Investing General Discussion

LachiusTZ · Aug 27, 2019

Blazin said:
But consumers are at times in a great position to see something that might be great future growth before the market fully catches on, the chance of this has greatly lessened as companies are staying private much longer robbing the small guy from getting in early.

Yeah you are right. I was looking for something a few years ago, maybe spotify?, and couldnt find it even tho it was fucking everywhere.

I thought it was a product of me getting old, but prolly some portion of that is the companies are staying private longer.

Would be interesting to see it mapped out, 30yrs ago, 15 yrs ago, today, for high value picks and what they were worth when going public etc.

sleevedraw · Sep 7, 2019

Sanrith Descartes said:
A couple things...
About bonds. I advise being wary of investment grade bonds. There is a truckload of corporate debt right now. A lot of it is one grade above junk status. There is a sentiment that a good 25 -35% of that investment grade could take the downgrade to junk in the near term. Bonds that arent Treasuries need to be viewed with skepticism.

When looking at global-ex US, not all sectors are the same. Developed world (Europe/Canada etc) isnt Emerging Markets. Non-US markets are in a tailspin from a Macro perspective. If you dont own it already I might think twice about dipping your toe in. 6-18 months from now you can buy global ETFs at bargain basement prices.

Can someone give me a primer on bonds? I know the fundamentals, namely that longer term and lower quality generally mean higher risk/higher reward. I know that bonds usually get hammered in rising interest rate environments. I did read an article by Gundlach echoing what you're saying, namely that a lot of the investment-grade stuff will be downgraded to junk when the market takes a downturn. Beyond that, though, things are sort of fuzzy.

For example, what is the difference between a GNMA and a Treasury bond? If I'm a passive investor and just want a single bond fund to set and forget in my Roth, what kind of fund should I be looking for? Intermediate-duration Treasuries?

Blazin · Sep 7, 2019

sleevedraw said:
Can someone give me a primer on bonds? I know the fundamentals, namely that longer term and lower quality generally mean higher risk/higher reward. I know that bonds usually get hammered in rising interest rate environments. I did read an article by Gundlach echoing what you're saying, namely that a lot of the investment-grade stuff will be downgraded to junk when the market takes a downturn. Beyond that, though, things are sort of fuzzy.

For example, what is the difference between a GNMA and a Treasury bond? If I'm a passive investor and just want a single bond fund to set and forget in my Roth, what kind of fund should I be looking for? Intermediate-duration Treasuries?

When thinking of bonds break into two large groups, govt debt vs corp debt. Both are sensitive to interest rates but corp bonds tend to correlate to equities while there is a reverse correlation between treasuries and stocks. This is why 50/50 portfolio's are quite popular because they remove much of the volatility of holding just equities and soften the blow of large down turns as people flee to the safety of the govt debt.

The best way to do what your asking if you don't want to be managing your retirement funds is to set a target retirement fund so that the balance of stocks/bonds adjusts for you as you age and does so with very broad low cost indexes. Vanguard and Fidelity offer the best choices that I'm aware of, Schwab probably does too but I haven't look much at them. If you don't have a target fund available then you want to go with a total bond index or something similar. I'd have to know which company you are with to tell you more clearly based on choices.

To your other question GNMA is government back mortgages where treasury bonds are direct federal government borrowing. How they perform vs each other is a matter of duration (length of bond) The longer a duration of a bond the higher it's volatility to interest rate changes. I believe mortgages are normally around a duration of 4-5 (people may think 30yr mortgages would be more but people don't hold them for anywhere near that on avg) so a 20 yr treasury (TLT) would be more volatile than MBS (VFIIX).

Keep in mind that treasuries are currently in the biggest bubble of our life time and are horrifically overbought, any retracement to the mean in the coming months could see significant capital losses (10-20%). I would reiterate that a single target retirement fund is probably the best set it and forget it option. Assuming you are near the average age of this board Vanguard Target Retirement 2045 Fund (VTIVX) would be such an option.

