2/20/2009

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finite automaton

Golden Member
Apr 30, 2008
1,226
0
0
Originally posted by: BoberFett
Originally posted by: finite automaton
My 401k is stock heavy. I am 23. Should I move it to a stable value fund for now?

Investing 101: Conventional wisdom says that at 23 you can afford to be in risky funds because even if you hit a downturn, you've got a long time to recover. The older you get the more you want to be in stable funds, because if things tank just as you need to pull the money out, you could be withdrawing at a huge loss.

I realize that I have a long time to recover, but the economy is pretty depressing. I just hope it turns around sometime before I retire :).

Edit: Thanks for the input.
 

StageLeft

No Lifer
Sep 29, 2000
70,150
5
0
Originally posted by: finite automaton
Originally posted by: BoberFett
Originally posted by: finite automaton
My 401k is stock heavy. I am 23. Should I move it to a stable value fund for now?

Investing 101: Conventional wisdom says that at 23 you can afford to be in risky funds because even if you hit a downturn, you've got a long time to recover. The older you get the more you want to be in stable funds, because if things tank just as you need to pull the money out, you could be withdrawing at a huge loss.

I realize that I have a long time to recover, but the economy is pretty depressing. I just hope it turns around sometime before I retire :).

Edit: Thanks for the input.
That is indeed the conventional advice. Few pros will tell you otherwise at this point, for what that's worth these days (this entire thing has been rather deflating to many of their egos--or at least should have been deflating).
 

Acanthus

Lifer
Aug 28, 2001
19,915
2
76
ostif.org
Originally posted by: amdhunter
I would love to see it fall to the low 6000 range. I love anarchy.

Experts were predicting 4000 in January. It's still very possible.

Wait until GM and Chrysler shit the bed, and ford taps their bailout to stay alive.
 

StageLeft

No Lifer
Sep 29, 2000
70,150
5
0
Originally posted by: Acanthus
Originally posted by: amdhunter
I would love to see it fall to the low 6000 range. I love anarchy.

Experts were predicting 4000 in January. It's still very possible.

Wait until GM and Chrysler shit the bed, and ford taps their bailout to stay alive.
Many experts predict the opposite, though. If it was generally accepted that it was going to be, say, 6000 at the bottom, it would fall to that immediately as only a fool would hold on to it if everybody else knew (and the power is in the masses, like a flock of birds that seems to move of its own volition despite no lead bird) it was going to be 6000.

It seems like there is some farcial aspect to an investment that many have most of their net worth in and can drop by such vast amounts so quickly, doesn't it?

 

Thump553

Lifer
Jun 2, 2000
12,839
2,625
136
Originally posted by: Skoorb
It seems like there is some farcial aspect to an investment that many have most of their net worth in and can drop by such vast amounts so quickly, doesn't it?

Newsweek has a pretty interesting article this week how the precipitous drop in oil prices has hobbled our oil despots (Venezeula, Iran and Russia). One of the things they pointed out was that the Russian stock market has dropped 75% in one year. Ouch.

 

BrownTown

Diamond Member
Dec 1, 2005
5,314
1
0
Originally posted by: bamacre
Intel below $13.

yeah, that's why I just bough 10,000$ of Intel stock, its fucking crazy how people act like a little economic slowdown that happens all the damn time is going to be the end of the world. In 2 years Intel will be back at 26 and you will have doubled your investment. I'm putting every last cent I have into stocks given how low they are. The only thing I would say is that if you really think the economy is done for then it doesn't matter WHERE your money is its going to be worthless anyways.

This economic depression is all in people MINDS, people think that investments are going to be bad so they put their money under the pillow and then there is no money to fuel the economy. Same thing for jobs, people think they might lose theirs so they buy less stuff in case they cant afford it later, then of course the falling demean causes people to actually lose their jobs. The economy is a self fulfilling prophesy going both up AND down.
 

StageLeft

No Lifer
Sep 29, 2000
70,150
5
0
Originally posted by: Thump553
Originally posted by: Skoorb
It seems like there is some farcial aspect to an investment that many have most of their net worth in and can drop by such vast amounts so quickly, doesn't it?

Newsweek has a pretty interesting article this week how the precipitous drop in oil prices has hobbled our oil despots (Venezeula, Iran and Russia). One of the things they pointed out was that the Russian stock market has dropped 75% in one year. Ouch.
Yep, I remember reading last year as it was bursting how fubared these countries were. Russia less than the others (I seem to recall) because it had actually saved money. Venezuela was basically already defaulting on loans with oil sky high, but now with it in the tips they are buggered. I think Iran was in between them. I will check out that article if it's online!

