Oh Brother

Are the investments in PPMII posted somewhere?

Good day

Yes, they were posted in a thread titled "Perpetual Money Machine" dated March 26th, 2007.

I later started this thread "Perpetual Money Machine II." As I was going to post more stocks that a person could receive a high monthly yield for the purpose of income.

However the market began to get a little soft due to a number of reasons and therefore I held off posting these. Atleast until the market begins to make a long term recovery.

In the meantime this thread has become a thread that has headlined the original thread with both positive and negative comments.

You can find the original thread by clicking on the topic (Finances And Investing) and looking down the list of threads.

Green Lights
Badwater Bill

Good day

Back on January 25th I posted a note regarding a point that would be a good entry to dollar cost average down these 8 funds.

I stated that I would notify you when I recieved validation.

Yesterdays 370 point drop is the reason I have never posted that we had a good entry point.

I use 28 technical indicators, some of which are proprietary that I have developed over the years.

Some of these indicators never reached a buy point, that is the reason I haven't posted an entry.

It now appears that we may still get a quick rally back to the SnP 1400 area, however I beleive in March the SnP is likley to make another pull back to the 1125 area. That is lower than it is now.

Green Lights
Badwater Bill

"Yesterdays 370 point drop is the reason I have never posted that we had a good entry point."

You make it sound like you can time the market and knew in advance of this drop. Like the rest of us...you don't have a clue and shouldn't be advising people that you have those answers.

Hey, you told folks to buy in Jan 07 when the funds were at their peak...worst possible timing. Did your indicators fail you then?

You then told folks to buy in again right before the December large distribution. Great way to pay taxes on your already taxed dollars.

Good Day

The 8 funds that I outline in the original "Perpetual Money Machine" posting are funds that will produce a monthly income as I stated originally.

They have done just exactly that and will continue to do so. There is no loss, unless one sells during the downturn.

One should not invest in these funds for short or intermidiate term capital gains base on the NAV price. That is not the purpose of these funds. Yes, the price will move with the market as they trade on the market just like stocks. And yes, the market will eventually go higher some where in the future, so will these funds.

I also stated in previous posts that these funds are for a very long term hold. That one should invest a portion of there portfolio in these funds, if you are looking for monthly income. I will leave them in my trust for my grand kids. Does that give you an idea as to what I mean by very long term.

My technical indicators run approximatley 80% and sometimes better in forecasting the market.(near term)

Thats not a 100%. Nor do I claim that.

Yes I did know the market was going to pull back. No I did not know how many points (370). But I knew it would be a good amount.

I use these indicators for my own short term investments that I do not post here. I also use them for entry points into longer term investments.

Most financial advisors and brokers when you place money with them to invest. Will divide the amount into 4 or 6 portions and purchase the securities they are going to place you in over a 4-6 month period, without regard as to the overall market highs and lows. They refer to this as "averaging into the market."

I do it a little different I try and wait for market lows to enter without regard to time, and only average in at these points. Sorry if this offends you, but it makes more sense to me.

With regard to suggesting these funds at the top of the market? If you read my post I stated that I thought the markets were "toppy" at the time, no surprise there.

Oh yes one other thing, I don't tell folks to buy anything, I give you my opinion. It is up to everyone to do there own homework, as everyone is different.

I believe that the market is getting ready to rally shortly, however overall it will remain in a down trend until a few things are resolved.
Like the credit, and real estate market along with some monolines.

I believe that market lows are good entry points to add to ones holdings, and cost average your original investment lower. When the market returns (which it will) one becomes healthier a little sooner.

However this only applies to quality, and not just any security.

Also not all market stars will return with the market. Therefore one must be careful.

Green Lights
Badwater Bill

One reader’s opinions and cautions regarding this thread:

Everyone is entitled to their opinions but it gets scary when someone professes they can time the market and gives advice that is fairly counterintuitive to general investing basics.

The OP has shared the Oxford Investment Club’s portfolio named Perpetual Money Machine. It is one of the portfolios they propose as part of their paid service to members of the club. Copyright infringement is not the concern of readers but might be of some concern to Escapees and the OP.

