I can't believe I am thinking this [Panic and Survival 2008-09]

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Jeremiah
Posts: 3
Joined: Thu Oct 09, 2008 6:18 pm

MARKET TIMING

Post by Jeremiah » Thu Oct 09, 2008 11:13 pm

There is a lot to be said about this. However, the 52 week high for the Index 500 is $144 and today it closed at $83 plus change, so selling today and buying even a week from now can't be considered market timing. Assuming the price is increasing, of course. I think the theory of "stay the course" has outlived it's usefullness, and we have entered a new world. Well, maybe not if you are 20 and want to invest heavily for 40 years or so. What if the big rally is a pundits dream, and never happens? Will you be happy to just wait? For how long? Over the last decade the Index 500 returned like 4.2%. less than treasuries. For myself, I am frustrated that I didn't cash out at DOW 14K, like I mentioned before, but as far as I am concerned, it is better for me to forego $600K in profits than to lose my base investments that I have built up for many years. Place me among the chicken littles if you will, but if I can get past worrying about this damn crises and downturn, I will be so happy. It is driving me crazy. I will never forgive myself for waiting until now, and becoming part of the panic crowed, but I am too afraid not to. I will let you know how it turns out.

Angel
Posts: 72
Joined: Fri Apr 27, 2007 10:44 pm

Post by Angel » Thu Oct 09, 2008 11:43 pm

I think you need to do what it takes with your portfolio to let you be able to sleep well. I am in control of my mom's funds and decided today to move most of her money from the Target Retirement Income Fund to Treasury Money Market fund. She is 76 years old and I couldn't stand to keep seeing her lose money. I had to do what I think is best for her right now.

cjking
Posts: 1863
Joined: Mon Jun 30, 2008 4:30 am

Post by cjking » Fri Oct 10, 2008 7:15 am

My investment objective is to generate income sufficient to live off without depleting capital. According to my way of looking at things, despite a one third decline in capital, nothing much has changed. The shares can sustain the same income as they could when I bought them. The underlying income streams of the companies have not significantly altered.

If investors have an idea of fair value for the S&P 500, and use it to project the return they can expect on shares, then they would see that the return doesn't fluctuate as the index does, so they would worry less. (It doesn't fluctuate, because if the index halves, the yield doubles, and the return in dollars stays the same.)

All this panic is because people can only see the height of the tides, or the size of the waves and troughs, when in the long-term all that matters is what they can't see, average sea-levels.

If they've set their expectations according to what they can see, during high-tide, then disappointment is probably unavoidable.

People who have to sell in order to spend are the only ones who can't avoid being hurt by volatility.

User avatar
jeffyscott
Posts: 8253
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Staying the course

Post by jeffyscott » Fri Oct 10, 2008 8:02 am

Jeremiah wrote:When I sell, I always wonder who is buying?

Does anyone have an answer for this? Someone has to be buying every share that is being sold in this panic, don't they?

Why are companies not buying back shares of their own companies like crazy? Or maybe they are???

Several people have mentioned dividends, while these are not guaranteed not to fall, it is interesting to see the level of dividends one can get from stocks and corporate bonds now. A couple of Vanguard funds (equity income and high dividend index) are reporting over 3.7% as their SEC yield. Intermediate investment grade bond is at about 6.8% SEC yield. A 50-50 stock/bond mix using such funds would have a yield of 5.25%. Should something like this, perhaps, be considered by retirees?

Another alternative maybe TIPS, with real yields of up to 2.9%% to help protect against possible inflation. 50% 20 year TIPS and 50% Equity Income would have a real (assuming dividends from stocks rise at the rate of inflation) yield of 3.35% .
Time is your friend; impulse is your enemy. - John C. Bogle

Rich_in_Tampa
Posts: 104
Joined: Wed Aug 29, 2007 1:38 pm
Location: Tampa, Florida

Post by Rich_in_Tampa » Fri Oct 10, 2008 8:09 am

I hear it's amazing how much a small part-time job will do for you in situations like yours. Even $5000 a year is the equivalent of having an extra $125,000 in your portfolio, cash-flow-wise. Not talking CEO here, maybe small retail store, greeter, light maintenance, whatever.

If it were me, I would do that before selling stocks at bottom feeder prices. It might even be fun and fight off some of the despair.
Rich

Levett
Posts: 4177
Joined: Fri Feb 23, 2007 2:10 pm
Location: upper Midwest

Post by Levett » Fri Oct 10, 2008 8:21 am

Jim,

You've been a phenomenal contributor over the years both at this and the Morningstar site.

Before you make any dramatic decision, please seek your own counsel and review some of your own posts during particularly stressful times. You know best.

Best wishes to you and your wife (from one retiree to another). Bob U.
There are some things that count that can't be counted, and some things that can be counted that don't count.

YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

I can't believe I am thinking this

Post by YDNAL » Fri Oct 10, 2008 8:50 am

Jim,

You picked the wrong day, my friend. Last night I told my wife that I had this gut-wrenching feeling the selling would be brutal this morning.... go figure, I'm a freaking genious. :roll:)

BTW, your dog has always seemed pretty intense looking at the computer screen. :lol: Hang in there because we are all in the same boat sinking with our sheepdog captain.

