jb85

So my main thing with the calories in vs calories out is that for most people, their main concern is WEIGHT LOSS. I really doubt most people, if they had 13% body fat would really care if they were getting enough potassium, or this or that vitamin etc. Maybe some would, but for most, they just want to look good. I haven't read Taubes, and I'm sure he has a lot of valid ideas. I just think people worry about the wrong things with weight loss. If you really want to go all out, then sure, worry about all the vitamins etc, but for me if my weight is good, then a lot of other things fall into place. I've seen a lot of people worry about fat content, vitamins etc. eat great salads, no candy etc, yet they eat 4000 calories a day and wonder why they gain weight. I eat a bunch of junk food, etc. but the one thing i do is to eat only 2100 calories a day. I may have some other issues from eating all the junk food, but its still than being 300 pounds and eating salads all day

I would agree, expecting 30% returns is not realistic, but i'm attacking the idea that you can't make money by following a formulaic approach. Heck, even Buffett did this with S. Korean stocks. He basically looked for low P/E stocks, increasing earnings, and maybe low book value and bought a basket of the stocks. A lot of the companies didn't have annual reports in english, so he didn't do a ton of research. Its just funny how some people on here go from the valid idea that formulaic approaches probably won't make as much money as the best bottom up managers, to the completely invalid idea that somehow anyone who follows a formulaic approach is "gullible" or "lazy" or will lose a bunch of money

I also just read that article mentioned above (Plan not to panic - guru focus)... In it, the guy says "by the way virginia, there is no magic formula" and then links to a website whose argument against greenblatts formula is as follows: "There are no magic formulas. The idea that, with no work, an individual investor could generate average annual returns of ~30% per year (Joel Greenblatt’s initial back-tested Magic Formula numbers) was always too good to be true. There are no magic formulas, but there is a tragic equation: greed + laziness = grief. There are no magic formulas. But there is work. And there are tools to help. No related posts." Does anyone care to argue against greenblatts formula and back it up with any substance? I'm ok with criticism and critique, but i've yet to hear a valid counterpoint to greenblatts thesis that his formula will beat the market. It seems more that we have a bunch of people who can't accept any other way to beat the market, besides doing extensive bottom up analysis

What are people's problem with a mechanical formula? I agree, if you want to to have truly great returns (20%+) then looking at individual stocks is probably best, but the idea that some of you here are saying that following a mechanical formula will not beat the market (or even worse, that by following it you will lose money) is a joke. I've invested REAL money (in fact all of my IRA) in the magic formula. From when i started, in november 2007 to 4/8/2011 my total return is 20.17% VS. -6.51%. (these are TOTAL returns, not annualized) Guru focus had an article earlier this year titled "which gurus had positive returns from 2008 to 2011" I compared my performance vs. that list, and was in the top 5 (the list had at least 50 gurus). (my returns from 1/1/2008 to 1/1/2011 were 23.34%). Keep in mind, i did zero work researching these companies, and the returns were up there the best fund managers. furthermore, Ben graham himself stated in 1976 that a mechanical formula did just about as well as he did himself. http://www.gurufocus.com/news.php?id=8758 beating the market IS this simple.

calculate how much you burn in a day. Eat 750 calories less than this everyday. do push ups, pull ups and situps (really only takes about 15 minutes every other day). If you do this, you will be in shape. weightloss is simple, but not easy. don't overcomplicate it. if you are gaining weight you are eating more calories than you burn, plain and simple... and no, it is not because you have a "condition" or are heavy boned, prone to weight gain etc. you are simply eating more calories than you are burning. I still don't understand why people waste money on fitness books

jeremy grantham also calculates fair value (read his letters, usually it is embedded within, so might have to read each one). He calculates based on average P/E but then also normalizes the earnings margin (so that in times like 2007 when margins were abnormally high, the fair value is not effected). This is end up being very similar to the shiller 10 year P/E, since it is fair for margins to remain abnormally high over a 10 year period

