curiousgeorge408[at]hotmail.com wrote:
- quote -

(repost from 11/21, last didn't make it but I had a typo anyway!)

S&P's total return data for the S&P 500:
1927 +37.5%
1928 +43.6%
1929 -8.4%
1930 -24.9%
1931 -43.3%
1932 -8.2%
1933 +54.0%
1934 -1.4%
1935 +47.7%
1936 +33.9%
1937 -35.0%
1938 +31.1%

It's interesting that as of this morning the S&P 500 has lost ~52% since
its peak close in October 2007, not factoring in dividends. Compounding
the figures above, the cumulative loss from 1929-32 was ~64%, including
dividends.

Meaning the stock market decline of the past year, half of which
happened in just the past 2 weeks, is comparable to the cumulative
losses during the worst stock-market period of the Great Depression - a
period that spanned four years.

Another interesting data point: the dividend yield on the entire US
stock market is a bit south of 4% at the moment, subject of course to
changes in dividend payout (up & down). The 30-year Treasury bond yield
is about 3.7%.

-Tad

curiousgeorge408[at]hotmail.com wrote:


- quote -

It would be a good approach if you can tell when it happens. But I can't. For
example, is the current big rally the start of the recovery or just more
volatility?

-- Doug

Rich Carreiro <rlc-news[at]rlcarr.com> writes:

- quote -

For this example, for simplicity, I chose Vanguard Total
Bond and Total Stock ETFs, which track, respectively,
the Lehman Agg and the MSCI US Broad Indices.

- quote -

The Agg has a duration now of about 4.5yrs which is roughly
a third fixed-rate conforming MBS securities, roughly a
third in Treasuries and other Gov't related debt and about
20% corporates, the rest made of other mortgage backed stuff.

- quote -

No particular reason other than convenience to look up at
the moment. Any low-cost well run index funds off of
similar indices should behave almost identically. The
point here was not specific funds but rather about asset
allocation.

Some folks recommend short and intermed-term treasury-only
funds rather than the Agg due to somewhat different
correlations. When the universe goes to crap, folks
buy up treasuries and often do so in flight away from
both mortgages and corporates. When folks are under-
pricing risk, they often do so in both corporate bonds
as well as the stock market. I don't have current numbers
handy though, comparing longer term behaviour of a
60/40 with the Agg vs an all Treasury fund of similar
duration. However, in the last year, this exact difference
of behavior is well demonstrated. Replace that 40% of
Lehman Agg with 40% in either of the iShares Lehman
3-7 or 7-10yr treasury ETFs, both of which have returned
more than 10% over the last year, and the 60/40 portfolio
would have gone down about 21% instead of the 25% I
noted above. And, in fact, when the stock portion of
that portfolio starts to do well again, I would expect
the bond portion - in all treasuries - to underperform
the broader bond market and somewhat offset the stocks -
ie. they'd do exactly what they are supposed to do -
temper the volatility.

(the durations of those two all-treasury funds are
about 4 yrs and about 6.5yr respectively, btw - I'd be
inclined towards that 3-7 yr fund for this exercise)


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"Rich Carreiro" <rlc-news[at]rlcarr.com> wrote

- quote -

I'm using PRTIX. Average duration is about 5.5 years. It's up about 9% year
to date.
For ETF's I would have chosen IEI or ITE. IEI is doing the best.

Will Trice wrote: Count me as someone who continues to invest in the
market.


IMO (which some do actually agree with) the immense financial
"superstructure" got itself into trouble thanks to many more than
usual jerks who leveraged beyond reason, justifying it with
probability distributions (aka "risk management" - what a joke, huh?).
The margin requirements for individuals were 10% in the 1920's, and
financial reporting was sketchy at best (sometimes only sales figures
were grudgingly disclosed. Huge banks in the 2000's used only 3.3%
margin, and these jerks had very little understanding of what they
were pouring YOUR money into. And they tried to keep it all a big
secret, as in: "So that nobody will know." There's just no excuse.

I find it appalling that almost the minute banking regulations were
"eased", we got another financial crash. However, there are major
economic and social differences today. The individual investor and
mutual fund buyer is not leveraged (for the most part). We also have
FDIC, and, like it or not, the "safety nets" that were put in place. I
find it notable that no one seems to mention the droughts of the
1930's that wreaked absolute havoc in the Mid-West. Didn't "The Grapes
of Wrath" make a big enough impression to remember?

Whether the "mark-to-market" accounting rules pushed this Humpty-
Dumpty off the wall is still being debated, but the huge efforts of
the Federal Reserve, and the midnight sweat of the unhappy mid-
managements who got stuck with sorting this mess out may have brought
the pieces back together again. This is principally, remember, a
financial crisis.

