This Lazy Woman’s Investment Method (L-O-N-G)

I will start off by saying that I do no research—absolutely none. Others have already done it for me, and I just check in with them. Specifically, I use Morningstar and Vanguard fund year-to-date performance ratings.

I also avoid individual stocks and bonds—since I’m no clairvoyant, I have no way of knowing what tomorrow brings for stocks, bonds, or anything else. Nor do I intend to learn how by driving myself crazy studying charts and dissecting annual reports.

What I do pay attention to is demand, overall trends, scarcity, and insider activity—particularly the CFO of a corporation.

Demand tells me what the consumerati will use willy-nilly without regard to cost or season. Overall trend tell me (in an offhand way) what the hedge funds are doing. Scarcity follows the same lines as demand, only the demand comes from a different source. Insider activity tells me that something’s up at a company that the public doesn’t know about yet (for better or worse).

Some examples of what constitutes my four pillars of interest:

Willy-nilly consumerati use: gas, utilities, credit, and food.

Hedge fund activity: fast-moving and quickly-rising bubbles (or conversely, any fast-moving and quickly-imploding black holes) in any given market sector, such as real estate, gold, oil, etc. Since hedge funds must do a heck of a lot of research to best invest the monies of rich people, I just play follow-the-leader. They take the risk, I reap the rewards by playing along at home.

Scarcity: resources that are drying up, or hard to come by, despite our vast exploration, technology, and demand. Oil, water for processing semiconductor chips, natural gas, land, and gold fit this category well. Nobody’s making any more of these things, in spite of huge business demand.

Insider activity: a CFO (chief financial officer who makes investment decisions for himself and his company) suddenly and without warning buys or sells huge blocks of his own company’s stock, signaling that he knows something I (or the rest of the public) doesn’t know about…yet. By the time it becomes public, the big money has been made.

All this activity can be participated in through the use of indexes and mutual funds. If you can find a mutual fund company that satisfies most of your needs, then go with it—otherwise, stick with indexes. Actively-managed funds don’t normally do any better than the indexes anyway, and most managers merely strive to match index contents. Why pay commissions for something that has no manager middleman?

Once you have made your own list of industry interests, keep an eye on Morningstar to see where the funds are performing YTD. The top performers in each category will also tell you where the largest returns are, and that’s where you should be putting your money—not those same specific funds, but in those categories. How you participate in the categories is up to you—indexes, funds, or individual stocks.

The financial news itself will blare a horn when activity is brisk one way or the other, and that will usually signal large buying or selling activity by hedge funds. Keep an eye on the news and an ear on CNBC (for the activity reports and industry interviews, not the idle staff chitchat).

The regular news will alert you to scarcity issues.

Insider activity can be monitored through this website: http://www.secform4.com/

For the most part, this is a set-it-and-let-it-run method of investing…not a set-it-and-FORGET-it one. There is no such thing now, as the markets have far outgrown their own britches. The best time for setting and forgetting was in the early 20th century, when markets and industries were in their infancy. Back then you could have picked a stock at random, held on for decades, and come out a gazillionaire. Not so today.

The nineties taught us investors that we can’t rely on research done by a Wall Street firm, and we can’t rely on information put out by a company—both can and will say exactly what they want you to hear to elicit an investment purchase. This is why individual stock investment is so dangerous. When left alone to our own investment devices, we become vulnerable to emotional swings of fear and greed, with a healthy dose of persuasion (good or bad) thrown in. This, to me, equals too much risk for my money—I got tired of lipstick-covered pigs, and too much “distraction” has been built into this Wall Street world of ours. Why is it only money managers that can understand and navigate this world? If we’re all meant to invest, shouldn’t the unnecessary crap be removed?

If it was, then ALL of us would be millionaires, and they can’t have that! Brokers and money managers would be a dime a dozen, and find their jobs off-shored and outsourced. Heaven forbid we preserve an industry that serves no real purpose other than obfuscation.

I look and see what’s moving, where the big money is, and join the fun as best I can with the limited offerings of my mutual funds, 401(k) choices, and index funds. I also have a play portfolio set up at Morningstar to track the offerings of the mutual funds and 401(k), and can make choices based on YTD performance of those specific offerings—that way, I know I’m doing the best I can with what I have to work with. I often have to shift money around, and have done so plenty of times this year—fortunately, I pay little to no commissions for doing so. Also, the mutual funds themselves will adjust their holdings for maximum performance, so I don’t have to worry about industry specifics, like oil drillers vs. oil services—just holding an oil mutual find is enough. I let them sort it out.

I have yet to sit down and figure out if staying where I am and paying occasional small fees for exchanges more or less beneficial than just moving the whole kit and caboodle over to I-shares—I suppose I should do that soon with January fast approaching. But I am lazy, as I said in the beginning…and oil is still paying me handsomely for now.

Gold and Japan are two places where hedge funds seem to be parked these days, so I got into a Pacific Stocks fund and a metals fund—notice they aren’t precisely Japan and gold, but allow enough wiggle room to capture gains from related places within those sectors. I expect these trends to continue into next year, and am leaving some money there. Set it, but don’t forget it.

My lazy method usually does three times better (or more) than the S&P, and many times better than the Dow. Not stellar, I know, but better than the average bear for the work I put into it. No losses yet, I must say.