Regards,
Landy
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

tivattom
Posts: 80
Joined: Sat Apr 07, 2007 1:51 pm

Post by tivattom » Fri Oct 10, 2008 9:17 am

My advice is this:

Sell everything, but only if your sheepdog can make the trade online.

What?

He can't really use the internet? Then only sell when he has learned how to do so.

:D

Best of luck to you. Hope I made you smile.

Tom

Paul@
Posts: 35
Joined: Tue Sep 30, 2008 12:32 pm

Post by Paul@ » Fri Oct 10, 2008 9:24 am

It is difficult not to panic, but don't give in. Steady as she goes. When I see Warren Buffett panic, I'll consider it then...

History does repeat itself in the markets. In past crashes, I'm sure it seemed at the time that the drop would go on forever. Not once did that happen.

There WILL be a bottom, I assure you the market will not drop to zero. In all likelihood, there will eventually be a buying panic, most likely several, over several years.

Courage! Some people will lock in poverty by panicking. Others will lock in wealth by not panicking.

User avatar
Judsen
Posts: 862
Joined: Sat Feb 24, 2007 8:29 am
Location: Birmingham, Al.

Post by Judsen » Fri Oct 10, 2008 9:53 am

Mae West famously mused "Why is everybody so worried about the money? The money doesn't change it is the pockets that change."
(Please excuse if I distorted or misquoted.)
There is lots of pocket changing going on right now and the big fish are eating the little fish. (when they panic and try to swim away)
I'm hanging on to my stock index funds because I think that eventually they will go up commensurate with inflation.
If so then that nickle cup of coffee that I used to buy will be only $5 and I will be able to afford it.
If not so then I only invested what I was willing to lose.
Regards, Jud (aka goatdog, friend of sheepdog)

User avatar
Topic Author
Sheepdog
Posts: 5386
Joined: Tue Feb 27, 2007 3:05 pm
Location: Indiana, retired 1998 at age 65

Thank you all..this is what I am doing

Post by Sheepdog » Fri Oct 10, 2008 1:32 pm

Thank you all so very much for talking to me. It helped being reminded what I have said in the past.
This is what I did and why. If I had followed the advice of many here, and sometimes myself, I would have kept 3 to 5 years of normal annual distribution for expenses in cash so that when times like this occur, I would not have to sell. I had mostly depleted my cash account last year. I had not kept it up. I just could not expect a 1929 type drop, not today.... So, I exchanged 3 years of our normal annual needs from my stock and bond funds to money market. This amount is 20% of our present IRA stock and bond investments. (It would have been a much less percentage a year ago....even a month ago.) This cash will remain in my IRAs and some will be pulled out monthly beginning in January. When the market improves I will replenish the cash account fully. I hate selling today, but I would have to sell some in January anyway and there is no way to expect things to improve by then, or even next year.
With luck I won't have to sell anymore stock or bond funds for three years.
Thanks again.
Just because it isn't your fault doesn't mean it isn't your responsibility....Josh Reid Jones

User avatar
renditt
Posts: 608
Joined: Fri Apr 25, 2008 2:05 pm

Re: Staying the course

Post by renditt » Fri Oct 10, 2008 1:42 pm

jeffyscott wrote:
Jeremiah wrote:When I sell, I always wonder who is buying?

Does anyone have an answer for this? Someone has to be buying every share that is being sold in this panic, don't they?
And I have been asking myself all the time: Who would be selling at these levels?

User avatar
Topic Author
Sheepdog
Posts: 5386
Joined: Tue Feb 27, 2007 3:05 pm
Location: Indiana, retired 1998 at age 65

Re: Staying the course

Post by Sheepdog » Fri Oct 10, 2008 1:54 pm

renditt wrote:
jeffyscott wrote:
Jeremiah wrote:When I sell, I always wonder who is buying?

Does anyone have an answer for this? Someone has to be buying every share that is being sold in this panic, don't they?
People, US and foreign nationals, who think there are bargains.
Speculators and day traders.
People who are short selling, so they buy when they come due. Companies with cash and credit buy back there own, much cheaper shares.
Rich individuals who are looking to buy large quantities of a company's shares to gain some control of that company.
I imagine there are others.
Jim
Just because it isn't your fault doesn't mean it isn't your responsibility....Josh Reid Jones

User avatar
jeffyscott
Posts: 8253
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Staying the course

Post by jeffyscott » Fri Oct 10, 2008 1:55 pm

renditt wrote: And I have been asking myself all the time: Who would be selling at these levels?

Yeah, basically, near as I can figger, there is someone in NY (or wherever) saying I'll give you 50 cents on the dollar for every share of that corporation you own. I'm saying no thanks, Mr. Potter :) , I'll take my chances on getting a better price from someone else another day.

