Completely Different

I stumbled across two completely different approaches today about how to do things. The ideas are so different that I won't compare and contrast them but critique each one and try to point out details that are noteworthy.

First up was an article by Jim Cramer called Don't Buy All at Once. When I saw the title I thought the article was referring to how you implement a new portfolio. Jim was talking about adding one position. He talked about his days as a trader and then as a hedgie. As a matter of technique he said when he was younger he would buy, as his example went, 50,000 Caterpillar all at once. Then as he got older he would, as they say, scale in to a position 5000 shares at a time in an attempt to lower cost basis. He thinks that scaling in is a good idea for your 500 share Exxon position, 100 shares at a time.

To me this is a 50/50 proposition at best. If you buy XOM today, what is next? Does it go higher or lower. For a short time frame there is no way to know. Forget that obstacle for a moment and assume you can buy 100 shares today and buy most of the balance cheaper. How much lower would it need to go for commissions to not get in the way? Jim did not lay out a time frame to enter a position in this manner but let's say you scale in over the course of a month. Over the last month the average daily move in XOM has been 80 cents. If you pick up 80 cents three times and lose it once you would be ahead by $1.60 cents or $160 for the 500 shares. Factor in five commissions at $10 a piece and you are ahead by $110. That's $110 on a $31000 position and you were right more often than not. Obviously there are flaws with the work but you get the idea, you could call the stock correctly more often than not but not be much better off for doing it.

Perhaps Jim is 100% right with his idea but it is lost on me.

The other article was actually a video interview at the Marketwatch site with Ben Stein touting his book, Yes, You Can Become A Successful Income Investor!: Reaching For Yield In Today's Market. I double checked the title on Amazon;-)

The book is mainly for people of retirement age. In the interview he talked about diversity of income products. Specifically he said investors should have REITs, utility funds, emerging market bond funds, and dividend paying stocks. I imagine the book mentions other vehicles as well. He quickly preaches diversity, he says to have you portfolio spread over hundreds of these which I took to mean owning a lot of funds. There was no specific mention of what type of funds. I have heard him mention ETFs before and open ended funds, I do not know if he believes in CEFs or not. Take that as an invitation to post a comment if you know whether Ben likes CEFs.

Ben used the term "reach for yield" which can be dangerous. The implication is that you take on more risk be reaching. Ben qualifies what he means but I am a little surprised he couldn't come up with a better way to express the thought, but I am nitpicking.

In a big picture sense Ben is trying to help readers put together a low impact portfolio that will produce income and grow a little bit. The growth component of a portfolio is crucial in old age and too many brokers miss this. If someone is 70 years old and everyone in their family lives to be 105 don't you think they need a little growth? I do and more importantly so does Ben.