The Clueless Investor (1) My Credentials

Posted on May 8, 2010

The Clueless Investor

5/8/2010

Part 1:  My Credentials

            I am what you may call a ‘Clueless Investor’.  
I won’t take any offense, because I know it’s true. I know full well that I have "earned" the absolute right to call myself that, because I have lost thousands of dollars proving my colossal ignorance on all matters relating to stock market investing.  But you know, there comes a point, when the worm thinks:

"Well, f##!k this for a game of soldiers. I may be a worm, but even worms can turn…."

That’s the stage I’ve been at for a while. Defiance. To hell with this.  I am far more interested in other things, but I’m gonna have to take time out to deal with investing. I ain’t no ostrich, and I ain’t gonna stick my tiny head into the sand, ignoring the world, and hoping for the best. Bugger it. Here comes some energy.

So what tiny morsels of wisdom have I scraped up so far? Well, here follows some of my experiences.

A)   Firstly, I’m grateful to my current employer, here in May 2010. Firstly, they have kindly put up with me for six years, allowing me to play with really nice, beautifully maintained, shiny toys. Wonderful. This is a job?
Secondly, they pay 6% into my 401(k). That’s very respectable. They don’t have to do that. Many companies don’t, or contribute much less. It’s nice, and people tend to forget about it, and take it for granted. They only look at salary. They forget about ‘benefits’, ‘contributory 401(K), and ‘stability’.
   
The current principal custodian is "The Hertford."  And there we have some limitations. I suspect our employer has our best interests at heart, believe it or not, (Pilots tend to not make good stock market investors) in strictly limiting our choices within "The Hertford".  Hereafter referred to as "TH". If you call them, as I did, and ask to buy stocks in Hershey, well, they will laugh. You can’t.  You have a limited choice of Mutual Funds. All you can do is transfer your hard earned funds from one pre-approved Mutual Fund into another pre-approved Mutual Fund.
Hmmmm…..
So how well do those funds do? That is a HUGE subject. That also depends on what time period you look at. It’s easy to post a 25 % gain in a certain time period, when you have lost 37.5% in the preceding period.  If you look at the lifetime performance of the funds, it’s pretty disappointing. You will talk to people who have had all their money in Mutual Funds, for years and years, (because they were told "Mutual Funds never go down"), and who have suffered truly humongous losses. $750,000 down to $280,000. Or $300,000 down to $120,000.
There are, on the other hand, those philosophical souls who are of the opinion that:
***     Mutual Funds ‘always come back’.
***     It’s still better than what they could achieve themselves. (this may be true!)
***     You spread your risk.  

I’m a little prejudiced. I base that on some research I’ve done. You can check around, and do it in various ways, but it’s disheartening to find that you have ended up with some fund that is labeled elsewhere, by Research Agencies such as Standard and Poor, in this way:

Historically High risk
Historically Average (or Low) return

Then, you may, as I did, research which stocks are actually held within that fund. And in what percentage. That will perhaps shock you. It did me. It’s really surprising to see some stock positions of companies that are less than exciting performers. And, for all that, you are being charged, say,  1.68%??   2.1%??
And you’re always suspicious… what else are you being charged?
Hidden fees?

Nah…. surely to goodness, I can do better myself?

So then you end up like me, thinking, "Time to roll my sleeves up!".
"I’m gonna buy some stocks myself."
Yeah, right. It’s not that easy…

B)    Once again, thanks to our employer and benefactor, we do have the option to open a trading account with Schwab. I did it, a few years ago. It’s not hassle free. Our company kindly makes that facility available to us, which is good of them (they write the rules for the 401K, remember), but I’m not sure that the folks at TH are very excited about it. Certainly, I had a gentleman on the phone who tried hard to talk me out of it. Then there were some more hassles, paperwork, affidavit. But I got through it all.
Then I was told I could only transfer 50% of what I was holding in TH to my Schwab brokerage account.
That meant liquidating 50% of my holdings in Mutual Funds. Were they sold at the right price? At the best moment? Were there any fees taken out by the TH? Did they have my best interests at heart? Or was it just a profitable trade for them? I have no clue, and I make no judgment.

Next, I wanted to transfer 100% of my bi-weekly contributions to my Schwab brokerage account. In other words, both my bit and the company’s 6% contribution. No, I was told, I can only transfer 50%. The other 50% MUST stay with TH. I protested. I called the advice line. The advisers which our employer very kindly pay to advise us. I actually didn’t get anywhere. I had two really strange conversations, where I was getting pat answers to questions I didn’t ask. Confusing. Back to TH again. Spoke to a different gentleman. He said it was "no problem", and from then on in, 100% of my bi-weekly 401(K) dollars have gone into my brokerage account….
     
C)  So now I had cash in Schwab. Guess it’s time to go and buy stocks.
                    Whoopty-doopty…
But there’s a problem. Duh… which stocks?

Yeah… errrr….. double duh…..

Francis


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