While I wait, I'll collect the 3% or so dividends that these stocks are paying out.
Time is your friend; impulse is your enemy. - John C. Bogle

retiredjg
Posts: 38255
Joined: Thu Jan 10, 2008 12:56 pm

Re: Thank you all..this is what I am doing

Post by retiredjg » Fri Oct 10, 2008 2:16 pm

Sheepdog wrote:This is what I did and why.
Well, it's unfortunate you ended up in that corner, but I can certainly see how that could happen. In fact, it may happen to me too if this downturn outlasts my cash bucket. I had thought it was big enough, but maybe not. I'll know in a couple of years!

Thanks for sharing this experience with us all. I'm sure many will learn from it. jg

User avatar
BlueEars
Posts: 3782
Joined: Sat Mar 10, 2007 12:15 am
Location: West Coast

Post by BlueEars » Fri Oct 10, 2008 3:17 pm

Sheepdog (Jim), I'm retired too and just realized yesterday that my "potential cash" bucket was a lot lower then I had thought. That is because I had planned on selling taxable equities (the potentail cash) as needed to fund spending and then buying them back immediately in retirement accounts. I can still do that little trick but now I cannot buy all the TIPS I wanted to because the retirement cash has to now fund those equity repurchases. Still too young for Social Security also. So my FI allocation that is all in retirement accounts looks like:

Code: Select all

30% inflation protected securities
21% Treasury MM  (available for rebalancing + rebuying taxable equities sold for spending needs)
2% cash for living expenses
My 5 yr plan just went through some major edits as a result of this market decline. I mention some of this in case it might help some other worried souls.

We have to remember that this could just be a spike down. When we look at market history and all the backtests we generally only see year end values. Generally we do not see the spikey stuff that leads to even more angst -- like we have seen in the last month.

My prediction is that the year will be bad but there will be some rallies that get us above where we are today. Note, I'm not changing anything to take advantage of that prediction.

retired at 48
Posts: 1726
Joined: Tue Jan 15, 2008 7:09 pm
Location: Saratoga NY; Port Saint Lucie, FL

Re: Staying the course

Post by retired at 48 » Fri Oct 10, 2008 3:45 pm

jeffyscott wrote:

Yeah, basically, near as I can figger, there is someone in NY (or wherever) saying I'll give you 50 cents on the dollar for every share of that corporation you own.
Why did you have to get personal and bring me into the picture :?: :)

R48 in NY

User avatar
mephistophles
Posts: 3110
Joined: Tue Mar 27, 2007 2:34 am

Post by mephistophles » Fri Oct 10, 2008 3:56 pm

So......I guess......now, we are finding out who the Diehards, really are :roll:

PlainJane
Posts: 307
Joined: Thu Dec 06, 2007 3:03 pm

Post by PlainJane » Fri Oct 10, 2008 10:32 pm

I hear it's amazing how much a small part-time job will do for you in situations like yours. Even $5000 a year is the equivalent of having an extra $125,000 in your portfolio, cash-flow-wise. Not talking CEO here, maybe small retail store, greeter, light maintenance, whatever.
That is an amazing statement and one I had never really thought of before. Somehow it gives me a lot of comfort. I am going to add this to my list of things I am learning during this adventure.

-Jane

retired at 48
Posts: 1726
Joined: Tue Jan 15, 2008 7:09 pm
Location: Saratoga NY; Port Saint Lucie, FL

Post by retired at 48 » Fri Oct 10, 2008 11:32 pm

PlainJane wrote:
I hear it's amazing how much a small part-time job will do for you in situations like yours. Even $5000 a year is the equivalent of having an extra $125,000 in your portfolio, cash-flow-wise. Not talking CEO here, maybe small retail store, greeter, light maintenance, whatever.
That is an amazing statement and one I had never really thought of before. Somehow it gives me a lot of comfort. I am going to add this to my list of things I am learning during this adventure.

-Jane
And the earned income may have extra bonuses...like going into a Roth IRA.

R48

Eureka
Posts: 1123
Joined: Thu Apr 05, 2007 10:24 pm
Location: Illinois

Post by Eureka » Sat Oct 11, 2008 1:39 am

I came very, very close to selling 20 percent or so of my stock index fund holdings Friday, Sheepdog. If the market had plunged in the final hour, as it's done so many times recently, I might have pulled the trigger.

That bourbon offer stands. It's Walker's Deluxe.

dharrythomas
Posts: 961
Joined: Tue Jun 19, 2007 4:46 pm

Buy High-Sell Low

Post by dharrythomas » Sat Oct 11, 2008 10:00 am

On the question of buyers and sellers. I'm not going to beat up on anyone too badly.

GE bought back about $15B worth of stock last year in the $30s and then in the last couple of weeks went to Warren Buffet for $3B at 10% plus warrents and sold another $12B for around $22.

And this is supposed to be one of the best run companies in the World :shock:

I haven't bailed (some rebalancing and TLH and took less than 5% out to make a contribution to a defined benefit pension) and don't recommend it though when I came off mobilization last year, I put 3 years of 401(k) contributions (with company match) in between July and April and it is all gone. My Roth contributions from this June are gone also.