Please read one of William Bernstein’s books on investing and asset allocation. The book explains market theory and provides various approaches to investing for various situations. He shares some great insights on the follies of folks who claim they can time the market. He shares real data that supports his position. For someone to claim 80% accuracy with market timing is ridiculous. That person would either be a billionaire or is suffering from delusions of grandeur. The OP clearly does not have the market timing down. I will use these quotes from him to make the point:

Jan’07 – Reveals and suggests the PPM funds. They are at their peak and ready to take the tumble in 2007. I am not bashing the Oxford Investment Club’s PPM portfolio but it was the worst time to buy in. Someone who can time the market should have known better.
March 04th OP Writes: “It is a good time to start averaging in.” Again, someone able to predict the market should have known these funds were just beginning their large price erosion.
August 19th OP writes: “The market perhaps has another gutwrenching bottom to put in, perhaps between now and the middle or end of October or so.” Well, the general market hit an all time high in October, a fairly bad call given the short timeline for forecast error.
August 25th OP Writes: “Also when the market bottoms this second time, it will be a good time to add to any positions that you may have taken in the original perpetual money machine. This second bottom should occur sometime in October or perhaps November, we will have to wait and see.”

Back in January 2007 the OP stated that “PPM offers diversity as well as minimizing risk, with greater returns.” I believe there have been plenty of other posters in this thread who have done a great job explaining the problem with that statement (Bruce, ART, 2ndTwenty…). It is simply not true that you can earn higher than average market returns with lower risk. Those who bought in January 2007 lost a ton of money….sure you got some dividends but your capital has shed 20% of its value. These funds return income, cap gains and in bad times will return capital (lose NAV) to make up their dividend. eroding the value over time. Just look at some of the fund prices and dividends at inception vs today, example DSU. I would be very skeptical of anyone who claims that fund income is the only concern without viewing total return.

In November 07, the OP suggests you buy in again… Nov 30th OP writes: “I recommend that anyone who may have purchased these funds should at this time add to your positions, by dollar averaging thru all 8 funds. All 8 of these funds are currently a buy.”. Basic fund investing suggests you should never buy into a large year end dividend. IGR and DSU as an example have a history of paying out large dividends at year end while dropping the NAV / market price a corresponding amount. If you made a new purchase in December before the dividend date, you took your after tax dollars to buy the fund, in return they gave you a chunk of it back as capital gains & dividends, and you have to pay tax on it. The net result of the transaction is typically dollar neutral (no gain) however you now have a tax liability on what they paid back to you.

An example: Assume you buy $10,000 of IGR when OP advises and let’s say you pay $17.13 per share for 584 shares on 12/3. IGR then pays out their large distribution in December. They normally pay out $.115 per share but this time they pay out $1.82. You get a check for $1,062 that you have to declare as income & capital gains but the value of your IGR fund drops by the same amount or more. In this case the fund value dropped from $10,000 to $8,400 (year end) after the transaction and you have to pay the tax on the $1,062 distribution. That $10k purchase just cost you $1,600 market price loss plus tax on the distribution. The simple rule…unless you have a very unique tax situation, you should never buy into a fund distribution at the end of the year.

Please folks…be careful. An RV forum is the last place you want to get investment advice. Again, I am not bashing the Oxford Club’s portfolio but you need to understand its risks and be careful listening to folks who may not be the best source of information.

MBnKen,

The value of this forum is in getting all kinds of ideas, some of which you may agree with and others that you disagree with
Yes I was an early postee to evaluate the PPM stocks as a package but attempted in my review to keep the discussion to the investment ideas, as learning to evaluate investments and what factors may be of significance is valueabe to all of us

But when ones comments about others ideas, take on a personal attack on the other poster, such posts are not useful and hinder others from putting out their ideas

Your past 3 posting have alot of that overtone and among other things shows me that you are so offended by BWBills thoughts, because you know what "is the correct approach to investing" so anyone with alternative approaches is obviously stupid..!!.....on the other hand much of your last posting is insightful and useful and I appreciate those thoughts

I migtht not agree with BWB on alot of issues but am certainly willing to listen and accept or reject based upon my own biases, AND I suspect that BWBill overall is probably a very successful investor as a result of his attention to alot of factors which likely help him in his investments

Your suggested readings, without having read it , most certainly suggests some form of diversified buy and hold approach to investing ..................one approach to investing which provides a given result...........BUT

It doesn't take into account how some investors, dependent 100% upon the investments for their retirement income, may react during stressful down periods in the market, like 2000-2003 that sent thousands if not millions of investors into terrible losses and back into the work place to survive.

