Dabbling in Stock Markets
Lessons to Pass On?

This is an article that was published in "Finance Link", a PDO in-house magazine. Colleagues kept asking me for reprints.
It may be of interest to a wider audience. Consequently here it is, complete with hyperlinks:


This article is in response to a request to write something for Finance Link. It is not meant to proffer advice to the reader, wise, old or young, but is simply a quick review of the lessons I have learnt. It is the sort of advice I would give to my own kids. You, or they, may take bits here and there, at own risk, or leave it all alone. There is a saying to the effect that "Those who do not study history are condemned to repeat it." When young, most of us think we know it all. Dabbling in Stock Markets is no different. We all start off thinking we can make killings; and we all have to make our own mistakes. People in salaried employment, like most of us in PDO, by definition, value a sense of security more than a self-employed entrepreneur does. Salaried employees are averse to taking major risks, and yet many, when dabbling in stock markets, occasionally take ridiculous risks. They put a major portion of their life�s savings in companies that they know nothing about and have nil understanding of even rudimentary terms like p/e ratios. E.g. how many readers who own shares on the MSM know the current p/e ratios of the stocks they own? Others miss out altogether on the major investment opportunity of our era (stocks, whether MSM or international) by leaving their savings in banks and watching them decline in value over the years. And when the time comes to retire, they are still struggling financially. It need not be so. For youngsters starting off their careers in salaried employment I would like to relate some of my own experiences over the past decade. We all learn these lessons late. And it is much cheaper to learn from others� experiences than from your own.

Dabbling in stock markets started for me in the mid-eighties, after a friend convinced me that it was quick, easy money. He had just returned from a stint in London and had been exposed to the ropes. So, I finally jumped in with all my savings by opening an account with Merrill Lynch in Bahrain and started trading. All it takes is a phone call. Returns were unbelievable; every month I kept telling myself that this is absurdly good! At the end of each month I made more than twice my PDO salary. It went on for some months. All at the cost of a handful of calls to Bahrain and reading the Financial Times and the Wall Street Journal (both a few days late), doing "research". It gives you a feeling of being terribly clever. Of course, it was too good to last. Around came the crash of 1987. And in three days I was thunderously down below where I had started. I.e. I had made a net loss on my savings, even though the bulk of it was still there. Thank God. You may think you'll get out fast when things crash. You won't.
First lesson: Any idiot can make a lot of money when the stock market is rising by leaps and bounds. Nothing to do with being smart, more like luck. Compare the rise in your portfolio with the stock market index, always. If you are beating the index over a year or two, then perhaps you are being clever. Please always remember, a monkey throwing darts at a list of stocks (or any random number generator) can match the index. Unfortunately most thinking people cannot.

After that sobering episode, I became more conservative by putting any new savings into Unit Trusts, in the care of professional money managers. The way I chose my Unit Trusts was by selecting a market, say, the UK, and looking through performance tables published at the back of those magazines meant for British expatriates. Most of the British in PDO receive these magazines. I picked only those Unit Trusts that were amongst the top 10 performers in their sectors in each of one year, 3 years and 5 (or 10) years. In this manner, over the next several years I bought several Unit Trusts, thinking that professional money managers with such great track records must do better than either the indices for the relevant markets or my own dabbling. Years later, I have since realized that they did neither! And for UK Unit Trusts they charge you 5 or 6% load up front, plus a percent or two annually! The nerve of it all! All of them dropped out of the top ten, most even the top quartile, in the year following my purchase of the Units. So much for track records. Most Unit Trust prospectuses compare themselves to "sector averages", not the relevant market index. Why? Because the vast majority of Unit Trust managers in that sector cannot beat the relevant index, i.e. the sector average is almost always a disaster compared to the index. It makes sense to compare themselves to their peers and appear brilliant, rather than a monkey (index tracker!) that will make them look terrible!
Second lesson: Have little faith in professional investment advisors and money managers. If they were good at it, they would not have the time to bother with small-fry retail investors, like me. They'll be too busy making money for themselves. If you really insist on entrusting your hard earned savings to professional money managers, then put it in index tracking funds. Your friends will tell you how much better they are doing with this or that fancy-named fund or their own brilliant stock picks. In the long run, years later, their super-performing funds will let them down; and you will still have that knowing smile. When your index tracker fund drops in value, everyone else's is also dropping, but at the end of the day you will end up beating theirs, because yours is doing as monkey does; consistently beating 90% of professional money managers. And the 10% who do better than the monkey are never the same 10% anyway; so how on Earth can you know which to entrust your money with today?

