Most investment returns are bull****

More often than not, you’ll hear about people beating the market or otherwise doing really well.  But a lot of them are misleading and/or overstated.  Here’s why.

People are more likely to report great returns than crappy ones

Most people have egos and/or want themselves to look good.  If their investment returns suck, then they are highly likely to keep their mouth shut because they don’t want to look dumb.

Sometimes, it’s in the speaker’s self-interest to promote themselves or their companies.  And it’s almost always that case that behaviour follows incentives.

Here are some ways to overstate returns.

Cherry picking

Suppose you flip a coin 10 times and it lands heads 5 times and tails 5 times.  The first two flips are tails.  So, you start counting from the third flip.  Lo and behold, your coin flipping record is 5 heads and 3 tails.  It gives the impression that you’re good at flipping heads.  But the actual track record (5-5) is simply average.

Mutual funds do this by reporting the 3-month, 1-year, 3-year, 5-year, 10-year, since inception, etc. return… whichever happens to be better.  If a mutual fund really stinks it up, it will usually end up being merged or shut down.  Which leads us to…

Survivorship bias

If all the poor/unlucky performing mutual funds are taken out, then the survivors will be stacked towards having good track records.  So you end up with a world where it looks like most mutual funds are able to “beat” the market.  But this might not be the case.  (The reality is that most mutual funds charge way too much in fees.  On average, they will lag the market a lot because of these fees.)

Not actual returns

Sometimes people report returns based on backtesting historical data.  It’s not based on actual returns.  The problem with backtesting is that it often suffers from data mining.  If you look at enough data, you will find correlations that won’t predict the future.  For example, if you categorize stocks based on the first letter of their name, you will find that some letter will outperform all others.  However, a company’s name will have little to do with how well that company will perform in the future.

Simply lie about it

Some people like Bernie Madoff just make stuff up.  Is this really news?

My investment returns 😉

2008-2009 combined  +22.1%

2010  +25.8%

Yes, my penis is bigger than yours*.

(*Just kidding.  It probably isn’t.)

Value investing

Value investing is trying to buy companies for less than their intrinsic value– what they should be worth.  There are different ways to value a company.

Liquidation value

If you sold off all its assets and paid off all its liabilities you would be left with a pile of cash.  If you buy companies at half their liquidation value, then you would theoretically make money.  I generally don’t like this style of investing because I am greedy and like strategies with higher rates of return.  The problem with trying to find companies like this is that this kind of analysis is easy to do, almost everybody knows about it (thanks to Ben-Graham and Warren Buffett), and so people buy these stocks and the price goes up.  So you don’t have a lot of room for profit.  Yes, these types of stocks still exist.  You can find them on shady exchanges like the TSX Venture exchange.  Institutional investors won’t touch those stocks and they can be overlooked.  But, I don’t like them.

Peer/multiple comparison

You look at a company’s price to earnings ratio (i.e. its P/E multiple), EBITDA ratio, free cash flow ratio, or some other number.  You company that number to its peers’ number.  Usually there is a range.  You assume that your company should fall at the bottom of that range, the middle, or the top (based on how good it is).  And that becomes what they company “should” be worth.

The reason I hate this method is usually because it is applied with zero understanding of the industry and the companies involved.  There is usually a reason why the numbers are different between companies.  But if you are ignorant of those reasons, you might simply assume that your company should be “average” or fall at the bottom of the range.  This may be highly inappropriate if say you are looking at a mining company, and its mine will only make money for 1 more year while everybody else’s mine will make money for 10+ years.  The mine that is about to be closed may have a PE ratio of 1, while everybody else’s mine may have a PE ratio of 10 or higher.  And it could be that none of them are over/undervalued.

Discounted cash flow

One way to measure a company’s intrinsic value is to figure out how much cash it is going to make in the future.  A dollar ten years in the future is not worth as much as a dollar now, since money now can be used to earn interest and will be worth more in the future.  So, future income should be discounted to the present.  You factor out the interest so that the two are equivalent.  This is the discounted cash flow (DCF) method of valuing a company.

The obvious problem with the DCF method is that it is hard to predict the future.  And usually the problem with most value investors is that they get overly optimistic about a company.  And once you are optimistic about a company, you can easily make your DCF model make the company seem undervalued.  Because the new management will “turn the company around”, their performance will “revert to the mean”, or some other rationale is given that may or may not happen.