what is everyone's general thesis on trying to make money on the housing market? I know people have done it but it seems like a tough game to play, especially if you are just buying one house. I could see where ifyou go around and buy distressed property, then you might make money, but a buy and hold approach seems difficult to me. I mean house prices in general have had 0% real return over the past century, and are still historically high...seems like in general prices are still above the trendline, so just trying to see people's thoughts. Again, not saying it can't be done, but I'm just trying to learn more about specific ideas. As far as building costs and population go. Does a rise in both of those signal a rise in house prices? Shillers charts tend to show that over the past 100 years, there is little correlation to between buildingcosts/population and the house price. Population and Building costs rose substantially over the past 100 years, yet house prices remained flat (in real terms). here is the shiller graph (about half way down called "Long term US real house prices") http://financialfollies.blogspot.com/2010/12/cult-of-property.html One way i judge ideas is to look the general market for my area (Seattle), and one of better ratios in my mind is the rent to buy info. http://info.trulia.com/index.php?s=43&item=113

Was looking back over some buffett advice and found this from him: "The answer is still yes today that you can still earn extraordinary returns on smaller amounts of capital. For example, I wouldn’t have had to buy issue after issue of different high yield bonds. Having a lot of money to invest forced Berkshire to buy those that were less attractive. With less capital, I could have put all my money into the most attractive issues and really creamed it." So basically I'm looking for exactly what this means. I know a bit about bonds but am looking to learn a little more. I've found the yahoo.com bond screener, but right now screening for bonds with yields of over 12% doesn't yield much (obviously). 1) does this yahoo.com bond screener cover every bond in the US? or just the bigger companies? 2) is the a websit that lists ALL the corporate bonds for INTERNATIONAL companies? 3) any other general advice. Starting reading M. Whitman's Distressed Debt investing. Any other suggestions on things to read or places to look?

Just watched the hit. The problem is the design of the area as Parsad said. There should not be an ending to any of the glass. They should have the glass start a few feet outside of the rink and have it move gradually toward the edge of the rink. Therefore there is no hanging wall edge in which someone can be vertically closelined as this guy was. Unfortunate, but I think that changing the rink would be easier than removing these types of hits in hockey. Its part of the game.

So i agree that cutting down your expenses so that your buffer of 3 years would be less. But this kinda also goes to my point. oct 2008 was uncertain, so how can you be confident that you'll say "ok, i only need 2 years of buffer". if anything, i think most people would move to increasing their buffer to say 5 years during the oct 2008 time period. This would involve selling securities in oct 2008

Hi Liberty, good discusion...I think I understand a bit better now the buffer idea. I was thinking of a live example, where there might be an issue. lets say you are in 2007. You have 3 year buffer capital in cash. in 2008 you have used up 1 year of capital, so inorder to restock buffer, you sell 1 year worth of securities, and are back at 3 year buffer of cash. That is ok, because it is before the crash. then the market collapses in 2009 you have a decision to make. Do you sell 1 years worth of securities to go back to 3 year buffer or do you let your buffer slide to 2 years worth of cash (again, you don't know at the beginning of 2009 whether the dow will stay at 7000 or go to 5000 in the next year). You start thinking "what if the dow is at 5000 next year. if i don't sell any security then i'll only have 1 year of cash" This may tempt you to sell even in a depressed market. This is just a consideration... I don't mean to be negative just working through some issues. Overall though i do see how the buffer would work...I also think some sort of cash % in relation to market overvaluation might work also (you approach seesm similiar to this anyway)

but even if you have a 3 year buffer in cash, won't you still be selling every year (on average) in order to fill up your 3 year buffer again? its seems to me, even with a buffer your selling of stock will still be the same amount overtime.

to alerts point... yes, retiring to manage one's own money would be work (although i think the magic formula stocks will do pretty well overtime, and that is very minimal work) For me the problem is not that i don't like work. paraphrasing charlie munger, "what i want is independence". The thing i hate most about work is having a boss who overrules my decision simply because they are the boss. I hate this, and most of the time decisions are made by whoever has the authority, not who is logically right. I like the idea of not reporting to anyone. For being responsible for my own gains and losses. Too often in the working world (i've only just graduated from college 3 years ago, so i'm still new, but from what i've seen) horrible decisions are made in which I have to deal with them.

