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Meb Faber
Jul 25, 2021 4:45:16 GMT
via mobile
Post by Norbert on Jul 25, 2021 4:45:16 GMT
I don't think R48 meant that higher volatility leads automatically to better performance. However, volatility lets you buy more at lower prices. For example, I have been adding to UTG whenever the yield is at or above 7%. This has provided much better performance over the last 7 years years than the posted return numbers. If I misinterpreted R48, sorry...
(I don't want to hear that there is a better investment than UTG, that's not the point).
I understand that R48 uses a "pyramid up" buying rule. If that's correct, he would not use the volatility to buy at lower prices; he would always wait to see a higher price before adding to his position. He argues that "averaging down" is a mistake.
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Meb Faber
Jul 25, 2021 5:06:39 GMT
via mobile
Post by Norbert on Jul 25, 2021 5:06:39 GMT
I am a big M. Faber fan...a fan for his early work on analyzing Moving Averages and momentum investing. He has written one of the bibles on these matters. Then he tried to monetize this by creating some "momentum" mutual funds. He did poorly. Not surprising, as ALL mutual fund managers use momentum and Moving Averages, but do not publicize such. (Just like they all use stock charts--but don't state such in prospectuses.) Stock picking and trading is not an easy game, and Farber did not follow his rules much. His funds were terrible and became a proxy for "see, you can't use momentum in the market." Yet we know momentum stocks were tops in last decade--by a mile! I will review these links cited to get an update on him...thanks for posting. R48 R48, Can you point to a mutual fund / ETF that has successfully used momentum analysis to outperform its benchmark? TIA, N.
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Post by chang on Jul 25, 2021 5:42:00 GMT
I don't think R48 meant that higher volatility leads automatically to better performance. However, volatility lets you buy more at lower prices. For example, I have been adding to UTG whenever the yield is at or above 7%. This has provided much better performance over the last 7 years years than the posted return numbers. If I misinterpreted R48, sorry...
(I don't want to hear that there is a better investment than UTG, that's not the point).
I understand that R48 uses a "pyramid up" buying rule. If that's correct, he would not use the volatility to buy at lower prices; he would always wait to see a higher price before adding to his position. He argues that "averaging down" is a mistake. You can "pyramid up" (buy at higher prices) while still exploiting volatility. An asset that goes from $10 to $20 might move up and down along the way. You can buy on the dips -- but still at higher prices -- and outperform the comparable asset that goes up in a straight line. (On the other hand, if you buy at the peaks, you would underperform. It is assumed that you know how/when to buy on dips .... easy to do in hindsight, not necessarily that easy when you don't know what lies ahead.)
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Meb Faber
Jul 25, 2021 6:03:22 GMT
via mobile
Post by Norbert on Jul 25, 2021 6:03:22 GMT
I see. OK to buy on price dips, but must buy at a higher price than last purchase.
It seems a bit perverse to me, but fine. If I know I want to own something, I'd be thrilled to get more at an even lower price.
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Meb Faber
Jul 25, 2021 6:26:56 GMT
via mobile
Post by Norbert on Jul 25, 2021 6:26:56 GMT
I am a big M. Faber fan...a fan for his early work on analyzing Moving Averages and momentum investing. He has written one of the bibles on these matters. Then he tried to monetize this by creating some "momentum" mutual funds. He did poorly. Not surprising, as ALL mutual fund managers use momentum and Moving Averages, but do not publicize such. (Just like they all use stock charts--but don't state such in prospectuses.) Stock picking and trading is not an easy game, and Farber did not follow his rules much. His funds were terrible and became a proxy for "see, you can't use momentum in the market." Yet we know momentum stocks were tops in last decade--by a mile! I will review these links cited to get an update on him...thanks for posting. R48 The stock market is very efficient. Techniques like momentum buying, low volatility, and quality focus may sometimes work, but any advantage tends to get arbitraged away. I don't know if Faber did a bad job implementing his concepts; or if no mechanical concept really outperforms for long. I'm skeptical.
