Buy low sell high!

This one is a big topic and deserves its own post.

And that is the ultimate mantra of the market world. There is really nothing else. I mean just do this one thing and you are all set. Just like for fitness just do the stretching/lifting routine and some physical activity and you are all fine and dandy till 90 and also eat well etc. Just like in computer world have html/js/big data/free db/java and you are all set for any application, it is the same way with this idea or concept. Have it at its core and you tide along the financial advisors, however persuasive they are. Really at its core, markets are nothing but test of patience, perseverance, honesty to the ideals, application of calmness, ability to tune out noise and false data among other things. So this blog  and the private blogs in my home computer, the tools that I have created is all I need for not only my portfolio but also for the startups that might get created by me in future. Might be. And the rest is just have this algorithm in the core and present format differently.

Time frames

What are the short terms? Medium terms? Long terms? Does just looking at time frames a valid strategy ? Does it lead to automatic rebalancing?

Well, these are some questions that any investor will have thru out lifetime. Now, there is of course terms - short terms are good for trends and medium to long terms are better for things like ETFs or mutual funds. 

Rebalancing in this context is something like you buy some/sell some/ buy some more/sell some more and live it at that. Dont go by any particular formula or date .. just go by gut feeling and randomness. There is a site for simulation where it can be seen that rebalancing is not that it is touted out to be. Rather , just leave the portfolio as it is and you are better off in many times.

Asset Allocation models

There are different asset allocation models that gets recommended by various folks. 60-40/50-50/70/30/80/20/x-(100-x) and so on. Now there is no one out there who will say just do not allot to stocks or bonds:). I think that is important to have at least some that is away from both stocks and bonds. Preferably you can put them in a high interest safe savings instrument. CDs or High Yield MMAs or High Yield online savings account - lot of options are there. 

First off, there is no getting around the fact that there has to be earnings in huge magnitude .  There is difference in earning a 100k vs a million vs a billion. Those are very very different. And then the savings part. Rather than percentages and sticking to budgets, I have been more of a free bird and take care of basics of life and savings and the rest will follow. I would not say that that was bad or worked very bad for me. But then again I did not have a budget so maybe there is no real way to know. The savings rates and balances are not that bad. So, I would say that let us just continue with the basic things,  a bit of big picture as well as small picture guy. Now, back to the asset allocation, early the savings the better. 

This vanguard paper is good: https://personal.vanguard.com/pdf/s285.pdf

And: https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations

This site is something that I like for testing out various allocation models: 

https://www.portfoliovisualizer.com/

They largely give the stock bond split. Which is good. But dont ignore the safe - govt employee pension secured guy model where all is in treasury or rather CD and you get better rates thru them. Though since 2008 it was in 0s, as of the time of this writing, the bankrate.com websites shows banks such as Alliant CU, Ally Bank, Discover Online savings, PenFED CU, Synchrony Bank?, NavyFED CU, Nationwide bank, Airforce CU etc among others who are giving between 0.8 - 1.1 or something similar. Not too bad. I would say better than the prime money market rates and flat line rates. A disadvantage is that rather than having all in at one place in Vanguard and giving you a big picture and maybe a voyager client account etc., it really does not have major benefits in the sense that it can work to your disadvantage by you being lax about big trades. While having it in different locations and moving only few amount of money at a time will get some discipline. The downside is of course too many accounts to manage. What is the ideal number? I would say something like 3-4 .. So if you have savings with Discover and HSA with Alliant CU, opening IRA with these two is no brainer. The rest - open as needed. Maybe have a minimum of $100 or so in it all the times. Till one reaches say 60 and then liquidate and maybe have only few. Till then, run riot with it:)

Back to asset allocation, the 50-50 seems to be as good as 80-20 but will less risks. But earn more and save more. Then put some in CDs, put some in global countries like India or Singapore. Then put in local USA stocks and bonds. And then use the bilo sellhi technique to have it in a state of flux.