We may all be in trouble, it could get alot worse before it gets better. I just don't have a better plan than to ride it out :wink:

captain3d
Posts: 36
Joined: Thu Apr 10, 2008 2:53 am

Post by captain3d » Sat Oct 11, 2008 3:54 pm

OK everyone is beaten down. This should help...

http://au.youtube.com/watch?v=ngUMA_aKm ... re=related

I keep it in reserve for tough times...phil

Eureka
Posts: 1123
Joined: Thu Apr 05, 2007 10:24 pm
Location: Illinois

Post by Eureka » Tue Oct 14, 2008 1:39 am

This is NOT a slam at Sheepdog, who did what he had to do. But it should be noted for the historical record (hey, I'm a historian by training) that the next trading day after he sold some of his equity holdings, major stock market benchmarks turned positive:

Dow Jones Industrial Average: +11.1 percent

Nasdaq: +11.8 percent

S&P 500: +11.6 percent

lostcowboy
Posts: 213
Joined: Tue Sep 16, 2008 1:30 pm

Post by lostcowboy » Tue Oct 14, 2008 3:34 am

Hi Sheepdog, looks like you made a smart decision, no I really mean it. I saw today that stocks went up, everyone would like for this to be the end of the bear, but I doubt it. In the last bear market there was a retesting of the lows, and I don't think the recovery really started until stocks went through the 200 day moving average.

My sister did the same thing in the last bear market. She had all her money in one aggressive mutual fund, I tried to get her to put some of it into a bond fund but no way. She said because she was more than 10 years away from retirement she did not have to worry about it, and anyway she was dollar cost averaging. Her fund got as high as $104.00 at the top of the bull, at the bottom of the bear it was at $26. As you may have guessed, that was when she came to me, asking what to do. I asked her what she wanted to do, she said get out. She was a nervous wreck, so I told her to do it. I did keep a eye on her fund, and about a month later I thought she should get back in. Turned out she had already done so. I think she got back in at $29, so she lost $3.00 of the funds movement, but she had a month of peace that she needed. She now has the money split between several mutual funds and a bond fund. So far this bear market she has not come to see me. Of course she is still working, not yet into retirement.

Take care,
Clifford

YDNAL
Posts: 13774
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

I can't believe I am thinking this

Post by YDNAL » Tue Oct 14, 2008 9:06 am

Sheepdog wrote:So, I exchanged 3 years of our normal annual needs from my stock and bond funds to money market. This amount is 20% of our present IRA stock and bond investments.
Jim,

I'm 5.3 years from retirement (planned Feb/2014 :roll:) and soooo glad you shared your circumstances with us.

I'll share my current experience, only because it could help others. Over the past several months, I've watched my portfolio go from 60/40 through 55/45 to 50/50 last Friday. I had decided NOT to rebalance back to 60/40 during all this since the AA was to permanently change to 55/45 (Feb/2009). The 20% market drop in the first half of October foced a rebalance to Equities last Friday.

I built up enough courage to follow my IPS and purchased a ton of S&P500 which also reduced my Foreign split (according to plan). Sometimes you have to adhere to your plan while taking your chances that irrational market behavior doesn't hurt you - and sometimes you can't escape its wrath.

When you need to make the tough decision, Mr. Market decides to influence his strength and kick your @$$. Hopefully, your 20% didn't all come from Equities (some from Bonds) and not hurt too much. Remember, there could be an opportunity to buy some Stocks should we experience another dip or two.

Regards,
Landy
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

User avatar
Topic Author
Sheepdog
Posts: 5386
Joined: Tue Feb 27, 2007 3:05 pm
Location: Indiana, retired 1998 at age 65

Keep a cash account in retirement

Post by Sheepdog » Tue Oct 14, 2008 10:25 am

Landy said,
Hopefully, your 20% didn't all come from Equities (some from Bonds) and not hurt too much.
It was.
It is often advised that we should not invest in riskier investments what we will need within five years. Invest for the long term. What I did last week was sell a mixture of stocks and bonds to re-create a fund for cash needs for three years. I did not sell enough to get to five years because I did not want to sell more at the bottom. When things get better in the next three years, I WILL sell more to get the five year cushion.

I had tread on thin ice by selling a mixture EVERY month for expenses since my cash account was depleted a few years ago. I was selling each month sometimes at high, like last year, but recently, like on the first of September and October, selling on lower NAVs. I was selling a constant percentage of stocks and bonds monthly from traditional IRAs and Roth IRAs...a mixture to keep from paying more than $1000 annually for federal income taxes. That was like dollar cost averaging in reverse. I did not want to sell more than I had to while things looked rosy. That worked until the valuations dropped.

I will add this caveat. Twenty percent of my holdings are in I Bonds now. When I purchased them originally in 2000 - 2003 I planned on these being my cash account. I thought I would sell one or more every month as needed. I did sell my 1.0 and 1.6 % fixed bonds, but refuse to sell my 3.0 to 3.6% fixed ones, presently earning an up-to safe 8.53%. They became long term investments after all. That is when my "cash" account disappeared.

