Beating Inflation

On January 03 2012 02:49 Br3ezy wrote:
are you afraid at all to possibly risk 10,000$?

On January 03 2012 02:57 Ingenol wrote:
Have you considered gold or silver?

On January 03 2012 02:59 Lightwip wrote:
It really seems like you want all of profit, accessibility, and safety.
I don't think it's possible to have all of those.

I'd suggest CD's or a mutual fund for relative safety, even if it's not particularly accessible. Keep a small part of it in a savings account.

On January 03 2012 03:00 Azzur wrote:
Buy AUD (Australian Dollar) and you can get about 5.5% interest on term deposits.

On January 03 2012 03:06 Sweepstakes wrote:
First thing that came to my mind are TIPS (Treasury Inflation Protected Securities). Maybe google these and try to find some TIPS funds or what not. (Sorry, saw this on the way out the door and wanted to get my 2 cents in.)

Oh, and short ACOM, what a terrible business model.

On January 03 2012 03:07 micronesia wrote:

Could you explain more about this? I haven't heard of it before.

On January 03 2012 03:11 Azzur wrote:

You can go to your bank and ask to purchase some AUD currency. When you deposit that AUD in the bank, they should give comparable interest rates in Australia. Ok, perhaps they won't give you term deposit rates but it should be similar to the cash rate in Australia, which is about 4.25%.

On January 03 2012 03:50 GoTuNk! wrote:
I think if you really wanna beat inflation you should read "how to be rich" by kiyosaki and find a way to use ur 10k as an investment that yields a passive source of income.

On January 03 2012 03:52 jpditri wrote:
CD's do lock up the money for a period of time, and it looks like the rates aren't as impressive as they were 6 months ago. My fiancee manages most of our money through ING and she swears by it-- https://home.ingdirect.com/open/open.asp -- they offer investment accounts to invest in mutual funds and other products, but I haven't done it first-hand so I don't know how simple/complex the process is. We signed up with them primarily for the interest rate on the savings account, which was meaningfully better than either of our other banks.

On January 03 2012 04:01 RoosterSamurai wrote:
I know it sounds weird, but investing in WWII memorabilia can be a very solid investment, as they are as much of a commodity as gold or silver, but are less affected by market fluctuation. The only real risk is that you accidentally damage whatever it is you buy. One drawback is that you'll have to do research in order to ensure you know what things are worth, and that you don't get ripped off. But it's easy to make money if you know where to look and what to look for. Additionally, WWII memorabilia only ever goes up in value (If you don't accidentally damage it). They never go down in value.

On January 03 2012 04:03 Ingenol wrote:
Sorry, I either overlooked that last part or it wasn't there pre-edit when I posted. I suggested precious metals because they hold their value in times of hyperinflation (which is a very tangible danger at this point).

On January 03 2012 04:14 micronesia wrote:
If I wanted to invest in precious metals, how would I even go about that?

On January 03 2012 05:23 Kiante wrote:
how are stocks in pilot training schools going?

On January 03 2012 08:46 LaSt)ChAnCe wrote:
i don't understand why everyone keeps talking about having to panic check stocks

don't most online trading companies allow you to use limit orders? that's all i do..

limit order to buy at $xx.xx or lower
limit order to sell at $xx.xx or higher

On January 03 2012 09:42 micronesia wrote:

Yea, mine does. I have an order right now to sell if my stock ever gets up to the goal I want. This isn't always viable though.

I'd be doubly careful about putting in an order if a stock goes low enough.

On January 03 2012 13:49 jacosajh wrote:
Do you own a house?

If so, I'd just upgrade the crap out of it. Provided you don't live somewhere that is still heavily affected by the bubble burst I think it's really the best type of investment. It's something material you can actually enjoy and it increases in value.

If not, I would try to do so asap.

Unless you have A LOT of money to play with, I still firmly believe real estate is the single best investment the average American can make. I'm not talking about investment like during the housing bubble.

The sooner you buy a house, the sooner you pay it off. This is essentially the biggest single continual expense you will ever have. If you are able to get rid of it sooner, you free up a lot of your money. And the increased value over time is just the cherry on top.

Let's be realistic. Not very many people will ever become millionaires or even gain substantial financial gain dabbling in stocks. Unless you're already at that level, your goal should be to be able to retire to a comfortable life.