Here is the excerpt that I got from MyMoneyBlog:

Vanguard did a similar study called Penny saved, Penny earned back in 2011 that compared three levers: savings rate, portfolio asset allocation, and also starting to save earlier. Take the following baseline scenario:

• Investor begins working at 25, but starts saving at age 35.
• 12% savings rate
• Moderate asset allocation (50% stocks and 50% bonds)
• Salary starts at $30,000 but increases with age

Now, here are three ways in which a worker could increase their final savings balance at retirement (age 65).

• Option #1. Invest more aggressively with an asset allocation of 80% stocks and 20% bonds, while keeping your 12% savings rate and starting age of 35.
• Option #2. Raise your savings rate to 15%, while keeping your starting age of 35 and 50/50 asset allocation.
• Option #3. Start saving at age 25 instead of 35. while keeping your 12% savings rate and and 50/50 asset allocation.

Which single option do you think has the most impact? The results are based the median balance found after running Monte Carlo computer simulations based on 10,000 possible future scenarios for each option.

Scenario	Median Balance at age 65	% Increase vs. Baseline
Baseline	$474,461	–
Option #1 (Aggressive asset allocation)	$577,133	22%
Option #2 (Raise savings rate)	$593,077	25%
Option #3 (Start saving earlier)	$718,437	51%

Between the three “levers” you could pull, starting to save earlier wins by a significant margin, which is an important truth but minus a time machine today is the earliest we can start saving more. After that, a higher savings rate is a more reliable path to improving your odds for success. Investing with significantly more risk performs somewhat similarly on a median basis, but actual results will vary the most widely.

As you can see, start early and save a lot. Then diversify with less risk to you. So even 50-50 is not that bad and gives you less swings. So all in all concepts like Asset allocation or Rebalancing will not provide that much variance. They are more like toppings and as long as you dont over do these things, you should be fine. So no too much rebalancing or too much obsessed about asset allocation. Rebalancing, btw is another tool in which there is periodic shifts but back testing show, again in the same website above, that there is little difference as such and you could be fine without it. So do some rebalancing and live the rest as is. When there is a winner stock or ETF, leave it as it is. When there is a loser that might rebound, leave it as it is. Other times, maybe sell a few or buy a few more. Really dont over think these things. 

Blog points

Every concept, blog, story, religious texts, constitutions, ideas, code has some key points. You know, like the blog key points, document summary, executive summary and so on. These are the core key points, key actionable items and these statements of truth or axioms are the key guiding factor. Wise men then apply these axioms with various levels or intensity for various problems .. essentially a mix of these key ingredients to create up solutions for different problems. Pretty much similar to the cooking analogue. Though new ingredients might surface, still at its very core, the key ingredients of salt, pepper, turmeric, chilli powder, masalas and veggies are the same. Then you saute or steam or do different things with veggies for different seasons or to get various types of cuisines. In this post, we will try to summarize some key points after reading this blog and see how that is stacking up against the reality of the finance markets. Some of these tenets come up with wisdom, time, after ruminating over key points over and over again - thus losing or graying your hair!, experience, what the stock markets such as the ones from 2008 teaches you.

1. Buy Low sell hi! Really there is no other way around it. It is as simple as this. Either start your company and get the RSUs or stock units at 0 or near 0 or just be a top executive and get them for free or cheap for the time that you put.
2. Diversify - seriously, just diversify to all that is there. Forget about just stocks or bonds, also diversify to online savings and CDs.
3. Index funds rule - seriously, again they are self balancing and self allocating automated funds with low expenses. So just go with those and apply rule 1. I have backtested a theory where over a large set of big stocks, there is minimal difference between trading in stocks vs index etfs or funds and index comes out ahead with lower trading costs and expenses with less risks.
4. Simplicity - if something is complex in structure and understanding, it is definitely bad. Just like physics or math, people that are statisticians love to bring up complex model and the result is 2008. Stay away from that.
5. Own business - yes there is no way around it. And better to have one's own business in product sector where something of tangible and intangible (mainly) value is set. This also gives more freedom than the routine job which is essentially the bread and butter. And one's own outlet of dreaming big during the weekends.
6. Health - that is really the biggest wealth out there! Always be fit enough to live a 100 years .. not necessarily muscles but good and disease free body and  mind and soul. Do yoga, kirtans, prayers and go to nature a lot. Travel! Eat healthy!
7. Family - is very important for emotional and mental well being. Very important.
8. Yet to be determined.

