# How goes the 'drunken psycho' strategy?



## Tyler Durden (13 January 2015)

> In an interview hosted by money website Benzinga last week, the always quotable Buffett had a few new pearls of wisdom for the history books.
> 
> Asked for the secret to his investing success, the “Oracle of Omaha” took a leaf from Nike.
> 
> ...




http://www.news.com.au/finance/mone...nvesting-secrets/story-e6frfmdr-1227182304217

Just wondering, does anyone here adopt this strategy, where basically you put some money aside each fortnight/month/whatever and put it into the market? What do people think of this strategy?

I read the above, and particularly the bold, and it appealed to me. I know he says not to pick individual stocks, but I am more familiar with that than index funds. So I was thinking I could put some money aside every month, and allocate it to various blue chips depending on the SP at the time, say, for example, CBA, JBH, BHP etc, and just accumulate it for pretty much my entire life instead of looking for selling opportunities.

Thoughts?


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## Wysiwyg (13 January 2015)

> *just put X dollars per month away and you’ll live a very comfortable life*



That is not true. You could live a comfortable later life or retirement but the sacrifice of those dollars would be for 20 to 30 years. It's like his buy coca--cola story. Yeah great if you lived to be a 150.


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## galumay (14 January 2015)

He is right - if you start young. The biggest problem for those starting young is not using those funds, or part thereof, somewhere along the journey. 

I think what he is trying to tell us is that you can definitely create wealth slowly, every way you try to speed that process up increases the risk of failure. For that reason I dont think trying to pick individual companies is consistent with his message.

He suggests a low cost index fund because if you keep adding more to it every oppotunity and let the magic of compounding do its work you will create wealth.


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## tech/a (14 January 2015)

Wysiwyg said:


> That is not true. You could live a comfortable later life or retirement but the sacrifice of those dollars would be for 20 to 30 years. It's like his buy coca--cola story. Yeah great if you lived to be a 150.




Wouldn't be so quick.

Have a play around here. Run all sorts of Scenario's
The power of compounding is very strong.

https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/compound-interest-calculator

Here is starting with $100 a week and continuing for 40 yrs at $100 a week (At which time $100 will be worth about 2 bucks in todays terms!)





Simplistic I know but thought provoking!


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## McLovin (14 January 2015)

tech/a said:


> Wouldn't be so quick.
> 
> Have a play around here. Run all sorts of Scenario's
> The power of compounding is very strong.
> ...




I agree with you (it must be a full moon or something!).

If you go the index fund approach and given the ASX has a total return of about 11.5% over the last 100 or so years you will have a very substantial pile of cash at the end of your working life around $4.3m (yes of course because of tax etc it's unlikely you'll get the benchmark return but it does illustrate the power of compounding.


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## galumay (14 January 2015)

tech/a said:


> Simplistic I know but thought provoking!




Thanks, tech/a, just showed that to my 11 year old son who I have been trying to teach the concept of compounding interest - thats a really helpful, visual representation.


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## tech/a (14 January 2015)

galumay said:


> Thanks, tech/a, just showed that to my 11 year old son who I have been trying to teach the concept of compounding interest - thats a really helpful, visual representation.




WOW

Don't forget to add another 10 yrs for him!


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## edman79 (14 January 2015)

tech/a said:


> Wouldn't be so quick.
> 
> Have a play around here. Run all sorts of Scenario's
> The power of compounding is very strong.
> ...




Sorry havent you just proved Wysiwygs' point. 
If we are now 30... and we put in $100 per week for 40 years then when we're 70 we'll have 628k. Then factor in that $100 will be worth about 2 bucks and when were 70 we'll have $12,560 for our troubles?


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## galumay (14 January 2015)

tech/a said:


> WOW
> 
> Don't forget to add another 10 yrs for him!




I actually posted about this on my blog a couple of days ago, so to put it in slightly off-topic context, here is the post,



> sometimes the light just comes on…and it surprises you too!
> 
> tonite i was talking to kai about the money he got for christmas and his birthday, quite an amount because he is away so rather than give presents, quite a few of the family gave money. I suggested to him that he should consider putting some of it in his long term saving fund, he had a think about it and decided to put $50 in.
> 
> ...


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## galumay (14 January 2015)

edman79 said:


> Sorry havent you just proved Wysiwygs' point.
> If we are now 30... and we put in $100 per week for 40 years then when we're 70 we'll have 628k. Then factor in that $100 will be worth about 2 bucks and when were 70 we'll have $12,560 for our troubles?




Its only set on 5% return, and only $100 per week, not hard to generate many millions with say a historical rate for the market of around 11% or increase the amount per week.


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## tech/a (14 January 2015)

edman79 said:


> Sorry havent you just proved Wysiwygs' point.
> If we are now 30... and we put in $100 per week for 40 years then when we're 70 we'll have 628k. Then factor in that $100 will be worth about 2 bucks and when were 70 we'll have $12,560 for our troubles?




No I dont think so---thats why I said it was simplistic.

Id expect that youd increase the amount each year at least in line with inflation.
Many as they get older could place 10 or more % of their wage. They could achieve more than 5% 
I can put $50K in my SMSF and so can my wife---and we do.

So this could be exponentially more.
But the more you put in earlier the more you will receive.

I think the power of compounding is lost on many.
Lets have a look at an average of say $250 a week over a lifetime or work 40 yrs and $10000 start money.---a struggle early but could be achieved.
And an average return of say 7%

Hard without the flexibility of being more accurate but I think reflects a degree of possibility
if one was creative.
Hell with the profits some of the guys here make on shares they would smash this example!