What I look for

To me, the most important factors to look for are:

1. Does the company earn a lot of money for every dollar it invests?  e.g. high return on invested capital.  Can the company’s earnings grow really fast over time?
2. Does the company have some sort of special advantage over its competitors?
3. Is management honest?
4. Is management trying to maximize shareholder return?

1- Suppose you put money in the bank and get 3% interest on it.  Suppose a company expands its widget factory and gets the equivalent of 15% interest on it.  Obviously, the higher return is better.

But this is before the magic of compounding.  Over time, the growth is theoretically exponential.  In 10 years, $1 invested in the bank account will be worth $1.34.  Whereas $1 invested in expanding the widget factory (and re-expanding it) will be worth $4.04.

Growth matters.

2- A lot of people have figured out that growth matters and will usually chase it too.  So whenever a company makes a high return on the money it invests, there will almost always be imitators that spring up.  The pattern is usually this: first there are the innovators, then the imitators, then the idiots.  More and more people flooding into a market tends to drive returns down, possibly until everybody is losing money.  I want to buy stocks where this won’t happen.  I want to buy growth stocks that will keep growing for a long time.  To me, value investing should be about buying these growth stocks cheaply.

Examples of special advantages that can’t be imitated or are very difficult to imitate:

In the railroad business, almost nobody will build a railroad to compete with yours because it would cost too much and the return would be low with competition.  So railroads only compete with other forms of transportation (e.g. air for passengers, trucks and ships for goods/materials).  Rail has a cost advantage over other forms of transportation, so it has an inherent advantage over the competition that is impossible for them to duplicate.

Microsoft Windows has an advantage over Linux and OS X because there is a huge amount of software out there that only runs on Windows.  Their competitors just can’t duplicate this advantage.

3- If management isn’t honest, then they may engage in accounting shenanigans to make their company look better than it actually is.  This is risky for investors because they may overpay for a stock.

There may also be fraud occurring.  If fraud is discovered and the company announces that it actually isn’t making any money at all, you will lose a huge amount of money.

Also, insiders may simply overpay themselves and/or skim money from the company.  Sometimes these shenanigans are disclosed in the Related Party Transactions section of the company’s financial filings.  This obviously reduces the amount of money that shareholders make.

I don’t want to invest in a company where dishonestly works against me.  (*I do speculate on companies where I think dishonesty works in my favour.)

4- A lot of the time, management is not actually trying to maximize shareholder return.  Some of them simply use their company to increase their status.  Oftentimes, they want to build an empire.  Or, they simply follow the herd.  Whenever they do these things, they aren’t figuring out how to get the best return on the money they invest (see #1).

Of all the stocks out there, probably >90% of the stocks out there don’t meet these criteria and <10% do.  By definition, not all stocks can meet the criteria for #2 (special advantages over everybody else).  If you think that more than 10% of the stocks out there meet these criteria, then you are probably doing something wrong.  They can’t all be the best.

Once you identify the best stocks, you simply wait for them to get cheap and then buy ’em.  If they aren’t cheap, it’s important to do nothing and wait.

Short selling shady stocks

*First see Risks of short selling in practice.

Things I look for:

1. Insiders selling massive amounts of shares.  Insider selling can sometimes be legitimate as insiders may want to reduce their risk (sometimes this is a BS excuse), support their extravagant materialistic lifestyle, or give money to charity (e.g. Bill Gates and Warren Buffett).  Legitimate selling usually occurs slowly and insiders don’t try to dump all their stock in say a single year.
2. Insiders are heavily promotional on their stock and project incredible growth, yet they are selling shares.  If they know that awesome times are ahead, it makes no sense to sell shares.
3. Secondary offerings.  A company will sell stock at a huge discount (I call this a fire sale) and pay massive fees to underwriters.  Companies will do this if insiders are smart and they know that their shares are overpriced.
   On the other hand, underwriters don’t want their clients to get burned all the time.  They will promote a stock after a underwriting (the share price will often go up) and they will try to find dumb CEOs who will do secondary offerings when their company is undervalued.
4. The company’s profits and numbers are way too high.  In commodity-like industries, every company can be expected to make around the same amount of money.  Unless the company has some crazy cost advantage or management is incredibly smart, they will be unable to generate incredible profits and extremely high return on assets figures.  If they report really good figures, they are probably lying.
5. (OTC Bulletin Board / Penny stocks only) There is no actual business.  If you read the SEC filings for pump and dump penny stocks, you can see that they spend money on stock promotion and if there is an actual operating business.  In promotional materials, promoters have to disclose how much they are getting paid.

