From Treasury Direct:
if you have a Social Security Number and meet any one of these three conditions:
United States citizen, whether you live in the U.S. or abroad
United States resident
Civilian employee of the United States, no matter where you live
To buy and own an electronic I bond, you must first establish a TreasuryDirect account.
Something like Verizon or AT&T looks relatively safe to the rest of the market but every company has firm specific risks. Verizon is down more than 20% from a year ago for reasons I don’t know, maybe they overpaid for 5G spectrum or get more competition from discount wireless carriers. You could try to find something like an ETF of electric utilities or telecom providers to minimize firm specific risks but still focus on a sector with lower PEs, lower betas, predictable dividends, and recession resistant businesses
The vast majority of stocks underperform treasuries over the long term. Just 1 in 25 stocks accounts for the net gain of the entire US stock market going back to 1926. Owning 14 stocks is nowhere close to the level of diversification needed to say that you are not taking on uncompensated idiosyncratic risk.
So you are arguing for a Bayesian approach where you use existing knowledge to determine whether someone can be statistically confident that they have a strategy that generates alpha. That’s definitely the way to go.
P(A | B) = [P(B | A) * P(A)] / P(B) where
A = person with your profile can identify and execute a strategy of buying and selling common stocks that generates a% of alpha annually
B = person held a basket of N stocks that outperformed a well-diversified portfolio exposed to similar risk factors (let’s say fama french 5 factor) by x% over y time period.
So the question is, what is your prior - P(A) - poker player, read some Buffett and Graham books, spends ~10-15 hours a week running filters and reading filings – has identified a systematic approach to identify and execute a strategy that generates alpha? P(B) can be reasonably estimated through back testing a big database, and P(B | A) could be estimated through some Monte Carlo sims.
At the point where you are calculating P(A | B) to be north of 90%, it’s time to shove all-in (use margin, find other outlets for leverage, market your results and raise money, etc).
If they are sufficiently uncorrelated it actually probably is.
I can think of a much better way to achieve diversification…
Wtf is going on in this thread? Investing isn’t hard, and most people can do it with one fund: a low cost target date fund.
If you want to roll your own, you can do three funds: US stocks, international stocks, and some kind of bond fund.
The rest is just for shits and giggles.
If it was that simple everyone would be doing it!
You typoed Ibonds, your wife’s Ibonds, and your wife’s boyfriend’s Ibonds.
My parents use a 1% AUM advisor and I’ve never said a word about it but it’s so freaking irritating.
Yeah. Otoh, every donk thinks he has a good strategy when he’s up. How do you know which you are? You look at the stats. And you have so few that being a monster and a moron are both totally in play aorn.
Nope. Lack of correlation isn’t enough. Even if you assume zero correlation, the returns of individual stocks have positive skewness. You need N to be large before you are expected to get the median return.
If you have a very good database you can verify this for yourself. Just go back Y years and pick 15 stocks at random (or come up with some ‘diversification’ rules for your random selection) and then figure out your total return compared to the total market. Run this several times.
If GM did this Marry Barra would be hauled in front of congress and probably fired
https://twitter.com/nbcphiladelphia/status/1525153160737738759?s=21&t=QPVmA0xVBvCNJVRNK-sLNw
In gambling/investing, you always have to consider risk tolerance as well as EV. If I offered you 2:1 odds for your entire life savings, you’d be insane to take it even though it’s +EV. For some people maybe it makes sense to put 5-10% of their funds into stonk/crypto speculation just so they can get the gambol out of their system.
Or also, investing is already complicated as-is, giving people additional options maybe isn’t optimal.
Yes, positive skewness can be a feature if you understand that you can only reasonably achieve your financial goals by getting lucky with outlier returns.
https://twitter.com/brobrah_sama/status/1525207049931370497
In case anyone was wondering wtf happened like I was
This is what many of us are doing with crypto and yet are relentlessly ridiculed on this forum for doing so.
when the fed says shelter inflation is 5% - how is that calculated?
I would argue that being a moron is not in play. Losing to the market is, of course.
I have a buddy who invests entirely based on sentiment, momentum, news, and the quality of a company in his dealings as a consumer. He told me he saw huge upside in Amazon because of getting Thursday Night Football. I asked him how much it cost them, if they had projected revenue, and what percentage of their revenue would come from it. He had no idea. I looked it up and showed him and it was like < 1%.
Maybe a year ago I had to explain to him that just because Stock A traded at $100 and Stock B traded at $200 didn’t mean B was a bigger company.
I’m not even sure he qualifies as a moron.
I know a guy who put $50K into the first vaccine stock he found in February 2020 with no research. Of course he luckboxed Moderna lol…
And that’s just scratching the surface of shit I’ve heard at the table. Don’t get me started on WSB.