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Post by FD1000 on Jul 25, 2021 12:16:49 GMT
I don't think R48 meant that higher volatility leads automatically to better performance. However, volatility lets you buy more at lower prices. For example, I have been adding to UTG whenever the yield is at or above 7%. This has provided much better performance over the last 7 years years than the posted return numbers. If I misinterpreted R48, sorry...
(I don't want to hear that there is a better investment than UTG, that's not the point).
That's the way I read R48's post as well. Suppose assets A and B both rise from $10 to $20 in 12 months; and suppose A does so in a straight line, while B goes up and down. If a hypothetical investor buys each asset according to a strict DCA plan on the 1st of each month, it is possible that at the end of 12 months the value of B will be more or less than the value of A. However, if the investor is afforded some latitude in when he makes his purchases, and if he buys on dips, then his final value of B can be much more than A. I understood it as you, but it's a unique situation and may lead some to think that selecting higher volatility leads to higher performance and why I said "Please find me 2 stock funds at $10 each 10 years ago that ended at $20 after 10 years."
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Post by FD1000 on Jul 25, 2021 12:28:38 GMT
I am a big M. Faber fan...a fan for his early work on analyzing Moving Averages and momentum investing. He has written one of the bibles on these matters. Then he tried to monetize this by creating some "momentum" mutual funds. He did poorly. Not surprising, as ALL mutual fund managers use momentum and Moving Averages, but do not publicize such. (Just like they all use stock charts--but don't state such in prospectuses.) Stock picking and trading is not an easy game, and Farber did not follow his rules much. His funds were terrible and became a proxy for "see, you can't use momentum in the market." Yet we know momentum stocks were tops in last decade--by a mile!I will review these links cited to get an update on him...thanks for posting. R48 AMZN had a great performance in the last 10 years. Momentum assumes going up and/or switching to something that goes up. If you just held AMZN you did great, but it had periods where it went down 10-20-30% too, that's not pure momentum. See( link)..."Momentum investing involves going long stocks, futures, market exchange traded funds (ETFs), or any financial instrument showing upward-trending prices and short the respective assets with downward-trending prices." BTW, if momentum (or value, high yield, others) were a great consistent idea then you can write an algo to do that, and you could find hundreds of funds/ETF implementing it while the SPY (or QQQ) still beat most stock funds.
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Meb Faber
Jul 25, 2021 13:14:16 GMT
via mobile
Post by Norbert on Jul 25, 2021 13:14:16 GMT
FD1000"BTW, if momentum (or value, high yield, others) were a great consistent idea then you can write an algo to do that, and you could find hundreds of funds/ETF implementing it while the SPY (or QQQ) still beat most stock funds." As much as I enjoy contradicting FD, I admit that he's right. It's one thing to look backwards and point to "obvious" things like momentum stock investing, using moving averages to generate trade decisions, "pyramid up", hedging with the long bond, the safety of low volatility bond OEFs, etc. But, for some reason, actually doing it going forwards is more complicated; of the many efforts made by fund managers to create successful quant, long-short, tactical asset allocation, or market neutral funds, NONE have worked for long.
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Post by richardsok on Jul 25, 2021 13:53:59 GMT
.... much more complicated indeed, though I fail to understand why it should be so. As ever, it's easier to look backward than forward. Even the most auspicious technical chart pattern gives you only a slight edge on tomorrow's price. At best, if I buy XYZ today for 20 there may be only a 55% chance it will be 20.10 tomorrow, so there's no room for quick gratification in chart trading. Even if you are quite wrong at first, you may be quite correct later. Last week's two-day plunge & snap-back are examples of the problems or costs technicals signals can invite. I tend to think that character, confidence and grit have something to do with success in chart trading -- as well as limiting oneself to the lowest volatility assets one can find.
Buy-the-dips technique worked superbly last week, and made a lot of people feel very smart and people like me -- stupid. Lesson: BTD works wonderfully, except when you find -- too late -- there's no bottom, and it doesn't.
I see no discernable pattern in gold; none whatever. But TLT appears to have bottomed. Go figure.