 
Dec 30, 2004
12,553
2
76
Originally posted by: Skoorb
Originally posted by: Thump553
Originally posted by: Skoorb
It seems like there is some farcial aspect to an investment that many have most of their net worth in and can drop by such vast amounts so quickly, doesn't it?

Newsweek has a pretty interesting article this week how the precipitous drop in oil prices has hobbled our oil despots (Venezeula, Iran and Russia). One of the things they pointed out was that the Russian stock market has dropped 75% in one year. Ouch.
Yep, I remember reading last year as it was bursting how fubared these countries were. Russia less than the others (I seem to recall) because it had actually saved money. Venezuela was basically already defaulting on loans with oil sky high, but now with it in the tips they are buggered. I think Iran was in between them. I will check out that article if it's online!

We have tons of economic embargoes against Iran; this is part (most?) of their problem.
All they have to do is let the UN inspectors regularly visit their gas centrifuge centers. If they don't have anything to hide.....
 

Zebo

Elite Member
Jul 29, 2001
39,398
19
81
Originally posted by: Fern
Originally posted by: Zebo
Originally posted by: dullard
Originally posted by: Zebo
Problem with that is all baby boomers and supporting their dead beat children will make a run on the market soon, when allowed w/o penalty. Then I'll get in.
I've made that argument myself. But someone here claimed (without proof) that the baby boomers actually have a negligible amount of money in the stock market. I never looked it up, so to me the answer is left unclear. Maybe we should look that up. Do they have enough in the stock market to make another significant dent?

If that's true then I'm wrong - but as you say lets get some evidence. Also, there is still the issue of the investor class finally waking up to the lack of real dividends which I think will make them shift into treasuries and bonds over time. Then you have issue of can USA companies even compete on global market, come sure can like big pharma, oil, but other whole industries are dying like autos. I don't see this recovery for a multitude of reasons not just one.

Re: Baby Boomers' money in the stock market.

I don't believe the data exists to accurately determine what age group holds what portion of stock. Age type data is necessary and available for retirement-type accounts (they must be able to determine whether a distribution is premature and/or when mandatory etc). But I don't believe regular brokerage accounts need/use that data. Then there are stocks held by fictitious entities (companies/partnerships/trusts etc) for which no age-related data is even possible.

But I'd say quite a lot of stocks are held by Baby Boomers. (1) I've been doing their tax returns for about 30 years and these people have a pile of stocks. (2) We here in the US switched from Defined Benefit-type retirement plans to Defined Contribution plans in teh early 80's. A Defined Contribution plan is one in which you invest in stocks etc with pre-tax dollars. I.e., begining back in teh early 80's employees began invetsing directly in teh stock market, instead of their company's (DB) pension plan doing so.

My recollection (I was a finance major in university as well an accounting) was the stock market only really began going 'retail' in maybe the 70's or 80's. (I remember seats on the NYSE for sale at only a $100K back then.) This would also indicate a lot of Boomer participation.

I was able to find an academic paper on this subject (amount of BBoomer investment in the stock market and effects of their mass retirement on stock prices) Here - a Wharton/UPenn article

There?s little argument that as boomers became more affluent in their 30s and 40s, they poured money into stocks and other investments. Indeed, mutual fund assets in the U.S. soared from less than $48 billion in 1970 to $6.9 trillion at the end of 2000, according to the Investment Company Institute, the funds? trade group.

I believe this confirms my beliefs stated above (i.e., a lot of BBoomer money in the stock market)

As far as whether their mass retirement will have an adverse effect on stock prices, that's subject to debate. But I think most of the real debate is focused on 'how much', not 'if'.

Re: Lack of Dividends.

This is puzzling to me also. When most employees were on the old Defined Benefit pension plans dividends were highly desired. They needed the cash flow to fund the retirements to (ex)employees. Cutting dividends was not often done, even when the company had a loss for the year. The effect on the stock price would have been horrendous. I was working the IBM execs accounts back in the early 90's when IBM got in a lot of trouble. They had to cut dividends and the ir stock value plummeted resulting in John Akers getting canned (CEO and Chairman of the Board).

But starting in the mid- 90's seems to be people became aware that while dividends were taxed at (higher) ordinary rates, LT cap gain on stocks were taxed lower. The result being 'conventional wisdom' began favoring the discontinuance of dividends (or maybe scaling back). By retaining the cash a companies stock just increased in value and people would get their 'cash' by selling the stock and only paying low cap gains tax.

However, in 2003 tax law was changed and diivdends (generally) enjoyed the same low rates a LT cap gains. Why that didn't encourage companies to move back to dividends is a question.

My guess?

1. Since the 80's an awful lot of exec compensation is based on stock price. They may not want to pay out the company's cash and prefer instead to let it accumulate thus driving up the stock price - and their compensation.

2. The market (traders etc) make a lot of money on 'buys and sells'. They get nothing from dividends. So, the lack of dividends forces buy's and sell's and they profit.