Mr. Market is having a bad hair day. (I'm safe in saying that because
if it is in fact the End of the World, my optimism will at least bring
some small cheer over the freezing waters of the deceptively placid
Atlantic Ocean.)

Personally, I'm upset with myself because I didn't see this market
fall-apart coming, but I value my portfolio based on my estimation of
what it is really worth in terms of products, services, people, and
earnings. My valuation is higher than Mr. Market's (no offense to the
wonderful fellow).

On 2008-11-22, Douglas Johnson <post[at]classtech.com> wrote:
- quote -

Doug, keep in mind that high probability of this is already "priced in".

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BreadWithSpam[at]fractious.net writes:

- quote -

What duration for the bond part? From what I've read,
one would want to use short-term bonds (duration of 2-5 years)
for bond portion because generally the yield curve isn't steep
enough for the extra yield to compensate for the extra annual
volatility of longer duration bonds.

And which bond ETF(s), and why ETF(s) over bond funds from a
Vanguard or Fidelity? (who are both good and pretty cheap on
bond funds).

--
Rich Carreiro rlc-news[at]rlcarr.com

Ernie Klein <ecklein[at]pacbell.net> wrote:

- quote -

I suspect the auto companies will have to offer some kind of warranty insurance.
Some trusted third party will guarantee the warranty. As for service, lots of
people can fix cars and there are lots of third party parts suppliers.

It's my opinion that Chapter 11 is the *only* way out for the auto companies.
They have tied themselves into wages and benefits that are unsustainable. Their
dealer networks are too large. They have too many plants and it is too
expensive to close them under current contracts. Chapter 11 allows them to fix
all that. Everyone involved will be very unhappy. But not as unhappy as they
would be under Chapter 7.

We'll see if the CEO's come back with a plan that makes sense. But my guess is
that government loans will just delay the inevitable. Oh. When they go to
Washington to present the plan, they damn well better fly coach.

-- Doug

BreadWithSpam[at]fractious.net wrote:

- quote -

One point is that when markets come off a bottom, they go up like a rocket. The
average gain in the year after the last 10 bears has been 44%. Now, someone
will point out that does not restore what the bear ate. That's true. But
forgoing those gains by being out of the market is even worse.


- quote -

When markets are stable and rising for a long time, people start to think that
is normal. People are willing to assume more risk and get paid less for it. In
many ways that was what caused the current troubles. "Housing always goes up,
so we are not taking a risk with this subprime loan."

While I think we are near the bottom, one big risk out there is the auto
companies going Chapter 7. If even one ceases operations, that will be a whole
new ball game.

-- Doug

Don wrote:

- quote -

Count me as someone who continues to invest in the market, and I intend
to dramatically increase my savings rate shortly (though this would have
happened regardless of market conditions...).

-Will

william dot trice at ngc dot com

curiousgeorge408[at]hotmail.com wrote:

- quote -

Here's the problem. Let's say Skip is right and the market moves down.
Then you get a quick rally. Let's say like the one that just occurred
from the 10/27 close to the 11/4 close, market up 18%. Almost a bull
market. Do you buy? The market will have recovered most or all of
Skip's decline. If you wait, you may be buying back in higher that you
got out (if it's not already too late). So using your strategy, you
buy. Maybe just to see the market tank again, losing money. But if the
market continues up from the rally, then you're no better off than if
you had held, in fact you lose the dividends and create trading costs.
So what's the point?


- quote -

Or the realization that you have no idea which way the market will go in
the short term.

-Will

william dot trice at ngc dot com

curiousgeorge408[at]hotmail.com wrote:

- quote -

Huh, I thought Skip actually gave you a great reply (and if you've spent
any time on this newsgroup, you know that I hate to compliment Skip).

- quote -

Fall down and play dead. (Seriously!)

- quote -

Yes, why not?

- quote -

Ah, that's the part that's not clear to the rest of us. Since you're
going to be a buzzkill and insist on serious discussion (just kidding,
this is a serious topic), I'll pitch in my $0.02 (though it is actually
worth less I imagine). I am not particularly near retirement, so I'm
staying the course. The way I look at it, I cannot attain my retirement
goals with savings running at 0.2% interest, at least not without
seriously compromising my current lifestyle. I'm young and probably
better able to enjoy money now than I will be able to in retirement (or
I could croak tomorrow), so it does not make sense to me to endure a
monastic lifestyle now in order to live fat in retirement. The ideal
case would be to live fat now and live fat in retirement. In reality I
must also temper the possibility of eating cat food in retirement. So
balance is needed.

To throw around a few rules of thumb - it is often mentioned here that a
person needs to save 25x income to retire. Let's call that retiring
fat. If this person works and saves for 45 years, and has a constant
salary, s/he must save 53% of pre-tax income if savings are only earning
0.2%. That might be somewhat difficult and not much fun.