On January 03 2012 17:16 EternaLLegacy wrote:


People don't buy houses to invest in. People buy houses to live in. If he thinks that his standard of living will be best improved by upgrading his home, then by all means he should do that, but that's consumption not investment.

Real estate investment would be finding some property/land that you think is undervalued and buying it to sell later. People don't buy homes to sell later. They buy homes to live in them.

On January 04 2012 00:56 jacosajh wrote:


As an alternative, let's say you buy a home for $150,000. You can spend $50,000 (correctly) and the value of your home can go up to $225,000 automatically. And you get to enjoy it, whatever it may be, even if the value of your home goes down temporarily.

On January 04 2012 02:39 BrTarolg wrote:
From my opinion (Trader opinion), any kind of inflation linked bond with a country unlikely to default (UK, US if you live there) is the absolute best choice if you want to buy something and close your eyes for 5-10 years

On January 04 2012 02:39 BrTarolg wrote:
From my opinion (Trader opinion), any kind of inflation linked bond with a country unlikely to default (UK, US if you live there) is the absolute best choice if you want to buy something and close your eyes for 5-10 years. TIPS or inflation linked gilts are absolute king.
It is also the one i would reccommend in 99% of situations given the likelyhood of your personal situation to most people in here - a medium to small amount of cash, little experience in investing, even less experience in trading etc.etc.etc. for a whole bunch of psychological and practical reasons.

edit:

i'll fill this space with my thoughts on some of the things said in this thread.

gold or silver:
The vast majority of you lack the understanding and/or the capital to trade gold or silver. Don't do it. It's a high risk asset, and one of the most complex commodities at that, as it has a huge number of extraneous factors affecting it.
If you want to invest in it, place a SMALL amount of your capital (no more than 10%) in gold, and hold it for MINIMUM 1 year (i.e be prepared for significant drawdowns)

Cash is NOT trash. It is one of the best performing and most liquid assets right now, and given current economic conditions, we can only expect it to become more and more valuable (cash i assume = the USD). It is also, the absolute safest way of storing your money.

Don't be a fool and buy into stocks right now. If you're going to do some kind of spread trade vs blue chip tech vs smallcap, then thats OK
If you want, i could write a book on a whole list of technical, fundamental, and socioeconomic reasons why you should at least wait 6 months if you're going to touch stocks, which is a much riskier way of handling your money/

Mutual funds are generally a way of exposing yourself to stock beta, which btw, is almost certainly not a great idea right now. However given costs and size etc. It is the usual way of exposing yourself to stock beta for most regular people

ETF's are also a common way of exposing yourself to beta, though different kinds of beta (i.e inverse funds, or commodities beta)
I'd avoid these in general, as you lack both the understanding and capital to trade them properly. (i.e your investment will be no better than random selection)
It would be pointless for me to tell you to buy miner vectors ETF on heavily technical information with correlation from some other commodities only for me to tell you to sell it 5 days later, have you be late on the trade etc.
If you're really interested in this kind of stuff, smartmoneytracker is a good starting point on cycle analysis which is usable by semi advanced people who are willing to risk their own money on a part time basis (i.e as part of their usual savings

If you are going to touch stocks in any way, trade some long term futures spreads (1-12 months) and be well beta hedged.
Good ones for example - long standard chartered, short citigroup
etc.

----

Lastly, investment isn't a way to make money, it's a way to save money

Making money through investment is incredibly difficult, and leagues beyond what most of you can imagine.
Trading is even more difficult, and is something i spend 12 hours a day, and then the other 4 hours of free time i get, obsessing over, likely will do for at least a year before i become successful. Really, unless it's your career, it's not for you

FWIW i trade interest rates (spreading strategies)

On January 04 2012 02:46 EternaLLegacy wrote:


I wouldn't do that, because the inflation adjustment is not going to match real inflation. You can look at the numbers governments come up with versus numbers older metrics and private sources come up with, and they don't match. I don't know much about the UK, but in the US real CPI for the last 3-4 years has been over 9% (last I looked) whereas reported CPI is somewhere in the ballpark of 3-4%.

It's safe in terms of you pretty much know the yield and there's little to no risk of getting nothing back. I'll give you that. I would never buy them so long as we continue to keep interest rates too low and print money. The fundamentals are bad and the numbers are bad. It might've been good 10 years ago, but not anymore.

On January 04 2012 03:14 Glacierz wrote:


Where the hell did you get 9% CPI???? Credible source pls, don't post false information to people who are not well versed in the markets.