This can be a lesson for retirees or near retirees, invest for the long term, but keep cash accounts for expenses so you do not HAVE TO sell at low. The cash account can be cash or a laddered CDs. Replenish those accounts as you use them by selling long term investments at higher investment valuations.
Jim
Just because it isn't your fault doesn't mean it isn't your responsibility....Josh Reid Jones

InvestingMom
Posts: 503
Joined: Mon Aug 20, 2007 2:45 pm

Post by InvestingMom » Tue Oct 14, 2008 11:07 am

Eureka wrote:This is NOT a slam at Sheepdog, who did what he had to do. But it should be noted for the historical record (hey, I'm a historian by training) that the next trading day after he sold some of his equity holdings, major stock market benchmarks turned positive:

Dow Jones Industrial Average: +11.1 percent

Nasdaq: +11.8 percent

S&P 500: +11.6 percent
I know that you are careful in saying that this is not a slam but obviously it is. I think you could have made your point with a new post rather than pulling this one out. Sheepdog did what he had to do, and quite frankly after he had explained what he ended up doing, it made sense. I know that my husband and I had some pretty heated conversations this last week. He also wanted me to sell last Friday. But he also wanted me to sell after 9/29 but the market rallied the next day and calmed him down so thankfully we held and lost another 20%. :wink: Bottom line is that until a year or two passes, I don't think anyone can say whether or not it was better to sell last Friday or not.

User avatar
BlueEars
Posts: 3782
Joined: Sat Mar 10, 2007 12:15 am
Location: West Coast

Re: Keep a cash account in retirement

Post by BlueEars » Tue Oct 14, 2008 11:23 am

Sheepdog wrote:... I was selling a constant percentage of stocks and bonds monthly from traditional IRAs and Roth IRAs...a mixture to keep from paying more than $1000 annually for federal income taxes. ...
Jim, I think our situations may be somewhat similiar. I've been choosing to pay up to the max in the 15% bracket to convert IRA -> Roth. I'm assuming that tax rates will go up in the coming years and when we take SS and also when RMD's kick in the tax situation could get worse for us. So converting a lot of IRA money makes sense because it also reduces the RMD amount later on. Also if we think the chances of a equities returning more are higher when the market is low, it makes sense to convert and capture those gains in a tax free account. Of course, paying those taxes up front is never fun and I have to explain to my wife why it's a good idea.

I also plan on drawing a little Roth money out over time to keep the blended draw for IRA + Roth at the top of the 15% band. I know everyone's tax situation is different but thought I'd mention this in case it helps you or someone else.

BTW, I keep a simple Excel sheet which shows 10 year's worth of guesses as to where the money is coming from for spending. It needs revising at least once per year as conditions change.

P.S. A Vanguard rep just informed me this morning that now we can convert IRA -> Roth with just a phone call. No more need for sending in forms with your signature (assuming you have a Roth already set up). Not all VG reps are aware of this new policy.

P.S.S. I also have some of those Ibonds that have become keepers in the taxable account column.

User avatar
Topic Author
Sheepdog
Posts: 5386
Joined: Tue Feb 27, 2007 3:05 pm
Location: Indiana, retired 1998 at age 65

Post by Sheepdog » Tue Oct 14, 2008 1:02 pm

Les said,
Of course, paying those taxes up front is never fun and I have to explain to my wife why it's a good idea.
Thanks for your comment. I understand your problem on how to explain to your wife....I had to listen to mine complaining when I decided to convert about 33% of our traditional IRA to Roth accounts in the 5 years after Roth was started in 1998. I retired in late 1998. She saw the checks beirg written to the IRS and said "We are retiring and having to send thousands to the tax suckers. That is wrong!!" I can still hear her rant. ..but not anymore. I saw the advantage of doing so and she now does. I paid a heckuva income tax on it in my last year of employment. The next 4 years during retirement were bad enough, but reasonably doable.

That is paying off handsomely as I take distributions above RMD....little to no federal taxes...and little to no taxes on Social Security payments.
This possibly can work for you as well.
Jim
Just because it isn't your fault doesn't mean it isn't your responsibility....Josh Reid Jones

User avatar
BlueEars
Posts: 3782
Joined: Sat Mar 10, 2007 12:15 am
Location: West Coast

Post by BlueEars » Tue Oct 14, 2008 2:42 pm

Jim, got a kick out of your description of your wife's reaction to the taxes. Sounds like you are planning things out very well -- better then most in retirement.

Les

User avatar
Topic Author
Sheepdog
Posts: 5386
Joined: Tue Feb 27, 2007 3:05 pm
Location: Indiana, retired 1998 at age 65

Post by Sheepdog » Wed Oct 15, 2008 6:07 pm

Eureka wrote:This is NOT a slam at Sheepdog, who did what he had to do. But it should be noted for the historical record (hey, I'm a historian by training) that the next trading day after he sold some of his equity holdings, major stock market benchmarks turned positive:

Dow Jones Industrial Average: +11.1 percent

Nasdaq: +11.8 percent

S&P 500: +11.6 percent
Say what?