OK, but what if one wishes to speculate and make a quick buck? Speculation should not be confused with investment. The answer for speculation is options. Options trading is complex, and is not for the beginner. But from my own experience it is possible to make good steady money in it, even though you are always betting against the really big fish with deep pockets. Small fry like us need to moderate the risk exposure. When buying call or put options, use only money that you can afford to lose, totally; i.e. only a very tiny fraction of your savings. When selling calls, be sure they are covered calls. When selling puts, be sure the underlying stock is very sound and you would not hesitate to keep it for the next few years, even though the price may be dropping dramatically in the intervening period. Basically, do not sell puts on any stock that is not a huge, multi-national, household name. Options trading is for speculation, to give you a flutter, not for investing. But it is possible to make good steady money in it.
Third lesson: If you cannot fully comprehend the previous paragraph, steer well clear of options! There is no recipe for a quick, big buck. Always keep speculation play-money separate from your investing money. Options are a fun way to play, and you do not kid yourself into believing it is investing.

One will always remain tempted by the thought that it should be possible to do better than simple indexing. There are techniques that try to load the odds in your favor, e.g. following the Dogs of the Dow (http://www.dogsofthedow.com/) or investing Foolishly, far cleverer than the professional money managers (http://www.fool.com/ )! These methods basically follow a subset of the Dow Jones Industrial Average (4, 5 or 10 of the Dow 30 with the highest yields). In all cases, investing should always be in stocks of a quality such that you are willing to hold them for many years. If you are chasing a quick buck, then it is speculation, and you should be willing to lose a major portion of your stake. Much of the trading in our local Muscat Securities Market is pure speculation, mainly because access to meaningful company data is not so convenient to come by. Even public announcements like "dividend of 25%" are generally meaningless. They tend to refer to the nominal value of the stock (its price at Initial Public Offer, IPO) which may have been One Rial. If the current price of the stock is actually Six Rials, then that 25% translates into only 4%, which is not so spectacular. The recent massive decline in the MSM has probably rendered the valuations of many stocks highly attractive as long term investments, the only way you should buy stocks anyway. But it takes a lot of homework to identify which. Also, the MSM is not an efficient market in the sense of valuations closely tracking values, so whether indexing will work well remains to be seen. It would be an interesting market to watch over the next ten years or so.

One great advantage that youth has is the long time available for their investments to appreciate. All youngsters should save like crazy and be fervent, long term investors. It does not take many years for those meager, early savings to compound into significant portfolios. In all likelihood, within ten or fifteen years of starting, it would be reasonable to expect that just daily fluctuations in the price of their portfolios can equal their monthly salaries. Yet they may have another twenty or thirty years investment time left to go. Most people learn this simple truth too late.
Fourth lesson: Save like crazy when young, invest long term, and relax as you get older. Most people tend to do the reverse and never become "well off" simply through job promotions and salary progression. Use the time you have to tilt the odds massively in your favor. You should aim for your salary to become almost irrelevant by the time you get into your forties. Saving by putting your money in bank deposits is an awful waste of investment time. In all likelihood, over a long period, your money will depreciate faster than any interest it earns. There are generally two investment routes for the lazy people amongst us. The world's stock markets and housing. The housing market in Oman used to be great in the 1970s. Now it has a hard time competing with bank fixed-term deposits, and you still have to deal with tenants, some difficult. The stock markets long term are better than either, and the only nuisance is that they also decline every now and again, sometimes severely, and you have to suffer in misery till they recover. But just stick it out and you will be rewarded eventually.

