It's been an interesting few weeks though with the markets going up and down like crazy.
I saw an advertisement for Schwab accounts this morning and thought I'd share some personal observations. The advertisement showed a guy in a suit saying, "The market may rise or fall - I feel ready for either." They're marketing the Schwab "Windhaven Portfolio" for "proactive growth."
Well, according to their chart, had I invested $200,000 in Windhaven during 2008, I would have watched that tank to about $150,000 and today I'd have about $220,000. That's less than a 3% Return in 4 years. Their overall 10 year return was 8.9%. But fees are .95% so our actual return is probably more like 8%. Interestingly, they're advertising a "129.7% of losses recaptured." Here's the link if you want to see the info:
Let's compare that to a Rule #1 Investor using "The Tools" against the S&P 500.
(I'm looking at this on investools over a 5 year period with weekly charting)
Suppose you have your 401K invested in Vanguard's 500 Index that mirrors the S&P 500. You might have been "all in" with your $200,000 with 3 Greens and then about 3 weeks later, you got your "3 Red Arrows" - you got out at about the same price at about 1,350. You waited until you got "3 Green arrows" and went all in at about 850 a year later. To keep this simple and brief...let's say you got a little lazy...Disregarding all the other times you should have gotten in and out based on "The Tools" - you would have gotten out of the market in May 2012 at about 1300 and would still be waiting for 3 Greens arrows today.
How'd we do? Well, 850 to 1350 is a 500 point increase. 500/850 ='s 58% increase from 2008 to 2012. I'll divide that by 4 years and get about a 14.8 percent Return per year and your $200,000 would be worth about $316,000 versus $220,000 had you stayed with Schwab's Windhaven Fund. You'd done a lot better if you weren't lazy and checked your portfolio each week...less than 15 minutes per week for financial security!
So now you know the difference between having a professional invest your money for "proactive growth" versus following a few simple tools as described in Rule #1.
This stuff isn't rocket science is it?
I don't like to buy the S&P 500 and trade based on "The Tools." You know why? It's too easy and I'd get bored. I love the excitement of shopping for a Rule #1 Company and buying it at MOS. I love reducing basis and killing the "professionals." I feel like a silent warrior...no glory, no awards...just doing my job and doing it well.
In May I sold lots of BP Put Contracts that all expired "out of the money" last week for June's expiration. Overall, I lowered my basis $3.00 per share and the stock dropped! I'd say that's pretty damn awesome. How many "professional" Mutual Fund managers made money on BP when the stock dropped? Zero.
The just can't do what an educated Rule #1 Investor can do! It's not that they don't want too, their laws won't allow it. When you master Rule #1 Fundamentals, R#1 Options, and R#1 Cash Flow, you're just sitting their creating wealth. Fear goes away and we put ourselves in a win/win situation!
So what do I do now? I "rinse and repeat" to create more wealth.
Since I'm back from vacation, I'll be also be back in the investing game this week looking for ways to reduce my basis on R#1 Companies I already own. Those premiums/stock prices are looking pretty yummy and I want to get more of them and lower my basis. I love this Volatility! Fear and Uncertainty is paying me well for Put Premiums! The long term Rule #1 goal would be to get my basis to $0.00 and have pure infinite profit!