ETFs -Indexes for Idiots!

Investment Analysis Clubs Saul’s Investing Discussions
1

As someone who’s figured out that he doesn’t possess the patience, the mathematical background or the undivided interest needed to be successful at managing his own portfolio but who’s also noticed that most money managers aren’t worth their fee (I’m cheap)compared to the sharper minds found on this internet platform for free (I’m cheap), I’d like to ask what would be the best way for a dummy like me to invest decent sums of $$$ at this point in time.

I’ve read this board with great interest and greatly admire those of you who can make sense of all the noise out there. (I wish there was a one-on-one mentoring program in person, since like many people I don’t learn without being physically threatened by someone much larger than myself.) I read where Saul pointed out that indexes are largely mediocre because they combine the excellent with the OK with the ‘eh’ with the awful. So, are there any ETFs or even mutual funds that help the average investor avoid the ‘eh’ and the ‘awful’ for better returns? Or is the trick that the ‘eh’ and ‘awful’ sometimes turn around and deliver the excellent? And if so, what are the ways to do so with the least amount of fees (I’m cheap.)

I prefer to buy and hold and have done so with BRK.B for 20 years. But I have a large % of funds there and would like to know where else I should be looking for better than average returns. I know there are no free lunches, but less expensive lunches (still cheap) with a little mojo would suit many simpletons like me quite fine.

With markets largely considered overvalued as a whole, making individual picks more important than ever, is it best to wait for the entire market to drop by a certain % before investing? I don’t mind baby steps into markets, but I don’t want to re-employ funds into something that will take a major hit right at the start when it could be avoided.

I’ve read these boards for years – though this fine board only came to my attention recently – and am hoping this exercise might help anyone who took liberal arts courses in college but would now like to survive on that thing called money.

Thanks in advance.

13 Likes
2

Smurfdogg

First, I have to admit that I have recently been poking around Saul’s boards. I really enjoy the dialogue and plan to stick around, learn, and contribute when I can.

So, are there any ETFs or even mutual funds that help the average investor avoid the ‘eh’ and the ‘awful’ for better returns?

I have been a subscriber to Eddie Elfenbein’s “Crossing Wall Street” weekly newsletter. IT’S FREE! by the way. Here is the link to his blog. You can sign up for his e-mail newsletter easily.

http://www.crossingwallstreet.com

I really enjoy Eddie’s weekly market recap as well as his musings on the stocks that he covers in his “theoretical” portfolio of 20 companies.

At the end of each year, he drops 5 companies and 5 new ones. In essence, he is cleaning house each year. Otherwise, he does not touch the portfolio.

His investing philosophy is : My investing philosophy is very simple: Investors ought to buy and hold great companies. It doesn’t get more complicated than that. Avoid trading in and out of stocks, and be well-diversified. Investors should own at least 12 stocks, and have a goal of owning 20.

Be prepared for bear markets. A lousy market can strike at any time without warning. All stocks go down. It doesn’t mean the stock is broken. Stocks are volatile by nature. That’s the price you pay for superior returns. If you can ride out the bad times, you’ll be rewarded. If you can’t bear to see your portfolio drop by 50%, do not invest in the stock market.

Before you make any investment decision, make sure that you have the appropriate financial resources. Although I use margin, I don’t recommend it to others. If you never go on margin, you’ll never go bankrupt. Don’t invest in the market if you’re heavily in debt. Paying off a revolving credit card debt is a lot more important than owning shares of stock. You also need to look at your tax status. These are issues I can’t help you with, so please check with a tax professional before you make any decisions to buy or sell a stock.

Eddie’s portfolio has beaten the S&P 500 in 8 of the last 10 years. By his calculations, his portfolio has generated a 10 year compounded gain of 163% vs. the S&P’ 102%.

I’d like to ask what would be the best way for a dummy like me to invest decent sums of $$$ at this point in time.

Be careful in investing “decent sums of $$$” in any one investment. It is better to diversify. How you do so is really up to you.

However, if you like Eddie’s philosophy, and are interested in his approach, he recently started an ETF. The ticker is : CWS.

He started it in Sept, 2016 so the ETF performance history is limited. Here is the link:

http://advisorshares.com/fund/cws

I have purchased a few hundred shares and plan to hold them for a long time. I will add to my position over time when the market provides good opportunities.

Good luck,

DHeavy

8 Likes
3

I wrote a post about ETFs a few days ago but it seems the Post Munching Monster (PMM) ate it, I can’t find it anywhere. Average does not mean bad as it’s used in common language, it’s an arithmetic computation. If you can’t find the time to pick stocks you have two options: invest in a fund or follow an investing newsletter.

When I was a novice investor (1998-9) I subscribed to Louis Navellier’s MPT Review at $195 a year and did very well. The main reason I gave it up was that it was not teaching me how to invest which was a necessary step to my primary goal which was learning how to invest. Navellier was so successful that he raised his prices to the point where I can’t recommend him any more. You still have to find the right newsletter so there is no free lunch.