So -- The Fed must raise interest rates before inflation gets out of hand. Ergo, the market must soon crash. But the fed can't raise interest rates to any reasonable level because debts and entitlements are too astronomical... evidently with more to come. So the market and inflation must chug ever higher.
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Post by rhythmmethod on Jul 25, 2021 14:19:15 GMT
Buy-the-dips technique worked superbly last week, and made a lot of people feel very smart and people like me -- stupid. Lesson: BTD works wonderfully, except when you find -- too late -- there's no bottom, and it doesn't. I see no discernable pattern in gold; none whatever. But TLT appears to have bottomed. Go figure. Hmmm. If equities go up approximately 70-80% of the time and the market drops >1% in a day, how is BTD anything more than playing the odds? Also, when was the last time that BTD was a bad decision for a period of more than 9 months? Regarding TLT, or my choice EDV, if one figures it has been beaten down and can serve a function in one’s port and “some of us” were buying two months ago we don’t need to “go figure”. We just BTD. I think sometimes people make this stuff harder than it really is to satisfy one’s need to be an edge up via their intellect. I don’t worry about that being a sub-intellectual bongo beater. Stay well. Edit to add - Not trying to troll just my thinking 💭 - but I frequently get myself into trouble by thinking.🙄
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Post by uncleharley on Jul 25, 2021 16:25:04 GMT
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Post by anitya on Jul 25, 2021 19:28:23 GMT
Pretty interesting thoughts in this thread. Of the posts visible to me, glad to see civility and restrain from taking comments out of context to reply.
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Post by retiredat48 on Jul 26, 2021 4:56:00 GMT
"Lastly, higher volatility DOES GUARANTEE HIGHER PERFORMANCE" I didn't say it. I understand the math. It doesn't mean that the more volatile asset is going to guarantee higher performance, only the potential for higher performance , but also the potential for lower performance. Been there done that. Fishingrod It guarantees higher performance in the scenario I stated, which is used by millions of investors in their 401.K plans. The guidance is simple...if you have available in your 401.K, two capital growth type funds, and performance is tracking the same or similar, choosing the higher volatility one will result in more gains in the long run. And further, choosing the top performing fund of the two, is also the better choice. Some investors realize this; some don't or are unaware of this. Volatility properly used can add 2% annually to DCA 401.K performance. I'm not going to post the several examples of actual fund purchases that exist, to demonstrate this.
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Post by retiredat48 on Jul 26, 2021 5:04:31 GMT
I don't think R48 meant that higher volatility leads automatically to better performance. However, volatility lets you buy more at lower prices. For example, I have been adding to UTG whenever the yield is at or above 7%. This has provided much better performance over the last 7 years years than the posted return numbers. If I misinterpreted R48, sorry...
(I don't want to hear that there is a better investment than UTG, that's not the point).
I understand that R48 uses a "pyramid up" buying rule. If that's correct, he would not use the volatility to buy at lower prices; he would always wait to see a higher price before adding to his position. He argues that "averaging down" is a mistake. Ah, but norbert, I stated a use for seeking volatility is in using Dollar Cost Averaging, stating "...in 401.K plans , volatility is your friend. Since 401.K is essentially dollar cost averaging with small bi-weekly payroll deductions. It is those purchases at extreme fund bottoms in bear markets, that make a world of difference to positive wealth growth."
Millions have 401.Ks.
R48
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Post by retiredat48 on Jul 26, 2021 5:12:41 GMT
I don't think R48 meant that higher volatility leads automatically to better performance. However, volatility lets you buy more at lower prices. For example, I have been adding to UTG whenever the yield is at or above 7%. This has provided much better performance over the last 7 years years than the posted return numbers. If I misinterpreted R48, sorry...
(I don't want to hear that there is a better investment than UTG, that's not the point).