On January 04 2012 03:33 EternaLLegacy wrote:


I've seen the numbers referenced all over the place, and there's a lot of bogus information out there, but that was the number Peter Schiff referenced.

I did a simple Google and came up with these links:
http://www.neuralnetwriter.cylo42.com/node/200 - no idea who this guy is but those charts are really good at showing exactly what I'm referring to, and I've seen similar reproduced in other places.

http://www.investopedia.com/articles/07/consumerpriceindex.asp#axzz1iQ8z3Kjj - has a good explanation as to why some people think CPI is stupid and why it's probably inaccurate or at least way too dynamic to be a good indicator.

In short, the weightings assigned to various categories seem to be a source of great dispute. Personally, I think real inflation is probably higher than reported, but maybe not as high as some of the claims of 9-10%. However, anything over 4% was considered an emergency 35 years ago. Lets just say, it's not looking too good.

And additionally, on another note, I think if you're going to hold currency take a look at the singapore dollar, australian dollar, or swiss franc, to name a couple. Hell, even canadian dollars aren't bad. USD only looks good cause Euros really suck, but they're not so hot and haven't been for some time.

Edit: http://www.schiffradio.com/blog?action=blogArchive&blogTag=CPI is one article talking about CPI from Peter Schiff

On January 04 2012 04:10 Glacierz wrote:


Your first link contains a chart that has data dated back to the 1700s. I'm no expert in the CPI index, but I'm pretty sure it did not exist back then. He made up the line that shot up beyond belief with no indication of the weightings he used. Based on his charts, the cost of a big mac would have more than tripled over the course of the last decade? If you only used food/energy prices to come up with that, I might have believed it. Also anything drawn on a timescale that long should be in log scale to avoid this kind of visual deception.

Of course the methodology and weights on the basket of goods would change as technology progresses (imagine the demand for oil, gas, and metals pre and post industrialization), to make the argument to use the same method developed generations ago is just plain silly.

Your second link contains a debate on the COGI vs GOLI. I'm no exppert on this, but I'm almost certain it definitely would not have generated such huge difference as wage would go up with inflation by the same rate in the long run to maintain a similar standard of living.

I see no real problem with the Peter Schiff article, core vs headline are used for different purposes, and have long been published side by side. The reason the Fed looks at core is because food and energy prices are affected by too many exogenous factors and are too volatile to be controlled by monetary policy. Headline CPI (including food and energy) is around 3.2% fyi, with the core being a lot lower at 1.8% from Nov 2010 to Nov 2011. The compounded difference over 10 years is only 4% according to that article, which is nowhere near the 6% annual difference you claim it to be.

Also what did you mean anything above 4% is considered emergency? US Inflation in the early 80s peaked around 14% before Volcker brought it down...

On January 04 2012 05:46 EternaLLegacy wrote:


There was no price inflation before 1913, really. The dollar maintained almost 100% of its purchasing power. I do agree the chart should be log, since we're dealing with exponential growth not linear growth. The cost of a big mac includes much more than the raw cost of food. There's a cost of labor, rent, insurance, marketing, energy, etc. Food prices are not actually what you pay as a consumer, because there's so many other costs built in.

Wages do not go up with inflation. Inflation replaces real savings with debt by which allows people to continue to purchase more than they can actually afford. That's why we have such a monumental consumer debt problem combined with a huge public debt problem AND fairly stagnant wages for the last few decades. Unfortunately, while on paper you'd think wages would go up but it doesn't work that way and wages lag behind inflation.

As I said, the 9% was only for the past 3-4 years, as opposed to the 10 years that article referenced. Therefore that 4% annual difference is probably reasonable if inflation was fairly low until the Fed sprung into action in 2007/2008. I don't see a problem with both numbers coexisting.

As for that 4% - I believe that is what inflation was at when Nixon panicked and did some price freezing. To be fair, I am not very familiar with what occurred then, so I need to learn more about monetary history in that time period. I could be completely wrong, but I'm pretty sure that's correct.

On January 04 2012 05:21 Chill wrote:
In 2011 I made 0.19%. Inflation is destroying me -_- hahaha. The stock market is a cruel mistress and is crushing me.

On January 04 2012 07:27 Glacierz wrote:


I think that's pretty much all you got if you invested in the S&P 500. The August drawdown was a bullet too hard to dodge.

