zittiblog.com

If you’re widely considered the greatest investor to ever live and you’re getting interviewed by CNBC about what the “average investor” should be doing with his money, how do you respond. Watch “Mad Money with Jim Cramer” every night… haha, not likely. What you would think the answer is likely that you should buy shares in Berkshire Hathaway. Well, it wasn’t (and even if it was, coming up with that $103,800 for one class A share can be tough for some of us poor folk). Even the best “stock picker” to ever live, The Oracle of Omaha, responded to that question saying that he should buy and hold low cost INDEX FUNDS for long periods of time. Thanks yet again to my favorite investing podcast, I invite you to click the play button and listen to the answer for yourself.

And speaking of “Mad Money” and “The Answer”, once again I must give mad props to the “Mad Money Machine” for yet another awesome podcast. Index funds are a bloody boring subject, so much less sexy than stock day trading and big money fund managers. Yet for 56 episodes, Paul manages to make the topic entertaining. Check him out at the http://www.madmoneymachine.com.

“Buy them and hold them for decades and you’ll do fine” says the Oracle. I like another quote that came later in this episode of the podcast when the point was made that “Market returns are superior returns.” We seek out big money brokers and managers, crazy guys on TV shows screaming BOOOOYYAHH!, etc., etc. all in hopes of earning better returns than the market (since earning market returns is so bloody easy). Yet somehow, on average we manage to earn between 1/2 and 1/3 the return of the market after expenses. There is no theory to any of the big return theories. And so… I must agree… that clearly the data shows that market returns are superior returns. Now get that money out of crap and into low cost index funds, then hold them for decades!

When I was a kid, the worst day in P.E. was the 20 minute run. Most of us really disliked the 20 minute run. Really disliked it. Essentially, we had to go run around the track for 20 minutes and get a popsicle stick each time you passed the start line. At the end of 20 minutes you had to report the number of laps you ran by counting the popsicle sticks. Well, a few people could actually run in jr. high and pulled 10-(a maximum of) 12 laps. Real good for 20 minutes…

But not me. For two years I pulled 8 laps in 20 min. My last year I ran my slow little heart out to finally stirke 9 laps. 9 was actually quite respectable but very few actually pulled double digits. I sure as hell didn’t. Well today, I broke 10 laps in 20 minutes. This was on a treadmill so I’m not sure it counts but it felt great. I always wanted 10 laps in 20 minutes, just never had a real shot at doing it. Not bad… I am super happy about setting a personal record of 10 laps I think, breaking my 9 lap set at about 14 yrs old, haha. 11 years later, better late than never/

And if you need some killer tracks to motivate you on past 10 laps, check out Podrunner at http://www.djsteveboy.com/podrunner.html. Just discovered Podrunner but it is killer workout music for sure. Till next time..

When the Lord made Paramedics, he was into his sixth day of overtime when an angel appeared and said, “You’re doing a lot of fiddling around on this one.”And the Lord said, “Have you read the specs on this order? A paramedic has to be able to carry an injured person up a wet, grassy hill in the dark, dodge stray bullets to reach a dying child unarmed, enter homes the health inspector wouldn’t touch, and not wrinkle his uniform.” “He has to be able to lift 3 times his own weight, crawl into wrecked cars with barely enough room to move, and console a grieving mother as he is doing CPR on a baby he knows will never breath again.” “He has to be in top mental condition at all times, running on no sleep, black coffee and half-eaten meals.And he has to have six pairs of hands.” The angel shook her head slowly and said, “Six pairs of hands…no way.” “It’s not the hands that are causing me problems,” said the Lord, “It’s the three pairs of eyes a medic has to have.” “That’s on the standard model?” asked the angel. The Lord nodded. “One pair that sees open sores as he’s drawing blood and asks the patient if they may be HIV positive,” (When he already wishes he’d taken that accounting job. [no offense dan]) “Another pair here in the side of his head for his partners’ safety. And another pair of eyes here in front that can look reassuringly at a bleeding victim and say,”You’ll be all right ma’am when he knows it isn’t so.” “Lord,” said the angel, touching his sleeve,”rest and work on this tomorrow.” “I can’t,” said the Lord, “I already have a model that can talk a 250 pound drunk out from behind a steering wheel without incident and feed a family of five on a private service paycheck.” The angel circled the model of the paramedic very slowly, “Can it think?” she asked. “You bet,” said the Lord. “It can tell you the symptoms of 100 illnesses; recite drug calculations in it’s sleep; intubate, defibrillate, medicate, and continue CPR nonstop over terrain that any doctor would fear…and still it keeps it’s sense of humor. This medic also has phenomenal personal control. He can deal with a multi-victim trauma, coax a frightened elderly person to unlock their door,comfort a murder victim’s family, and then read in the daily paper how paramedics were unable to locate a house quickly enough, allowing the person to die. A house which had no street sign, no house numbers, no phone to call back.” Finally, the angel bent over and ran her finger across the cheek of the paramedic. “There’s a leak,” she pronounced. “I told you that you were trying to put too much into this model.” “That’s not a leak,” said the Lord, “It’s a tear.” “What’s the tear for?” asked the angel. It’s for bottled-up emotions, for patients they’ve tried in vain to save, for commitment to that hope that they will make a difference in a person’s chance to survive, for life.” “You’re a genius,” said the angel The Lord looked somber. “I didn’t put it there,” He said.