Things I don’t put much weight on:

1. Aggressive accounting.  Such as improperly capitalizing expenses, choosing accounting rules that don’t make economic sense for the business (e.g. capitalizing interest on home communities that aren’t selling), aggressive recognition of revenue and not recognizing expenses right away, any company that reports non-GAAP earnings, etc.Most companies engage in this.   But most of these companies don’t strike me as good shorts.  And a lot of the really crafty insiders out there will do a good job of concealing their accounting shenanigans.

Things I don’t like to see:

1. The underlying business is a high-quality business like RIMM, CRM, NFLX, PCLN.  I don’t ever want to short good companies as they can grow 16-20X in the long run.
2. Ponzi stocks which continually hold secondary offerings.  Yes they are bad companies, but every time they hold a secondary offering the company is actually worth more.  The rate of return on shorting these stocks is poor.  For example, David Einhorn had a 5% IRR from shorting Allied Capital.
3. High borrowing costs.  These stocks are crowded by short sellers and ripe for a short squeeze or somebody to engineer a buy-in.  On the other hand, this is a characteristic of some really good short selling candidates.

What happens next

While a stock may be overvalued, I don’t want to short it right away.  Overvalued stocks can get insanely, unbelievable overvalued.  Sometimes this can occur because people start short selling the stock, then they get killed, then they cut their losses and create more buying demand at the top.

I want to be close to the turning point.  This usually coincides with the announcement of a secondary offering or an awful earnings release.  If a secondary is announced, there is a very good chance that the stock will start going up.  Analysts are all slapping a strong buy on the stock, there are crazy rumours about the company being taken over, and devious hedge funds may be buying the stock simply to squeeze the short sellers and force them to cover.  So wait for the rally, and then start shorting the stock.

How well does this work?

I don’t really know because I have an extremely small sample size.  So don’t take what I say too seriously.  Please do your own homework and thinking.

Risks of short selling in practice

Short selling is a way of betting on stocks going down.

The normal buy/sell process is reversed.  You sell a stock and hopefully you buy it back at a lower price.  How can you sell something you don’t own?  You have to borrow shares from a broker so that you can sell those shares.

Risks of short selling

1. Your potential losses are unlimited.  You could use stop orders to cap your losses, but stop orders can knock you out of a trade at a loss only to have that trade go in your favour afterwards.
2. Crazy stuff can happen.  Volkswagen had an infamous short squeeze where the stock went up over 4 times in the middle of a trading day.
3. Shorting selling can force your account into a margin call.  During this margin call, your broker can liquidate your profit at awful prices.  They get to collect commissions and they may trade against you.
4. Other people will try to engineer buy-ins.  There are hedge funds out there who will buy shares in a heavily shorted company.  They will try to drive up the share price, and will yell at an investment bank’s analysts to promote that particular stock (and the investment bank often collects considerable commissions from these hedge funds).  Then they will disallow short sellers from borrowing their shares to short.  The short sellers must give back their shares that they have borrowed, so a buy-in process ensues.  They must buy stock on the open market and return the shares that they borrowed right away… at a significant loss.
5. For the obviously awful companies out there, you have to pay a lot of interest to borrow shares to short sell them.

If you short ETFs, note that an ETF can trade well above what its assets are actually worth.  This happened to UNG when they said that they would no longer issue creation units (so the risk-free arbitrage on that ETF was no longer available) and the stock traded at a significant premium to its assets, over 10%.  There is some obscure ETF which traded at something like 10X what its assets were worth.

How I invest (part 2 of many)

My goals

1. Achieve a consistent 20% return on my investments (this is a very high bar!).  In both bull and bear markets.
2. Avoid blowing up, otherwise I have to get a real job.
3. Know that I am actually good at investing.  This means a track record of a lot of trades.  I will achieve this goal faster if I focus on shorter-term trading.
4. Not expose myself to hidden risks or a very small chance of catastrophic losses.