Finally, to set up your own index fund sign up with an Internet broker. These brokers are cheap, efficient, and you do not have to waste your long distance phone calls in idle chatter with a live person trying to sell you some stock or other. The one I use is TDAmeritrade. $9.99 per trade up to 5000 shares, trades guaranteed to be executed within one minute, otherwise even the $9.99 commission is waived. Minimum account is $2000. A single trade of 5000 shares can be anywhere up to $500,000, so your trades should cost you only $9.99 each. If you trade in blocks larger than $500,000 each, why are you reading this article? There are other, even cheaper brokers, but many do not take clients outside the USA. Having a US broker does not mean that you are restricted to American companies. Most major companies, of all nationalities, are also traded in the US either listed on their own right (ticker symbol for Royal Dutch is RD, for Shell Transport it's SC) or via ADRs (American Depository Receipts), so the world is your oyster.

One could ask how much should one save? There are so many commitments... I believe that a reasonable target for a young person is 30% of his gross income (including allowances). Sounds tough? Not really, since if you take a PDO housing loan you get 25% of your basic salary deducted anyway, so you have to save only a bit more each month. It is important not to kid yourself though. Paying for a car is NOT saving; it's sheer consumerism. If you borrow from a bank to build a house, then only the repayments on the principal are savings, interest payments do not count. On the PDO housing loan, all your repayments are on the principal, pure savings. It's a great deal. Get the drift? Let us examine the case of two chaps both aged 30 and earning R.O.10,000 p.a. One has a low CEP and his salary progression grows at around 3% p.a. compounded (including promotions, inflation, whatever). The other has a Letter Category CEP (i.e. a "high flyer") and his salary progresses at around 8% p.a. The Dow Jones Industrial Average has compounded at around 10% p.a. since 1984 (oldest data I managed to obtain). That excludes an extra 2% or 3% dividend in addition, to make up for a string of lousy years, or lack of diligence in putting aside the full 30% of salary, consistently over decades. So what can our two chaps look forward to, saving 30% of their salaries for the next 30 years?

                Salary     Savings       Curtailed Savings*
Year 15            15,000        112,000          112,000
Year 30           24,000        644,000        469,000

High CEP
Year 15            29,000        151,000          151,000
Year 30            93,000       1,108,000        630,000

*Curtailed Savings refers to a situation whereby our chap decides that after 15 years he has enough investments accumulated that he can afford to spend 100% of his salary from then onwards; and he just leaves his investments to accumulate further, i.e. he feels wealthy enough not to scrimp anymore. Actually by then the stock dividends alone give an extra couple of hundred Rials per month to splurge away. The future salary figures may look absurdly high today, but with inflation, they are in line with what happened in the past. It's also interesting to note that at the end of 30 years' saving and investing, the daily fluctuations in the stock portfolio can be expected to be larger than the monthly salary. Talk about nerves! Are the forecasts above realistic? From past experience, emphatically yes. So go forth and save that 30%, from this month on. But do not think you can replicate the above by putting your savings in a bank account. Inflation will eat it all away. Start dabbling. But remember that stock markets do go up as well as down. If you think you have the nerves for the downs, here are the simple steps:

1. Get yourself a convenient e-mail address. The best is probably a web-based address that you can use anywhere in the world; on holidays, on cross-posting, on anybody's computer, PC or Mac. I use hotmail. Just go to http://www.hotmail.com/ and sign on. It's free.

2. Open a brokerage account. I use TDAmeritrade. It's also free. You just fill in their form on the web, wait a couple of weeks for the paperwork to get sorted out by snailmail and then wire them the money you wish to start with. Even if you do not actually purchase any stocks, your money will earn interest and remain available to you at all times. You can also access your account, trade, transfer money, whatever, from anywhere in the world, from anybody's computer, PC or Mac. You can also write US $ cheques to all and sundry, and over-draw your account by up to 50% of the value of your stock holdings with nil formality at a very reasonable interest rate (7.5% p.a. as per January 2000).

