Comments by "Magic Beans" (@Magic_beans_) on "Ben Felix" channel.

  1. 5:12 Put another way, asset allocation is the biggest determinant of returns.
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  2. Yeah, it’s pretty typical for retail investors to overestimate their risk tolerance. It’s easy to think you can stomach big swings and even buy the dip, but until your portfolio drops 20% or a single position gets cut in half, it’s hard to really know how you’ll respond.
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  3. Bonds, preferred stock, REITs, & BDCs are more directly income focused, and would provide some diversification (emphasizing dividends would create some concentration in the common stock of already-mature companies.) Another approach would be to just sell some fraction of your holdings as needed. Here in the US, qualified dividends and capital gains are taxed the same.
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  4. I also think people take ESG ratings to mean more than they do. Nestle is constantly in the news for problems ranging from price fixing to child labor, but they get good ESG ratings for having strong internal controls and independent board oversight. Likewise, Social grades for a company aren’t necessarily about the executives’ demographics or whether the company supports certain causes, but how responsive they are to changes in customer wishes; Monster Energy’s latest MSCI report mentioned that they haven’t been as forthcoming with sugar-free flavors as other beverage companies. I know this goes against the desire for an easy indicator of “greenness”, but rather than trust an agency’s assessment of ESG one could also look into direct indexing. Essentially the investor picks an index and makes exclusions or modifications within certain limits (for example maybe they want the S&P 1500 but without tobacco companies). The result is sort of like having their own customized ETF: contributions can be allocated out automatically across the companies, even when that means tiny fractions of shares, but also the investor owns the shares directly, which can be important for things like tax optimization and voting rights. Also also, lots of companies are a mixed bag ESG-wise. I hold a few energy companies that are busily transitioning to renewables, but in the meantime still trade in coal & gas power. Is that green enough? Depends on your personal values.
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  5. This is why I like the idea of keeping a buffer of T-bills for the next few years’ retirement spending. When stocks are up you can sell and refill the buffer, if they’re down you have plenty of cash to wait for a recovery.
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