ETFs and index funds are a different story. One attraction is that you don’t get charged a lot of management fees because they are mostly mechanical but indexes are not necessarily “market” averages. The DJI only has 30 stocks. The S&P 500 has only 500 stocks. The NASDAQ composite only has stocks traded on that exchange. In addition, stocks in an index can be weighted differently. And not all index funds buy all the stocks in the index, some have algos that determine just what to buy to match the index. There are hundreds of index funds and ETFs to chose from. You still have to find the right fund or ETF so there is no free lunch here either.

Then there is the question of how to rate funds and ETFs. If, like many fund investors, you are chasing yield you’ll underperform the fund by buying high and selling low. With company stocks you have a business model to depend on as well as well know metrics that value investors use. None of that applies to index funds and ETFs. Price to NAV (Net Asset Value) and fees charged seem to be the only “intrinsic value” related metrics. Again, no free lunch.

The reason I’ve been studying ETFs is because I’m missing out on technology. I find individual companies to be too difficult to value yet technology seems to outpace market averages. So I went hunting for technology ETFs. I found 51 of them. Now what? Whittle down the list. Remove low volume ETFs for lack of liquidity, remove low asset value ETFs as not representative. That leaves 15 ETFs, 1/3 of the starting list. Next I ranked the 15 by 5 year returns (the longest I could find on Yahoo). The top three, with returns over 20%, are:


**5 year**
**Return  Symbol  ETF** 
23.14%  PSI     PowerShares Dynamic Semiconductors Portfolio ETF
22.40%  PSCT    PowerShares S&P SmallCap Information Technology Portfolio ETF
20.98$  XSD     SPDR S&P Semiconductor ETF

You might ask how this is not chasing yield. Fair question. I really wish there were an easy way to find the 10 or 20 year yield of these assets to average out flukes. Unfortunately I have only 5 years to work with.

I’ve yet to buy any. I’m still evaluating this strategy.

Denny Schlesinger


**Symbol**
 1	ARKK
 2	ARKW
 3	BDAT
 4	BIGD
 5	CIBR
 6	CQQQ
 7	FCOM
 8	FDN
 9	FINQ
10	FINX
11	FTEC
12	FTXL
13	FXL
14	GAMR
15	HACK
16	IGM
17	IGN
18	IGV
19	IPAY
20	IPK
21	ITEQ
22	IXN
23	IYW
24	JHMT
25	MTK
26	PNQI
27	PRNT
28	PSCT
29	PSI
30	PSJ
31	PTF
32	PXQ
33	QQQC
34	QTEC
35	ROBO
36	RYT
37	SKYY
38	SMH
39	SNSR
40	SOCL
41	SOXX
42	TCHF
43	TDIV
44	VGT
45	XITK
46	XLK
47	XSD
48	XSW
49	XT
50	XTH
51	XWEB
13 Likes
4

Over the last 100 years, the highest performing index is the small-cap-value. It had returned 14% annually. At that rate you double your money every 5 years.

The ETF ticker that tracks that index is IJS.

10 Likes
5

There was a recent post a few weeks ago which disputed the 14% return on IJS. Apologies but I am not sure how one can make a search for the content in the board posts

In any case, I suggest to the OP to diversify his investment of a large sum over time too. I learned the hard way and entered the market all at once buying the likes of DDD and Sierra Wireless at their top. I have now learned to enter the market gradually and take smaller bites… this suits my temperament better

1 Like
6

There was a recent post a few weeks ago which disputed the 14% return on IJS.

IJS had only been around since 2000. It returned 9.80% annually over this 16-year period (dividends included).

Compare that return to the S&P 500 at 4.40% over the same timeframe and this is preety good performance over a 16-year period that had two major crashes included.

The 14% annual return claim refers to the small-cap-value asset class going back to 1926. It is documented. Just have to Google-search for “historical returns of small cap value”…

Here’s one link among many:

http://www.marketwatch.com/story/8-lessons-from-80-years-of-…

It actually puts the small-cap-value return at 14.4% annualized.

2 Likes
7

The OP thanks those who offered their advice. I’ve initiated a position in IJS and will continue to add as I feel comfortable. I continue to hold positions in RSP and VOO and intend to study up on Crossing Wall St. to see if this year will be the year I try something like this.

I continue to hold a huge (too huge) position in BRK.B. It’s been good to me, if not quite as spectacular as it was for those who held throughout the '70s and '80s. It’s easier to sell the position I hold in the non-taxable accounts than in the non-IRA account where the capital gains are substantial.

I feel I’m learning some good stuff on this board. I wish I had the mind and temperament of Saul, but knowing your comfort zone and limitations is as important as anything else in this investing game.

Thanks to everyone!

3 Likes
8

There was a recent post a few weeks ago which disputed the 14% return on IJS. Apologies but I am not sure how one can make a search for the content in the board posts

Since I’ve seen this question about how to search for specific messages on these boards a few times lately…here’s a walk-through for this specific example.

In a Google search type the following:

“site:discussion.fool.com AND saul’s investing discussions AND IJS return”

The fourth result in that search is the post I think you’re looking for (or it at least references it and gets you close). Post #21482

http://discussion.fool.com/1-your-loving-confidence-in-ijs-may-b…

2 Likes