If you bought long duration us gov't Treasury, you would have been up around 20% in 2011 despite the rating downgrade on U.S. gov't debt and rise in inflation. Funny how economics and the markets interact huh?

On January 03 2012 03:11 Azzur wrote:

You can go to your bank and ask to purchase some AUD currency. When you deposit that AUD in the bank, they should give comparable interest rates in Australia. Ok, perhaps they won't give you term deposit rates but it should be similar to the cash rate in Australia, which is about 4.25%.

On January 04 2012 10:31 CakeOrI)eath wrote:


Although currencies are relatively unpredictable right now, this might be even better than 4.25%. If the dollar continues to drop, the exchange rates could get even better.

On January 04 2012 06:05 Glacierz wrote:


Exactly, the cost of big mac involves all these other costs, which is why the GOLI is preferred as a measure for inflation. I don't agree with the 9% number simply because I am not experiencing a reduction in my purchasing power over the last year of 9%.

Wage plays a very central role in cost-push inflation, although I do agree the current situation is in the demand-pull type.
http://economics.about.com/cs/money/a/inflation_terms.htm

The causality you made between debt and inflation doesn't make sense. Higher government debt, however, could sometimes lead to higher inflation and currency depreication (it's a cheap way for the gov't in debt to pay its way out), but not the other way around. I haven't heard of personal debt being linked to inflation with any statistical significance.

On January 04 2012 03:13 Glacierz wrote:
Why would he trade gold/silver? I think all he's gonna do is buy and hold... Using TIPS to beat inflation means you have to put 100% of your portfolio into it, there are way more efficient ways of going about it.

I also don't think you should tell him to trade any sort of spread, as that involves shorting and some sort of view on intermediate/short term fundamentals, which are by no means beginner friendly.

On January 04 2012 12:01 EternaLLegacy wrote:


Well, inflation causes debts to be worth less, which makes people more likely to go into debt. It's simply an incentive to borrow. Hell, if inflation is 5% and I can get a loan for 4%, that's like having free money, so long as I have a good revenue stream that ought to grow with inflation. Of course, look at interest rates now and you'll see that they're WAY too low for how much inflation we have, which means people are going to borrow like madmen. That's how bubbles form, and lord knows we don't need more of those.

Also, I have no idea what the heck cost-push inflation is... The definitions for inflation can be either rising prices or rising money supply, to my knowledge. Then again, I'm not an economist so some of the terminology might be foreign to me if I haven't heard it used.

On January 04 2012 13:45 BrTarolg wrote:


You'll actually be surprised at how good regular, normal people who live in their own country that are generally aware are of generating fantastic spread ideas

The only reason normal people suck at it is because their implementation of those ideas is generally terrible, and they lack the quantitative (yet very basic and learnable within a day) skills required to understand a some of the mechanics of it.
Also, the major reason is because people have useless emotions and "feelings" which usually get in the way

Personally i think generating either cross or intra-industry alpha is a really simple and effective strategy to implement given a little bit of study time as a way of managing your retirement money.
Theres absolutely no reason why a normal person can't generate 5-10% alpha a year without taking major risks, being well hedged and having zero exposure to beta.

On January 04 2012 23:16 Glacierz wrote:


It would be pretty hard to find a loan for 4% when inflation is 5%, banks are not dumb. Inflation only helps people who are already in debt. Also there will not be massive inflation as long as demand for goods/services stays low. Just because you have rising money supply does not mean you will for sure get inflation. Right now the problem is we have massive money supply from the Fed, but people are not spending/investing them (which is what the Fed want people to do to stimulate growth). The same is happening to a lot of large corporations who are just keeping their profits in cash instead of investing.

On January 04 2012 03:33 EternaLLegacy wrote:


I've seen the numbers referenced all over the place, and there's a lot of bogus information out there, but that was the number Peter Schiff referenced.

I did a simple Google and came up with these links:
http://www.neuralnetwriter.cylo42.com/node/200 - no idea who this guy is but those charts are really good at showing exactly what I'm referring to, and I've seen similar reproduced in other places.

http://www.investopedia.com/articles/07/consumerpriceindex.asp#axzz1iQ8z3Kjj - has a good explanation as to why some people think CPI is stupid and why it's probably inaccurate or at least way too dynamic to be a good indicator.

