[transcript]
Dangerous Don: Welcome back, everybody! Welcome back to the MACHO INVESTING blog, the home of you and me and a TON of other stock-market millionaires just like us. We’re blogging to you direct from our worldwide corporate headquarters right here in Scranton, Pennsylvania.
Johnny: And I second the motion, even though we’re actually in Dunmore! Welcome back, everybody!
Dangerous Don: I’m your host, Dangerous Don. I’m sure you recognize the name. I happen to be one of the greatest stock-market investors of all time.
Johnny: And I am. . . . .
Dangerous Don: And yes, right here at my side is my esteemed co-host, the alpha male of the Scranton financial gurus, the world-famous Johnny Doorknob.
Tana Marie: ALPHA MALE! Gimme a break! Don, you are such a hoot! And you know something? I’d be laughing, except your stupid day trading is costing us $4000 a year!
Dangerous Don: Folks, that lovely voice you just heard was my lovely wife, Tana Marie, who is standing right here next to me, in our Scranton corporate office. . . . .
Tana Marie: Corporate office? Gimme me a break! You’re sitting right here in MY KITCHEN!
Dangerous Don: They don't come any cuter!
Tana Marie: I said MY KITCHEN!
Dangerous Don: They don't come any cuter!
Tana Marie: I said MY KITCHEN!
Dangerous Don: MOVING RIGHT ALONG. . . . . . !
Johnny: Don, maybe we can talk about something else? How about, maybe, your new job? Operating this 401(k) that you’re in charge of?
Dangerous Don: Great idea! Folks, I may have told you, I recently got a new job. I am now the chief financial officer of a 401(k) plan for a local Scranton company.
Johnny: And the name of the company. . . .
Dangerous Don: . . . . . is Misery Loves. About 160 employees. Been in business over 40 years. Got a factory where they manufacture antique furniture.
Johnny: So. . . . . . your job is to set up the investment options for these 160 employees? For their retirement savings?
Dangerous Don: Exactly. And lemme tell you, this is the best job I’ve ever had. I was born for this job!
Johnny: Met any of the employees?
Dangerous Don: Had a sort of town-hall meeting couple days ago.
Johnny: Interesting. . . . .
Dangerous Don: Went pretty well. But, needless to say, with the stock-market crash in 2009, there were some unhappy campers.
Johnny: Some of those guys really got whacked, right?
Dangerous Don: Oh yeah. Bigtime. Bunch of guys lost more than 50%. Moved out of stocks at the bottom of the market, so they'll never get that money back. Really tough, when you’re pulling down a carpenter’s paycheck.
Johnny: Most of the employees are carpenters, right?
Dangerous Don: Most of them.
Johnny: I’m sure those guys are really good at what they do. . . . but not too savvy about investing.
Dangerous Don: That’s the tough part. I'm their chief investment advisor. So I'm the one who has to look a carpenter square in the face, and tell him that it’s his own fault that he got wiped out by stock-market losses.
Johnny: His own fault?
Dangerous Don: Look, our 401(k) has fourteen investment options. Nobody forced these guys to put every single dollar in Small Cap Aggressive Growth.
Johnny: I thought that was your favorite.
Dangerous Don: Not since it fell off a cliff.
Johnny: These guys probably had no idea what Small Cap Aggressive Growth even means.
Johnny: I thought that was your favorite.
Dangerous Don: Not since it fell off a cliff.
Johnny: These guys probably had no idea what Small Cap Aggressive Growth even means.
Dangerous Don: No truer words! One poor guy thought Small Cap Aggressive Growth was a hat company!
Johnny: A hat company?
Dangerous Don: This guy looks around and he sees all these teen-agers wearing baseball caps. You know, wearing them backwards. So, he figures there must be a big market for baseball caps.
Johnny: Wow! And he thought. . . . .
Dangerous Don: And he thought Small Cap Aggressive Growth was a company that makes baseball caps.
Johnny: You know. . . . sometimes you gotta wonder if the Average Joe like me really belongs investing their whole savings in the stock market.
Dangerous Don: Sure does! Just gotta do it right!
Johnny: Your Average Joe. . . . say a plumber like me. . . . . ain't gonna outsmart the wolves of Wall Street. Ain't gonna happen. Stock market is a big, bad poker game. And there ain't no Nevada Gaming Control Board to protect you. You're going to get wiped out.
Dangerous Don: You just gotta do it right! Become a Macho Investor! Learn to live with risk!
Johnny: Your Average Joe. . . . say a plumber like me. . . . . ain't gonna outsmart the wolves of Wall Street. Ain't gonna happen. Stock market is a big, bad poker game. And there ain't no Nevada Gaming Control Board to protect you. You're going to get wiped out.
