"joetaxpayer" <joetaxpayer[at]nospam.com> wrote
snip for brevity
- quote -

All told, AFAIC very impressive, Joe. You seem to be an
exception to my theory that most people start investing in
stocks based on anecdotal suggestions from a close friend or
relative. I also think candor about one's losses is the sign
of a good investor--shows s/he's thinking about what it
means to be invested in stocks; that there are losses that
may occur.

Elle wrote:
- quote -

In school, while my major was electrical engineering, I always had an
interest in finance, and took finance courses as electives when I could.
A few years after graduating in '84, I went to school at night to get an
MBA. So there was a part of me that always liked the data, and reading
books especially the ones listed at my joetaxpayer.com site gave me what
I thought was a good view of the market.
I started saving to max my 401 and IRA right out of school, and with a
very limited choice of funds at the time, was invested in the S&P and
the company stock, a high-tech company. Since 87 was only my third year
out, the crash didn't amount to much for me, as I've stated, the year
was positive from Jan 1 to Dec 31. I also dabbled in real estate, owning
as many as 4 condos, but had very bad luck with tenants, and am down to
one as of a few years ago.
I was never a market timer, just a dollar cost averaging guy. And while
I do buy individual stocks, most of my funds are indexed. Over the years
preceding the late 90's, I found that a number of tech stocks were
pretty cyclic, and took advantage of that fact, in the 401 as well as
outside. I also took a liking to options, which I don't recommend unless
I hear someone say they are about to put their life saving in one stock
thinking it will go up based on some gut feel they have. (like some drug
company they think will find a cure for cancer). In this case, putting
up some reasonable sum in well chosen options is the better choice.

Going into the 98-2000 boom, I found the nerve (or stupidity) to go into
the boom highly leveraged, both on margin and with the use of options.
Again, having read books like "Extraordinary Popular Delusions & the
Madness of Crowds" by Charles MacKay, as well as "The great crash" by
John Kenneth Galbraith, I convinced myself that the lessons of 87, which
I lived through, and the lessons from books would save me from a crash.
In fact, while the years leading up to then saw my portfolio track the
S&P, some years more, some less, 1999 saw an increase of over 150%. I
started to pull out as I saw the signs. Phases like "this time it's
different" and the fact that people who shouldn't be talking stocks were
saying thing like "how bout that Dow?". This was right out the books I
read, that a shoeshine boy was talking stock, as were waiters and bus
drivers. This was my signal to pull out [of the techs]. I can tell you
that when companies' stock valuation is growing so fast that 10 years
hence their market cap would be well over a Trillion dollars, something
is wrong. And no matter how fast the 'net grew, everyone wasn't planning
to put a 12 port gigabit ethernet router in their basement.
In the end, I did get out a tad late as I dropped nearly 20% in 2000 vs
the S&P -10%. As I'm only in my mid-40s, I'll welcome the next bubble,
hopefully I'll be able to handle it even better than the last. But for
now, the plan is back to a forecast of 8% growth and continued
aggressive savings.
JOE

"Elle" <honda.lioness[at]nospam.earthlink.net> wrote:

- quote -

Agree

"joetaxpayer" <joetaxpayer[at]nospam.com> wrote
- quote -

No, you may not ;-) , because my point was to help newbies
quickly grasp the advantages of investing in stocks for the
long term. Towards this end, I left out the fog of minutiae
and instead (1) indicated I was giving approximations; (2)
gave some idea of annualized bond and stock returns,
including dividends; (3) omitted adjustments for inflation,
since that's not actually essential to identifying which is
better (savings bonds or stocks).

snip
- quote -

That's an understatement IMO. People who save like this are
exemplary. They're generally not celebrated at the
unmoderated newsgroups, Usenet being what it is. Let this
newsgroup inject some sanity into the fray.

At this time, what I do think will help persuade newbies is
reading your (and others') story(ies). What compelled you to
make your first stock or mutual fund purchase? What was your
first decade or so of owning stocks like? I am betting that,
contrary to all the high-falutin' impersonal historical
market blah blah arguments (for buying stocks) going on
earlier in this thread, most of us started investing in
stocks based more on anecdote than anything else.

Elle wrote:
- quote -

If I may add to your point, ending value of the S&P in 1969 was 92.06,
1979, 107.94. Cummulative dividends during that time yield an adjusted
return equating to S&P ending the period at 164. Anticipating the
question regarding inflation, it would have taken 172.5 to keep up. You
actually underestimated the worst two points, even adjusting for
dividends, the S&P fell from end of 72 to end of 74 by over 36%, but
recovered from there within two years.