Notice how the actual stock or bond market itself is very low points while the most is about human - that is the truth! Ultimately this all is just a tool to get you towards your life which should be led well. No point in all stocks or bonds since no company is worth that and hence you should follow the govt employee model of saving on ultra safe treasury and live off the interests. No tensions or stress. Health and well being is important. Family is important. Spirituality is important. Reading and other things etc. are all important. Art is important - and maybe can make serious money too. A good singer / artist/ actor/ writer/ author/ and really anything that has a solid customer base is very lucrative. Leaving the philosophical track aside, the basic of money world is to earn more. There is simply no way around earning more. Earn more and save more. Also spend and have fun. And then relax and bring happiness to others. Then they will say "What a guy!". 

Recent ups and downs

The lessons to be learned from the recent ups and downs in early 2016 - basically January saw a downswing and fears of a -20% drop followed by a huge surge up at the time of this writing as of March 10 2016. Let us see what future unfolds but for now, we can reflect on this period and the current thought process on what I would have done with the current tools and strategy matrices etc and what would that resulted in:

The overall fluctuations across market did not catch up to the heights of many of the stocks. The core of the rally is powered by fundamentally strong and big volume stocks such as Walmart, AT&T among others. So really this rally is a rather locale or isolated rally than across the sector rally which would have more legs in it. So, I think things are going to go down in the coming weeks again. If there is any uncertainty coming from any part of the world, this froth is going to go down big time. So I would rather wait and watch. But the truth is maybe there was some buy and sell opportunity in the broader ETF and select stocks such as Walmart. But all in all, I would say if you had say 10,000 then maybe about 500 of this could be something that you could put into stocks or etfs and maybe swing it a bit. But anything more than that is a risk. Honestly even this 500 is a risk .. more conservatively I would say between 100 to 400 on the liberal side. So that is pretty much it. Some of them did well and some did not. So again monkey business as usual. And if you did not buy or sell and simply hold on to what you have .. then you have not really missed any big action here.

March newsletter and no longer supporting bank of america/Merill edge platform

So what is the best word to describe the going ons in the stock market in the past couple months ? 

SEE-SAW

It went up and then went down and then went further down and then came back up and then went down  .. same thing is going on ... yeah, some people might think of this as a swing situation and do swing trading. As shown in the previous posts here: 

http://millenialfinanceblog.blogspot.com/2016/01/jan-2016-newsletter.html

that hardly makes any difference. I did a swing post back testing for the last 10 years when there was a good downswing followed by considerable upswing. That period gives us a refreshing course of how it works and not generally fall into what pundits say about stocks always performing better. In a way, it is a good test of risk tolerance and balance and understanding of stocks and economy as well as general human behavior. Without boring you with the data, there is hardly a correlation between faster trading - whether daily or over a few months or quarterly to periodic rebalancing to any concrete return in profits. In other words, too much of reliance in timing never works. At the same time, we know that those who did buy during early 2009 are sitting in some pretty good gains so of course, some timings does work.

Hence, in this blog we advocate doing a balance when it comes to different approaches. Never take any statement in absolute way. Only sith deals in absolute. So there will lots of gurus who will tell about do this or dont do this, dont do options, do options for hedging, invest only in index or vanguard or dont do that and invest only in invesco or american funds or active funds and so on .. the thing is in the finance world, there is no true point. Rather it is a big picture about possible true or better positions for your hard earned money. One works hard and essentially puts in some time early on to accumulate some money which is supposed to help oneself as well as one's family in future. Usual investment vehicles aside, diversification is the very first key. After that manage risk, do periodic rebalancing, maybe do some aflacku the duck style or any monkey/baboon style throwing in some money and holding it on for a period of time and using just plain common sense, selling it off after a time when you have made some decent returns. 