This is not a slam either.
Take care.
Jim
Just because it isn't your fault doesn't mean it isn't your responsibility....Josh Reid Jones

User avatar
Topic Author
Sheepdog
Posts: 5386
Joined: Tue Feb 27, 2007 3:05 pm
Location: Indiana, retired 1998 at age 65

Post by Sheepdog » Wed Nov 19, 2008 7:06 pm

As I bring this thread back from the dead, I think...I did not sell some of my holdings at the low, after all...my years of savings keep going lower and lower and lower in perceived value.
Retirement can be stressful.....but fun. Okay, I've gone over the cliff.....
No, I'm foolishly not selling any more for at least 3 years....
Sigh......
I can sleep soundly tonight. I hope you will as well.
Jim
Just because it isn't your fault doesn't mean it isn't your responsibility....Josh Reid Jones

Eureka
Posts: 1123
Joined: Thu Apr 05, 2007 10:24 pm
Location: Illinois

Post by Eureka » Wed Nov 19, 2008 11:29 pm

Live long and prosper, Sheepdog.

I decided in October that I wouldn't panic until 800 on the S&P 500. That will probably be Thursday.

I'm watching a rerun on CSPAN of billionaire car company executives asking for my money. What a world!

Norris
Posts: 526
Joined: Tue May 08, 2007 10:04 am

Post by Norris » Wed Nov 19, 2008 11:38 pm

"I been down so long, bottom looks like up.." From a song of the sixties by David Clayton Thomas and Blood Sweat and Tears.

At least it's not that bad..yet :wink:

Norris
Life is really simple, but we insist on making it complicated. Confucius

User avatar
BlueEars
Posts: 3782
Joined: Sat Mar 10, 2007 12:15 am
Location: West Coast

Post by BlueEars » Wed Nov 19, 2008 11:57 pm

I'm thinking of taking my wife out for a fast food lunch tomorrow to celibrate a new low. We need a little humor in our lives.

bill99
Posts: 180
Joined: Wed Apr 30, 2008 1:14 pm

Post by bill99 » Thu Nov 20, 2008 12:12 am

"So let's get back to basics. What undergirds a portfolio is the dividend return. This is the safety cushion. Albeit such dividends may be lowered, we are reaching a point where dividends alone are exceeding anything you could earn in a money market or many bond funds."

Good point, Retired at 48. The yields are getting pretty hefty.

retired at 48
Posts: 1726
Joined: Tue Jan 15, 2008 7:09 pm
Location: Saratoga NY; Port Saint Lucie, FL

Post by retired at 48 » Thu Nov 20, 2008 12:39 am

Thanks bill99. I just wish I were a young investor again :!:

R48

Valuethinker
Posts: 38990
Joined: Fri May 11, 2007 11:07 am

Post by Valuethinker » Thu Nov 20, 2008 9:43 am

retired at 48 wrote:Thanks bill99. I just wish I were a young investor again :!:

R48
You might want to look at Canadian banks, particularly B Nova Scotia, Royal, TD -- less keen on CIBC and BMO due to particular issues and higher US exposure.

I'm fairly sure those banks will hold their dividends. Although Ontario is in for a nasty recession, residential property prices never got so overcooked and the banks themselves have strong balance sheets.

Valuethinker
Posts: 38990
Joined: Fri May 11, 2007 11:07 am

Post by Valuethinker » Thu Nov 20, 2008 9:48 am

cjking wrote:My investment objective is to generate income sufficient to live off without depleting capital. According to my way of looking at things, despite a one third decline in capital, nothing much has changed. The shares can sustain the same income as they could when I bought them. The underlying income streams of the companies have not significantly altered.

If investors have an idea of fair value for the S&P 500, and use it to project the return they can expect on shares, then they would see that the return doesn't fluctuate as the index does, so they would worry less. (It doesn't fluctuate, because if the index halves, the yield doubles, and the return in dollars stays the same.)

All this panic is because people can only see the height of the tides, or the size of the waves and troughs, when in the long-term all that matters is what they can't see, average sea-levels.

If they've set their expectations according to what they can see, during high-tide, then disappointment is probably unavoidable.

People who have to sell in order to spend are the only ones who can't avoid being hurt by volatility.
To a distressing extent the earnings power of the market has been financial profits.

In addition even non-financial companies like GE make large amounts of profit from their financing activities (GE lends you the money to buy their products). Most directly we can see that in the property sector (which leases buildings to financial firms) and in the housebuilding and construction sector-- both of whose profits stemmed from financial institutional activity and rising asset prices.

So the problem is that the basis on which we bought those profits (or cash flows to shareholders) is wrong ie those profits are derived from financial activities.


That is the distressing thing about this slump: the circularity.

retired at 48
Posts: 1726
Joined: Tue Jan 15, 2008 7:09 pm
Location: Saratoga NY; Port Saint Lucie, FL

Post by retired at 48 » Thu Nov 20, 2008 10:17 am

Valuethinker wrote:
retired at 48 wrote:Thanks bill99. I just wish I were a young investor again :!:

R48
You might want to look at Canadian banks, particularly B Nova Scotia, Royal, TD -- less keen on CIBC and BMO due to particular issues and higher US exposure.