Dangerous Don: You just gotta do it right! Become a Macho Investor! Learn to live with risk!
Johnny: No comment.
Dangerous Don: Remember what all the finance books say. Risk equals Reward. So obviously, MORE RISK EQUALS MORE REWARD!
Johnny: No comment. For most average folks, I think putting their 401(k) savings in a GIC or a total market index fund would be better.
Dangerous Don: Remember what all the finance books say. Risk equals Reward. So obviously, MORE RISK EQUALS MORE REWARD!
Johnny: No comment. For most average folks, I think putting their 401(k) savings in a GIC or a total market index fund would be better.
Dangerous Don: So, okay, Johnny. . . . . gotta stop for a minute here. Please explain to our audience what a GIC is.
Johnny: Okay. . . . . so. . . . . a GIC is a Guaranteed Investment Contract. Usually from a big insurance company or some other institution like that. In today’s market, they pay maybe 3.5% to 4% a year. They pay much better rates than money markets or bank CD’s, at least for the time being.
Dangerous Don: But. . . . .
Johnny: But, you're right. GIC’s are not available to retail investors. You and me can’t just call up Met Life and tell them you want to buy one. You have to belong to some group, some plan. . . . like a 401(k). . . . which has enough clout to negotiate one-on-one with these big insurance companies.
Dangerous Don: But. . . . .
Johnny: But, you're right. Don’t think GIC’s are completely risk-free. Insurance companies sometimes go broke. AIG went broke. But overall, pretty clear, GIC's are a lot more stable than equities.
Dangerous Don: But, Johnny! A lousy 4%! I mean. . . . where's the vision? Not even worth the effort!
Johnny: Don, I’m just trying to help these people retire with most of their savings still intact. As opposed to your looney-tunes Macho Investing, which means risking every dollar you've ever saved, every day.
Dangerous Don: And proud of it! What kind of girlie man would run away from that risk?
Johnny: Okay. . . . . so I’m a girlie man.
Dangerous Don: I don’t even consider investing in something unless we're talking at least a 20% return.
Johnny: No comment. Except you might mention that the S&P 500 was lower on January 1, 2010 than it was ten years earlier. On January 1, 2000. Just about everybody who was banking on those 20% returns lost their shirts.
Dangerous Don: No big deal. One bad decade doesn't ruin a rally
Johnny: Okay, but during that exact same ten-year period, Vanguard's Intermediate-Term Bond Index Fund almost doubled in value. Just saying.
Dangerous Don: All depends on the future. Do you think we're ever again going to get a repeat performance of the Crash of 2001? Or the Crash of 2009? I don't think so.
Johnny: I do.
Dangerous Don: You glass-half-empty guys are all alike.
Johnny: You hit the nail on the head when you mentioned the two market crashes we've had recently. Fact of the matter, it almost doesn't make any difference how well the equity market does in between crashes.
Dangerous Don: "In between crashes"? Boy, you guys are brutal!
Johnny: Right, that's what I said. In between crashes. If the market is going to nose-dive every six or seven years, and drop more than 50% each time, then all bets are off. It doesn't matter how well the market does in between. You barely climb out of the hole, and then you fall back in it again.
Dangerous Don: No big deal. One bad decade doesn't ruin a rally
Johnny: Okay, but during that exact same ten-year period, Vanguard's Intermediate-Term Bond Index Fund almost doubled in value. Just saying.
Dangerous Don: All depends on the future. Do you think we're ever again going to get a repeat performance of the Crash of 2001? Or the Crash of 2009? I don't think so.
Johnny: I do.
Dangerous Don: You glass-half-empty guys are all alike.
Johnny: You hit the nail on the head when you mentioned the two market crashes we've had recently. Fact of the matter, it almost doesn't make any difference how well the equity market does in between crashes.
Dangerous Don: "In between crashes"? Boy, you guys are brutal!
Johnny: Right, that's what I said. In between crashes. If the market is going to nose-dive every six or seven years, and drop more than 50% each time, then all bets are off. It doesn't matter how well the market does in between. You barely climb out of the hole, and then you fall back in it again.
Dangerous Don: Okay. . . . enough said. . . . let’s go back to my 401(k). The one I'm in charge of. At Misery Loves. One thing. I just started this job last month. And the guy who ran this 401(k) before me. . . . . . . turns out. . . . . he really dropped the ball.
Johnny: How so?
Dangerous Don: He had a “market neutral” strategy.
Johnny: Which means?