That's the way I read R48's post as well. Suppose assets A and B both rise from $10 to $20 in 12 months; and suppose A does so in a straight line, while B goes up and down. If a hypothetical investor buys each asset according to a strict DCA plan on the 1st of each month, it is possible that at the end of 12 months the value of B will be more or less than the value of A. However, if the investor is afforded some latitude in when he makes his purchases, and if he buys on dips, then his final value of B can be much more than A. You're close but not quite. Other than some radical math volatility, investing in fund B is always worth more, even at the same ending price for both. Let's assume fund A is a Cert. of Deposit...straight line from 10 to 20. The fact the value (price) of volatile Fund B goes above and below the trend line, ending at the same price, means exactly as poster newzg stated...you buy more shares when it is below trend, and less shares when above trend (higher prices), and so you have more value at the end...ALWAYS. R48
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Post by retiredat48 on Jul 26, 2021 5:24:10 GMT
I am a big M. Faber fan...a fan for his early work on analyzing Moving Averages and momentum investing. He has written one of the bibles on these matters. Then he tried to monetize this by creating some "momentum" mutual funds. He did poorly. Not surprising, as ALL mutual fund managers use momentum and Moving Averages, but do not publicize such. (Just like they all use stock charts--but don't state such in prospectuses.) Stock picking and trading is not an easy game, and Farber did not follow his rules much. His funds were terrible and became a proxy for "see, you can't use momentum in the market." Yet we know momentum stocks were tops in last decade--by a mile! I will review these links cited to get an update on him...thanks for posting. R48 R48, Can you point to a mutual fund / ETF that has successfully used momentum analysis to outperform its benchmark? TIA, N. If you are asking is there a fund that has beat its benchmark, the Bill Millers fund beat his S&P 500 benchmark for 15 straight years. If you are asking did he use momentum, I cannot speculate. But fund managers have repeatedly stated they buy and add to their winners, not their laggards; is that an inference to momentum. In the post below I discuss the J. Simons Renaissance Fund, the top performing hedge fund, that uses 100% momentum algos. But the answer to me re momentum comes, for instance, from the huge Fama-French Stock Market study done from 1925 forward, that concluded that there are three FREE LUNCHES in the market, and one is: MOMENTUM is a positive factor....especially in the top and bottom deciles. Meaning the dogs keep lagging, and the top performers stay on top...for a lengthy period of time. R48
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Post by retiredat48 on Jul 26, 2021 5:41:43 GMT
I am a big M. Faber fan...a fan for his early work on analyzing Moving Averages and momentum investing. He has written one of the bibles on these matters. Then he tried to monetize this by creating some "momentum" mutual funds. He did poorly. Not surprising, as ALL mutual fund managers use momentum and Moving Averages, but do not publicize such. (Just like they all use stock charts--but don't state such in prospectuses.) Stock picking and trading is not an easy game, and Farber did not follow his rules much. His funds were terrible and became a proxy for "see, you can't use momentum in the market." Yet we know momentum stocks were tops in last decade--by a mile! I will review these links cited to get an update on him...thanks for posting. R48 The stock market is very efficient. Techniques like momentum buying, low volatility, and quality focus may sometimes work, but any advantage tends to get arbitraged away. Except for momentum. Fama French study showed it persisted for all those years/decades. Further, the market since the 2008/9 bear market is often called the "Momentum Market." Lastly, if you are unfamiliar, the best hedge fund and manager of all time is multi-billionaire James Simons. His fund trades daily, using many traders and computers, SOLELY on momentum...got about 28% CAGR a year annual returns forever. (He declined some in brief COVID period). I don't know if Faber did a bad job implementing his concepts; or if no mechanical concept really outperforms for long. I followed his fund...he didn't follow rules; terrible job.I'm skeptical. Google Simons, Renaissance Fund, and he writes his algo is 100% momentum. BTW I think Simons now takes a 30% fee of all profits!R48
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Post by paulr888 on Jul 26, 2021 6:14:33 GMT
R48 ... how many videos did you watch? Do you have any further comments on the videos content on investing, portfolio construction and asset allocation?
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Post by Norbert on Jul 26, 2021 10:20:46 GMT
R48,
I know that there are some great traders out there. I also agree that momentum is an important factor in the stock market.
But, I remain skeptical about how practical trading momentum really is. You have anecdotal evidence of one successful trader who says he uses momentum. OK. What's he doing exactly?