I conclude from this (trying to get to my point);
A) even in a pretty bad decade, the general market rose and only lost a
total 5% buying power all due to inflation.
B) one would be wise when approaching retirement to have enough cash to
never have to sell any stocks during such a downdraft. Given our agreed
4% annual permitted withdrawal, I maintain that a 20-25% cash (of course
this means CDs, or T-Bills) position is enough to accomplish this.
C) too little attention is paid to the dividend factor which is lost in
the simple data contained in the index. We ended 1999 at S&P 1469 and
bemone the fact that we are now, well, 169 points away from the high
nearly 7 years later. In fact, when dividends are added back in, we are
over 1456, a good week's rally away from meeting that high.
D) A good hour of spreadsheet tinkering (now I know you're an excel fan,
as am I) will show that these dips only serve to enrich those of us who
dollar cost average, i.e. buy more stock with every paycheck. Now that
I've gotten a grip on the 'dividend adjusted S&P' my next project is
likely a further analysis of the 'dollar cost averaged' delta.
E) S. Weldon and spouse are certainly no slouches, it does take strength
to not panic on dips.

JOE

"HW "Skip" Weldon" <skip5700removethis[at]hotmail.com> wrote
- quote -

This one is interesting to me because 1969 marks the start
of a secular bear market. During the 1970s, the S. Weldon
family's retirement portfolio declined at one point by
around 25%. Good thing they were not paying attention,
because lesser souls might have become emotional, pulled out
of the market, and switched to something like bonds. These
lesser souls then stood a good chance of missing the
stunning bull market from about 1980 to 2000.

The S. Weldon family stood firm, "mindlessly" (with
hindsight, some of us would say "intelligently") reinvesting
dividends at often bargain prices through the 1970s (along
the lines of T. Borek's example), and so soaking in the
positive side of a secular bear market. With dividends,
their annualized return since 1969 has been about 10.4%,
demonstrating that one can come out smelling like a rose
despite the ravages of getting in near a market peak in
1969; the long secular bear market of the 1970s; the 1987
"correction"; the c. 2000 correction; and the last several
years of secular bear market.

Five-year T-notes averaged about 7.4% during the same
period. The Weldon's stock investments netted them about a
10.4/7.4 = 1.40 or 40% more (annualized) compared to bonds.

Sgt.Sausage wrote:

- quote -

Well now, in general I think you're right, but product prices are a
significant contributor to stock prices in many commoditized industries.
Look at the price of oil and the price of oil company shares, for example.

-Will

On Fri, 8 Sep 2006 21:49:32 -0500, "Elizabeth Richardson"
<erichktn[at]worldnet.att.net> wrote:

- quote -

Gosh you're old. <grin
Here's my story. In 1969, fresh out of school and the army, I took a
job where a thrift plan was offered. For some reason I started saving
the max 12% and they matched with 6%. Ditto for my wife, who got a
job at the same company. Not having a clue, we elected what would
today be a blue chip stock fund. The SP500 Index was around
$100/share, although I did not know it at the time.

One way or another and mostly because I didn't pay much attention to
it, I have continued that approach (mindlessly regular investments,
blue chips only) to this day. Today the SP500 (less dividend
reinvestments) is priced at around $1250/share.

-HW "Skip" Weldon
Columbia, SC

"Elizabeth Richardson" <erichktn[at]worldnet.att.net> wrote
- quote -


On Hawaiian Punch's share price growth--
Sales price of a product determines company earnings, in
part. Earnings determine P/E values. Many investors use P/E
(or sometimes just earnings trends) to identify whether to
buy or sell. So the growth of share price is in part a
reflection of earnings trends.

Otherwise, ISTM that anecdotes like this might actually grab
the attention of a newbie far better than relatively
abstract discussion such as what the S&P 500 and bonds have
returned over the years. I would be interested in others'
stories about how they "discovered" the power of stock
investing. Perhaps it is a mistake to spend so much time
talking mathematics-applied-to-economics, and a little more
time should be spend on personal "case studies." Hopefully
some of these "cases studies" would include reference to
down periods in the market as well as up periods. Thus, to
the Usenet audience:

What compelled you to make your first stock or stock mutual
fund purchase? What was your first decade or so of owning
stocks like?

Tad Borek <borekfm[at]pacbell.net> wrote:

- quote -

Hahaha...so right you are!

Thanks so much Tad

You have an exclennet way of explaining things

I'm 48 years old by the way

"Elizabeth Richardson" <erichktn[at]worldnet.att.netwrote:

- quote -

good point

"Sgt.Sausage" <nobody[at]nowhere.com> wrote in message
news:dffa2$4501dcbe$42a1e606$2351[at]FUSE.NET...
- quote -

For an individual company, I think this is correct. For a diversified
portfolio it pretty much goes up - some years the up is small, some years
have a bigger up. There may be a year or three when the market goes down or
sideways, but it has been an extremely unusual 20 year period when the
market wasn't up. (I think there has been maybe one or two 20-year periods
in the past 100 years, but has there ever been a 30-year period?)

Anyway, your question poses bonds vs. stocks. There are risks with bonds,
too. There is interest rate risk, risk of default, and inflation risk. To
me, those are much more real risks than a risk that the stock market won't
increase over time.