As for investment vehicles, choose the ones that you are comfortable with like stocks or bond or CDs or options ( though we dont advocate that or betting or derivatives or anything akin to gambling ) or just cash holdings ( yeah! that is fine too. Cash came out ahead in 2015). Choose your avenues - ira or taxable etc. wisely. Once you have some sizeable holdings, over 100k+, is when there is at least some strategy to play with. Now in one of the previous blogs, I had mentioned about the benefits of $0 trade fees for stocks and how merill edge and bank of america is a good case study on how to implement this. Well, I am rolling back my position on that after some experience. First of all, the data point that index trading is much better and effecient compared to individual stock trading. Secondly, there are players like Loyal3 or Robinhood which are way better than the Merril edge / bank of america combo with way less balance requirements. And most importantly, the rise in CD rates which I had sort of lost sight off. 

A little backstory: long time ago, there was a company called Zecco and they had a $0 commission fee in exchange for ads. Many other companies before and after tried that and eventually got acquired. The current roster of loyal3/robinhood is pretty much the continuation of the same strategy of acquiring user base and then selling off to bigger rivals. Banks like Wells fargo with their wellstrade program or Bank of amerca with their merill edge platform are rich enough to absorb some of these fees if there is volume. But most importantly they want some balance with them which will generate margin fees. No free lunch there. So back in the day, I had calculated this in the back of a napkin and justified that online banks ( like discover or amex ) will come out ahead with their better interest rates coupled with low cost stock brokers such as Tradeking or really anything under 10 bucks per trade if you do limited trade per year which is what is recommended in general whether it is a swing market, up or down one. Now with merill, I justified to keep 25k on the side or put it low interest cd or just periodically put that in an account and maybe do periodic trading. That does make sense but honestly it is more of a hustle  than a strategy. It is more something  that will be a distraction and hence given that and more importantly the fact that if you have stock trading in say a basket of 10 stocks vs you trade for free in an etf with Fidelity, you are likely coming out ahead with less stress and less costs and almost equivalent or even better performance with effecient risk management in the case of ETFs.  The current list of banks with IRA CDs worth considering are again mostly in online space or credit unions - such as Alliant credit union or Penfed credit union among others; Ally bank or Discover bank among others .. Nyat sure if barclays or Amex offer similar products but that would be worth a look. The point is, an online savings bank or credit union for your IRA cd with ETF from the providers and a low cost brokerage ( under 5 bucks ) comes out still ahead of the bank of america merrill edge program. Muh math on the latter was a bit off given that there is a 25k requirement in the bank of america deposit which currently yields about $5 if I were to generously round it off. The same with ally to discover will yield about $375 to $300 at the minimum. Those are safe and more convenient to bank of america. Not to mention, you are getting $300/5 = 60 trades for an year.  Now do you really that many trades in a given year? With a corpus of 100k+ to about 500k or so, it is doubtful that you are going to find that many quality trades. With a good financial advisor by the side, you are looking at about 10-40 trades at the maximum for that kind of amount per year. If someone advises more than that, fire them regardless of market conditions. So in a nutshell, I am going back on my last lesson that merill edge/bank of america is a good program and essentially dont recommend it all. On the contrary, stick to less trading and more thinking. Use etfs. They are free. Use better and cheaper platforms. Trade less. Park some on CD. That is something that I definitely stand by from my previous post.

What Tires to buy ?

So 2016 just started and we thought that we should take a different direction on this blog and not just write about finance and investments but also other things that are intricately linked with finance. Now, the top things that are non monetary but yet related to financial well being are a) Health b) Sleep quality c) Driving quality if you drive d) work quality.