While I totally agree that one cannot "forecast market trends" and therein "time the market".............I totally reject the idea that an investor cannot "react to market trends" in a meaningful way to protect their capital and in fact benefit their overall portfolio value VS a buy and hold approach

Many investors who have been successful via a buy and hold approach are adamently convinced that their buy and hold approach is the only way to approach the market and far to many investors get taken by the world of Brokers who charge fees to them for just giving out that advice

I believe there are alot of investors who could sleep much better and still do no worse than get buy and hold results, by having rules to protect ones capital at some given point in a down cycle and reenter later once the market has re-estableized an upward trend again............sure this takes some attention to market conditions, along with the economy, fed actions, and market trends.....AND

I also know that this approach won't work for alot of investors either as many find it to hard to sell losing positions at some point and become frozen after getting out of the market and unwilling to make a decision to reenter..........as I have seen folks still out of the market in 2005-2006 after 3 years of market growth from 2002 bottoms

So no approach necessarily works best and each investor has to find their own comfort level and approach, but I find it equally offensive when "buy and hold purests" extoll the stupidity of other approaches

MBNKen:

Ohhh! Awfully harsh.

I have not researched the funds sugested by BWB, but I gather he was suggesting a diversified group of closed-end funds for those who wishing decent yields to live on, and are not seeking capital gains. For people who need an income stream, and are not too concerned about selling for capital gains, and are not looking for substanial capital apreciation, it would seem to me an approach other than purchasing bonds might be useful, or a least worth considering. Although this approach does not appeal to me, but I already know that my approach does not appeal to many others. So let's learn some other ideas.

As far as market timing goes, I agree no one knows the ideal time to buy, but if you are looking for income, not capital apreciation, BWB's advice as to when not to buy, at least was not too bad.

Again -- pretty harsh.

Good Day

MBnKen, thank you for your input, unlike you I happen to believe that people can, and do think for themselves and before investing in anything posted on this site would do there home work first.

The title of this thread is "Finances and Investing" and people are welcome to throw all sorts of ideas into the pool. And thats what it is, people research or hear of something and post it for others to look into if they choose to.

No one gets to upset if they don't agree, and all is meant to be researched and pondered upon. Atleast that is what I have come away with following this thread for awhile.

What you say has some merit, although as with anything there are several ways to skin a cat, and certainly one has to decide for themselves.

If you read my early post, when I posted the PPM you wil note that I said, that it was not my idea, but developed by people much smarter than I.

As to the copyright issues, I don't believe you can copyright trades. These shares trade on the market everyday in large volume as do numerous other stocks. You may copyright articles that are written, but trades?

As to my market timing, I stand by what I said. If you read my post on 2/6 you see where I stated the market is getting ready to rally.
On 2/6 the DOW was at 12200, today 2/13 the DOW is at 12552, thats a 362 point difference. Not a bad little rally for the week. And a market that had been heading south on very bad economic news.

I posted this on 2/6, as I knew you would bite on it. So I just wanted to punch a hole in your remarks. You know, kind of show that there is perhaps another way besides yours. Sorry to upset you. I know there are many who would agree with you. There are also many that agree with me.

I entered SSO on 2/6 at $67.55, I sold today 2/13 at 71.01 for a $3.46 gain.

I do trades like this often, with very good results. I do not post these trades here as I don't expect others to follow, nor do I want them to, as there is risk and it must be managed.

I am not a billionaire, like you suggest I should be,,,,,, but I am very very comfortable.

Yes these funds are down, but so is the rest of the market. Will the market come back? Yep. Will these funds come back? Yep.
But more importantly they are giving off a monthly income, and that is their purpose.

You stated that January was not a good time to purchase these funds. Well when you are purchasing them for the long term, years and years, it really isn't the same. And you can always average in.

So are you telling us that all the pro's in January suspended purchases and did not put any clients in any securities during this time.

Green Lights
Badwater Bill

Good Day

Well golly, here it is the next morning and the markets down 108 points at 8:37 am.

I wonder how I got so lucky and sold my SSO on 2/13 before the markets dropped this morning.

After all MBnKen your book says you can't time the markets.

It must be the "delusions of grandeur" that I've been suffering from all thses years that is guiding me.

