Comments on: Wall Street Myth – "Invest Early"

By: Jae Jun

Jae Jun — Mon, 07 Jul 2008 23:26:44 +0000

Interesting question. I’m not sure of the exact answer, but I would think that since the SP500 is an index of the 500 large cap US companies, if you could calculate the intrinsic value for each company, you could come to an answer… or if we look at it with the Dow side by side, we could probably deduce that both were above their intrinsic values when the Dow was at 14,000 and 11,000 would be a fair to cheap price.

By: Luis

Luis — Mon, 07 Jul 2008 21:28:21 +0000

Question: How do you calculate the intrinsic value of the S&P 500 as “Value Investor” suggested in his post?

By: Jae Jun

Jae Jun — Sat, 16 Feb 2008 12:28:23 +0000

Personally speaking, I’ve missed out on a lot of opportunities and will definitely miss out on many more. However, sitting on cash allows me to deploy it at any given moment when a lip smacking opportunity comes along.
The rising market sure makes finding hidden gems tough though. But you also want to make sure you are not buying a company that looks like a gem when the market is rising, but are left with a muddy rock once the tide is out. Much like the irrational behaviour during the dot com bust.
Everything you say is definitely true. I don’t really believe there is a right or wrong as long as you invest wisely and don’t become a sheep or a fool. The only thing I do believe is that Wall Street does not offer the best or honest advice. They just want your hard earned money.
I believe investing to be highly customised. Just build a sound foundation and then customise it to suit your lifestyle, character and temperament.
Had Buffett just continued on with a Graham style on investing, he sure wouldn’t be the man he is now.
Thanks for the thought provoking comment. Enjoying all of it.

By: Value Investor

Value Investor — Sat, 16 Feb 2008 08:26:37 +0000

You are right. The most Value to be found in stocks would exactly be the time when the overall market would be down.
But, here’s the counter argument to that.
You invest in individual stocks because you, after careful analysis, have come to the conclusion that the stock will beat the market. So, it always makes sense to move your money from the market to that individual stock.
Let’s say S&P 500 is below 10% intrinsic value. It is exactly at this stage where you find stocks trading below 50% MOS and you would have no problem making the trade.
Also, remember, When do you think there would be no value stocks? When the market is going up and up. This is the exact time where you want to be invested in the market.
Sure the market may go down 20% from the peak at this stage, but you would have enjoyed a good run and certainly would have performed better than Money Market.
I’m not suggesting timing the market here. Just the nature of parking your money in S&P500 instead of money market naturally aligns with Value Investing(Just like automatic re-balancing sells overvalued assets and buys undervalued assets). After all, on average S&P500 beats Cash holdings
PS: Cash means Risk-Free-Rate (or a 10 Year T)
PPS: S&P500 could be an 80-20 Stocks-Bonds mix or 60-20-20 Domestic-International-Bonds mix

By: Jae Jun

Jae Jun — Sat, 16 Feb 2008 06:02:03 +0000

Very good point. There really are too many variables in this example which I should have mentioned, but thanks for bringing that up.
By cash I meant something very liquid and virtually risk free like a savings account, market fund etc. If you have money in the market and the market tanks, I don’t think you would be able to take it out so easily.
The concept was that you don’t have to be rushed or panicked into acting or starting an investment. Maybe the title isnt that great..
Anyhow, Wall Street tells its clients to leave it up to the pros. I say, learn the basics, do a little research a day, or week or month and you can do just as well. No need to jump into anything just because everyone else is or because you are afraid of being left behind. There are literally hundreds of opportunities and you just have to be selective. Otherwise just invest in an index fund.

By: Value Investor

Value Investor — Sat, 16 Feb 2008 03:20:16 +0000

Instead of staying in Cash, why not be invested in the Market itself?
Also, less than 1% of the population have the smarts, discipline and emotion to get oldschool returns.
Also, you have to consider a lot of other things.
i) If you are invested in the Market, you’ll get a sense of Mr. Market early on your career. This is the biggest advantage of investing early. You can’t just start at Age 30 and suddenly understand Mr. Market. You’ll probably have to wait another 10 years to be an master ‘oldschool’ investor.
ii) If you start early you can make all your rookie mistakes early which are less expensive
iii) Late investors are not out there improving their knowledge and waiting for opportunity. Late investors are totally oblivious of any investing.
If somebody can start at age 30 and get oldschool returns, why can’t he start at age 20 and get oldschool returns?
In Summary, if you are destined to be an oldschool investor, your losses are even larger if you start late