Avoiding blowing up

I don’t want to have a devastating financial loss if I am wrong about my investments.  I try to structure my portfolio so that I’m not that exposed to crazy, unexpected events (some people call them “black swans” or “fat tails”).

Short selling and selling call options exposes you to unlimited downside.  I usually limit these positions to 2% of my portfolio.  If I lose 900% on one of these positions, then my portfolio is only down 18%.  I can live with that.  Even this might not be a great idea as there have been stocks that have gone up over 10 times in a short time period.

Also, I try to avoid being heavily exposed to a sector that may implode like how technology stocks imploded after the Tech bubble.  But I’m probably just saying this and not actually practicing it, because my portfolio is heavily weighted towards commodities.

But actually I’m crazy

I take pretty large positions in individual stocks.  I had/have 30% of my portfolio in QXM.  I had/have 25% of my portfolio in CREE put options.  If both of these positions go to 0 then I lose 55% of my portfolio.  While the CREE put options can easily go to zero (I am OK with losing 25% if the reward is high enough), I see it as highly unlikely for a cash-rich company like QXM.  I don’t worry about car crashes and I don’t worry about QXM going to 0.  I would be much more fearful owning a 30-year variable rate mortgage.  But I am probably crazy.

Making very high returns… even in falling markets

Because about half of my portfolio is in options, I should gain money if crazy things happen and lose money if they don’t.  Chances are good that crazy things won’t happen and I could stand to lose money on my options.

Current strategies

1. Bet on a shady pump and dump company (QXM) going up.
2. Bet on shady companies (CREE and several others) going down.
3. Bet on junior mining companies going up.  Junior mining is pretty shady and extremely speculative.  Almost all of this is in QMI.TO (Queenston Mining).
4. Companies with honest management that can grow earnings fast.  MCF, CMG.TO.
5. Special situations.  Spinoffs, tender offers, etc.  I don’t have large positions doing this right now.

Strategies that I am fooling around with:

1. Shorting pump and dump penny stocks.  I have been burned by this in the past as other people engineer buy-ins to force short sellers to cover their positions at a loss.
2. Shorting companies where long-term/activist investors give up their board seats.  This can happen when the investor knows that the proverbial excrement is about to hit the fan.  To sell their stake in the company, they have to give up their board seat first.  e.g. David Einhorn and New Century, Ontario Teacher’s Pension Plan and Maple Leaf Foods.  I have no trades with this so far.

How I invest (part 1 of many)

The two most important things are:

1. Reward.  Best measured by after-tax rate of return.
2. Risk.  Difficult to measure.

To me, the goal of investing is to get the best balance out of risk versus reward.  The best metric for reward is rate of return- the percent at which you expect your portfolio to grow.

Simply buying stocks at “half of intrinsic value” (cigar butt investing) is not so great if it takes a long time for those stocks to reach intrinsic value.  How fast you make your money matters.  Unfortunately, it’s often really hard to predict that.

Risk

Losing money seriously hurts your returns.  If your portfolio has a small chance of going to 0, then eventually your portfolio really will go to 0.  And your expected return will be -100%.  This is known as gambler’s ruin.  In real life, everyday people sometimes run into this problem when they take on mortgages and they lose their house.

What is you lose 50% of your portfolio?  You will have to double your money just to break even.  So it is really important to avoid devastating losses in your portfolio.  Taking on too much risk will actually hurt your returns, as it is really hard to claw out of devastating losses.

Those in the professional gambling field sometimes use a mathematical formula called the Kelly Criterion (here’s a link to an online Kelly Criterion calculator).  It’s a formula to calculate how much you should bet on any given position/investment/speculation.  It gives a percentage of your portfolio that you should bet on that position to maximize your returns (the Kelly Percentage).  However, you need to provide assumptions as to your chance of (not) making money and the expected payoff.  If you are off in these assumptions, then you may be overbetting and taking on too much risk and hurting your returns.  So, a prudent strategy is to bet a half or quarter (or some fraction) of the Kelly percentage.  This has much lower risk while keeping most of the returns.  Because the future is uncertain, there is no way you can be accurate about your assumptions and I would not bet the fully Kelly percentage.

Taxes

Of course they matter!  Unfortunately, most quoted investment returns do not take taxes into account.  This completely misses the point as you are trying to grow your money after tax, not before it.