In short, the weightings assigned to various categories seem to be a source of great dispute. Personally, I think real inflation is probably higher than reported, but maybe not as high as some of the claims of 9-10%. However, anything over 4% was considered an emergency 35 years ago. Lets just say, it's not looking too good.

And additionally, on another note, I think if you're going to hold currency take a look at the singapore dollar, australian dollar, or swiss franc, to name a couple. Hell, even canadian dollars aren't bad. USD only looks good cause Euros really suck, but they're not so hot and haven't been for some time.

Edit: http://www.schiffradio.com/blog?action=blogArchive&blogTag=CPI is one article talking about CPI from Peter Schiff

On January 05 2012 16:19 bellweather wrote:


CPI is published by the BLS and readily available to the public (CPI-U rose aprox 7.5% cumulative over the past 4 years) http://www.bls.gov/cpi/home.htm

If you need investment advice don't get it here unless you want to be very explicit about willingness to take risk, liquidity requirements, etc.

On January 04 2012 07:27 Glacierz wrote:


I think that's pretty much all you got if you invested in the S&P 500. The August drawdown was a bullet too hard to dodge.

If you bought long duration us gov't Treasury, you would have been up around 20% in 2011 despite the rating downgrade on U.S. gov't debt and rise in inflation. Funny how economics and the markets interact huh?

On January 05 2012 19:35 Sadistx wrote:


Really? The summer correction you could see from a mile away. Anyone who didn't have the basic foresight to sell their shit in June and wait until at least the end of September shouldn't be in the stock market anyway.

On January 05 2012 23:32 Glacierz wrote:


You sir, obviously do not work in the finance industry. If you think any money manager could see any kind of drawdown like this from a mile away it would not have been a drawdown in the first place. Please refrain from making statements like this to make people think you are immune to left tail scenarios.

On January 06 2012 01:54 EternaLLegacy wrote:


Or you can conveniently ignore the minority of investors who actually have an understanding of economics who have been saying get the hell out of stocks traded in US dollars for a long time now. I'm sorry dude, but just because most people screw up does not make it impossible to avoid screwing up.

On January 06 2012 03:49 BrTarolg wrote:
Oh the hilarity of this thread

Btw, i would avoid the bund for all sorts of reasons (eurobond, contagion, etc) too many external factors to make it a true safe haven (do you really think that in 10 years time, that yield is going to make sense?)

But i said it once and i'll say it again, put your money in some TIPS and on average you'll get the best performance for the risk (and effort) you are looking to take on.

And btw, there ARE a few hedge fund guys on TL
Theres also a couple of guys who work close enough to know some of the general themes of some of the better hedge funds around

On January 06 2012 02:00 Glacierz wrote:


You don't understand what I'm saying. I'm not disputing that there are people who avoid drawdowns, but not all of them had the right rationale for it, and certainly not all of them will do it consistently over time. A good money manager is not judged on avoiding something like the Lehman crisis of 2008, or the August correction of 2011, but rather on the consistency in their decisions and risk management. I seriously doubt anyone who posts on TL belongs to any top tier hedge funds who can actually forecast anything in the market with consistency.

When I see anyone posting stuff like "what happened can be seen from a mile away" it makes me cringe because someone out there might actually believe he has some sort of skill that makes him outperform investment professionals. Just because you managed to sell your positions before a big correction, it doesn't mean you have the skill to do it every single time it happens, and it certainly doesn't qualify you to teach others on what to buy/sell at the correct timing.

A word of advice to beginners in investment: don't listen to people who tell you how to time the market or when to buy/sell what. Market timing is a zero sum trade simply because for every 1% you win, someone else is on the losing side of that 1%. The market today is so efficient at pricing in public information, do you really think you can be correct over 50% of the time? A top fund manager is only correct 60% of the time in their trades, and that's only statistically significantly different than a coin toss when you execute hundreds of trades. I think there's nothing wrong with OP's thought process, if he invests something sensible and hold it without worrying about the intra-day/month movements, it will work out in the long term (commodities converges with inflation, and stocks generate revenue, pretty simple to understand).

If you don't get all of that, the very simple question you should ask is whether you've seen a lot of people consistently making large returns by shorting the market only. Why is it that almost all the fund managers have net long exposures in equity? It's because over time most of the stocks go up.

On January 06 2012 03:58 Glacierz wrote:


I could be wrong but if you are in a PM position in a hedge fund aren't you prohibited from posting your opinion on forums like this? Any specific investment recommendations you make could seriously jeopardize one's career.