Dangerous Don: For example, he would advise half of the employees to invest in a silver futures fund.
Johnny: That's commodity market stuff, right?
Dangerous Don: Right. Betting that the price of silver is going to go up.
Johnny: Who the heck knows if it’s going to go up or not?
Dangerous Don: But the real problem. . . . I couldn't believe this. . . . . he would advise the other half of the employees to invest in another fund. A fund that shorts the silver market.
Johnny: Meaning. . . . . ?
Dangerous Don: Betting that the price of silver will go down.
Johnny: Little bit of a contradiction there, wouldn’t you say?
Dangerous Don: Depends on your point of view. From the point of view of the entire 401(k). . . . and the track record of the manager of the 401(k). . . . . this is a perfectly rational strategy. It’s market-neutral. Basically, nothing can go wrong.
Johnny: Because no matter whether silver goes up or down. . . . . ?
Dangerous Don: There’s going to be offsetting gains and losses. So your track record doesn’t get hit, one way or the other.
Johnny: But. . . . . of course. . . . from the point of view of the employees. . . . . or at least half of the employees. . . .
Dangerous Don: Exactly. Half of your employees are pretty much guaranteed to get whacked. You don’t know which half, but half of them will end up betting wrong.
Johnny: Sounds like these “market-neutral” strategies ought to be illegal.
Dangerous Don: It’s not illegal if the manager describes it in the prospectus. Then it’s legal.
Johnny: Okay. . . . . . so, for the benefit of our audience. . . . a prospectus is. . . . what? 400 pages of fine-print goobledegook that these poor carpenters are supposed to take home and read, right?
Dangerous Don: I don’t make up the laws.
Johnny: But, Don. . . . let’s go back. I think you started off saying you don’t like this guy’s strategy. Guy dropped the ball, right?
Johnny: But, Don. . . . let’s go back. I think you started off saying you don’t like this guy’s strategy. Guy dropped the ball, right?
Dangerous Don: Absolutely! I never hedge my bets. I don’t do this “market-neutral” stuff at all. I put my money where my mouth is.
Johnny: I’m with you on that one. At least your heart’s in the right place.
Dangerous Don: Guy was outrageous! Hard to believe, but he was market-neutral on the World Series!
Johnny: What do you mean. . . . . . ?
Dangerous Don: He had half the employees in a mutual fund that always bets the National League to win the Series. And the other half in another fund that always bets the American League.
Johnny: So. . . . . heads I win, tails you lose.
Dangerous Don: Right, but it's a safe bet only from his perspective, as the manager of the 401(k). If you’re an employee, it’s a different picture. Half of those employees, half of the people he was responsible for, were guaranteed to lose.
Johnny: So. . . . . you’re changing all that?
Dangerous Don: Of course! First thing, I got rid of all his funds. Dropped them out of our 401(k) completely. Then I added a new fund, Pennsylvania Sports Derivatives Institutional.
Johnny: And this new fund. . . . .
Dangerous Don: Always bets the Phillies.
Johnny: And you think that’s in the best interests of these employees?
Dangerous Don: Absolutely! People are just throwing away good money if they don’t bet the Phillies this year. As an investment advisor. . . . . and as a fiduciary. . . . . I can’t let that happen.
Johnny: No offense, but I think I’ll stick with a GIC or an index fund.
Dangerous Don: Those are just little old lady stuff. You know something, Johnny? Sometimes I wonder if you're man enough to be a Macho Investor, even if you wanted to be one.
Tana Marie: Watch out! Testosterone Alert! No Girls Allowed!
Johnny: Don't get personal, Don!
Dangerous Don: Okay, okay, you're right. I shouldn't get personal. But I tell you, betting the Phillies to win the World Series this year is the closest thing I've ever seen to a 100% guaranteed investment. And as a fiduciary, I have to act accordingly.
Tana Marie: Watch out! Testosterone Alert! No Girls Allowed!
Johnny: Don't get personal, Don!
Dangerous Don: Okay, okay, you're right. I shouldn't get personal. But I tell you, betting the Phillies to win the World Series this year is the closest thing I've ever seen to a 100% guaranteed investment. And as a fiduciary, I have to act accordingly.
Johnny: Well, Don. . . . . I just checked my watch. Plenty of time to talk about fiduciary duties and little old lady stuff the next time we get together, right?
Dangerous Don: Correcto, my friend. Once again, folks, we’ve run out of time. So. . . . we’ll see you next time!
Johnny: See you all next time!
Dangerous Don: Stay tuned to the MACHO INVESTING blog! Believe me, you are going to make a TON of money!