Of course, salary is typically not constant, so that drives up the
savings rate even more. The only way to drive the savings rate back
down is to take risk. The probable worst-case scenario between now and
my retirement is that the market moves sideways, or it moves up at less
than the historical rate thus not getting back to where it was a year
ago. Maybe this is equal to putting my money in an asset that performs
at 0.2%. But if the market does better than the worst case from here
forward? I'm golden.

Of course, advice here is very different for those that are saving and
those that are in or close to retirement. That's not me, so I'll leave
that to others.

-Will

william dot trice at ngc dot com

On Nov 22, 11:08*am, BreadWithS...[at]fractious.net wrote:
- quote -

This would only be true if bottom had been reached, which neither you
nor I know. If bottom hasn't been reached yet, now's a good time.
Given that it's a bet, hedging might offset the losses... and the
gains, depending on where the market goes.

On Nov 22, 11:20*am, Ernie Klein <eckl...[at]pacbell.net> wrote:
- quote -

Indeed, bankruptcy would be better, because then the productive
assets, including employees, would be grabbed by the likes of Toyota,
Honda, Nissan, VW, etc. Just like GM and Ford grew by buying failed
manufacturers (recently Daweoo and Jaguar), other companies would grow
by buying what's left of GM and Ford.

After all, it's not like 1/2 of the car-buying public would not buy
cars anymore because GM and Ford are no more. Other manufacturers
would be glad to fill the space opened.

Back to the topic...

In article <duGVk.111$QX3.38[at]nwrddc02.gnilink.net> ,
"Lucky" <nottoo[at]shabby.net> wrote:


- quote -

I keep hearing talk about the auto industry and chapter 11 but I just
don't see why _anybody_ would purchase a car from a company in chapter
11 that might not be around to service it or do warrantee work. They
would have to offer it at a great discount price to reel me in and deep
discounts won't make them the money they need. I think chapter 11 would
just make the current situation worse.

--
-Ernie-

On 2008-11-22 02:51:13 -0800, "Marco Polo" <Marco[at]Polo.com> said:

- quote -

A trouble with dollar cost averaging is that people's ability to invest
usually does not stay constant over a long period of time. In their
early working years, small investors can put away, perhaps, $100 a
month or so. But as income and wealth accumulates in later years, they
can afford to invest a lot more, sometimes in lump sums all at one
time. So chance plays a big role in what is happening during a
particular time period.

Some people, including stock brokers who receive commissions,
securities analysts, etc, are prone to recommend that NOW is always the
best time to invest, regardless of what is going on in the economy, the
more money the better. Of course, somewhat different reasons are given,
depending on whether the market is high or low.

"Lucky" <nottoo[at]shabby.net> writes:

- quote -

That being the case, the time to get out was before those
losses. And the time to get back in will be before the
markets start to climb again.

If one wasn't able to predict the former (ie. one was
unable to get out before the fall), what makes anyone
believe he'll be able to predict the latter any better?

As I've said before, the truth uncovered here is not
that the markets can be volatile, nor that it's hard
to "stay the course" sometimes. It's that many of us
did not correctly assess our actual risk tolerance.
So it's not time to time the market or make these
predictions about the future, but it is time to really
think about risk tolerance and perhaps to rebalance
our portfolios to reflect it better.

If one isn't prepared to lose 50%, one isn't prepared
to be 100% in stocks. Lots of folks have been saying
exactly that all along. Lots of them. Mostly the same
ones who continue to say to stay the course. The thing
is that the course they've been encouraging folks stay
may not be the course some are claiming.

A 60% stock, 40% bond portfolio over the last 12 months
(as built from a pair of ETFs) is down about 25%. Over
very long periods of time, that portfolio has had something
on the order of 80% of the annual return of a 100% stock
portfolio, but with only around 60% of the annual volatility -
exactly as what we've just seen.

There are probably a lot more folks out there who should
be 60/40 rather than 100% stocks. And once they've figured
that part out, staying the course should be a lot easier.


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HW "Skip" Weldon wrote:
- quote -

Sure! I like this game. I'll be the optimist and say that we just
entered a bull market on Friday. I hope my prediction lasts longer than
Monday's close...

-Will

william dot trice at ngc dot com

There is one thing that I confirmed over the years.

Which is: if you buy and sell based on price, instead of on trend, you
will still be wrong about as often as if you bought and sold by the
trend.

But, what is important, the mistakes will not cost you nearly as much.

As of now all our retirement accounts are in stocks. Between me and my
wife, we used to be 90% in cash prior.

I have no idea if we are going in a small bear market, grizzly bear
markey, small bull market or buffalo bull market.

i

On 2008-11-22, Marco Polo <Marco[at]Polo.com> wrote:
- quote -

Very good point.

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