3. You are now ready to trade. For index based investments, just pick a country or an industry sector that you wish to index-track and go to http://www.ishares.com/ Get the stock ticker for the index of interest. This is a very convenient, cheap way of indexing. E.g. to index-track the S&P 500, just buy shares with the ticker symbol SPY, to track the UK buy the ticker EWU, Netherlands EWN, Japan EWJ, etc. For individual shares outside the USA that trade via ADRs (presumably every Brit wants to own shares in Marks & Spencer one day), just go to http://www.adr.com/ and take your pick of country, industry, whatever. By the way, the ticker symbol for ADRs of Marks& Spencer is MASPY  ;-)

Just do not get too greedy. Always remember that one way of making a small fortune in the stock market is to start off with a large one. Probably not quite what you had in mind. And anyway, is anybody taking all this advice? Well, here is my youngest daughter getting into the spirit of Fool.com!

Naila getting into Fooldom!

Disclaimer: The reader should realize that the above is wholly a matter of the author's personal opinion. It is NOT professional financial advice (you already have my views on that one!), nor is the author in any way responsible for the soundness, integrity, reliability or otherwise of any of the firms or websites mentioned.

Added in October 2005:

Since the above article was written it has become much easier to obtain, in a reasonably timely fashion, the quarterly financial reports of Omani companies from the website of the Muscat Securities Market. In the intervening 5 years it's also noteworthy that the MSM Index has gone from around 2000 to around 5000 currently. Yes, even that monkey referred to earlier could have multiplied its investments a factor 2.5x ! Is the MSM currently over-valued? Not really, by international standards. One can still find companies that have steady earnings and that trade at P/E ratios well under 10. There are also companies that are growing at a brisk pace that have P/E ratios well under 15. Yet, somewhat disconcertingly, the local public remains mesmerized by a few companies that have P/E ratios well over 20 and many speculate feverishly on these companies. An oft-used rule-of-thumb is that a company selling at a P/E ratio of, say, 25 is fairly valued if it is growing at 25% annually over the next several years. Growth rates and P/E ratios should be intricately linked, but much of the time the P/E ratios here and elsewhere tend to be linked to pure speculative buzz. Remember what happened to the tech bubble, Tokyo real estate...? On the other hand there are a few well-diversified Joint Investment Accounts (Funds) that regularly trade at significant discounts to their Net Asset Values, sometimes in excess of 20%. These discounts sometimes continue right through to the days when the units are due for redemption.

Added in February 2017

I have now been dabbling in stocks for more than 30 years and perhaps it's time to summarise what I have learnt so far. There are major differences between our local market, the MSM, and a very large market like that of the USA or the UK or Japan, etc.