Sanrith Descartes · Sep 7, 2019

Blazin covered it pretty well. The only thing I'll add is to mention that long term bonds dont make them riskier in the normal sense. The risk comes in tying up your money long term at a specific rate and the interest rates go up. So long term debt has interest rate risk.

sleevedraw · Sep 7, 2019

Blazin said:
When thinking of bonds break into two large groups, govt debt vs corp debt. Both are sensitive to interest rates but corp bonds tend to correlate to equities while there is a reverse correlation between treasuries and stocks. This is why 50/50 portfolio's are quite popular because they remove much of the volatility of holding just equities and soften the blow of large down turns as people flee to the safety of the govt debt.

The best way to do what your asking if you don't want to be managing your retirement funds is to set a target retirement fund so that the balance of stocks/bonds adjusts for you as you age and does so with very broad low cost indexes. Vanguard and Fidelity offer the best choices that I'm aware of, Schwab probably does too but I haven't look much at them. If you don't have a target fund available then you want to go with a total bond index or something similar. I'd have to know which company you are with to tell you more clearly based on choices.

To your other question GNMA is government back mortgages where treasury bonds are direct federal government borrowing. How they perform vs each other is a matter of duration (length of bond) The longer a duration of a bond the higher it's volatility to interest rate changes. I believe mortgages are normally around a duration of 4-5 (people may think 30yr mortgages would be more but people don't hold them for anywhere near that on avg) so a 20 yr treasury (TLT) would be more volatile than MBS (VFIIX).

Keep in mind that treasuries are currently in the biggest bubble of our life time and are horrifically overbought, any retracement to the mean in the coming months could see significant capital losses (10-20%). I would reiterate that a single target retirement fund is probably the best set it and forget it option. Assuming you are near the average age of this board Vanguard Target Retirement 2045 Fund (VTIVX) would be such an option.

Thanks.

I'm a pretty passive investor, but not so passive that I want a target-date; I usually do a yearly rebalance/fund swap. I guess what I'm looking for is one or two bond funds that I can pair along with my equity portfolio. If it helps, my IRAs are with Merrill.

Sanrith Descartes · Sep 8, 2019

sleevedraw said:
Thanks.

I'm a pretty passive investor, but not so passive that I want a target-date; I usually do a yearly rebalance/fund swap. I guess what I'm looking for is one or two bond funds that I can pair along with my equity portfolio. If it helps, my IRAs are with Merrill.

It's not a great time for bonds with prices sky high. That being said, you need to evaluate your risk appetite. On the Treasury side, TLT gives you long term exposure and SHV gives exposure at the ultra short end. AGG is a one size fits all bond fund with a mix of different asset classes. At the other end of the spectrum you have HYG and SHYG for high yield.

Finally dont discount the notion of buying the corporate and/or municipal debt bonds themselves. Just be warned they are illiquid instruments and made to be held, not traded. It also takes a lot of due diligence but for along term investor owning a Microsoft, Apple, Att bond might be an avenue for decent yield with a strong blue chip company.

sleevedraw · Sep 9, 2019

For those curious about Kip's broker ratings for the year.

Gravel · Sep 9, 2019

It's been looking more and more like the last 30 years were a bond bubble. I wouldn't expect anywhere near the return on bonds that we've had; probably barely beating inflation.

Additionally,

Blazin 's advice is decent, but I would be reluctant to align a target date fund with your actual retirement. This is because even if you go with a traditional retirement, you're probably looking at 20-30 years of returns needed. A target date fund will be way too bond heavy. I would go with one 10-15 years past your planned retirement. Then again, I'm just some guy on the internet.

B_Mizzle · Sep 14, 2019

U.S. Blames Iran for Attack on Saudi Oil Facilities

U.S. Secretary of State Mike Pompeo blamed Iran for coordinated strikes on the heart of Saudi Arabia’s oil industry, saying they marked an unprecedented attack on the world’s energy supply. The strikes shut down half of the kingdom’s crude production, potentially roiling petroleum prices.

www.wsj.com

So, buy oil and energy sector?