Yes, I would be 100% in stocks (or atleast 100% in non buffer assets. This may occasionally mean i am in cash if the market is overvalued etc., but i wouldn't not be in cash in order to provide a buffer). I would live off the occasional selling of stock and dividends, howerver i also would not specifically look for dividend stocks. I would rather own an undervalued stock that pays no dividend and sell some of it occasionally, than own a more overpriced dividend paying stock which i would not have to sell and (b/c i could live off the dividends). over time, dividends really don't matter, what matters is how much you are buying businesses at at discount to their IV. The idea of buying dividend stocks i think applies to any sort of fixex income security. It is ok to buy the fixed income security if it is the most deeply discounted security you can find in relation to IV, but if you are buying a fixed income security for its fixed income, at the expense of a more deeply discounted nonfixed income security, i don't really understand that. Again i could off in my thinking, but i would rather sell a small portion of a security that appreciates at 30% a year (in order to fund living expenses) as opposed to living off the dividends (at 2% lets say) of a security that appreciates at 15% a year. To a degree this is all hypothetical #'s but my main point is don't worry about selling good stock occasionally, i would rather buy good stock and sell occasionally than buy less quality stock just because it produces a dividend, and therefore i can say "i never sell my stock".

why would you need to take out 300K as a buffer? The 2 million should be your buffer. Use that excel file i posted earlier to calculate your chances of going broke given a certain expected return and nest egg. And like others have said, you don't need to be at 100%. Say you're at 90% or 80%...then it ain't the end of the world if you fail, just means you may need to spend less or get a part time job etc. In my mind if i could get to 80% chance of never working again (with the alternative being i need to reduce spending and maybe restart work for a few years if i was unlucky, that is ok with me) The buffer idea in my mind seems to be a false comfort. Also, i think that you should be at the point of being in stocks 100% of the time. putting money into a buffer (or even bonds for that matter) doesn't make sense to me, because if you stock portofolio does badly over a LONG period of time, no amount of buffer will help you. And if you stock portofolio only does badly over a SHORT period of time, you should have enough to get through the rough patch. I could be off on these ideas, but that's just my input, i'm open to critiques to my logic

I found a pretty decent tool that is interesting. It is an excel file found here http://www.efficientfrontier.com/ef/101/hell101.htm (look for sentence "(For those who want to explore the spreadsheet option, I have posted a 100-run by 30-year sample here.) " This excel sheet lets you calculate your chances of going broke in retirement based on a few factors (1) how much you have saved at beginning of retirement, 2) how much you will withdraw every year 3) your annual return (expected) and 4) the standard deviation of that return (expected). With these factors it calculates your probability of success. Kinda cool (for the record, i use magic formula stocks, and the standard deviation for those stocks from 1988 - 2009 was about 27

I'm currently holding 22. I usually pick 6 or 7 stocks, once a quarter and hold for a year (per book instructions). Sometimes however I'll buy a stock that i already own because it is still a Magic Formula Stock. so usually holding around 20-28 stocks.

I've used the magic formula since Nov 2007. My performance on an absolute basis is 18.29% vs -7.29% (sp500 including dividends). I believe over multiyear periods it should work well. However there were times were it underperformed or barely beat the market (1995-1999 was one such period). Also, i have done quite a bit of studying on the magic formula. Interesting observation is that from 2005 to present, large cap (over $1 Billion) Magic formula stocks have outperformed the small cap screen (which included all companies over $50 million). However, since 1988, the over 50mil screen has outperformed. As far as the 1 year holding period, it may make more sense that you think. in 1976 Graham advocated using a similiar stock screen and rebalancing every 1 or 2 years. he said that this screen would have produced similiar returns to his partnership over the past 50 years (ending 1976). Quite frankly, the magic formula has beaten many respected value managers over the past 10, 20 years). It remains to be sees how it will perform since the book was published (in 2006), but so far it is performing alright.

