10:58 AM
Sparky: are you truly making boxes?
J.D.: No, we’re bitching about stuff.
11:00 AM
Sparky: gotta get back to rewiring
11:10 AM
Sparky: i made my own mutual fund last night and backed tested it from January 6, 2006
Sparky: it came back with a 30% increase to-date.
J.D.: Nice.
J.D.: GM? MSFT?
Sparky: no, that’s the JD mutual fund
Sparky: 12.3% Consumer Discreationary
Sparky: 8.5% Consumer Staples
Sparky: 11:15 AM
Sparky: 23% Financials
Sparky: 11.5% Health Care
Sparky: 11% Industrials
Sparky: 15% Information Tech.
Sparky: 3.3% Materials
Sparky: 3.5% Utilities
J.D.: This is very, very detailed. Could you not find an existing mutual fund that satisfied your needs?
Sparky: One company from each of those categories
Sparky: those companies were the best of the best for each category
Sparky: Mutual funds in general are too slow.
J.D.: Too slow for what?
Sparky: they can’t buy and sell quick enough to get rid of laggers and add better companies
Sparky: they also don’t tend to return 30%
Sparky: those that do are usually specialty funds
Sparky: and those are not diversified like this one
J.D.: How would your fund have performed over the past ten years?
11:20 AM
Sparky: I didn’t check.
Sparky: but that idea is considered a mistake by Charles Schwab.
J.D.: Which idea?
Sparky: judging a fund by its 5- or 10- or 3 year record
J.D.: He’d rather judge it by its one-year record?
Sparky: no
Sparky: is it diversified
Sparky: does it match your risk tolerance
Sparky: tenure of the manager
Sparky: high MorningStar ranking
J.D.: Ah, right. That I can understand. It’s just that you mentioned the one-year return, which is nice, but seems irrelevant.
J.D.: Why not look at index funds?
Sparky: index funds suck
Sparky: they are intended to match the broad market
Sparky: I don’t want to have my investment to rely on the average of the bad and the good
Sparky: I want the good and the good
J.D.: Index funds outperform managed funds 80% of the time. And over the long term, their record is even better. Index funds have low management fees, which makes their performance even better.
Sparky: I agree.
J.D.: You should see the entry I’m writing for Thursday.
J.D.: Or Friday (can’t remember the day)
Sparky: i pick mutual funds that beat index funds
Sparky: but I want better than just beat
J.D.: It’s based on this.
J.D.: Nobody can do better than just beat over the long term. Unless you’re Warren Buffett.
J.D.: Here’s my current philosophy:
Sparky: a lean individual mutual fund should
J.D.: should, but rarely does…
J.D.: for stocks, invest in index funds (maybe keep money to invest in some stocks)
J.D.: also tuck some into bonds (about which I know very little yet — this is for diversification)
Sparky: Bonds are for retirees
Sparky: more risk!
Sparky: please
J.D.: Well then do real estate.
Sparky: more risk = higher return
J.D.: more risk = more risk
Sparky: thus diversification
Sparky: temper risk with diversification
Sparky: not with built in stagnation like a bond
Sparky: real estate could be a component, but it was not listed as by Chuckie Schwab
J.D.: From my perspective, you’re trying to get things out of the stock market that you can’t realistically expect to get unless you’re working full-time at it and have the natural gifts of Warren Buffett.
J.D.: There are certainly ways to diversify and add risk to your portfolio.
J.D.: Your personal mutual fund is one, and I actually hope that it succeeds. (I’ve been quite pleased that my stock picks over the past year have had such excellent returns…)
J.D.: Phone
Sparky: i think what I am doing is Buffetish
J.D.: If you’re looking to increase risk, then consider real estate. I personally think most real estate — especially in Oregon — continues to be overvalued, but many smart people disagree with me.
J.D.: You might look at precious metals, too. I believe they’re even *more* overvalued than real estate right now, but again: many smart people think they’re a good buy.
Sparky: like really buying a piece of property
J.D.: If you really want to diversify, look at other investment types.
J.D.: Yes, like really buying a piece of property.
J.D.: I’ll admit that I’ve been watching my neighborhood for deals. There was a home for sale up the street that I would have loved to purchase, but it was way overpriced at $150k (it was a piece of junk). And I want to get all my debt eliminated before I start messing with non-stock investments.
Sparky: haven’t you watch Flip This House on Discovery or TLC
J.D.: No.
J.D.: I don’t watch TV!
J.D.: (I watch some shows, but I download them from iTunes.)
Sparky: Maybe on You Tube
J.D.: Good point. There’s something else I’m supposed to look for on YouTube. I’ll have to add this to my list.
Sparky: not really
Sparky: flipping a house looks easy on tv
Sparky: are you familiar with the concept
J.D.: Sure. Here’s how not to do it.
11:45 AM
Sparky: the tv show makes it look so easy and you don’t have to be handy
J.D.: I have mixed feelings about flipping. I’m sure it’s possible to make money at it, but I suspect that like Case in the site I linked above, many (most?) people fail to profit.
Sparky: just subscribed to having a text message sent to me when a web site is updated
J.D.: What’s more, it is not a value-added service. By which I mean, flipping inflates housing prices without adding commensurate value to the economy. I think this is immoral. (This is a half-formed opinion, so don’t hold me to it. )
Sparky: making money is almost immoral in its practice
Sparky: just ask marx
J.D.: Ha! Now you’re getting into nitty-gritty philosophy. What would Adam Smith say? What about Ayn Rand? Rand would say that *not* making money is immoral.
J.D.: (I don’t necessarily agree with Rand, but her ideas sure are fascinating — you should read her.)
Sparky: i am with ayn
Sparky: we live in a market economy, might as well partake
J.D.: I think it’s a vast, complex social system, and there’s no one right or wrong answer. I don’t believe making money is evil, but I certainly don
J.D.: oops
J.D.: don’t condemn social programs designed to help the poor. (Nor do you, I suspect.)
11:55 AM
Sparky: I should go play family
Sparky: i will check back later
J.D.: k

This article is about Interviews, Investing