Because capital gains are taxed at 50%, I currently will probably end up in a very low tax bracket and pay very little tax.  Right now I don’t worry about taxes much (I live in Ontario Canada).  It sort of makes sense for me to churn my portfolio so that I realize gains early and pay taxes on gains now instead of the future (income smoothing).  This way, my gains are taxed while I am in a very low income tax bracket (I do not work).

I should try to avoid receiving dividends on US stocks as the withholding tax is very high.

How to lose money

Common ways in which everyday people lose money.

Investing in private businesses

Oftentimes, people starting businesses have no clue what they are doing but think that they do.  Myself included.  People lose money starting businesses because:

1. It’s a dumb idea, but they are too stubborn / head-stuck-in-ass to realize it.  People tend to be overconfident in their abilities and they tend to stick to a belief (e.g. their business idea is good) even when the evidence indicates otherwise.
2. High risk does not mean high reward.  It’s no different than a casino.  When you play the casino, you have a negative expected return unless you really know what you’re doing.  I would look at startup businesses the same way.  It’s the startup business casino.  Assume that the expected return is negative unless you really know what you’re doing.

I’ve started a business.  I’ve seen other people start businesses… and lose a lot of time and/or money.  Go watch Dragon’s Den and Kitchen Nightmares (UK version).  A lot of money in the world is destroyed by the lure of starting your own business.

Yes you can make money starting a business.  But it is much likelier that you will lose money.  And it’s much easier to lose money starting your business than to make it.

Stocks

If you buy and hold random stocks (or an index fund), you can make 6-10% per year.  A few problems:

1. Very few people actually buy and hold stocks.  Most retail investors act like other human beings and experience fear and greed.  They buy when everybody is “making” money and sell when everybody is “losing” money.  They like to believe in conventional wisdom and tend to follow the herd.  Studies on mutual fund inflows and outflows show that retail investors almost always lag the performance of their mutual funds by a significant amount.
2. Most people don’t pick stocks randomly (or hold index funds).  Stock-picking/market-timing/active-management talent is probably distributed unevenly.  At least 80%+ of people in the world will be below average in stock-picking ability.  By picking their own stocks, they are actually hurting their performance.
3. The future may not resemble the past.  It’s possible (though highly unlikely in my opinion) then stocks underperform your other investment alternatives.  Anything can happen.

You should do fine if you own index funds and don’t hold too much of your money in stocks.

Hot stocks

The other way to lose money in stocks is to chase a fad like tech stocks during the Dotcom Bubble.  Especially if you borrow money to do it.

Complicated financial products

Such as market-linked GICs.  It is almost always the case that complicated products are ripoffs due to adverse selection.  The products are designed to be complicated so that you won’t understand them and won’t realize how you’re getting ripped off.

Investing in things you don’t understand is a bad idea.

Real estate

You get a variable mortgage.  Interest rates rise.  Now you can’t afford your house.

Or, you are in the middle of a real estate bubble and lenders are so crazy that they give you a mortgage you can’t possibly afford (e.g. you have no job).  This is why the US housing market is a mess.

Or, you decide to speculate on housing and take on an insane amount of leverage (e.g. down-payments on multiple condos at once).  This happened to people I know (Hong Kong real estate bubble).

Spend too much

This is so obvious, yet many people in Canada/US have a negative savings rate.  This is not sustainable.

Crazy events

Divorce, unforeseen illness, loss of job, etc.:  Some savings are generally a good idea.

Civil war, communists taking over your country, war, discrimination, etc.:  China and Russia alone represent a huge portion of the world’s population, yet a lot of people lost their wealth in these countries when communists took over.  (This happened to my parents.)  Even in democratic capitalist countries like Canada where I live, some minority groups lost all their wealth due to discrimination (e.g. Japanese Canadians during World War II).

Whenever crazy historical events happen, you should figure out if you should flee the country and if you can take some of your wealth with you.  Maybe you can keep some wealth if you plan ahead and have some assets overseas or own physical gold in a vault.  Or maybe not (e.g. border guards may take your gold).  I have no idea what the future holds.  But most conventional financial advice never consider these scenarios, even though such events have affected billions of people on this planet.

Magical real estate riches

A lot of people and a lot of books claim that you can make a killing in real estate.  In my jaded, cynical opinion, a lot of this information is more hype than substance.

People who simply talk about making a killing in real estate

…yet they haven’t actually made a killing in real estate.