Of these, the points a, b and d are for some other day. Here we focus more on c. Which is the quality of your drive. Now, the car one owns by most accounts should be rather minimal unless you are into cars. So that translates to getting a basic Toyota or a Honda or a Ford. If you are into electric then again Toyota or Tesla seems to be the top options. Once you get a car, it depends on how  comfortable you are with new vs used cars. For most parts, a used car is pretty good especially if you are relatively new driver or does not have much experience. A good car dealership or mechanic can vet your car and assure you of any internal rumblings. Then periodic oil changes and maintenance is all you need to make sure that the car easily tops the 200k mileage range that most cars post 1995 are capable of doing. But one thing that will require some annual check is the tire. If you do tire pressure check and constant air fill up, it should be good but there is also the whole tire rotation, re-balancing, winteriz-ation and summeri-zation and all seasons for the rest of the seasons. Now most people either go with all seasons tires or those with extreme weather take precaution to winterize the tires. That is entirely upto your local environment and it is not a bad idea to invest in these extra set of specialized tires to help you navigate the roads well. As a general thumb rule, if you are buying a set of tires or rather a pair or 2 pairs - go with something from different name brands and ideally go with 2 at a time. This gives some much needed diversification to the tires for your cars. However, there are also often advertised specials which cleverly give you 1 free tire if you purchase 3. I was always against such deals .. why not just distribute it evenly amongst the tires. Which is why I tended to stay away from brands which do such sneaky advertising practices. The top brands or rather their dealers do this very often. Of course the margin is very well built in:) . 

Now the top of the heap is the Michellin, Goodyear etc which are pretty good and also expensive. But if you are going to drive in a bumpy road with nails, it really does not matter much as to which brands you go for nor does the bumpiness get any smoother due to some extra quality rubber padded on the wheels. Next up there are the Fuzion and Sumohito - both from same companies and a myraid of other brands in this segment. More or less they are all same. Just like computers in similar 250-500 range, they are just slightly different specs with not much variations so to speak. Then there are newer entrants such as Lexani or Veento and many others who price in the 40s-70s because they are new and want to capture market. I would not overlook them just because. I had used Fuzion in the past with mixed results. Twice my cars got nails on them and the tires had to be replaced. The best process would be just call up local tires and get quotes from them for 2 or 4 and keep them all ready. And go with what ever makes sense but in the tire business cheap does not mean less quality nor does expensive brands like Michellin automatically guarantee better ride experience. Of course for the extra money you pay the thread guarantee is there for 90,000 or 70,000 miles instead of 40,000 miles. But choose wisely. Either way does not matter much. There is a lament here that the tire dealers do not give a test drive for different drive experience which would have given the consumers a better chance to experience before making a decision just like cars or electronics or anything else these days.

An adjunct factor for this decision is also install. Now with mount, balance, environmental disposal fee and this and that .. usually the per tire cost is about double the initial quote. Now most of these are standard and mandatory. Except installation fee. Here Walmart quotes are way better compared to others. Here is a quick comparison per tire installation across various places:

Walmart: $12 

Costco: $16

Sams Club: $15 with emergency assistance thrown in for free which is pretty valuable.

Average dealership: $12-$18 but these can be good and the quality and speed is often better than the above warehouses and you also get to know the mechanic better for oil changes and other work in future. With Walmart and Costcos do not expect a friendly service .. it is just assumed that you know what you are getting into.

The tires cost higher in Walmart and more so in Costco where they start in the 60s and 70s. Walmart and Sams carry from 50s. The others such as Sears typically fall in between. The install is higher with Sears at about 20 bucks but the quality is pretty good. I have had 4 tires brought and installed there in a specials promotions which Sears runs often. With that it is easier for Sears to beat its competition rather well. And in general they are very friendly and knowledgeable. 

Some better online tools help you compare such as Yelp, Google Maps or really any online maps, bbb or better business bureaus, auto repair shops which do not change tires also have good info on reliable stores. Then it is just cold calling them and getting quotes in advance and then just getting it fixed.