The MSM still reacts slowly to new information, though much faster than it used to, basically in weeks where it used to take months or even years. An obviously under-valued stock now would probably rise in price within several weeks, to fair value. So you can still beat the MSM index by doing a lot of homework frequently and keeping track of what's going on, using publicly available information published as daily news items on the MSM website itself. Similarly a stock can become obviously overvalued and you have a few weeks to dump it. I found that typical times between under valuation and over valuation (my holding period) is two to five years. Ten or twenty years ago a stock could remain obviously undervalued for very many years, and this is where I could make the most profit; simply by adding to my purchase regularly and waiting for the MSM to realize that the stock is undervalued; to be bid up, until overvalued. The important thing to note about the MSM is that indexing is not particularly attractive and you have to be a stock picker. I found this approach works well: Ignore the very small companies because they take forever to offload once you no longer wish to hold them. Best to stick to companies that are large and have capitalisations of at least 50 million Rials, say, annual net earnings of >5 million Rials, still very tiny by international standards. If attracted to buy into a much smaller company, do realise up front that it can either go bankrupt or grow spectacularly. In either case once you are in, you stay in for many, many years. Annual results are normally published in unaudited form by mid January and in audited form by end March. Do a quick screen and note the handful of companies with low P/E, say, under 10. Plot the annual net profits for the past ten years of whatever looks attractive and make a rough estimate of compounded annual growth rates by looking at the graphs. Ignore temporary downturns or upturns. A temporary downturn could be an indication that the company has been making investments for expansion. A temporary upturn could be a reflection that the company's main raw material suddenly dropped in price in the world markets, bringing forth a sudden spurt of net profits. If one or two companies shows a compound rate of growth of, say, 15% p.a., yet has a current P/E under 10 then it's probably undervalued and needs deeper investigation. Check all its news items as published on the MSM website itself. All you need is 3 to 5 companies in different sectors and you are diversified enough. The MSM is a small market. If you see nothing newsworthy to explain its low P/E then you may have found a gem to invest in, and simply wait till others recognise it too. At almost any time it's possible to find at least one company worth deeper investigation. Remember that the market gets very emotional. A low crude oil price tends to pull a lot of foreign investors out of the MSM; leading to a generalised drop in stock prices. But the fortunes of, say, a food company, be it breeding chickens or flour mills, have little to do with the oil price. People still need to eat! On the other hand a drastic fall in the price of crude oil definitely leads to a drastic reduction in, say, construction. Hence cement and ceramic tile manufacturers are bound to be impacted badly. Over a few years you may widen out to owning around 5 companies. By the same approach you may find that your 15% p.a. growth company slows down and somehow ends up with a P/E much higher than its then growth rate. Time to sell and look for another gem. It's better to invest in only a handful, carefully vetted, companies than a large number just for the sake of diversification. The more careful your vetting, the more daringly focused can be your investing. Always ignore temporary, quarterly, distractions. Good company management will overcome economic downturns eventually. The average MSM stock pays 4 to 5% p.a. in dividends, one or two even 7% p.a. But dividends are not as important as growing net earnings over several years. Basically you want to invest in a well run company, and if that company has ample investment/expansion opportunities within itself and therefore does not pay any dividends, or pays very low dividends; then that's even better! How much cash can you extract to spend annually? I am still unable to give guidelines, but it may be safe to spend all the dividends you receive and hope that your companies still grow enough to make up for future inflation. In brief, you need to do your own homework, plotting those annual net earnings for the past ten years in order to identify the very few gems attractive enough to invest in. Do NOT invest on rumours. The MSM index can be flat for a decade and you do not wish your portfolio also to be flat for decades, even though you may be getting 4 to 5 % in dividends annually. You can do much better than that, but you need to do the homework! Too lazy for the homework? See next paragraph.