Elizabeth Richardson

"Elle" <honda.lioness[at]nospam.earthlink.net> wrote in message news:TDlMg.9175
- quote -

Well, if we're going to share our experience about why we believe in
investing in the stock market, I'll share mine.

My father died in 1954 and in 1955 my mother went to work for Hawaiian
Punch. The company went public in June of that year when, with part of what
little life insurance there was, she bought $7500 of the company. In June of
1963, a short 8 years later, that original stock purchase had grown to
$100,000. This happened between the years I was 9 and graduation from high
school. Those are mighty formative learning years. (That growth had nothing
to do with the price of Hawaiian Punch going up.)

Did I ever think I might be that lucky? No. I also never invested in the
company I worked for nor did I think my portfolio should consist of mainly
one company. But it did show me the power of investing in businesses, which
is what buying stock is all about.

Elizabeth Richardson

me[at]privacy.net wrote:
- quote -

How about a rationalization? =)

If you're saving, there's reason to be happy your stock investments
haven't been skyrocketing. You're able to buy into lower prices as you
continue to invest. You can poke some holes in this idea, but here goes...

Picture the following pathways of returns year to year, over the next
five years - an extreme example to make the point:

Scenario 1: +7% +7% +7% +7% +7%
total = about 40% growth, including compounding along the way

Scenario 2: +0% +0% +0% +0% +40%
Scenario 3: +40% +0% +0% +0% +0%

If you invest a lump sum today, i.e., you aren't still saving, this is a
wash - same amount of money at the end of the pipe for all three.

BUT if you're adding say $5k per year at the start of the year, the
outcomes are very different, even though you'd calculate the same 7%
annual rate of return for both. Look at the difference in end values of
$5k per year, added at the start of the year:
1: $30,800
2: $35,000
3: $27,000

So maybe having the Dow stuck at 11,000 isn't so bad. At least, until
the day you retire, at which point you want Dow 15,000 overnight!

-Tad

"Sgt.Sausage" <nobody[at]nowhere.com> wrote
- quote -

No, that's not my entire premise. But the generally
admirable goals of this newsgroup's moderators preclude a
full treatment in this precious space. Hence I wrote up my
full explanation at my web site, which I am really
disappointed no one apparently has read, since I was hoping
for at least some feedback like, "Elle, your writing still
/sucks eggs/, but... " ;-)

Actually the piece is verbose and likely not approachable
for laypeople. Its main goal is to remind me of why I buy
stocks.

- quote -

You bet. :-)

But it's taken a lot of years of reading and discussions and
hands-on experience to feel really confident about putting
money into stocks. That learning of course continues today
and will continue tomorrow. Also, I am a bit spoiled, since
I started my stock investing (as I wrote, only on advice
from my dear ol' dad) at the start of a 17-year bull market
from about 1983-2000.

By contrast, relative newbies who went through the c. 2000
crash are understandably skeptical. They need to try to
explain, 'Why do stocks generally rise in value?' before
putting a cent into stocks, or else be considered irrational
and guilty of groupthink.

"Sgt.Sausage" <nobody[at]nowhere.com> wrote
- quote -

For every 20+ consecutive-year period that one can construct
from 1871-2005, the stock market has always gone up. The
worst return for any 20+ year period was 3% annualized.

The following site is helpful on this point:
http://www.moneychimp.com/articles/r...me_horizon.htm

"Sgt.Sausage" <nobody[at]nowhere.com> wrote:

- quote -

If you are correct isn't that an argument for NOT
investing in stock market for long term than?

Tad Borek <borekfm[at]pacbell.net> wrote:

- quote -

Tad I really appreciate that explanation. Thanks so
much. I can dispute your logic

I guess I'm just "frustrated"..... venting I suppose

I started late in this saving for retirement thing
...very late....and just seems like its Herculean
effort to see any growth

<me[at]privacy.net> wrote in message
news:loc3g21koo7iuqbi7qf9ln54p2j8k0bheo[at]4ax.com...
- quote -


No. The very nature of geometric or expenontial growth
makes this an impossibility. It has to be kicked down every
once in a while or we would reach near infinite (for sufficient
values of "infinite") valuation of a company.

Maybe for 20-30 years, maybe for 200-300, but sooner
or later the math of the curve catches up and the curve shoots
all asymptotic -- "ALWAYS" is not an option.

"Elle" <honda.lioness[at]nospam.earthlink.net> wrote in message
news:KBfMg.8987$xQ1.401[at]newsread3.news.pas.earthlink.net...

- quote -

If your premise is, as stated in your previous post: Stocks rise in
value because the underlying products the companies make/sell/whatever -- if
your premise is that the only reason stocks rise is because product prices
rise
then ...

Yes! I wholeheartedly, and unconditionally dispute that
investing in stocks is a good thing.

I don't however, support your premise -- stocks rise for
a number of reasons (not one of which in "real" terms is
product pricing rises).

We agree on the conclusion, however we arrive at it
from two very different roads.

- quote -


I'm bettin' on it -- and hopin' you are too!