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Weekend reading: Me and you versus the world

Weekend reading

Good reads from around the Web.

Lots of amateur investors daydream about being the next great stock picker – a contrary-minded Buffett for the 21st Century.

But very few people are wired right (or perhaps that should be wired wrong…)

For most, being a contrarian investor gets no further than reading a magazine article about being a contrarian investor, and then investing in whatever shares or funds it suggests.

And that just isn’t going to cut it over the four or five decades of a lifetime of buccaneering investing.

As Patrick O’Shaughnessy of Millennial Invest wrote this week in a piece on the virtues of cheap yet scary-looking companies:

To buy into a terrifying portfolio, you need to have a contrary mindset.

This mindset is almost sociopathic, because it requires not just ignoring the crowd, but actively trading against it.

Most people can’t do that. They run with a herd even when they think they’re standing apart from it.

That’s surely for the best, given that more than seven billion of us are trying to get along on this little planet.

Gold given the finger

The wannabees come and go.

Remember when any mention of gold brought out dozens of precious metal bugs to call you an idiot, no matter what you wrote?

For all the noise they mostly seemed to think the same thing – that the dollar was about to collapse, and that a Neo-Aztec Kingdom of Gold was set to emerge from spare bedrooms and basement PC dens across the land. Conspiracy theorists who’d buried Krugerrands under their lawns would inherit the earth.

We’re still waiting.

Who knows, things are precarious enough that even I wouldn’t write off the gold bugs’ predictions entirely. But one thing I’m sure of is that the love-in for gold a few years back was as contrary as feeling a bit sad when Robin Williams died.

Look at this graph of the assets amassed at the height of gold mania by the US gold tracking ETF – ticker GLD – as posted by Ben Carlson on A Wealth of Common Sense:

gold-decline-fall

At that peak in summer 2011, GLD became the largest single ETF in terms of assets – bigger than even the mightiest S&P 500 tracker.

But since then, Ben says:

…the fair-weather gold investors have been shaken out, and then some, in the latest drawdown.

Although the GLD fund’s performance is down by a quarter, the total assets invested in GLD are down by 60%.

In other words, GLD’s assets have shrunken far, far faster than the gold price.

Meanwhile the SPY stock market index tracker has returned 60% in gains, and it’s doubled in terms of assets.

Golden brown

This isn’t a post to say that stocks will always beat precious metals, or that you should race out and buy the S&P 500.

(If anything it makes me want to trickle money into a gold ETF!)

It’s more a reminder that like teenage goths who feel they’re uniquely dark snowflakes but all seem to shop at the same branch of Emos ‘R’ Us when you see them outside a Marilyn Manson concert, so any investor who has gone off the beaten-track mob-handed is likely not blazing a trail but heading for a cliff.

This stuff is hard, for all of us.

Yet another reason for most to be passive investors and opt out of the guessing game entirely.

From the blogs

Making good use of the things that we find…

Passive investing

Active investing

Other articles

Product of the week: Do you have a spare 30% kicking about for a deposit on your new home? Then Nationwide has the 3.49% charging 10-year fixed rate mortgage for you, reports ThisIsMoney.

Mainstream media money

Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1

Passive investing

  • Legal and General slashes tracker fees – CityWire
  • Ken Fisher: Passive investing is hard – Money Observer
  • Schwab to launch free ‘robo-adviser’ service in US – Reuters
  • I dumped Richard Branson’s tracker to save £2,000 – Telegraph

Active investing

  • Graph showing how yields on most assets have fallen since 2007 – Telegraph
  • Bargains on offer as great Euro-hate continues [Search result]FT
  • Why I don’t own bank shares [Search result]FT
  • Gold mining stocks are one of the few cheap sectors… – Morningstar
  • …though they may be a value trap – ETF.com

Other stuff worth reading

  • Sod the savers: David Cameron wants low interest rates “forever” – Telegraph
  • Tony Benn’s inheritance tax dodge (and how you can do it, too) – Telegraph
  • Flow Energy set to give away its revolutionary boilers – ThisIsMoney
  • Santander to launch lifetime interest-only mortgages… – ThisIsMoney
  • …and the demand for these rest-of-life loans is growing – Telegraph
  • Pension tips for the self-employed – Telegraph
  • The trouble with modern friendships – The Guardian

Book of the week: I’m enjoying Stress Test, by the former US Treasury Secretary Tim Geithner. True, it’s riddled with passive aggressive score settling, but this laconic bitchiness is part of its charm. I think it’s also more educational to revisit the crisis with a few years’ perspective.

