Tag ETF

Posts: 18

Morgan Stanley Layoffs, VTI keeps climbing

Yesterday Morgan Stanley announced a 2% reduction in workforce across the entire organization. It's citing an "uncertain global environment." That's a code word for "recession" if you ask me.

The job cuts at the investment bank, the world’s biggest equities trading firm and a leading mergers advisor, will hit technology and operations roles hardest, said the people, who declined to be named. New York-based Morgan Stanley had 60,532 employees as of Sept. 30. via CNBC

Or it could just be they don't want to pay all those bonuses. Either way, you don't lay off in good times. You usually hire to keep the party going. It's when the party is winding down that you start kicking people out.

That said, Vanguard's Total Market Index (VTI) is still charging higher. There's a bit of a top forming in the daily chart but I suspect the party will continue.

VTI Weekly Chart, 12/09/2019

“As long as there is still room for pushing the market interest rate down further, the chances are reasonably good that the boom continues, and that the bust will be adjourned into the future... via MarketWatch

Of course, the market is still going up so it will continue to go up. Until it doesn't. Usually I'd be scared of all this "market going higher" and "bust will be adjourned into the future" talk, but I'm not. The market's going to do what it's going to do and not a moment sooner! I tried market timing and all that jazz, only to realize that doing less = more gains for me. Strange how that works, but it appears to work just fine.

Granted, I don't have any holdings in VTI (maybe one day when I consolidate all my retirement accounts) but it is an impressive ETF. Especially if you look at the expense ratio. It's only 0.03%!

VTI Expense Ratio, December 2019

If I were to invest in this ETF I would split up my money into equal parts and dollar cost average in. Keep your transactions costs and expenses low. If you can't, then ditch the ETF for the VTSMX mutual fund where it probably won't cost you anything to cost average in or reinvest dividends. Passive Investing remains King in my book.

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Vanguard's Total Index ETF - VTI

VTI, 5/31/2019, ETF

I recently picked up the late John Bogle's book, "The Little Book of Common Sense Investing" and I plan on reading through it despite knowing the basic jist of it. Bogle was famous for creating the low cost index fund and the main thrust of his argument is keep expenses low and diversify into indexes. He started the Vanguard Mutual Funds and is the king of passive investing and many people got rich off his philosophy.

I like the idea of doing less in the markets and actually listening to the markets. This is why I also liked Ray Dalio's "Principles: Life and Work" book and W. W. Norton's "A Random Walk Down Wall Street." Both books have had (are having) a profound impact on how I see and what I do in the markets. Over time I've put more money into funds and ETFs and less into individual stocks. Do I own AAPL and MSFT? Sure, but they are a tiny fraction of my holdings. Most of my money is in mutual funds and retirement accounts and doing quite well.

You need to spend money to make money

How I hate that saying. I used to believe that you had to spend money to make money. Leverage debt and spend so that in the future you get back more money. Little do they tell you that its best to actually have money coming in first before you take on debt. Then it makes sense. However, stupid younger me fell into this trap and racked up debt in my early years. It wasn't until I met my wife that I learned how to properly manage debt and how to actually earn money if I was running a business.

The same principle applies in trading and investing. The more you trade, the more you make your broker rich. Granted, trading costs are very low now, I pay $7 per trade but that means I can't dollar cost average in without having to pay $7 every time. For $7 I still can find a modest lunch these days, so that sum is nothing to sneeze at in my humble opinion (IMHO).

The best route, and I've written about this before, is to invest in diversifed funds or ETFs with low expense costs. That's been the consistent way I've been building my wealth and it should be your way too.

VTI

I posted a weekly chart of VTI above, one of Bogles's greatest inventions. Since inception VTI has made a return of 7.11% vs the market's 7.13%. I'm not quibbling because it's expenses are a mere 0.03%. Right now I'd have to buy the ETF to get into this 'fund' because the mutual fund of the same name is currently closed. So paying $7 to buy this ETF isn't ideal because of the fee you'd have to pay each time you want to dollar cost average.