On January 06 2012 04:01 EternaLLegacy wrote:


Yes, but why do stocks go up? One word bro, inflation.

On January 06 2012 04:04 BrTarolg wrote:


I don't work in a fund personally

I prop rates

On January 06 2012 04:52 Glacierz wrote:


I agree with your view on bonds, but I also remember people saying yields can't get lower a year ago, and look at what happened to the 10-year rates over 2011 (I'm talking about US Treasury). The fact of the matter is no one knows when or how fast yield will rise, 2012 can be another muted growth environment where rates just keep still, or even fall further (despite how unlikely) on the longer end of the curve.

On January 06 2012 05:13 BrTarolg wrote:


But on a 5-10 year perspective it's a lot easier to see why you wouldn't invest in german bonds right now

On January 06 2012 04:41 Glacierz wrote:


Nope, correlation between stock returns and inflation is practically 0 (it's actually slightly negative for the last 15-20 years). Profit drives stock prices up, more specifically, expected growth in profit drives P/E multiples.

Inflation only has strong negative correlation to bonds, because rates rises when inflation is accelrating.
Bonds have low correlation to equity, which is why the traditional 60/40 allocation is such a simple and popular way of diversifying a portfolio

On January 06 2012 05:33 Glacierz wrote:


Yea that's completely true. I don't think people know what to invest in anymore. Usually during turmoils like this bonds are the safe place to be.

On January 06 2012 14:35 BrTarolg wrote:


TIPS and cashhhh

srsly loads of the big funds are long cash right now, with (what i believe) the intent of buying up the incoming bottoms in the next year or so

edit: ok to make this more sense for those who understand, this is a liquidity play
Anything that is extremely liquid is king, because we are about to suffer one of the greatest liquidity (which is actually insolvency) crises of all time
Thus a big theme being run is to be short illiquid stuff, and long liquid stuff

Central banks etc. are holding up poorly performing assets (like peripheral bonds) with all their might. Every day i see the ECB secretly (not so secret to those watching the market) buying peripheral. LTRO? That was basically a form of TARP/QE
You think the ECB just needs to swoop in and save us? You have no idea how much they are already doing

This is forming one of the greatest mispricings of illiquid or poor assets of all time. Even though things like government bonds should be liquid, as the respective governments suffer a liquidity (or insolvency) crisis, this may not be the case (look at the exchange BTP market or greek bonds lol)
i.e the entire market is being falsely held up

Now to fight against this and go short these bonds is pretty much suicide, no matter how good your fundamental view is
Same as going long the bund, almost suicide despite germanys strong fundamentals for all sorts of external reasons

So whats left? No surprise that many funds are simply long treasuries and... cash

On January 06 2012 09:27 EternaLLegacy wrote:


Why do you think the correlation is slightly negative? I don't disagree with that, but that should tell everyone something very very disturbing, which is that the stock market has been LOSING value over the past 2 decades on average.

On January 06 2012 23:02 Glacierz wrote:


What? 2 series can be perfectly negatively correlated and still both have positive returns given positive mean. I'm not sure how you can infer anything about the magnitude of returns by correlation. All it tells you is that inflation movements and stock price movements are completely unrelated historically.

I will give you an example,
series 1: [1%, 2%, 1%, 2%]
series 2: [3%, 1%, 3%, 1%]

correlation between series 1 and 2 would be -1 and both series have positive returns. Also S&P total returns (not to be confused with price levels what excludes dividends) has more than tripled from 1991 to 2011 (my data goes from Q3 1991 to Q3 2011), which stock market were you looking at?

On January 07 2012 00:42 EternaLLegacy wrote:


My bad. I thought you were talking about something else. Simply a horrible misreading of what you were saying.

Regardless, the stock market is motivated by so many factors on the short term that it's hard to see any correlation through all the noise. I haven't looked at the numbers historically, but the logic should imply that since inflation = higher prices, that P/E ratios will fall (cause earnings will go up in nominal dollars), which will make stocks more desirable, which will cause people to buy said stocks and push the price up.

Inflation should not be limited simply to commodities and assets, but instead should seep into stocks as well.

I agree with the sentiment of the argument you were making though, which is to focus on long term investments and ignore the short term noise which is just gambling. I think we just have very different ideas of what good long term investments are, because I think all stocks traded in dollars are going to underperform, with a few exceptions. This is a reflection not on stocks themselves but the currency.