For every book you read stating you can't time the markets, I will match them with books that say you can.

I have been doing it wrong (according to you) for close to twenty years now.

I am glad you came to my rescue.

Green Lights
Badwater Bill

Our discussion has nothing to do with luck on short term trade. It has everything to do with the advice given for the PPM and the recommended timing of purchases into the fund. I agree the forum is a great place to share ideas. It is my opinion that giving detailed (and in this case poor) purchase advice for particular funds is not the intent of the forum.

I still have a problem with someone saying they can time the market with 80% accuracy. I believe there are some valid approaches to timing but no one can achieve an 80% accuracy rate. Obviously it was not working with the OP’s PPM recommendations.

I think we can look back on the PPM threads and see that all the timing advice was wrong. A hypothetical $100,000 invested in January 2007 at the first recommendation has lost $22,000 of capital and lost $1,200 more in fund expenses to earn $9350 in dividends. At that rate it will be into the 3rd year to post a net gain. The OP suggested another purchase in March 2007. Again that timing was wrong as the funds had started their drop but still had a long way to fall in 2007. Someone who knows market timing should have known this was a big mistake. Let’s assume you averaged in another $25,000. You would have lost another $5,000 of capital, paid another $350 in expenses to earn $2,200 in dividends to date. Also keep in mind that you are taxed on those distributions even though you have lost money.

My concern is the funds will continue to return capital to make up their dividends when they have not generated enough income (going into the slow growth economy or recession). That drops the NAV which in turn erodes the dividend amount over time. If you look at the PPM funds’ inception date price and dividends compared to today you will find that the older funds have lost 25 – 60 % of their market price / NAV and have seen their dividends reduced from 35 – 60%.

These funds are comprised of higher risk debt and equities in order to throw off the higher rate of return. Remember, no free lunch. You take on higher risk to earn a higher return. During good years they might be fine. During a slowing economy or possibly a recession, you don’t want to be holding high risk debt or equities.

The OP keeps talking about the income and not to worry about the NAV. Keep in mind the funds’ dividend amounts are not guaranteed. The fund managers might maintain a fund’s planned dividend rate at 9 – 10 % but if the NAV drops by 50% then so does the dividend by the same percentage. That is exactly what has happened with the older funds. It is possible that your hypothetical $100,000 investment could drop in value to 50 – 65% of its original amount (as seen in ZTR, DSU, and FAX). At the same time your dividend might drop by 35 – 60% (also the case with the 3 older funds). In this hypothetical case, (if PPM follows the trends of the older funds) you might lose up to $50,000 of capital and only have half of your original monthly dividend. This is the reason to consider total return and not just dividend percentages.

Maybe I should have overlooked the November purchase advice that caused at least one reader to “buy into the December distribution”. Some readers do not know the tax implications of such a move or how to determine if it was bad advice. Some probably just think the OP knows what he is talking about. Investing basics 101 overlooked here with the result being a large tax hit with no net gain. Proper advice would have been to suggest buying into the funds after they paid out the December distribution.

Finally, I am not a “buy and hold purist”. I do rebalance my allocation regularly and work with my financial advisor to make certain adjustments based on market forecasts. I realize that the forecasts will not always be right and expect that sometimes we will win and sometimes lose with these timing based adjustments. However, my market timed adjustments and my investing approach are between me and my adviser. I would never be so brazen to tell people what or when to buy, sell or hold on an RV forum.

Final point…readers beware. The history on this PPM fiasco is clear if you look at the data.

Will someone please explain to me why anyone sees a difference between earning money as “income” (dividends and distributions) versus asset appreciation? Money is money, why does anyone care where it comes from?

Of course the IRS makes this distinction, but currently dividends and capital gains are taxed at the same rate, so even the IRS only makes this artificial distinction for interest versus all other sources of investment income.

I understand the need for cash every month to pay the bills. But if I put $100,000 in the Vanguard Total Stock Market Index (which pays only a small dividend) and set up an automatic withdrawal of $1000/mo to be deposited in my checking account, how is that any different from having a closed end fund declare monthly dividends and depositing checks for the same amount? The cash flow is identical, the taxes are identical, and market fluctuations impact the underlying asset value of both.