There are some things a person just hates to accept. You generally tend to find that in America today, one of those things is Charles Darwin’s Theory of Evolution. The evidence of evolution is overwhelming. Yet it is somehow disturbing to our human hope for the future to think that there may not have been intelligent design, just random events of nature that led to our existence. It is a bleak outlook, but fact of the matter, Evolution (yes, human evolution) is scientific fact… no matter how much you dislike it, it happened.

On a similar note, all of us (including particularly yours truly) like to think that it is in fact possible to beat the market. Whether timing the market or picking stocks, we think there are people (if not ourselves) who can earn higher returns investing in specific stocks than investing in the overall stock market at large through index funds. Well, we can’t. Like evolution, it is an academic fact that essentially no one beats the market over the long run (97% of all professional fund managers earn lower returns than the overall market as measured by the S&P 500 over a three year period, this rises 99% over a ten year period). So, why do we all hold out faith this is possible.

I’ll tell you what makes it especially hard for me. That is the fact I have consistently crushed market since January of 2005 (yes, some serious bragging there, I know). A bit of proof if you take a look at the stock picks I gave in this blog on May 9 of last year: http://www.zittiblog.com/archives/140 and again in this blog on September 2 of last year:
http://www.zittiblog.com/archives/61 and then plot the buy price on those days into some tracking software you will find the following results as of today:

You can see why I have trouble with the theory that there is no theory to picking stocks (as opposed to investing in index funds). The above results show a 34% gain over the period if you would have bought each pick on the dates I blogged them. This compares to the 7% an S&P 500 index fund would have earned. But… the fact remains that there isn’t a theory to picking stocks. The only realistic way for the investor to invest for the best return over the long term is low cost index funds. I will fall over the next several years in all realistic likelihood, just the like big shot you are paying real money to invest your money.

Let it stop, buy low cost index funds, and forget about it. Who has time for stock research anyway? Don’t pick and don’t time. The best time to buy index funds is when you have the money and the best time to sell them is years later when you need the money. And if you want more on the topic of passive investing… check out the excellent podcast The Mad Money Machine over at madmoneymachine.com.

Index fund investing and the theory of evolution… so similar it turns out. And yes, Warren Buffet is in the remaining 1/100th of 1%. Statistics suggest he was just the one that got lucky (tho I still like to think he’s the Oracle).

Well I just finished a quick two weeks down in Phoenix on business. The first week I was down there I was traveling with some others and they kind of talked me into misbehaving. Eating out big meals and such. So I have decided not to count that week and extend my 12 weeks by one. That said, the next week, was my best workout week yet. Lots of running and lots of weight lifting. I was excited to see if I had met my 175 goal despite a poor week when I got back only to find the battery in my scale had gone bad.

Well, I got a new one yesterday, and weighed in this morning at 174.2. Yep, goal met. Around 27 pounds lost in a matter of approximately 9 weeks and about 140 miles of running. This was really a great investment of 9 weeks. I am going to finish my other 3 weeks still, I just won’t be focusing so much on weight now as weight training. Anyway thanks all for the words of encouragement, it really wasn’t even very hard in retrospect. I just needed to quit talking about and kick into gear, gazelle intensity. Also got a couple sections of the CPA exam since last time I blogged. It was totally miserable and I haven’t gotten the results yet but we sure are hoping for two passes cuz I don’t want to do them over.

Wish I could get back into the Phoenix sun for awhile (I would totally live down there 3 months/year if I could figure out a way to swing it) but I am back home for a week then onto DC for a week. Later ya’ll.