Like these links? Subscribe to get them every week!

  1. Reader Ken notes that: “FT articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.” []

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{ 12 comments… add one }
  • 1 Retirement Investing Today November 1, 2014, 10:32 am

    The timing of you mentioning the G word (again) is uncanny. I was just looking at prices, values and my holdings yesterday. Unfortunately this isn’t because I’m contrarian (I wish). Rather my mechanical investment strategy simply requires me to hold 5% in gold and yesterday it was my most underweight asset class at -11%. Back to sleep for me as no buying action required until that -11% underweight turns into -25% underweight.

  • 2 elmar November 1, 2014, 10:51 am

    I bought a NYSE Arca Gold tracker yesterday. Call me contrarian.

    “They run with a herd even when they think they’re standing apart from it.” = ETF investing, right?

  • 3 dearieme November 1, 2014, 12:07 pm

    Bastards! I had just about decided to buy two things (i) Gold mining stocks, and (ii) perpetual gilts. Now word is out on the first, and a “call” is in on one of the second. Buggeration!

  • 4 BeatTheSeasons November 1, 2014, 12:56 pm

    I’m hoping this is the start of an investing series based on 90s music? Maybe for the next episode you could use ‘female of the species’ to illustrate how women make better investors than men.

  • 5 Jon November 1, 2014, 9:13 pm

    What i find most difficult is the constant constant urge to “tinker” with my HYP portfolio and is something I have to constantly work at by re-reading Stephen Blands HYP articles to suppress the urge, especially since I’ve lost 50% on Tesco, Morrisons, Balfour Beatty. However the other shares more than compensate and the HYP is still up 10% wrt total gains and the income is increasing annually – so it’s doing what it is meant to do.

  • 6 Steve21020 November 2, 2014, 9:34 am

    I liked your comments about gold. I stopped reading most coin collecting forums years ago due to the hysteria surrounding the gold price. Any suggestion that the gold price wasn’t going to infinity and beyond met with “You just don’t get it!”
    I too try to keep gold as approx 5% of portfolio, but regard it as extremely long term and not tradeable. The graphs at Kitco.com are interesting. Gold bugs always point to graphs from mid 2000s, but you can also look at prices from 1975, which is more revealing. Comparing price increases to inflation, property, oil, industrial metals etc indicates that gold is definitely not undervalued.

  • 7 dearieme November 2, 2014, 2:31 pm

    “Any suggestion that the gold price wasn’t going to infinity and beyond met with “You just don’t get it!””

    So far, historical evidence suggests that all fiat currencies end up worthless. So in that sense the gold bugs must be right. The timing is unknown, of course.

  • 8 The Investor November 3, 2014, 1:47 pm

    @RIT — Well, the great thing about mechanical rebalancing is it to some extent automates contrarianism, no? 🙂

    @elmar — Do you mean ETFs as a vehicle? I guess they are more in demand than ever. I’m thinking of asset classes here though.

    @dearieme — I’m a little sad about the government deciding to pay off some of War Loan. A bit more romance leaves the markets every day!

    @BeatTheSeasons — Hmm, not sure about that, I got some horrid Red Bull and Vodka (or was it Hooch?) flashbacks even embedding that video… 😉

    @Jon — I used to run a no-tinker HYP-style portfolio, but I trade quite a bit nowadays with my holdings. The key point is to decide who you are and how you’re investing I think, and then live consistently to it. A purportedly no-tinker HYP-er who suddenly tinkers whenever a share gets a bit high or low or on headlines will indeed soon blunt any edge the strategy may give them, I agree. I used to find concentrating more on my Watch List helped?

    @Steve21020 — I have a long term aspiration to build my gold holdings towards 3-5% but I am quite happy to take a decade doing so…

  • 9 Alex November 4, 2014, 8:15 am

    1. Third para: “For most, being a contrarian investor gets no further than reading a magazine article about being a contrarian investor, and then investing in whatever shares or funds it suggests.”

    2. But surely such an investor wouldn’t actually be contrarian if he/she follows the advice in an article – especially one read by many people, all of whom can potentially then act in the same way. 🙂

    3. Good stuff, as ever. Thanks.

  • 10 The Investor November 4, 2014, 10:09 am

    @Alex — Erm, that’s kind of my point. I was being wry. 😉

    Always good to see you’re still reading! 🙂

  • 11 Alex November 4, 2014, 7:02 pm

    Sorry.

  • 12 The Investor November 5, 2014, 11:34 am

    @Alex — Absolutely no need. People have been misunderstanding my ‘jokes’ for decades. 😉

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