To be clear, I do NOT question the ability of active managers like Bill Miller to outperform their index benchmarks. But, I do question the use of momentum algorithms to do the same thing.
Why aren't there dozens or hundreds more managers succeeding with momentum?? If it works so well, why isn't there a single ETF or fund with a strong record of some duration?
I personally went to some lengths trying to develop successful trading algorithms with momentum using TradeStation. No luck. It works for some periods, but not for others.
N.
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Post by retiredat48 on Jul 26, 2021 20:59:24 GMT
R48 ... how many videos did you watch? Do you have any further comments on the videos content on investing, portfolio construction and asset allocation? Not yet. I am swamped with some home life items, requests on the Fidelity Forum, off-forum requests by certain readers, and this forum's activity. I feel like the emergency room doctor who can't go home. I will try to eventually view the videos. R48
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Post by retiredat48 on Jul 26, 2021 21:10:09 GMT
R48, I know that there are some great traders out there. I also agree that momentum is an important factor in the stock market. But, I remain skeptical about how practical trading momentum really is. You have anecdotal evidence of one successful trader who says he uses momentum. OK. What's he doing exactly? To be clear, I do NOT question the ability of active managers like Bill Miller to outperform their index benchmarks. But, I do question the use of momentum algorithms to do the same thing. Why aren't there dozens or hundreds more managers succeeding with momentum?? If it works so well, why isn't there a single ETF or fund with a strong record of some duration? I personally went to some lengths trying to develop successful trading algorithms with momentum using TradeStation. No luck. It works for some periods, but not for others. N. I don't view your question as correct, as in: why aren't there dozens more managers succeeding with momentum? The question IMO is: Who is not using momentum??You hear often of fund manager computers and algos setup to alert to buy stocks. They base these on stock charts, moving averages and momentum. This is not a mystery. An anecdote...I have mentored a fortyish person who now is a major portfolio manager for a wealth management firm. At his office, he showed me his computer setups that includes: REBALANCING DAILY!. People signed up for this have the computer do buys/sells at the end of each day...based a lot on momentum for fund selections to buy and/or sell. Their top momentum stock for several years has been ROKU...they do not rebalance by selling ROKU. It was amazing to me to see this type of brute-force activity...daily. R48
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Meb Faber
Jul 27, 2021 5:01:23 GMT
via mobile
Post by Norbert on Jul 27, 2021 5:01:23 GMT
R48,
C'mon, R48!
All mutual funds implicitly use various "factors", including:
- Style - Yield - Momentum - Quality - Volatility - Liquidity - Size
Sure, most funds can be said to have some small element of all these factors.
But, Faber is talking about making momentum the driving factor for stock selection. Momentum investing means trading in and out of stocks based on their price behavior, with little or no concern about fundamentals, style, value, quality, etc.
And here I am unaware of any successful fund with a reasonably long record. No successful fund manager I know of does this.
I'm aware of MTUM, the iShares momentum factor capture ETF. Unfortunately, it's a two-star fund that has dramatically underperformed QQQ.
If momentum is as powerful and successful as Faber and you claim, there should be dozens or even hundreds of very successful funds that focus on the momentum factor for stock selection. But, there are not!
N.