But even if we reverted to unequal tax rates for different sources of investment income, why is there this persistent preference among retirees for “income” (as defined by the IRS) versus spending asset appreciation? The tax laws for many decades gave an advantage to asset appreciation with lower tax rates. So why would anyone prefer to generate more income that is taxed at a higher rate versus living off regular sales of assets to produce the same amount of cash at lower tax rates?

This is not to deny that there is a big difference between stocks and bonds in terms of risk and return tradeoffs. But Bill is not concerned about market fluctuations and is not investing in highly stable bonds. He is advocating high-risk income producing funds. Why are so many investors (Bill is certainly not alone—my parents think this way too) so fixated on the distinction between “income” and changes in asset value? Is this the result of decades of brainwashing by the IRS or is there some depression-era psychology at work? I just don’t understand; what am I missing?

Bruce

This message has been edited. Last edited by: Someday Fulltimers,

This has been a fun discussion, for me at least. Although my earlier posts clearly identify me as belonging to the indexing and asset allocation/rebalancing camp as opposed to the active management (security selection or market timing) camps, I am not dogmatic about my views.

I have been very successfully investing for decades using asset allocation ideas along the lines of what William Bernstein and others recommend. But, I am always looking for information that will change my perspective. In fact, I made a concerted effort to research market timing and security selection strategies a while back, reading dozens of books on the subject and flipping through hundreds more in the library or on Amazon before selecting the ones I read. I was looking for a persuasive argument to convince me that one could achieve a higher return with one of these methods than with indexing and asset allocation. As Bill says, for every book that says you can’t time the market or pick winning stocks, there is one that claims that you can and presents a methodology that is supposed to achieve that goal along with some back testing to “prove” it works.

The biggest difficulty I had with these active management books was the lack of any coherent theory behind them to explain why they ought to work. Most do not offer very extensive evidence of their success, just some simple, selective back testing.

In addition, there is no widely accepted methodology, as there is with asset allocation. Every author has his or her own, unique method—there is no consensus about what works and what doesn’t, at least with respect to market timing; there is more consensus about what factors to look for in security selection although there are big differences between the growth and value strategy camps.

If there are anomalies in the market that can be exploited by these methods, why aren’t they arbitraged out of existence? There are lots of very smart money managers out there with access to vast resources looking for these anomalies and trying to exploit them. How could they persist for very long in this environment? And if they do, why are there so few mutual funds, endowments, and pension plan managers who consistently outperform the market over long periods? Warren Buffet, David Swenson, and Peter Lynch are world famous precisely because they are such rare and exceptional individuals. The great mass of highly trained and skilled money managers don’t beat the market. Where are all of the successful market timing mutual funds?

Bill claims to be able to time the market. I am always open to evidence, but not unsubstantiated claims. If there is a reliable way to time the market, what are the methods you are using Bill? What is your complete track record over your 20 years of trading experience, including all of the losses as well as the gains? Is your total return relative the risk you took on better than that of someone like me who followed the asset allocation path? Maybe it is, but claims are not proof. Tell us what books describe your methods and send us some data, either yours or that of those who developed the methods to demonstrate how well they works.

I wouldn’t ask for something I was not will to provide myself, so here are my investment results for the past 13 years. I have been tracking every detail in Quicken for that period so this summary is easy to generate. I can’t provide earlier results without a lot of work.

1995 29.02%
1996 22.91%
1997 17.68%
1998 10.90%
1999 14.29%
2000 -1.07%
2001 -1.92%
2002 -6.79%
2003 22.48%
2004 10.77%
2005 10.25%
2006 11.14%
2007 9.68%

The compounded cumulative growth of $10,000 at these rates would result in $39,005 as of the end of 2007 – almost a quadrupling in 13 years. This comes out to a compounded annual rate of 11.0%.

That is a respectable but not a spectacular rate of return, but notice the minimal risk I was taking as demonstrated by my returns during the 2000-2002 bear market. You may recall that the NASDAQ lost around 70% of its value and the S&P 500 lost something like 40% of its value during this period. I never lost any sleep during this period. For those who care, my year-to-year standard deviation during this period was 10.3%. A return greater than the standard deviation is usually considerd pretty good and much better than that is very hard to achieve.

So Bill, how did you do over the past 13 or more years?

Bruce

Bruce that is a good mixed portfolio return. I believe the 100 year unmanaged average is something about 9% so you have done well.

I agree that investment results come not from timing the market as much as time-in the market.