The only benefit to dividends I see ATM is for the 'regular' guy; the only one with no real say in the matter.

Fern

Fern excellent post thanks for some numbers.

BB have tons $$$ in, are less deadbeats than thier X&Y's but at the same time have enabling psychology so as economy goes south I look, besides naturally pulling out to live, also to enable their "Children" AND GRANDCHILDREN too.

One point on the dividends. I look at the whole 401K deal and other "Defined Contribution plans" as responsible for not paying them and a lot of other issues in corp america. Started big in 1981 whereby unsavvy workers where basically forced into the market then: wall street, ibanks, CEOs and others could increase " the houses take" because they were dealing with basically relative idiots not investors and more funds poured in as Defined Contribution plans continued to grow no matter what. Bush tried to save this house of cards with SS money, force that too, did not work as is market falling apart now as the smart, savvy, get out.

More later I drunk and tired and smell like fish - been at lake all day - just wanted to say thnks for informative reply.
 

Muse

Lifer
Jul 11, 2001
40,874
10,222
136
Subscribed.

I wouldn't post but I'm unable to subscribe to a thread using my IE7 without actually posting. Some kind of snafu....
 

Mardeth

Platinum Member
Jul 24, 2002
2,608
0
0
My stock portfolio is now down 10.85%. I sold at a good time but started buying again too early. Didnt think we would go this low. Still thats not too bad and Im still 75% cash. Ill continue to buy at regular intervals. I think this is a great time to make some great buys for the longer run. I expect to double in 2-5 years. There is a risk thought that this will turn into some deep and long recession but thats a chance Ill take and have to take to make money in stocks.
 

Muse

Lifer
Jul 11, 2001
40,874
10,222
136
I used to trade a lot but went into mutual funds a few years ago. The financial advisor at my bank showed me that the returns on these funds averaged ~10%/year over the last decade. But right now I'm showing losses 30-35% I believe in my 2 funds, one of which is my Roth IRA. I'd have done better shoving the cash into my mattress. I've been wondering if I should cash out and look for opportunities to trade again, but really don't have a feel for the markets now. It could be the wrong time to cash out. I had to pay ~3.5% just to get in my non-ROTH fund, but that's like 10% of the loss I took over the last year, hardly a big consideration. I do get dividends from the fund every month, so I'd miss that. It's an "income" fund.
 

GTKeeper

Golden Member
Apr 14, 2005
1,118
0
0
I think the S&P will hit 500 at some point this year. Things are getting worse unfortunately. And no this isn't the doom and gloom type of view, its the realistic point of view. Once some foreign country defaults things will get more interesting.
 

MovingTarget

Diamond Member
Jun 22, 2003
9,002
115
106
Originally posted by: GTKeeper
I think the S&P will hit 500 at some point this year. Things are getting worse unfortunately. And no this isn't the doom and gloom type of view, its the realistic point of view. Once some foreign country defaults things will get more interesting.

Maybe this dive for five thing is catching on.

:D

We certainly are in for an interesting year. :(
 

StageLeft

No Lifer
Sep 29, 2000
70,150
5
0
DOW futures were up decently today, it opened a little high and is negative again. Dayum.

Anyway, some guy named Shiller (I have no idea if he's a guru or not, but sounds convincing enough) says that although the market is now priced at a fair 15 or so P/E based on a decade-history of earnings, in other big bears we've seen the PE go as low as 10, so he's ultimately saying that stocks now are priced where they should be, but will go lower. This would see the DOW like in the 5000-5500 range.
 

JS80

Lifer
Oct 24, 2005
26,271
7
81
Originally posted by: Skoorb
DOW futures were up decently today, it opened a little high and is negative again. Dayum.

Anyway, some guy named Shiller (I have no idea if he's a guru or not, but sounds convincing enough) says that although the market is now priced at a fair 15 or so P/E based on a decade-history of earnings, in other big bears we've seen the PE go as low as 10, so he's ultimately saying that stocks now are priced where they should be, but will go lower. This would see the DOW like in the 5000-5500 range.

That is not unreasonable.
 

Zebo

Elite Member
Jul 29, 2001
39,398
19
81
Originally posted by: Skoorb
DOW futures were up decently today, it opened a little high and is negative again. Dayum.

Anyway, some guy named Shiller (I have no idea if he's a guru or not, but sounds convincing enough) says that although the market is now priced at a fair 15 or so P/E based on a decade-history of earnings, in other big bears we've seen the PE go as low as 10, so he's ultimately saying that stocks now are priced where they should be, but will go lower. This would see the DOW like in the 5000-5500 range.