The key defining aspect of what the financial planner does is that he considers all questions, information and advice as it impacts and is impacted by the entire financial and life situation of the client.

On January 07 2012 03:10 Glacierz wrote:
I don't know how many people here are trading portfolios with limited finance background, but I highly recommend those who haven't taken any courses in investment getting to know the basic Gordon Growth stock pricing model (dividend discount model):

On January 07 2012 04:09 Eben wrote:
I know you have to invest lots of money to make any real money, but would starting with 200, and then adding 200 a month be a good way to start investing?

-I am a total financial noob-

On January 07 2012 04:07 Durak wrote:
I don't think any of the posts in this thread are useful to the OP. You've got some ridiculous theoretical discussions going on (which the posters may think they have some knowledge about but are self-delusional) and then some suggestions that are reasonable but not descriptive enough for you to actually act on them. For example, BrTarolg's suggestion of TIPS is probably a safe bet for your situation, but it's not well-elaborated enough for you to actually do something useful with it. I intend to make this post useful by providing you some direction.

My suggestion is that you should go to a financial planner. I don't know the designations or situation in the US, as I'm Canadian, but there are free financial planning services offered at banks here. As I have a degree in Finance, I know that people are going to jump at that suggestion with comments like, "They don't know enough about investing to give you the best plan" or "They're not impartial" or "Anyone can be a 'licensed' financial planner." Let me explain why I think this is the best starting point for you and why those comments aren't relevant for you.

Let's start with a quote about financial planners from wikipedia:

Again, in spite of the fact that there is a broad range of financial planners of different abilities and services offered depending on where you live, they should consider your entire situation. This is the main reason why none of the suggestions here are going to be useful for you: they don't take into account your entire situation. The reason why your entire financial situation needs to be considered is because different countries/provinces/states/geographic locations have different tax laws and different investment opportunities. For example, we have Tax Free Savings Accounts (TFSAs) in Canada, which are incredibly useful for investing. A local financial planner should know about these investment opportunities and be able to mention them to you. In addition, financial planners are usually knowledgeable about small and safe investments, such as the kind you're planning on making, so they can provide advice there.

Anyway, I suggest you go and get some information from a financial planner and then make your decision from there. They'll help you figure out what options you have and help you think about what maturities you'll want for the GICs, bonds, TIPS, or whatever you end up with. Personally, I commend you for looking at ETFs because I think they're a reasonable option, but you probably won't even end up with any equity securities unless you get some blue chip dividend paying stock.

Edit:



I don't know how many people here are stupid enough to think that they can do a valuation better than the market if they're not an expert in Finance.

On January 07 2012 04:09 Eben wrote:
I know you have to invest lots of money to make any real money, but would starting with 200, and then adding 200 a month be a good way to start investing?

-I am a total financial noob-

On January 07 2012 06:01 Glacierz wrote:


Your first paragraph made me lol. Theoretical discussion? I don't know what kind of degree you have in finance, but all the stuff discussed here are either finance 101 or econ 101. People misunderstand basic concepts because they didn't take a class in the subjects, it's not even a debate, just plain right vs. wrong. On your last point, people don't even know what fundamentally drives equity returns, I'm simply pointing them to the right direction in order to understand how the market value stocks. Don't feel like you have better insight than the market? Then don't try timing the market. Most people who are giving advice here are advising a long-horizon investment, which is more than sound for people who are new.

Do you seriously think a financial advisor will tell him to buy TIPS or stay in cash? You do know how they make money right?

On January 07 2012 06:39 Durak wrote:

By theoretical discussion I am referring to both the relative and intrinsic valuation methods that are being discussed in this thread. PE ratios were mentioned and you just advocated the dividend discount model as "easy." The reason I call them theoretical discussions is because you guys are not nearly knowledgeable enough to have any sort of discussion on the models or propose that a non-financial expert use them. You're delusional if you think that you can just read up on the basics and value companies accurately.

Thanks for trying to pigeonhole what I said as uneducated though.

On January 07 2012 07:25 Glacierz wrote:
I'm not going to defend how deep my knowledge on the matter is as I don't see this having any relevance to correcting people who are simply misinformed on basic investment concepts. Since when did I propose to trade on any of these models? I am simply telling them to look into the factors others in the industry look at when pricing stocks and not to get bogged on information that has no relevance to what drives market returns.