I'm fairly sure those banks will hold their dividends. Although Ontario is in for a nasty recession, residential property prices never got so overcooked and the banks themselves have strong balance sheets.
Thanks VT...but that would require me to buy an individual stock...something I haven't done in 40 years :!: My discipline is all 100% mutual funds/etf's.

There are many individual stock pickers in the retiree group though, as they grew up that way, comfortable with it.

I'm currently trying to ascertain best dividend paying exchange traded funds, w/o excessively high exposure to financials. On the int'l scene, Wisdom Trees Emerging Markets High Yield Equity fund, DEM, has about double digit current yield. An equity fund,, it is not falling as fast as regular EM stock funds, and is getting at an interesting price level.

R48

User avatar
nisiprius
Advisory Board
Posts: 39320
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Post by nisiprius » Thu Nov 20, 2008 10:31 am

Valuethinker wrote:To a distressing extent the earnings power of the market has been financial profits.

In addition even non-financial companies like GE make large amounts of profit from their financing activities (GE lends you the money to buy their products).
Was that going on in the 1990-2000 boom? I'm not that tuned in to business. At the time, I had a vague notion of what sorts of products GE and IBM and Microsoft turn out, and I remember saying to investment-savvy people, "but I just don't understand. These companies make great products but I just don't know what they've been doing lately that could possibly be worth 30% per year." Those being growth rates characteristic of little startups colonizing virgin territory, but seemingly unattainable for established giants. I mean it's not like GE had suddenly landed a contract to build jet engines for 100,000 airliners or anything.

My investment-savvy friends could never give better answer than "they've been turning in earnings that justify it."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Valuethinker
Posts: 38990
Joined: Fri May 11, 2007 11:07 am

Post by Valuethinker » Thu Nov 20, 2008 11:44 am

retired at 48 wrote:
Valuethinker wrote:
retired at 48 wrote:Thanks bill99. I just wish I were a young investor again :!:

R48
You might want to look at Canadian banks, particularly B Nova Scotia, Royal, TD -- less keen on CIBC and BMO due to particular issues and higher US exposure.

I'm fairly sure those banks will hold their dividends. Although Ontario is in for a nasty recession, residential property prices never got so overcooked and the banks themselves have strong balance sheets.
Thanks VT...but that would require me to buy an individual stock...something I haven't done in 40 years :!: My discipline is all 100% mutual funds/etf's.

There are many individual stock pickers in the retiree group though, as they grew up that way, comfortable with it.

I'm currently trying to ascertain best dividend paying exchange traded funds, w/o excessively high exposure to financials. On the int'l scene, Wisdom Trees Emerging Markets High Yield Equity fund, DEM, has about double digit current yield. An equity fund,, it is not falling as fast as regular EM stock funds, and is getting at an interesting price level.

R48
Hi there is a Canadian financials ETF. Now that the dollar has fallen from $1 back down to 85 cents the currency risk is minimalised.

It's from iShares-- I can look up the ticker if you want.

Agree re, generally, not basing a yield strategy on the financials. Best avoided if one can.

Valuethinker
Posts: 38990
Joined: Fri May 11, 2007 11:07 am

Post by Valuethinker » Thu Nov 20, 2008 11:51 am

nisiprius wrote:
Valuethinker wrote:To a distressing extent the earnings power of the market has been financial profits.

In addition even non-financial companies like GE make large amounts of profit from their financing activities (GE lends you the money to buy their products).
Was that going on in the 1990-2000 boom? I'm not that tuned in to business. At the time, I had a vague notion of what sorts of products GE and IBM and Microsoft turn out, and I remember saying to investment-savvy people, "but I just don't understand. These companies make great products but I just don't know what they've been doing lately that could possibly be worth 30% per year." Those being growth rates characteristic of little startups colonizing virgin territory, but seemingly unattainable for established giants. I mean it's not like GE had suddenly landed a contract to build jet engines for 100,000 airliners or anything.

My investment-savvy friends could never give better answer than "they've been turning in earnings that justify it."

What was happening was the TMT bubble.

People talk 'dot com bubble' and that was good for the likes of Sun especially-- all those high end servers (way before Google proved you don't need them). Also for the consulting companies like IBM that signed huge contracts to implement peapod, pets.com etc.

But the (much) bigger bubble was all the borrowing and equity raising by the likes of Worldcom and the telcos-- poured into crossing the world with fibre (much of it never lit). This was on the order of several trillions.

*that* drove the earnings of the likes of HP, Ericsson, Alcatel, Lucent, Nortel through the roof.

So finance, via the stock and bond and lending markets, was being turned into computer hardware and software at a frenetic rate.

Since then it has been double whammy: core demand for IT turned down, but also pricing has been pushed down-- commodity Dell servers replace high end Sun boxes etc.

Post that bubble we had the US (and other) housing bubbles, which created more 'profits' lending money and then repackaging/ securitizing that money and selling it on to other people (taking a fee at each step as we go, and reporting that as earnings).