B_Mizzle · Sep 16, 2019

So I went in pretty heavy on the energy stuff, hit about 6% increase, but it was weird I put my trades in over the weekend and by the time they were executed this morning I missed the first 9% jump. Le sigh.

Sanrith Descartes · Sep 16, 2019

There is a lot we dont know about the extent of the damage. Some experienced energy players are sitting on the sidelines for now until they have more solid info on how long this can last. If it is very short term this spike will reverse pretty quickly.

The other play could be China. They need this oil. This could hurt them in a meaningful way if this ends up being a long term disruption and we see 90-100 a barrel. I have a long position in XOM and depending on how this shakes out, I might close it and bank the profits.

Sanrith Descartes · Sep 16, 2019

Zerohedge

ZeroHedge - On a long enough timeline, the survival rate for everyone drops to zero

www.zerohedge.com

Springbok · Sep 16, 2019

I'm friends w/ some traders at Aramco and the company line is this will mostly be back online by weeks end/early next week. Think there will be a pretty big correction afterwards, but who knows.

sleevedraw · Sep 16, 2019

B_Mizzle said:
U.S. Blames Iran for Attack on Saudi Oil Facilities

U.S. Secretary of State Mike Pompeo blamed Iran for coordinated strikes on the heart of Saudi Arabia’s oil industry, saying they marked an unprecedented attack on the world’s energy supply. The strikes shut down half of the kingdom’s crude production, potentially roiling petroleum prices.

www.wsj.com

So, buy oil and energy sector?

Peter Zeihan is probably laughing his ass off right now.

B_Mizzle · Sep 16, 2019

Springbok said:
I'm friends w/ some traders at Aramco and the company line is this will mostly be back online by weeks end/early next week. Think there will be a pretty big correction afterwards, but who knows.

Yeah I think SA will be trying hard to get up and running quickly. My basic understanding is that any slack in SA production is taken up by US shale and once it moves it stays moved.

splorge · Sep 16, 2019

sleevedraw said:
Thanks.

I'm a pretty passive investor, but not so passive that I want a target-date; I usually do a yearly rebalance/fund swap. I guess what I'm looking for is one or two bond funds that I can pair along with my equity portfolio. If it helps, my IRAs are with Merrill.

If you are ok with ETFs, BND (if you are american) or LQDE.L (if non american) are fine in my opinion. As mentioned above, bonds are used to mitigate portfolio risk at the cost of long term returns. A portfolio with a 70/30 stock/bond split will benefit from a full standard deviation of risk lower when compared to a 100% stock portfolio, at the cost of approximately .5% CAGR.

To some, .5% is a lot, to others its worth the cost for the decreased risk.

Springbok · Sep 17, 2019

B_Mizzle said:
Yeah I think SA will be trying hard to get up and running quickly. My basic understanding is that any slack in SA production is taken up by US shale and once it moves it stays moved.

Indeed

Zerohedge

ZeroHedge - On a long enough timeline, the survival rate for everyone drops to zero

www.zerohedge.com

Brent already down 5% today to $65/bbl

Sanrith Descartes · Sep 17, 2019

Beat me to it. And this is why some of the energy traders I know said they were sitting on the sidelines. They didnt have enough info to hedge it correctly.

Sanrith Descartes · Sep 17, 2019

This couldnt have worked out better for us if the CIA themselves had put this whole thing together...

TomServo · Sep 17, 2019

It's really a fascinating time from a international economics perspective. We are at a full world trade war with china and partially with Iran, so china has committed 400 billion to iran over the next 25 years, yet this attack on the saudi oil refinery, places China in a super tight spot, and just makes me laugh that we are selling oil to them directly out of i assume their reluctance to keep going hard with Iran on oil.

Investing General Discussion

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