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Weekend reading: How the Dow nearly made me a celebrity

Weekend reading

Good reads from around the Web.

You almost got to hear me this week – as in you almost got to hear me waffling on in real-life, as well as via this regular Saturday ramble.

I know! Calm yourselves, there’s still Countryfile to look forward to.

The grand occasion nearly happened because I was nearly featured in a radio broadcast that nearly looked at investing in ISAs in the light of the US stock market highs.

Alas, something more exciting than me and my views turned up, and ISAs were dropped.

That’s show business!

Number cruncher

While some of you may consider it a new low for the loved but troubled Beeb that it’d invite me onto the airwaves, I was flattered and a bit thrilled.

The BBC!

On the other hand, I was all set to push back against the basic premise – that it was ISA season, and with the stock market on a tear we should be carefully considering where to invest our money.

Obviously I’ve got nothing against investing, nor the careful consideration of it.

But should anyone be thinking about it today, because the US Dow Jones index has hit a new high? Should we be putting money into equities – or not – because markets have rallied? Should we be contemplating our ISAs every March?

No, no, and no.

Most people should have a multi-year investing plan that is broadly market neutral. More active investors might try their hand at tweaking their allocations based on what they guess are the underlying valuations, but nobody should be investing because some number is higher today than yesterday. Most people will be better off ignoring all the headlines entirely, and going fully passive.

As for ISAs, you should open them on 6 April – the first day you can – rather than lose the benefit of a year’s tax-free compounding by waiting until the 5 April deadline.

No head for heights

And what about those new highs on the Dow?

While I set up Monevator partly to help people understand that non-events like this are made into a big deal by the fund management industry with products to push, I’d be a liar if I said I was immune.

Physician, heal thyself, and all that.

So sure I noticed the new high. As a partial stock picker (for my sins) I’ve also noticed many all-time highs being made by individual shares, too.

However any emotional reaction is short-lived when I remind myself:

  • The indices are not inflation-adjusted
  • Most indices do not account for dividends
  • I didn’t put in all my money at either a peak or a trough
  • Attempts at market timing have relentless destroyed average returns

You don’t believe me, despite my credentials as a blogger who was almost on the radio?

Here are some other good articles that say much the same in different ways:

  • Why the new US stock market high is just a number – Swedroe/CBS
  • Buy and hold dead? Hardly – Roth/CBS
  • The most inevitable headline of all time – Motley Fool
  • Why you must look at the total return from the market – The Munro blog
  • Even the experts repeatedly called the rally wrong – Business Insider

From the blogs

Making good use of the things that we find…

Passive investing

Active investing

  • A report from Fundsmith’s annual meeting – iii blog
  • Cyclical stocks look cheap versus defensives – Capital Observer
  • Valuing Berkshire Hathaway – Part 1 and Part 2 at The Brooklyn Investor
  • Evaluating British Polythene Industries – Expecting Value

Other articles

Product of the week: Halifax’s fixed rate cash ISAs now top the table over three, four, and five years, says The Telegraph. You’re still only getting a miserable 3.1% by locking up your money up for five years though.

Mainstream media money

Note: Some links are to Google search results – these enable you to click through to read the piece without you being a paid subscriber of the site.

Passive investing

Active investing

  • Desperately seeking yield – The Economist
  • The markets are frothy but not bubbly – The Economist
  • How to invest in PIBS and pref shares [Search result]FT
  • Why not short Treasury bonds? Here’s a good reason – Swedroe/CBS

Other stuff worth reading

  • The rise and fall of Apple stock-tipper Andy Zaky [Must read!]Fortune
  • Why fund names can’t always be trusted – Telegraph
  • Maths skills add £2,100 to your salary – Telegraph
  • The true cost of bike ownership – Mint.com
  • Co-habitation agreements for non-married couples – The Guardian
  • $30 million worth of art found in the garage [Video]Yahoo

Book of the week: Warren Buffett’s legendary annual letter made three book recommendations this year: Outsiders by William Thorndike; The Clash of the Cultures by passive investing guru Jack Bogle; and Tap Dancing to Work, a book about Buffett himself by his friend Carol Loomis.

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{ 8 comments… add one }
  • 1 Retirement Investing Today March 9, 2013, 12:42 pm

    Hi TI

    Very relevant post. The mainstream media tell me that the Dow has reached a new high. Meanwhile my strategy tells me that US Equities have become more over valued and I need to continue lighten up.

    You also make a good point about inflation. As you know, on the Monevator Private Investors Roundup, I analyse the S&P500. If we correct that index for inflation we see that the Real high was actually in 2000 and today we are still 22.5% below that level.


  • 2 David Stuart March 9, 2013, 2:08 pm

    surprised BBC dropped you

    politicians dont have a clue about financials,they always talk about short-term.

  • 3 Curious-Sarah March 10, 2013, 2:21 pm

    Definitely do it next time you get the chance!

    And tell us in advance so I can tune in! 🙂 🙂

  • 4 SemiPassive March 11, 2013, 2:41 pm

    They dropped you because pound cost averaging isn’t very sexy, despite being the most important factor in determining long term success for the vast majority of investors.
    People shouldn’t be having to make ISA decisions in April each year, they should set up monthly direct debits and automatic investment plans and forget about it. And forget about reading the crap about which actively managed fund Roger Fotherington-Thomas of Cornhhole Investments Ltd is advising for this year.

  • 5 Phil Evans March 11, 2013, 2:52 pm

    The DOW hit a record high because all the losing companies were dropped a long time ago. Companies like Kodak, Enron, etc.

  • 6 David Stuart March 11, 2013, 2:57 pm

    good post semipassive

  • 7 NaeClue March 11, 2013, 8:33 pm

    @Phil Evans.

    That makes no sense.

  • 8 Phil Evans March 12, 2013, 12:58 am

    Kodak stock was a strong component of the DJIA in 1999, at $67 a share, but was delisted from the DJIA in 2004 since it wasn’t doing well enough, and today in chapter 11, is worth about 20 cents a share. By the DJIA picking only healthy stocks, it appears to grow more.

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