I know this is an old topic, but i figured i would try to work the math on talebs strategy. He buys put options and hopes for a big drop. Lets classify a big drop here as a drop of 10% of the SPX in 1 month. Using Shiller's Excel File i went back to 1871 and looked at all the months with drops of 10% or more. There were 28 (out of 1666 months). So in any given month there is a 1.7% of a 10% drop, all else being equal (the % was around 2% when current 10 year PE was above 20) Looking on fidelity i saw the price for put options with a strike price of 1210, expiring on March 19, 2011 (unfortunately there were no options expiring exactly 1 month from today, so we are not exact, but pretty close) were priced at $7.70. if there was a drop of 10% from current 1304 level, that puts the SP500 at around 1170. If it made that drop, you would pocket $40 (1210-1170) or a 519% gain on your $7.70 investment. I know this a huge approximation but you have a 1.6% of winning, and the payoff for that is about 5X. Doesn't seem like a very good game to be playing. Is my math right? I'm still a bit new to options and part of this is me just checking my logic too. I guess if you had some insight on when the SP500 might drop, that could help, but i found that to be negligible (again when sp500 10 year pe is over 20, you still only see a 10% monthly drop in about 2% of the months).---Furthermore, it sounds like taleb is not very picky about when he buys the options, he pretty much buys them all the time (not just when the market is high). Thoughts?

http://www.metrics2.com/blog/2006/12/05/richest_2_own_half_world_wealth_bottom_50_own_1_un.html $125 trillion in 2000 according to that website. atleast that is one way to measure it

Everyone keeps talking about stagnation in the United States since 1948. I don't see evidence of this at all. Could someone please back this statement up. In fact all the data i've seen suggests that exact opposite. The US and a few other industrialized nations have grown 2% real on a yearly basis for the past 200 years, and since 1948, the US growth rate has also been 2%. I think there is a lot of theory here without much basis in reality.

why is a bunching of the world together a bad thing? In an absolute sense, i see no reason why the US will stop growing 2% real on a yearly basis. other countries may grow quicker but will eventually level out with the US and grow themselves at 2% a year Comparing the dark ages (with essentially 0% gdp growth for a few centuries) with todays world (2% yearly growth) seems unfair. Just because the US will drop in relative status, we will all be living better in 50 years in an absolute sense. So what if india or china are also doing well. Also, if the "dominance of the state" is really happening or is such a bad thing, why does GDP growth continue to grow at 2% a year? (furthermore, all the big governments like France and England who everyone says are way to big, those countries have essentially the same gdp per capita growth rate over the past 200 years as the US).

I usually try to keep up with his and charlie's book recommendations, and i found one that i had not heard mentioned before on any buffett/munger list. From http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aeFpqxqAMwwo he says he recommends "a biography on abraham flexner" (in a video in 2006 buffett also said he read a biography of flexner 3 times...so he obviously likes the book) looking through amazon, i assume this is the book, but am not quite sure http://www.amazon.com/Iconoclast-Abraham-Flexner-Life-Learning/dp/0801871247/ref=reg_hu-wl_item-added anyways, thought i'd pass it along

thanks for all the great replies. Definately sounds like an interesting situation. in response to net net's question of how much to allocate... i think that largely depends on your situation. If i was running a portfolio of other peoples money, i would allocate much less, but for me... I'm in my 20's and if i had lets say 100K i would not have a problem allocating 30K to that one trade, if the payoff was 40:1 and the risk of loss was 50/50. I know that sounds risky, but after reading up on ericopoly's logic as to why he bought, i have to agree with him. If i lose 20-40K, it really only sets my retirement back a year or 2...If i win $1 million, i am ahead by atleast a decade...If you play enough bets with those odds, and don't risk your entire net worth on any one bet, you will be very rich. trick is to find even 1 or 2 of these kinda bets in a lifetime. i doubt they occur more often than that

I should have clarified, specifically i was wondering about the call options with expire dates 1.5 to 2 years out. I'm still learning about options, and the only ones i would really consider would be the longer time table options...even then it would have to be great odds. Something like ericopoly said...20 to 40X payout if stock reaches atleast 80% of my fair value estimate within 18 - 24 months. I imagine those type of odds were only available when wfc was below $13 a share for a few days (they may never have reached those odds) but i was just curious anyways This is just a guess scenario but imagine WFC was trading at 13, strike price of 23, 18 month call options available for around 40 cents might be somewhat interesting. but even then nowhere near the odds that FFH was at in 2006.