道德经 第四十四章 不殆长久

名与身孰亲
身与货孰多
得与亡孰病

是故
甚爱必大费
多藏必厚亡

知足不辱
知止不殆
可以长久

[Translation]

Reputation or character, which is more intimate?
Character or prosperity, which is more supplementary?
Achievement or failure, which is more inferior?

Therefore,
Great love can carry enormous expenses.
Extraordinary reserve can bring deep losses.

Knowing enough is enough can be without humiliation.
Knowing when to stop can be without vulnerability.
Then it will last long.

[notes]

This chapter can be very critical for investors. Sometimes, one can fall in love with a few great stocks. At other times, one can be carried away when loading up extraordinary cheap stocks. Both cases are not long-lasting ways of investing. At the end, both cases can be proven very costly.

[注]

甚爱必大费；多藏必厚亡。这两句对炒股极其重要。对好股票的钟情之甚爱，或者对低价股票的尽情吸纳之多蔵，都非好事。

12 Pillars of Investment Wisdom

John Bogle has established the 12 pillars of wisdom. I have edited them in a simple version here for my own references. One can find the original 12 pillars at http://www.vanguard.com/.

1. Employ common senses in investments.
2. Apply simplicity in investments.
3. Appreciate the compounding power of time.
4. Monitor carefully the risk-return relationship.
5. Diversify in investment portfolios.
6. Notice the management costs of funds.
7. Utilize fully the index funds in portfolios.
8. Stay with mainstream funds in portfolios.
9. Balance btween principle values and income streams.
0. Remember that both good and bad times will pass with time.
1. Believe that the market is wiser than its participants.
2. Have a long-time investment goal.

The Dow Theory Today by Richard Russell

This is a tiny book if judged by its size. I checked it out 2003 from Amazon. Recently I read it to see if there is a great bear market caused by the credit problems in the sub-prime mortgage and bond insurers. Based on my understanding of the Dow Theory, there are no clear signs yet for the primary bear market. Some of the basic points of the Dow Theory are listed below.

One: the Dow Jones Industrial Average has reflected all known information which is related to the market conditions.

Two: There are three simultaneous movements in the average: the primary trend, secondary actions, and minor fluctuations. The primary trends are either the bull market or bear market. The secondary actions are corrections to the primary trends. The minor fluctuations are just noises.

Three: There are three phases in a primary bull market: the value discovery, the earning recovery, and the exuberance. In the value discovery phase, depressed assets from the previous bear market are picked up by value investors. In the earning recovery phase, investors are increasing their bets in the stock market based on the improved business earnings. In the exuberance phase, investors are pouring money into any stock that is going up in prices.

Four: There are three phases in a primary bear market: the diminished expectation, decreasing corporate profits, and the capitulation. In the diminished expectation phase, investors sell stocks due to reduced hopes and expectations of the previous bull market. In the decreasing corporation profit phase, investors sell any stocks that have reduced earning conditions. In the capitulation phase, investors sell all stocks in order to go through the up-coming rainy days.

There are six more basic points dealing with the technical analysis of the average. I think the technical points are just the graphic representations of the above four major points. I have watered through several primary bull and markets in the United States and Asian countries, the major points in the Dow Theory are just like a pre-print of the reality.

This is a book written almost half a century ago. But its visionary observations made by the early market observers are so vividly true.

Intermediate Golf Class

The new golf class at the local community college started for the new semester. The golf class is held at the Chase Oaks golf club. We had three classes already. The class cost is about $150 for 15 lessons. But weather can reduce quite a few lessons.

All these days were very windy. Last Tuesday I was the only student in the class play the 9-hole golf course after the practice session. Today, almost all students played at the golf course at the practice session. The coach was with our group for four holes. After that he went off to find other groups. In my group, there were other two students: Jack and Brian.

Jack said that he might be the oldest student in the class (47 years of age). Brian is in his twenties. Another student Saikuan I knew before the class can play very well. I played with him once at the Ridgeview Ranch. Overall there are about 9 students in the class.

The name of the class is the Intermediate Golf. Since there are not enough students in the class, they merge two classes into one. Students are either registered at the Spring Creek Campus or the Preston Ridge Campus.

Before this class, I had the Beginner’s Golf class the Preston Ridge Campus (actually taken placed at the Plantation Golf Course, about a year ago.

Asset Allocation & Rebalancing @ Vanguard

In general, there are two main investment strategies: trading and investing. Trading is to take short-term profit very often, such as on a daily basis like the day-traders do. Investing is to take a long-term view in profits. Asset allocation is one of the investment methodologies often used for investing.

The is an investment and rebalancing plan anyone may use for accounts at vanguard or at fidelity. Both mutual fund families are excellent choices for lont-term investors.

At Vanguard, an investor is usually allowed to rebalance his portfolio twice a year. This limit of twice a year of rebalancing is not enough for most investors. In order to go around this limit, one can develop a system like this. At Fidelity, there is no such limit, especially for small-amount exchanges between funds.

(1) One may need to transfer all capital gains, dividends, and interests to one of the Vanguard money market funds. All these money market funds are good. So the selected money market fund will have an income stream, e.g. $2000 per month.

(2) Exchange $100 every day from the money market fund to one of the portfolio mutual funds. There are about 250 trading days in a year. If $100 is invested in every trading day, the total annual rebalancing investment is approximately $25,000 per year. One can adjust the frequency of rebalancing according to the portfolio size. The minimum additional investment is higher at Fidelity. It is $250. Then the total annual rebalancing investment can be approximately $62,500 (250 x 250) per year.

(3) If the money market fund reaches a very low level, cash should be transferred from other sources in order to maintain the minimum investment level required by the money market fund. Otherwise, some fees can be charged by vanguard or Fidelity.

I am confident he/she will do well if he/she can really consistently follow the above procedures. The amount of $100 at the Vanguard account or $250 at the Fidelity account per day seems very small, but the cumulative impacts can be significant enough to make a difference in investment returns.