For Young People..This is what you NOT do while investing

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Re: For Young People..This is what you NOT do while investin

Post by Valuethinker » Mon Jul 30, 2007 9:48 am

marco100 wrote:

But this strategy is actually reasonably consistent with Taleb's black swan/barbell strategy, isn't it?

If your asset base is minimal, as it is for most young investors starting out, then you don't really risk much by looking for a black swan event, and your gains could be outsized.
Reading Mandelbrot, both his book (Misbehaviour of Markets), his article in the Financial Times and what Maoboussin says about him, I thought the basic point was that days of outsize positive and negative return in stock market were much more common than the Gaussian distribution would predict. And which asset (or stock) will perform is even more unpredictable than you would predict (ie there is a Google out there, and you need to have even a fractional share ownership in it, to keep up).

The implication for a young investor is that you have to get that $2000 into a TSM ASAP. Because you mustn't miss those 50 market trading days in the next 30 years that will dominate your returns.

(I wish I'd known that at 20!)

The difference of being in the market, on those 50 days, v. not, over 30 years is something like 4% pa compounded (I'd have to look it up).

It is also true, as per Zvi Bodie, that the longer you are in the market, the higher your risk. Risk doesn't fall over time. *however* when you are young, you have more human capital, so you can recover.

I haven't read Taleb (the first book made some good points but was very irritatingly written) but that is the conclusion I derived from Mandelbrot (who invented Fractal Finance).

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re: pkcrafter

Post by spangineer » Mon Jul 30, 2007 3:00 pm

pkcrafter wrote:Now, who is going to send this discussion to Cliff Mason?
That email link is handy; I just sent him a highly condensed version of this discussion to him, from one twenty-something to another. Will it make a difference? That's about as likely as hitting it big with his speculation "investments", I suspect...

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Taylor Larimore
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The cost of waiting

Post by Taylor Larimore » Mon Jul 30, 2007 3:59 pm

Mr. Mason:

Assuming your read this, you need to know the facts:

If a young investor age 25 invests $4,000/year @ 10%, at age 65 he/she will have $1,947,407.

If a gambler waits until age 35 (and losses), he/she will have $733,774--less than half.

Investing for retirement should not be a gamble.

I hope you will apologize to your readers for making a serious mistake--and write a corrective column.

Best wishes

Taylor Larimore
Miami, Florida

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Post by thehumangame » Mon Jul 30, 2007 6:47 pm

Come on, if you're going to take higher risks then at least take risks that come with a higher risk premium. -.-

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Post by 7Enigma » Fri Aug 17, 2007 7:30 am

The big problem I have with this article is the emphasis on the dollar amount being contributed and the work that went behind that dollar amount. When I was in my early 20's I had about $2500 to invest, chose 2 very promising stocks (1 a dollar stock and the other a ~$15 one). One did poorly and I sold and invested in the other, the other I lost everything. Now to the writer of the article it was only $2500, no biggie. I'll just make that again and try something else.

The problem was that $2500 when I was in college and working at a computer store was about 4-5 months of savings. That money, though small, was worth much more than the dollar amount. I was crushed, CRUSHED when I lost it all.

And the horror of losing that kept me out of the market until about 2004-2005 which caused me to miss the market runup. Fortunately I finally saw the light and began investing the diehard way.

So while the absolute dollar amount might be low in your 20's, the actual WORTH behind that money is often much higher.

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