People who seem to make a killing in real estate

Real estate can be highly leveraged because investors can take out large mortgages on their properties.  This magnifies their gains and it also magnifies their losses.  In a real estate boom, their gains are spectacular.  And in real estate busts, their losses are also spectacular.  Donald Trump almost went bankrupt.  And he is one of the survivors.

If you do something where you have a small chance of going to 0, you will eventually lose all your money.  This is also known as Gambler’s Ruin.

If somebody is doing real well in real estate, they might simply be crazy.

People who actually make a killing at real estate

Middlemen.  There are various real estate agents and brokers in the industry.  These people typically take on very little risk (they are not leveraged) and collect fees.  The distribution of talent and money is very uneven.  A small minority of people make almost all the money.  (To be fair, these people do add value to society because no real estate would be sold without them.  I don’t mean to disparage them when I say middlemen.  Also, you could be in the small minority of people who are really good at it.)

Really smart developers.  Real estate development is the riskiest part of real estate and also potentially the most profitable.  Often the development company owns land, which can drop 90% in price (this happened when the US real estate bubble burst).  The wiser, not-so-crazy developers like NVR will instead own land options.  They have a right but not an obligation to buy a piece of developed land.  When the US real estate bubble burst, the landowner was stuck with the suddenly not-so-valuable land.  I would also point out that NVR emerged from the ashes of bankruptcy protection as its predecessor company took on too much risk and had to enter bankruptcy protection.  They learned their lesson.

Other than the two examples above, I don’t know of people who make a killing in real estate without taking on crazy risks.  With low leverage and risk, real estate is otherwise a place where investors can make reasonable but not insane returns.

Buying condos pre-construction

There is risk from land price fluctuations and from construction risks (e.g. it make take a few years for the developer to sell all the units in the condo).  I don’t know of people who have been able to consistently make money in this fashion.  Usually some retail “investors” make money, think that they are genius, imitators flood the market, the bubble bursts, and a lot of people lose their deposits (and maybe more…).  This has happened many times in places around the world.

If you live in Toronto, is buying really a good idea?

1. Buyers are overpaying for real estate.

Buyers are overpaying for real estate.  One measure of real estate values is the cap rate (capitalization rate).

The cap rate is the profit of a property divided by how much it cost to buy.  The profit is basically the rental income minus all the various expenses (plus a contingency for tenants from hell, vacancy, etc.).  The cost to buy includes all the various transaction costs like the realtor’s fee (if you used one), taxes, etc. etc.

Currently, the cap rates for Toronto real estate range from 2% to 6%.  Properties in undesirable areas like Jane and Finch make up the higher end of that range.  Newly built condos and upscale housing in desirable areas make up the lower end of that range.

Renters are getting an amazing deal on middle and higher-end housing.  Paying 2% of what it would cost to buy these properties is a great deal.  Instead of getting a mortgage and putting down a downpayment, you can put that money into the bank and collect 3% interest.  Yes, interest rates are pathetic right now.  But the cost of rentals are even more pathetic.

2. Mortgages can be really risky

If you get a mortgage with a 20+ year amortization period, you may be really uncomfortable if you really understand the risk.

After 5 years, you will need to renew your mortgage.  If interest rates rise, your mortgage payments can jump dramatically (e.g. double).  In the 70s and early 80s, interest rates rose to historic highs and many people lost their homes.  It’s financially devastating and also emotionally devastating for it to happen.  History will sometimes repeat itself.  And no, this time is not different.  I am not saying that interest rates will definitely skyrocket, but that there is a possibility that it will happen.  If you can’t stomach a good possibility of a devastating financial loss, then perhaps a mortgage is not a good idea.

Do your own thinking

1. “Real estate always goes up.”
2. “You are throwing money away if you rent.”
3. “But other people are doing it.”

1- Real estate does not always go up.  Historically, there have been many drops in the Toronto real estate market.

2- Please crunch the numbers for yourself.  For some cases, landlords are throwing money away to renters.

And if you don’t mind living in unattractive areas like Jane and Finch (I actually wouldn’t mind), then it can make sense to buy housing there.

3- Other people have credit card debt.  And payday loan companies have a lot of customers.  That still doesn’t make it a good idea.  You need to do your own thinking.  Crunch the numbers for yourself.  Figure out your tolerance for risk.