For example, if you dropped in $1,000 each month for year, you'd be paying $84 in trading fees (assume $7/trade). Which is ok I guess considering you end up with about $12,472 dollars at the end of the year @ 7.11% rate of return. Roughly speaking, you'd have spent 17% in trading costs to make $472. In essence, your net profit BEFORE the expense ratio of the ETF would be $388.

There you have it, the expenses will eat you alive.

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Revisiting FXI from 2007

Back in 2007 I thought I had a great trend following system. I was feeling pretty smug about the direction that my AI trend models were giving me (because it was up). Little did I know that I was just lucky. The markets were trending upwards and I was riding their coat tails. So it's fitting that to revisit my FXI calls from 2007 and see where are they now.

FXI then

Back in 2007 I made at least two posts about FXI. I posted this chart and noted that the trend remains still up. FXI was trading around $115 per share.

FXI, 5/12/2007

A little bit later in 2007, FXI split 3:1, so the price got cut by a third. For today's argument, assume the split happened at $115 (it was a bit higher than that).

FXI now

Today FXI is trading at $39.93, which is just over $1 higher than if FXI split at $115. So it did a whole hell of nothing over 12 years. If you look at the chart, it's been nothing but a roller coaster. Up, then down, then up, etc.

FXI, 5/27/2019

Sure you could've picked up some FXI at the bottom of 2009 but who knew it would recover? Sure you could've picked it up when it touched $30 a share a few times over the years but maybe it would've gone lower.

What moral?

What's the moral here? I don't think there is any except that dollar cost averaging is good and buying when people are scared is better.

Seriously though, dollar cost averaging is WAY easier than buying when people are scared because sometimes it's better to stay out of their way. No one wants to catch a falling knife, now do they?

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EWM Redux

Just a few days ago I found some old Neural Market Trends posts that I archived when I switched between blogging platforms. These were mostly about my Stock and Forex trading using AI (aka Machine Learning). While I was more lucky than right w.r.t. to AI in a strong trending market, the posts serves as a good reminder of the longterm investing strategy.

Woulda, coulda, shoulda.

I traded the EWM ETF back in April 2007. You can see it was in a nice upward trend and was trading last at $11.80.

EWM, 04-25-2007, Trends

Now fast forward just over 12 years and today it's trading $28.51. Note: It was a lot higher than $28.51 a few months ago.

EWM, 05-17-2019, Trends

If it had been AAPL or AMZN then I would've told everyone what a genius I was.

Buy and Hold

Essentially I would've more than doubled my investment over 19 years if I just did a 'Buy' and Hold.' Would it have been risky to buy one ETF or stock over the course of 19 years? Of course. If it had been GE or Ford, well then I'd be kicking myself. If it had been AAPL or AMZN then I would've told everyone what a genius I was.

Buying ETF's would been smart here because they're diversified across a specific sector or group. If I had been really keen on Malaysia for the long term, then this would've made sense. Ideally I should've bought some broad based International ETF like Vanguards VXUS or the similiar.

Woulda, coulda, shoulda.

It's no use crying over this, the right thing to do is get started now. Find some great low cost ETFs and buy 100 shares in an IRA account. Can't afford 100, then buy 20. The only winning strategy is to do less in the markets and keep your costs low.

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iShares MSCI Japan Index - (EWJ)

EWJ Returns Histogram

I decided to take a closer look at iShares MSCI Japan Index (EWJ) ETF today because of the "carry trade" issue. Investors of the past three years made a good return investing in EWJ. That's probably due to the carry trade firing up the Japanese export machine. This is good news for the Japanese people as they start to claw their way back from a decade long recession.

My long term outlook for the EWJ is a bit negative though, even if the odds are in our favor from the Monte Carlo Simulation. The Yen will likely appreciate over time as the BOJ raises rates. This will ultimately slow down the export machine and cause EWJ to take a hit. When this will happen is anyone's guess but based on my experience we'll know when the carry trade unwinds in a hurry!

What would Soros do? He'd probably be short the USDJPY pair right now, I know I would if I had the capital to stick it out.

EWJ, 07/07/2007

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Neural Market Trends is the online home of Thomas Ott.