The Online Investing AI Blog

Last week I read The Ivy Portfolio by Faber and Richardson. Before I tell you about it, let me share with you one incredible resource.

I found out about the book from an awesome site that you really need to check out: dshort.com. I was so impressed that I immediately added it to the blogroll. What’s so great about it? It is easy to understand, offers outstanding content, and has great charts and graphs. I’ll be writing about it extensively in a future post.

Back to The Ivy Portfolio. It explains how Yale and Harvard endowment funds have outperformed the market and had consistent returns for 23 years (ending in 2008). I think that is pretty useful information. And, thanks to the great writing, you don’t need a Ph.D. in mathematics to understand it. It is actually very easy to understand and replicate the strategies.

How good is outperform? Yale returned an average of 16.6% per year. Harvard did 15.2%. Not bad for such a long period and two major market crashes. What is their secret? Did they have 100 Ph.D.’s working for them?

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After reading this article about a possible rocky future for the U.S. (and world) economy, I wondered how many people are prepared. What would you do if we had another depression? What would you do if we have hyperinflation and the dollar becomes worthless?

Are You Ready?

I have mentioned it many times before. Depressions tend to happen once every 80 years. How long has it been since the last one? 80 years. Thanks to crowd psychology, once everyone has pretty much completely forgotten about the last one, the next one can start. Good times come and good times go. Economics happens in cycles. Read more…

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After reading this article on Forbes.com, I feel like the writing is on the wall, and I have posted about it before. The government’s massive spending may not have been enough to turn the economy around. It was enough to delay the destruction, but in doing so only makes it worse.

Many people who bought houses in the last year thought that they could get a free $8,000 just by buying a house. Hate to break it to you, but it’s not that simple. The reason the government was giving away the money was in an attempt to prop up the housing market. The only problem is that it was unlikely to work.

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jasonlam @ Flickr

Dyslexia is a reading disorder. In most cases, letters appear backwards, or inverted, or just blurry.

This disorder makes learning far more difficult, but it has nothing to do with intelligence. There’s a lot of processing power in the brain of someone with dyslexia, but the data just ain’t getting there–to use a common analogy. Folks with dyslexia just need new learning strategies to overcome the condition.

There’s another type of dyslexia–investing dyslexia. Investing dyslexia is an inability to understand investing signals. They, too, get jumbled and blurry. In worst cases, these signals become backwards.

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Many people think that gold is expensive now, that it has gone from $400 per ounce to $1,100, as of this writing. That is an increase of nearly 3 times. However, if we consider the historical price of gold, it does not seem very expensive.

Here’s an example. This chart shows the price of gold in relation to the S&P 500 index. The S&P has risen from a recent low of 683 in 2009, to 1,160 today.  However, gold has appreciated much more than the S&P since 2001, when the current gold trend began.

S&P 500 Divided by Gold Price

What does this tell us about the future of gold?

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Investing, Money, Success, US Economy boom, bubble, bust, commodities, education, financial responsibility, gold, Investing, real estate, silver, Success

Automated Trading seems to be gaining popularity on a daily basis. One common question is,

Can Automated Trading be used to generate passive income?

The answer is a resounding yes. However, that does not mean that you can set it and forget it.

Many people meet with a financial advisor, buy some mutual funds, and then forget about their entire investment portfolio for months or years. This is not a good idea.

Millions of would-be retirees got an unpleasant surprise when they checked their retirement accounts three months ago. It’s true that the markets have come back quite a bit in the last few months, but it does not mean that an important lesson can be learned: we need to manage and keep track of our investments. They cannot be offloaded and forgotten about like housework.

I saw a news show that featured an middle aged woman crying because she had lost 50% of her life savings. She lamented, “I was afraid to check my statements so I didn’t open them. But then when I finally checked, they were down by half.”

This is not a good strategy for retirement. If we are going to be successful money managers and retire wealthy, we need to actively manage our finances, and our retirement accounts.

And Automated Trading systems require monitoring in the exact same way. It does not take a lot of time or effort. Just a few minutes per day is probably enough. The important part is to commit to managing our finances so that we can achieve the financial freedom that we have earned.

This is true of nearly all forms of passive income. Contrary to popular belief, most passive income is not 100% passive. It normally takes at least a few hours per month to manage most forms of passive income. This includes mutual and index funds, real estate and stocks. We need to monitor what is going on with our investment, and make sure that we are receiving the income that we are supposed to receive.

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Many investors have breathed a sigh of relief because the stock market has made a significant rebound. But there is one small problem.

What is driving the massive rally of the last few months?

Consider the graph below:

This is a chart of the NASDAQ leading up to the crash of 2000. It’s been nearly 10 years now, so most people have forgotten what happened. Perhaps it is precisely that we forget that causes history to repeat itself.

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Investing, Success, US Economy depression, indexes, NASDAQ, real estate, recession, stock market, tech boom

During a recent talk with a real estate lawyer, I received some surprising news.

According to the lawyer, with interest rates at historic lows, business has been buzzing. In fact, he and his assistants are working seven days a week and the closings are still backlogged. That’s the good news.

Here’s the bad: the industry went through massive layoffs during the recent downturn. Some former employees have drifted into new jobs and it’s almost impossible to re-train new workers in time.

And, it’s not just refinancing (that I was in the midst of). About 60 percent of the closings are acquisitions.

This is more good news, right?

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Investing can be a complex art, with many nuances and possibilities. You can invest in real estate, stocks, currencies, businesses and oil and gas. There are as many ways to invest as there are people selling investments. How can you know what will work for you?

As with most things in life, we really don’t know until we try. Personally, I have invested in stocks, options, real estate, oil and gas, and businesses. Each one is different and has its pros and cons. Real estate is quite simple, and does not require a lot of time and effort over the long term. But it also can be problematic because you have to deal with tenants and fix things. For some people, real estate requires far too much maintenance and therefore not right for them.

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As people gain investing experience, they will have some wins and some losses. If they are buying stocks, they will have some trades that made money and others that lost money. If they bought real estate, they have some properties that are profitable and problem-free, and others that have little cash flow but provide an endless supply of headaches and problems.

Once people have some wins on their record they tend to do something very strange. Often they choose not to do what has worked for them in the past. Sound crazy? It is. But it is also part of human nature. We tend to get bored easily, and doing the same thing over and over, eating the same food each meal, and cooking the same recipe each day is a great way to become incredibly bored. So, people like to experiment and try new ideas and strategies.

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