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Post by FD1000 on Jul 27, 2021 20:41:43 GMT
I would compare MTUM( link) to SP500 and both have similar SD, QQQ is mostly high-tech and higher SD. I don't like that MTUM make only changes every 6 months, I would use 2-3 months since markets move faster. Right now Financials are the biggest sector, while they are down in the last 2 months. MTUM also includes Mid Cap at 21%. MTUM beat the SP500 for 5 years but trails for 1-3 years. I think a quicker change every 2 months would make it better. Attachments:
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Post by retiredat48 on Jul 28, 2021 17:02:54 GMT
R48, C'mon, R48! All mutual funds implicitly use various "factors", including: - Style - Yield - Momentum - Quality - Volatility - Liquidity - Size Sure, most funds can be said to have some small element of all these factors. But, Faber is talking about making momentum the driving factor for stock selection. Momentum investing means trading in and out of stocks based on their price behavior, with little or no concern about fundamentals, style, value, quality, etc. R48 reply...I never said I invest based solely on momentum. I state "I use momentum to my advantage." I use it in sorting out WHICH candidate funds to buy...by making comparisons; I make when-to-buy decisions based on momentum and 200 day Moving averages; I use momentum to determine that a long dormant space may finally be waking up, and may move upward...and so on. The fundamentals you cite are always factors for me as well.And here I am unaware of any successful fund with a reasonably long record. No successful fund manager I know of does this. I'm aware of MTUM, the iShares momentum factor capture ETF. Unfortunately, it's a two-star fund that has dramatically underperformed QQQ. If momentum is as powerful and successful as Faber and you claim, there should be dozens or even hundreds of very successful funds that focus on the momentum factor for stock selection. But, there are not! There are not only dozens, but thousands of mutual funds that have very good LT performance records. Studies show individual investors ARE WAY BEHIND (lag) fund manager returns. Other than J Hussman, the challenge is to find even one fund manager who actually lost money the past twenty years.
I reiterate...most fund managers use Charts, momentum charts, and Moving Averages in timing of purchases and sales...even though seldom stated in prospectuses.
N.
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Post by retiredat48 on Jul 28, 2021 19:59:05 GMT
Hmmm. Reading some portfolio manager investing styles, and their use of momentum, I noticed this from Morningstar's report:
FSEAX...This portfolio holds between 60 and 80 names, a moderate total compared with its peers. Zhao (manager) admits to a momentum bias, which is evident in the portfolio’s higher price metrics and lower profitability metrics compared to that benchmark.
R48
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Meb Faber
Jul 29, 2021 6:37:01 GMT
via mobile
Post by Norbert on Jul 29, 2021 6:37:01 GMT
Hmmm. Reading some portfolio manager investing styles, and their use of momentum, I noticed this from Morningstar's report: FSEAX...This portfolio holds between 60 and 80 names, a moderate total compared with its peers. Zhao (manager) admits to a momentum bias, which is evident in the portfolio’s higher price metrics and lower profitability metrics compared to that benchmark. R48 Once again, no one is saying that momentum doesn't exist as a factor in various mutual funds; sometimes more, sometimes less. What I am saying is that simplistic momentum trading strategies like those described and implemented by Faber don't work with any consistency. That's the subject of this thread. N.
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Post by paulr888 on Jul 29, 2021 14:28:45 GMT
From what I have seen in the Faber webcasts, I believe he can get as simple or as complicated as he wishes. He seems to me to have a wealth of information. Whether he can run successful funds implementing certain strategies? I don't know and I don't care. I use him as an educational or eye opening source. Who do you follow Norbert as an investing source of information?
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Meb Faber
Jul 29, 2021 18:32:30 GMT
via mobile
Post by Norbert on Jul 29, 2021 18:32:30 GMT
From what I have seen in the Faber webcasts, I believe he can get as simple or as complicated as he wishes. He seems to me to have a wealth of information. Whether he can run successful funds implementing certain strategies? I don't know and I don't care. I use him as an educational or eye opening source. Who do you follow Norbert as an investing source of information? My biggest influence comes from a friend and neighbor in Marin, California. He has died, but was actually a scientist, prominent in nuclear weapons research. I consider him to have been the smartest person I ever met. I don't follow any self-styled gurus. Can discuss more another time.
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Post by paulr888 on Jul 29, 2021 18:40:33 GMT
Norbert, interesting. I live in San Jose. One of the smartest people I've ever know was Dr. Bill Wattenburg who died 3 yrs. He was not so much investment smart but everything else smart. He had radio show on KGO. My aunt and uncle lived in Larkspur. They have died but family still there and my cousin lives in San Rafael hills. Did you ever live in Marin County?
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Post by ignatz on Jul 29, 2021 18:51:15 GMT
Didn't realize Wattenburg had died. I used to listen to his KGO show fairly regularly when I lived in Sonoma County for 20 plus years ending in 2001. I don't recall him talking much about investing...more about engineering related topics. Smart guy, but didn't fit in well with the typical Northern Calif political climate.
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