And then, maybe, another bubble. All of the economic growth created exploding commodity prices, massive new commodity projects and demand for infrastructure. Which drove GE's orderbook up, and every other 'big capex' company in the world (Caterpillar). And then of course there are the planes that fly to those exciting new world developments like Dubai-- Boeing, Airbus, GE, Rolls Royce, Pratt & Whitney.

We are now going down the mountain we climbed. With oil at sub $60/bl, the infrastructure boom in the Mid East is going to come to a thundering halt.

retired at 48
Posts: 1726
Joined: Tue Jan 15, 2008 7:09 pm
Location: Saratoga NY; Port Saint Lucie, FL

Post by retired at 48 » Thu Nov 20, 2008 11:55 am

nisiprius...Yes. GE got considerable earnings from the financial side of the business. My recollection is more than one third of earnings was financials based. Leasing was also a huge earner.

Here's my fellow GE stockholding retirees:..... :( , .... :cry: , and....... :shock:

Luckily I followed the rule of not investing much in the company you work for.

R48

chaz
Posts: 13604
Joined: Tue Feb 27, 2007 2:44 pm

Post by chaz » Thu Nov 20, 2008 12:09 pm

captain3d wrote:OK everyone is beaten down. This should help...

http://au.youtube.com/watch?v=ngUMA_aKm ... re=related

I keep it in reserve for tough times...phil
Thanks for the link. The piano player did a good job hitting the ivories.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

Valuethinker
Posts: 38990
Joined: Fri May 11, 2007 11:07 am

Post by Valuethinker » Thu Nov 20, 2008 12:09 pm

retired at 48 wrote:nisiprius...Yes. GE got considerable earnings from the financial side of the business. My recollection is more than one third of earnings was financials based. Leasing was also a huge earner.

Here's my fellow GE stockholding retirees:..... :( , .... :cry: , and....... :shock:

Luckily I followed the rule of not investing much in the company you work for.

R48
Half of earnings in recent years, I believe, including leasing.

Like Warren Buffett, they arbitrage their AAA credit rating. Borrow at AAA and lend to the customers at higher rates.

You don't make money on the headline price of capital goods, you make it in the financing package, and in the spare parts and service contracts. This is true of power and medical at least-- any long life capital asset.

cjking
Posts: 1863
Joined: Mon Jun 30, 2008 4:30 am

Post by cjking » Thu Nov 20, 2008 12:11 pm

Valuethinker wrote:
cjking wrote:My investment objective is to generate income sufficient to live off without depleting capital. According to my way of looking at things, despite a one third decline in capital, nothing much has changed. The shares can sustain the same income as they could when I bought them. The underlying income streams of the companies have not significantly altered.

If investors have an idea of fair value for the S&P 500, and use it to project the return they can expect on shares, then they would see that the return doesn't fluctuate as the index does, so they would worry less. (It doesn't fluctuate, because if the index halves, the yield doubles, and the return in dollars stays the same.)

All this panic is because people can only see the height of the tides, or the size of the waves and troughs, when in the long-term all that matters is what they can't see, average sea-levels.

If they've set their expectations according to what they can see, during high-tide, then disappointment is probably unavoidable.

People who have to sell in order to spend are the only ones who can't avoid being hurt by volatility.
To a distressing extent the earnings power of the market has been financial profits.

In addition even non-financial companies like GE make large amounts of profit from their financing activities (GE lends you the money to buy their products). Most directly we can see that in the property sector (which leases buildings to financial firms) and in the housebuilding and construction sector-- both of whose profits stemmed from financial institutional activity and rising asset prices.

So the problem is that the basis on which we bought those profits (or cash flows to shareholders) is wrong ie those profits are derived from financial activities.


That is the distressing thing about this slump: the circularity.
I want to row back a little on what I said in that quote. I thought it sounded a bit complacent when I wrote it, now I think it is. Even without the valid objection you raised, someone depending on equities for income may not be able to get at the retained profits without having to sell shares at steep discounts, due to current sentiment. (I don't have this problem because my shares are REITS which pay out all their profits as dividends. However the steep discounts to the relatively transparent NAVs make me realise I'd be in trouble if these were companies that retained profits I needed to spend.) Someone invested in general equities may need a plan that avoids the need to sell shares for income. Having said that, given that I think that general equities now offer fair but not good value, I can't really claim that we're yet at a cyclical extreme that would justify running down safe assets or borrowing cash as tactical measures to postpone share sales. Are high-yield shares the answer? (Assuming you don't want to change your asset allocation to meet cashflow constraints.)

Gekko
Posts: 3779
Joined: Fri May 11, 2007 5:00 pm
Location: USA

Post by Gekko » Mon Mar 15, 2010 8:33 pm

this was the thread that started to scare me. interesting to read now in retrospect.

Puakinekine
Posts: 837
Joined: Sat Apr 14, 2007 9:18 pm

Post by Puakinekine » Mon Mar 15, 2010 9:09 pm

I think this thread should be enshrined in the Wiki.

Post Reply