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## Wysiwyg (14 January 2015)

tech/a said:


> Here is starting with $100 a week and continuing for 40 yrs at $100 a week (At which time $100 will be worth about 2 bucks in todays terms!)



No doubt Wazza has the answer to retiring earlier and wealthy but life isn't a linear experience. The many twists and turns of in and out of work and cars and house and family and illness and catastrophe and windfalls and lucky share runs all make for anything but a smooth 100/week contribution to a distant goal of maybe an early knock-off from a working life.


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## Julia (14 January 2015)

galumay said:


> I actually posted about this on my blog a couple of days ago, so to put it in slightly off-topic context, here is the post,



That is one lucky kid to have such useful parenting.  Good for you, galumay.
Would that it was replicated in more families.



Wysiwyg said:


> No doubt Wazza has the answer to retiring earlier and wealthy but life isn't a linear experience. The many twists and turns of in and out of work and cars and house and family and illness and catastrophe and windfalls and lucky share runs all make for anything but a smooth 100/week contribution to a distant goal of maybe an early knock-off from a working life.



So true.  We can't anticipate all the events which will knock us around during our lifetimes.


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## shouldaindex (14 January 2015)

Person A:
- Works for 30 years.
- 44k salary a year.
- 9% put into Superfund.
- Earns 6% return.

= 350k.

I would imagine the majority of people follow Buffett's advice without really knowing it.


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## The Falcon (15 January 2015)

Firstly Galumay, that's brilliant stuff really..well done.

Secondly, long term investing based on disciplined DCA into index and compounding, with a focus on increasing your DCA deposits over time through increases in income and watching expenditure while staying the course through market movements is a very solid way to wealth. Most people don't want to hear it though as they want to get rich quick...the only way to do really well over a shorter timeline is through an operating business, or a very high salary.


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## Julia (15 January 2015)

The Falcon said:


> ..the only way to do really well over a shorter timeline is through an operating business, or a very high salary.



"The only way???"
Probably not.  Plenty of people do well over much shorter time frames by taking advantage of peaks and swings, switching between asset classes etc.


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## McLovin (15 January 2015)

shouldaindex said:


> Person A:
> - Works for 30 years.
> - 44k salary a year.
> - 9% put into Superfund.
> ...




That's a pretty low ball salary assumption.


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## The Falcon (15 January 2015)

Julia said:


> "The only way???"
> Probably not.  Plenty of people do well over much shorter time frames by taking advantage of peaks and swings, switching between asset classes etc.




Sure, a simplification. I should have added without leverage and or fortunate timing/circumstances and or inordinate skill / luck. I guess it also comes down to what you consider "really well".


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## So_Cynical (15 January 2015)

McLovin said:


> That's a pretty low ball salary assumption.




Not for 30 to 40% of the work force.


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## Julia (15 January 2015)

So_Cynical said:


> Not for 30 to 40% of the work force.



That surprised me, SC, so I went looking for some detail.  Found this from the ABC, May 2014.



> Ben Phillips, principle research fellow at the University of Canberra’s National Centre for Social and Economic Modelling (NATSEM) told RN Breakfast that for those paying tax, the middle income is around $55,000 per year. If pensioners who do not pay tax are included, that figure is closer to $45,000 per year.
> 
> So, if you earn one dollar over $45,000 you are in the richest half of the country.




Even at $55,000 that's much lower than I'd thought.  Is the usual stat that's quoted the average, so differs from 'middle'?
Would that figure be before tax also?


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## sasch (15 January 2015)

Julia said:


> That surprised me, SC, so I went looking for some detail.  Found this from the ABC, May 2014.
> 
> 
> 
> ...




Hi Julia, 

I think this is referred to as median income, the usual stat that is quoted in the media is the average, which is really quite deceiving. Here is a useful article that explains it much better than I can, which you may find useful.

https://mattcowgill.wordpress.com/2013/05/13/what-is-the-typical-australians-income-in-2013/

So the average income typically quoted by the media is really only applicable to the top 25th percentile.

There would be hordes of people in retail and hospitality that think that 44k would be pie in the sky stuff from my experience.


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## Julia (15 January 2015)

Sasch, thank you for that.  Even though the figures are a bit old now, it still confirms how easy it is to delude the population by quoting always the average.

It underlines the difficulty for so many of being able to get into their first home as well as to meet everyday living costs.


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## sasch (16 January 2015)

sasch said:


> So the average income typically quoted by the media is really only applicable to the top 25th percentile.




Correction: this should read - So the average income typically quoted by the media is really only applicable to the top 25 percent of income earners.


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## Mrmagoo (16 January 2015)

Tyler Durden said:


> http://www.news.com.au/finance/mone...nvesting-secrets/story-e6frfmdr-1227182304217
> 
> Just wondering, does anyone here adopt this strategy, where basically you put some money aside each fortnight/month/whatever and put it into the market? What do people think of this strategy?
> 
> ...




lol thats what i do except it is not a little bit but 40% of what I get paid weekly


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## shouldaindex (16 January 2015)

I have a hypothetical scenario to test a stable strategy against the drunken psycho:

10 year time frame, choose 10 stocks (ASX200, equally weighted).

- Buy and Hold for duration.
- Put in a 10% stop-loss upon buying.
- Maximum 3 stocks per sector.

Now try to lose money.  I imagine that'd be quite difficult, so looking at it as a strategy to deal with the drunken psycho, it looks quite effective.


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