World markets: Let's face it, much of the world seems to have become an economic colony of the USA, and slavishly follows its ups and downs, and have mostly trailed it at a weaker pace over the past decade or so. So why bother with the rest? Just invest in the USA? Really depends on whether you consider that the USA has somehow managed to invent a superior economic system compared to, say, the Europeans, Japanese, Chinese, etc. or whether the US markets are based on ephemeral slight-of-hand that has given unjustified confidence worldwide on the invincibility of the US $. If this supreme confidence evaporates to any extent, for whatever reason, other markets may well take the lead. It's almost impossible to beat the index of any large stock exchange consistently over many years, such as the S&P 500 or the FTSE 100, etc. These markets react within minutes of any news and you are always too late. You may be enticed to think you can beat the S&P 500, but even the professionals fail most of the time. One or two lucky stock picks are invariably followed by duds. So, simply invest in the index. Buy the ticker SPY to track the S&P 500 and relax. For decades. I checked the data for the past 50 years, between mid-1966 and mid-2016. The S&P 500 (SPY) grew at a compound rate of 6.6% p.a., paying an average dividend yield of 3.1%, and there was an average USA inflation rate of 4% p.a. How much can you cash out annually? If your dividends are taxed 30% at the US brokerage, so you never do receive the full SPY dividends (e.g. for residents of Oman where there is no personal income tax and no tax treaty with the USA), then you can cash out 4.5% of your total portfolio (including dividends) p.a.; and the amount you cash out annually will grow in $ numbers, keeping pace with inflation, for decades. On the other hand if you live in a country with personal income tax, then you can cash out 5.5% p.a. of your portfolio before tax. There will be years when the S&P 500 shoots up and years when it crashes. Best is just to pick a fixed random time of the year, say, July, before your summer vacation when money is in short supply. Each July check the total valuation of your portfolio including dividends and cash out 4.5% of it (or 5.5% if you are in a country with personal income tax). Repeat at the same date the following year. A year with a market crash will give you less cash, and a boom year will give you more cash, but as long as you do not exceed these percentages, you ought to do well long term, and also keep up with inflation right into your old age. In 2017 the other steady, growing investment possible is to buy shares in Berkshire Hathaway, BRK.B. This company has been run by the greatest stock picker of all time, Warren Buffett, and he has consistently beaten the S&P 500. Nice thing for Omanis is that BRK.B does not pay any dividends at all, so there is no withholding tax on dividends at the brokerage in the USA. However Warren is in his 80s and when he pops off there will very likely be a dip, short or long we cannot predict, in the price of BRK.B. While BRK.B has been a fabulous investment in the past several decades, we cannot be confident that it will beat SPY in the next several decades.

A bit of explanation why Index Trackers like SPY do so well compared to stock picking in large, efficient markets where all news gets responded to within minutes. Most Indices are capitalisation based, the larger the company, the more of it you own. E.g. recently the largest holdings in SPY are Apple @3.5%, Microsoft @2.5%, Exxon Mobil @1.8, Amazon @1.6%, JP Morgan Chase @1.6%, Berkshire Hathaway @ 1.6%, etc. If any one of them grows larger, its percentage will also be adjusted higher, and vice versa if its fortunes decline. I.e. you never need to keep track of what's happening. Proportions are adjusted automatically and you are always amply diversified amongst the 500 largest, most vigorous companies in the USA.

But will the USA continue to grow faster than the rest of the world over the next several decades? Just as SPY automatically adjusts for the fortunes of its constituent companies (and drops out the losers at the bottom in order to admit vigorous newcomers) it would be nice to do something similar to economies worldwide, since we do not know what the long term future holds. If, say, the German economy grows rapidly, or the Euro strengthens, we would also like to invest more in Germany, and curtail our investments in a weakening economy elsewhere. I.e. we would like to invest in a worldwide index. Vanguard has just such a fund, VT, Vanguard Total World Stock ETF. Currently it holds 58% in North America, 20% Europe, 15% Pacific and 7% Emerging Markets. Its largest holding is currently also Apple. So, for a well diversified, worldwide long term outlook, I would prefer VT to SPY. But for Omanis both have 30% withholding tax levied on dividends! If you are resident in a country with both personal income tax and a tax treaty with the USA, you ought to be able to get your dividends before taxes, and VT is a very good, long term choice. But for Omanis and for those resident in countries with no personal income tax, continue reading.

What to do with a sudden windfall, say, a Million $ inheritance:

For Inexperienced Oman Residents (no Personal Income Tax): Open a brokerage account that allows trading abroad in nonUS stocks and ETFs (I now use Interactive Brokers) and an Omani brokerage account (I use GBCM, Gulf Baader Capital Markets). Decide how much effort you wish to put into researching which individual stocks to purchase on the MSM. If you are very keen and already experienced then you can assign up to 50% of your total to the MSM. Individual stock picks are ALWAYS risky, hence I would strongly advise against exceeding 50% in the MSM. A more tentative beginner is better off allocating 10% or less to the MSM, gradually raising that to 25% as confidence builds after a couple of years. You need to achieve higher returns from a smaller market, such as the MSM, in order to justify the additional risk. Too lazy to do your own research? Assign zero percent to individual stocks on the MSM and simply invest all your money on the entire world's markets; in one pot. Let us assume you start off with a portfolio abroad and a portfolio in Oman, the MSM. Your portfolio abroad can be very simple, and if left alone for decades it will probably beat most professional money managers/advisers. Place 76% in IWDA, 12% in WSML and 12% in EIMI (weightings appropriate at end 2017). All are iShares ETFs, based in Ireland (where the Dividend Withholding Tax is 15% rather than the USA 30%). IWDA invests in all the World's Developed markets (large and mid capitalisation companies) while WSML tackles small cap companies in the same countries. EIMI invests in Emerging Markets. All three never pay dividends (all dividends are automatically re-invested) and are based in Ireland. If you die while holding US situs (where the management is located) shares (e.g. Exxon Mobil, XOM) or ETFs (e.g. SPY, representing the S&P500 or VT), then your account is liable to up to 40% Estate Tax in the USA. Hence, buy Ireland-based ETFs! There is no Estate Tax in Ireland for foreigners. We have no clue whether the US market or any other market, be it UK or New Zealand, will go up or down at any point, so no need to guess. Whatever has been doing well in recent years will very likely lose its front runner status in the next few years, and another hot market will take over. IWDA, WSML and EIMI will adjust their various country weightings automatically and you never have to give it a thought. Cash out 5% of your portfolio each year to spend as you wish and be happy, for a long, long time. There will be market crashes, but just leave your portfolio to recover. Second-guessing the markets always leads to heavy punishment, even for the pros. An alternative is to put all your money into VWRD (Vanguard World). This ETF covers the entire world in one go but dividends are paid cash (not automatically reinvested like in the previous 3); so you have to re-invest dividends every few months to keep your portfolio at maximum growth.

Now for that portion you may have allocated to the MSM. Note! For lazy people unwilling to do the detailed homework, just skip the MSM altogether! But if you insist: Have a plan covering a few months. Spend a month studying the available opportunities, as explained earlier, focusing on ten-year charts of Net Earnings and current P/E ratios. Be diligent and do not rush. After you have clarity, e.g. you have identified one company that has, on average grown at a steady clip (with small ups and downs) of, say, 10+% p.a. and is currently selling at a P/E less than 10, pounce on it and place, say, a fifth of your MSM target portfolio. Repeat the exercise the next month and buy another company. Once you own 3 companies you can go ahead and double up on an earlier company if that P/E still looks attractive compared to its growth pace. There are companies on the MSM that pay dividends >6.5% p.a. but show little growth, e.g. Omantel and Ooredoo. Since 6.5% is way higher than current (2017) interest rates on bank fixed deposits, and also higher than current net rental returns on Oman real estate, you can also put a dollop in such a company. A good, steady business paying high dividends (mostly utilities like Omantel, some of the Oman electricity generating companies) is not to be sneered at. Always just pick the cheapest-looking one (in terms of P/E vs dividend) of the month. You may comfortably spend all your MSM cash dividends as they come in annually. Do not get distracted by dividends paid as Stock Bonuses. In reality these are public relations exercises. If you started off owning 1% of a company and then that company pays you a Stock Bonus Dividend of xx%, you will still own exactly 1% of the company even though the nominal number of shares you own has gone up. Cash Dividends are real, Stock Bonus Dividends are slight-of-hand. Always pay far more attention to Net Earnings rather than Dividends. Annual Net Earnings per share should always be higher than the Cash Dividends per share, otherwise the company is going out of business if they continue over-paying dividends. The MSM is a very small market, so once you own 5 to 10 companies you are diversified enough. The more attractive companies should represent larger fractions.

Too much work to study the MSM? Just invest everything in IWDA+WSML+EIMI (or only VWRD) and leave it there. Forever. Never panic when the markets fall by even 50%. The world is not coming to an end and the markets will recover eventually. The worst thing you can do is to think you can time efficient markets. You will end up selling low and buying high, a quick route to ruin.