On January 07 2012 07:25 Glacierz wrote:
Nowhere did I or anyone else try to compare/debate the merits of relative vs intrinsic valuation methods. Please don't put words in other people's mouths.

On January 07 2012 07:25 Glacierz wrote:
How do you reach the conclusion that the rest of TL is not knowlegeable enough, then proceed to do exactly what everyone else does, which is to give advice? Is it because you have a finance degree and you just assumed that everyone else is high school grad?

On January 07 2012 07:25 Glacierz wrote:
You are smart about it though, a wall of text with no concrete advice but telling people to seek out professional advisors. If I have the capital to hire a financial advisor who actually gives a shit about me, I wouldn't be posting here (the ones who can truly afford a worthy financial planner are high net worth clients with millions of dollars in assets). I simply can't imagine the kind of bs you are going to get when you walk in telling them you want a portfolio that beats inflation.

On January 07 2012 07:25 Glacierz wrote:
May I remind you that this is not a finance forum, if you got enough knowledge to actually educate people to become professional traders, you wouldn't be wasting your time posting here. I see nothing wrong with having a debate on various issues regarding economics and investments, when I see people misinterpreting facts, I feel that it would be beneficial to correct them and point them to the right direction. To blatantly denounce everyone's post as uninformed is extremely offensive and not the least constructive, not to mention you have yet to offer any criticism or evidence as to why you think people here have no idea what they are talking about.

On January 07 2012 08:14 Glacierz wrote:I would still love to hear why you think some of the posts are ignorant or uninformed. I don't enjoy bashing people or being bashed without evidence. I come here for a healthy debate, not to listen to some guy telling me I give shitty advice but not saying why.

On January 04 2012 02:32 Glacierz wrote:
If your only goal is to beat inflation, any ETF indexed to real assets is sufficient. I don't agree with the suggestion of holding physicals as the storage cost and the illiquidity make this less attractive when purchased in high quantities. Gold ETFs do not track gold perfectly, but it does the job for what you are trying to do without the hassle.

On January 07 2012 09:06 happyft wrote:

Edit: Also, I've worked 2.5 yrs in an investment fund that got money from financial planners who sent their clients to us. I've worked with over 100 financial planners, with over 250 clients. 95% of financial planners I spoke with are crooked and tried to find every way to cheat their clients out of a 1% return here, another 1% return there, and put it into their own pockets. In other words, I could count the number of financial planners I *might* trust with my money in one hand, the other 95+ I would not want to associate myself with ever. Anyone else who works with financial planners will tell you the same.

On January 07 2012 09:15 Glacierz wrote:


Thank you for backing me up on this! It will shock most people how few professionals in finance actually know what they are talking about. I'm glad you are able to put some credentials behind your words as unfortunately I am prohibited from doing so.

On January 07 2012 02:55 Glacierz wrote:


You mixed up the steps. The reason you have P/E ratio around 12-14 is because expectations of earnings going up. How much a company's stock is worth is determined by a series of expected future casflows discounted by a pre-assumed discount rate. If there is no future growth prospect for a company, it will not trade at anything higher than its book value. Expected profitability is the main driver for stock returns. Note that I highlighted expected, the reason you see so much noise in the market is partially due to rapid changes in expectations due to changes in the environment.

Looking into the long term, inflation will flow into the pricing of goods/services, which ultimately gets captured by the firm's revenue. However, that's probably the most minor source of risk/return when it comes to stocks (unless you are in a hyper-inflationary environment, then it does matter a lot). BrTarolg makes a very relevant point. Bonds gets impacted by inflation and rising rates much more than stocks, avoiding bonds is much more sensible if you are worried about inflation/interest rates picking up rapidly. The reason you don't want to invest in stocks right now is the future uncertainty in growth and the high possibility of recession, which would have a huge impact on firms' profits.

On January 07 2012 09:20 Durak wrote:
What financial planners are you guys talking about? Institutionalized financial planners in Canada have no incentive to provide bad investment advice because they don't take a fee for managing your money. It's a service provided for having an account with the bank.

On January 07 2012 09:31 EternaLLegacy wrote:


Well, generally you want to avoid buying stocks with high P/E and buy low P/E in the hopes that people simply misvalued the stock. Regardless, you guys are right about the bonds vs stocks, and you hit the nail on the head with why investing in stocks is risky right now.

I'm just saying that stocks go up over time due to inflation just like any other thing, which shouldn't be of any controversy.