20 years ago. The second best time is now".

There is always a feeling of trepidation when you feed new money into the markets. If it's a raging bull market, you think "it's probably topped, lots of market commentators are talking about vertigo and an eminent correction". If it's a bear market, you think "it's only going to go lower, there's so much uncertainty and risk in the market".

So I concede that there is some wisdom in the financial planner "dollar cost averaging" approach. Get into the habit of saving, and get into the habit of regular investing. Build positions in good quality companies over time. But you must do your homework if you choose to invest in a portfolio of individual stocks. This type of investing is NOT a set and forget methodology.

If you want a set and forget growth-strategy, Hoop's S&P 500 index is the way to go. If you want a set and forget dividend-growth strategy, invest in an ETF such as the Vanguard Dividend Appreciation ETF (VIG) - tracks the performance of the NASDAQ US Dividend Achievers Select Index.

I like US stocks because these you get access to the biggest and most recognisable global companies. You can invest in companies whose products and brands you are familiar with and actually use (Buffet's circle of competence). You do open yourself up to currency risk investing in the US, but I am comfortable with this because I plan on spending 3 months of the year living in the US anyway.

The point is, you will never get comfortable about risk, until you put some real money into the game. If you lose money when you start out, consider it the cost of your education. And nothing is more valuable and a practical education. The faster you put skin in the game, the quicker you will learn about your own risk appetite.

My current Mentor suggested that I start giving back and helping others who want to undertake a similar journey. He is about 10-times more wealthy than I am, and people I've met with this amount of wealth speak in a totally different vernacular than I do. They talk about "giving in order to get", "being at service to ever greater numbers of people" ... very woo woo stuff. Hence why I've put some long posts on this forum. I probably should move to the Investment Strategy folder and lay out my methodology in a transparent way for the benefit for all to see. I thought about setting up a non-monetarised Blog, but I'm a bit too lazy for that. I'm a Gen Xer, and blogs are more a Gen Y thing !!

[kiora]

Great discussion as always Hoop and thanks Boring. Both your investing strategies definitely more thought full than the often posted oh its gone up /down every few minutes. Must admit I am a bit lazy on the trading as well Boring but quite happy over 30 something years of buying and mostly holding to have built up a sizable investment for retirement . If anything I admit I have been too slow to sell loss makers at a loss .I recommend adopt a system for getting out of losing positions, stick with your system and be very, very disciplined with the system that you adopt. I believe this has to be part of investing in shares ie when to take the loss/ when to ride the gains & not to sell out too early

[winner69]

Here is what happened to the DIJA when it experienced a Sornette bubble a few years ago

Predicted recent collapses in the price of oil and gold as well .... more pretty pictures
http://www.hussmanfunds.com/wmc/wmc130415.htm

Those log periodic thingies are getting shorter and shorter as the markets continue to rise ....and rise

Kaboom

[peat]

Attachment 5175

Well indeed the S+P would appear - at least in this very short term - to be struggling with the 1812.
It will save the Booms for the end ;+)

[Hoop]

Attachment 5175

Well indeed the S+P would appear - at least in this very short term - to be struggling with the 1812.
It will save the Booms for the end ;+)

Hi Peat
Is your chart on NZ time?

Todays trading the 10th Dec Wall St time (the 11th Dec NZTime) the index opened below the green 1808.82 tested that mark and failed ending the day at 1803 -5 (-0.3%) breaking the very short 1806 support....and it continues as you say struggling on the short term....
The technicals on the longer term chart seem to have some bearish divergences developing so there's a hint that a downturn from its high could be in play...This short term weakness adds to the worry in that it could be creating a longer term double top pattern something which we should watch with caution in mind.

Will it be a boom or a kaboom

[cyclist]

I probably should move to the Investment Strategy folder and lay out my methodology in a transparent way for the benefit for all to see. I thought about setting up a non-monetarised Blog, but I'm a bit too lazy for that. I'm a Gen Xer, and blogs are more a Gen Y thing !!

Hi Boring. I have thinking a lot about these posts over the last few days. Definitely think it would be worth transferring this to a separate thread in the Investment Strategy area. I think your existing posts describe your strategy very well, and could just be repeated/copied over to the new thread. I'm sure there will be others interested in this discussion, who may have missed it as part of the S&P 500 thread.