For Inexperienced Residents in Countries with Personal Income Tax and also a Tax Treaty with the USA (many developed countries): Open a brokerage account in your own country (simpler tax accounting) and place the full 100% in VT (Vanguard Total World), or the equivalent of VT in your country. Vanguard sells differently named ETFs in various countries for tax efficiency in those countries, but basically you want to cover the entire world. E.g. a Canadian may buy, say, 5% VCN (Vanguard Canada) + 95% VXC (World excluding Canada). Cash out 5.5% of your portfolio (including dividends) once each year, pay your taxes and live to a happy old age. Why buying the whole world is better than second guessing: Within each market we can presume that local participants price each stock reasonably efficiently, i.e. a weak company gets clobbered quickly and a great company is priced accordingly higher. We can also presume that currency exchange rates reflect prevailing economic/political risks for each country. We have no clue other than pure guesswork how each country will fare next year or where some economic/political calamity will arise. We just let VT or VWRD or similar automatically vary its allocations in response to the fates of each currency and company amongst the thousands it invests in. Hence over a decade or more we fully expect to beat the majority of expensive money managers with their annual fees who are simply guessing anyway.

Safe Annual Withdrawal Rates are dependent on your tax residence/jurisdiction. What we desire is a withdrawal rate that, in real terms, after inflation, gives us a fairly constant spending power for several decades. After a lot of trial-and-error with data over the past half century, I found that if your dividends are taxed at the brokerage @30% then a withdrawal rate of 4.5% p.a. of your portfolio is safe. This applies to Omanis owning USA-situs shares (e.g. VT) in a US brokerage like TDAmeritrade or Interactive Brokers. The same Omani will have his dividends taxed at only 15% if he holds Ireland-situs shares (e.g. VWRD) at Interactive Brokers. His safe withdrawal rate may then be raised to 5% p.a. On the other hand if your tax jurisdiction allows you to get all your dividends before tax, then the safe withdrawal rate rises to 5.5% p.a. Of course out of that you will still have to pay income tax in your own country. You cannot fully escape taxes (or death).

Experienced Investors and Options: Start dabbling at a very small scale in Options till you get a firm grasp. E.g. Instead of buying your SPY or whateverin monthly chunks, you can Sell Puts on SPY each month, with, say, one-year maturity. If SPY falls, your Puts get exercised. But you have already protected yourself a bit by the cash collected selling the Put. If SPY rises, you have already pocketed the cash from selling the Put. In a rising market it may take you a couple of years till you have your full investment in SPY, but in the meantime you have collected quite a bit of cash. Nice. Once you own a good chunk of SPY you can start the guessing game of predicting whether SPY is going up, down, or sideways. If you think it's gone up too much and will likely fall in the next few months, you can Sell covered Calls. If SPY falls, you have collected the cash from the Calls. If SPY rises and your Calls are exercised you forego extra profits but you have already made some cash from selling the Calls. In this way it is possible to make steady profits even if the market goes sideways for a year or two. Whether you'll ever beat SPY over a decade very much will depend on how good your guessing has been. It is possible to beat SPY in this manner. Fairly safe and reasonably conservative, but IMHO you will not beat SPY by individual stock picking. 90+% of the pro managers do not. Even if you had bought Apple or Amazon years before their stocks experienced spectacular growth, you would never have bet a substantial fraction of your wealth on it, hence the effect on your total portfolio would still have been small. And what would have been the result had you bet the whole hog on Netscape or Yahoo rather than Google?! Note that it is essential that you have patience, even when playing with options.


Generalised Rules-of-Thumb: I found these lifelong rules to be very useful:

Save and invest 30% of your income, no matter how small or large. Start early! Payments into a home mortgage that reduce the outstanding principal are investing, not so for the interest portion. Leaving your cash in a savings account is not investing. Inflation will erode it away.

Never acquire car(s) worth more than 6 months' income, regardless as to how you pay for them; cash, loan or lease.

Never buy a home worth more than 3 years' income, or 2.5x income combined with spouse's.

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