I agree with your post but at the same time would be interested to hear any thoughts you do have on investing, as I tend to value your opinion in much higher regard than most other bloggers or even financial “experts” that are out there.

LOL @ your twitter comment. I still don’t understand the point of twitter or why bloggers feel the need to add it to their site. I see other sites someone will post an article, and there will be a button linking to “23 tweets” — I click on that and it is just 23 people tweeting the exact title of the article? I just don’t get it. And I’m a computer programmer so I probably should try to understand.

I think that people needlessly complicate investing. As best as I can tell, the consensus of academic research points to low-cost index investing as the best option for nearly everyone.

Warren Buffett agrees, although I still trust the consensus opinion of researchers over the Oracle of Omaha.

Quite a while ago (not sure when it was) I signed myself up on “Twitter” due to all the hype. I didn’t understand it then, nor do I now.
“What are you doing”? (seems to be the lead line). I can’t imagine anyone caring what I am doing, unless its my wife!
Maybe give us a class on twitter? Short and sweet, but tainted so the old folks can “get it”?

@OurTakeOnFreedom – low-cost index fund investing is fine if being average is okay with you. The biggest problem it has is that if you buy the theory, then you also buy some crappy companies just because they’re in the index (most airlines and automotive manufacturers come to mind). So from that aspect alone, I’d rather buy only the good companies and expect to do much better.

Jacob–I love your analysis of the fact that investing can’t be taken down to theory and principles. Every time I learn more on the subject, I have less of an idea as to what to do! And according to some people I respect very much, the ‘experts’ in this area are not experts at all . . .And I too have no idea why you’d want to Tweet something (but I’m somewhat remedial on those kinds of topics).

At Maus–We could argue that there WAS some serious inflation going on in terms of energy, food and health care costs, none of which were considered in the actual calculating of ‘inflation.’ By the way I could not agree more with your comment(thanks for ranting so I don’t have to):
“I feel as if those of us who saved diligently while the consumerist hordes drained their equity to buy their new SUVs are being punished by the Fed’s policy of easy money to “stimulate” the economy.”

I’m also thinking that real estate is becoming a more interesting investment (possibly only because I know more about it). But it is only interesting if you can 1. buy cash or get a decent loan (good luck with that) 2. buy a property that is NOT inflated in price (watch out since banks are holding foreclosed properties, which keeps prices falsely ‘inflated.’)

Ah, the “science” of investing. It’s driving me nuts. I’ve been searching for “the best” strategy for years and still haven’t found what I’m looking for.

The most intriguing investment strategy I’ve read about so far is Harry Browne’s Permanent Portfolio. It’s simple and seems to work. Unfortunately it doesn’t generate huge returns, so it’s probably more suitable for people who want capital preservation than for those who need to generate income.

(for those you don’t know it: It’s centered around diversifying into four asset types that each do well in specific economic circumstances and (separately) are very volatile. The public tends to overreact and overpay for the asset type that’s hot and PP investors profit by capturing gains through rebalancing.)

Jacob, even if you’re aware you don’t have all the answers, I’m very glad you occasionally mention how you’re investing and what alternatives you’re considering. Even if it’s not advice, it’s very interesting. Thanks!

@OurTakeOnFreedom

If you throw out the bottom 1/3rd of investors the stock pickers beat the index funds. But, isn’t it impossible to determine who that bottom 1/3rd is? No, as most non-professional “stock pickers” select a stock with the old reliable, “I have a feeling Enron is going to take off”, “It has gone up 50%, so it must be good”, etc. They don’t use any type of real analysis at all.

Also, the environment is directly related to how well index funds do. The environment going forward (older population, massive debt, etc.) is not conducive to the entire market being positive.

@900 – Yes, last years, historical ones, what the management says—mostly stocks will trade on projected dividends, i.e., if a cut is foreseen, the yield will appear to be pretty high because it was calculated with last years numbers. In fact, one of the things that can really case the share price to go down is if the dividend is/will be cut or eliminated. (I’m looking at you GE).

Thanks..here’s a follow up question(s) for us newbee wanabees.

Jacob said somewhere in his older posts that the most important thing to invest in is an investment education. I have been working thru some of those books.I think I have digested like 20 or so books recom on this blog. Good reading..but I digress.

On my current book “Intelligent Investor” he says there are 4 rules to consider when buying a companies stock for dividend income. I think number four is “Price should be reasonable in relation to its ave earnings for the last 5 years. Price not to exceed 20X earnings.”

So I am looking at said GE:

Dividend Yield Summary
2009 2008 2007 2006 2005 2006
Dividends $0.4 $1.24 $1.15 $1.03 $0.91 $0
Price $14.49 $20.77 $37.07 $37.21 $35.05 $0
Yield 2.76 % 5.97 % 3.1 % 2.77 % 2.6 % 0 %

Am I understanding this right? GE ave earnings would be .94 per share. Multiply .94 x 20 =18.80

So the current price of GE is 15.97 is a good buy?

COnversely GE would have not beeen a good buy in 2007?

George…let me see if I can come closer?

From 2007 to 2009 GE lost more then half of its value? So I would have to subtract that from the dividend?

Can you give me an example on how to figure the big picture?

@MossySF

I’m not sure I understand. You mean that during retirement they just eat their principal (as their return just covers taxes and inflation)?

In that case: no extremely early retirement for them!

70% savings pre tax means roughly 15% in expenses when not working due to lower tax/work expenses. So 10 years of working pays for 46.66 years of eating principal. 15 years pays for 70 years. Is 15 years working not early enough for you?

Can 70% be done? I’m at 65% living overseas — I was at 55% in the U.S. so if I used all of Jacob’s hints, I think I could get close. I’d rather live ‘luxuriously’ overseas though for the near future.

> So the dividend they can get as a percentage
> of stock price is the most important?

Yes and no. That dividend is important provided the company can continue to pay that dividend and grow the company so the dividend will be larger in the future. For example GE was on track to continue growing their business & dividend, but they ran into a pothole when the financial markets collapsed, so you also have to measure/predict a company’s ability to continue paying that dividend.

The previous comments demonstrate that index funds can be a reasonable,low-cost alternative
to investing, without all the trouble of individual stock selection. You probably have better things to do. Use them as a base investment. Then, if you want to, you can start to add individual dividend paying stocks as your knowledge and skills improve.
Live long and retire extremely