I just tallied the results from the market peak in May/2011 to September/2011 and found that while the S&P500 was down -15.7%, my IRA was up +5.7% and my main ERE portfolio (the one that pays my expenses) was down -9.7%.

(You might recall me making some comments wrt the Shiller market P/Es being too high and moving into utilities, low beta dividend stocks, and bonds about half a year ago, and recently also gold.)

In addition, I recently tallied the performance of the ERE portfolio over the past ~4+ years and found a ~5% annual outperformance relative to the S&P500.

Many have been frustrated with my apparent lack of investment related posts not to mention the lack of specific advice in the ERE book. There are a few reasons I don’t blog about investing a whole lot.

(The reason it wasn’t in the book was that it’s a subject so enormous that it warrants its own book.)

The first reason is that many take an almost religious attitude towards their investments. Their beliefs are very strong but at the same time they’re also so weak that they must be defended at all times. I’m not having very much fun in such discussions. My stance is that money talks and bs walks, so lets just agree to disagree and put our respective monies where our respective mouths are.

The second reason is that the only way to turn such beliefs into knowledge is to provide them within some kind of accepted analytical framework—this is pretty much what you see on many investment blogs: “Here’s the case for Verizon based on their new earnings and the combination of our dividend model (spreadsheet really) and an EBITDA/EV calculation compared to peers and our “feelings” about the premium for management, etc.” I actually consider the market rather efficient on this [analytical] level [unless you move to the microcap level].

I believe either way of blogging is practically futile in terms of making a difference. In the first case, I have no patience for investment-religious arguments and in the second case, I wish to acknowledge that reality is only as good as your model and that investment models are pretty lame at best: How do you explain how e.g. a blue chip company can range between a P/E of 11 and 16 over just one year? Also, I can’t really do a better FSA than the next guy; and there are many “next guys”.

There’s also a third reason namely that the folk-knowledge is not very well defined. Ask someone to define “investing” and you’ll get as many different answers as if someone asked for a definition of “happy”. Just consider asset allocation and rebalancing. Many people would disagree that this is a very simple market timing algorithm, but it is.

(In fact much of my outperformace over the past 5 years is due to rebalancing and sector allocation—that is, essentially timing sectors. If you want some high risk tips, you should move into metals and oil companies; but you shouldn’t really do this unless you know why I’m suggesting it.)

The fourth reason is that investing is such a complex matter that it’s very difficult to instruct in it. Like sword-fighting it is a process of learning where the student need to learn and discover the facts on his own—the teacher can only do so much. The student can not simply adopt the facts by reading them. It is similar to how you can’t learn how to ride a bicycle from reading a book about it or taking in some cycling tips on a blog. This is because for investing, experience (the amount of neural energy you’ve burned), counts far more than factoids.

Nevertheless, I’m going ahead with the writing on the INV[estment] book. I have 11,000 words so far. If the first book was any indication you can expect a final result that lies somewhere between the 6th grade level books written for popular consumption, that is, “Here are two ideas, now go to my website, sign up, and plug your numbers into my javascript applet” and the financial statement analysis books of academia.

Such a book can not teach anyone to invest and surely many will complain that it won’t include a recipe. However, it will hopefully serve its purpose in guiding those who are natural students of the market and the world. In food terms, it will be a book about cooking and how to be a cook, not a recipe book.

In conclusion, it will parallel the ERE book in the sense of providing guiding principles for investing, but it will most likely not provide any plans.

ETA: 1-3 years.