P/E's should be 7 and be paying dividends. I been around a lot business purchases and have done so on my own and we look for 3-6 depending on modifiers like if you have to work in it, or are merely a silent partner/owner - 3 if you're flipping the burgers while 6 if you pick up drawer once a morning and take to bank. Stock is obviously totally passive income so it would get a 7 at most. Other considerations are there too such as accounts receivables, how collectable are they, growth potential, debt, etc, but in general no sane person would purchase a business for 15x yearly earnings. Why do we do it with stock? Doing so is pure speculation Dullard talked about in this thread. Might as well go to Vegas and bet on red and black since drinks and rooms are free.
 

StageLeft

No Lifer
Sep 29, 2000
70,150
5
0
Originally posted by: JS80
Originally posted by: Skoorb
DOW futures were up decently today, it opened a little high and is negative again. Dayum.

Anyway, some guy named Shiller (I have no idea if he's a guru or not, but sounds convincing enough) says that although the market is now priced at a fair 15 or so P/E based on a decade-history of earnings, in other big bears we've seen the PE go as low as 10, so he's ultimately saying that stocks now are priced where they should be, but will go lower. This would see the DOW like in the 5000-5500 range.

That is not unreasonable.
Yep. The good news is that We're almost at a mathematical point at which we're over the worst of it because it's very close to down 50% now.

Be wary of guys calling bottoms, we've heard that call many, many times during this process.
 

StageLeft

No Lifer
Sep 29, 2000
70,150
5
0
Originally posted by: Zebo
Originally posted by: Skoorb
DOW futures were up decently today, it opened a little high and is negative again. Dayum.

Anyway, some guy named Shiller (I have no idea if he's a guru or not, but sounds convincing enough) says that although the market is now priced at a fair 15 or so P/E based on a decade-history of earnings, in other big bears we've seen the PE go as low as 10, so he's ultimately saying that stocks now are priced where they should be, but will go lower. This would see the DOW like in the 5000-5500 range.

P/E's should be 7 and be paying dividends. I been around a lot business purchases and have done so on my own and we look for 3-6 depending on modifiers like if you have to work in it, or are merely a silent partner/owner - 3 if you're flipping the burgers while 6 if you pick up drawer once a morning and take to bank. Stock is obviously totally passive income so it would get a 7 at most. Other considerations are there too such as accounts receivables, how collectable are they, growth potential, debt, etc, but in general no sane person would purchase a business for 15x yearly earnings. Doing so is pure speculation Dullard talked about in this thread. Might as well go to Vegas and bet on red and black since drinks and rooms are free.
But, baring a bit rules change, I think that for a hundred years the market has tolerated PEs in that range, hasn't it?

 

Zebo

Elite Member
Jul 29, 2001
39,398
19
81
Originally posted by: Skoorb
Originally posted by: Zebo
Originally posted by: Skoorb
DOW futures were up decently today, it opened a little high and is negative again. Dayum.

Anyway, some guy named Shiller (I have no idea if he's a guru or not, but sounds convincing enough) says that although the market is now priced at a fair 15 or so P/E based on a decade-history of earnings, in other big bears we've seen the PE go as low as 10, so he's ultimately saying that stocks now are priced where they should be, but will go lower. This would see the DOW like in the 5000-5500 range.

P/E's should be 7 and be paying dividends. I been around a lot business purchases and have done so on my own and we look for 3-6 depending on modifiers like if you have to work in it, or are merely a silent partner/owner - 3 if you're flipping the burgers while 6 if you pick up drawer once a morning and take to bank. Stock is obviously totally passive income so it would get a 7 at most. Other considerations are there too such as accounts receivables, how collectable are they, growth potential, debt, etc, but in general no sane person would purchase a business for 15x yearly earnings. Doing so is pure speculation Dullard talked about in this thread. Might as well go to Vegas and bet on red and black since drinks and rooms are free.
But, baring a bit rules change, I think that for a hundred years the market has tolerated PEs in that range, hasn't it?

Sorta but you can't take P/E alone as you know. 21' 32' 49' and 80-82' they stood below 10 http://www.lowrisk.com/sp500pe.htm the really higher p/e craze and no dividend pay really started post Defined Contribution Plans which is why I never thought it was a sound business decision, just relied on more investors to boost stock price.
 

Pliablemoose

Lifer
Oct 11, 1999
25,195
0
56
Originally posted by: Skoorb
Originally posted by: JS80
Originally posted by: Skoorb
DOW futures were up decently today, it opened a little high and is negative again. Dayum.

Anyway, some guy named Shiller (I have no idea if he's a guru or not, but sounds convincing enough) says that although the market is now priced at a fair 15 or so P/E based on a decade-history of earnings, in other big bears we've seen the PE go as low as 10, so he's ultimately saying that stocks now are priced where they should be, but will go lower. This would see the DOW like in the 5000-5500 range.

That is not unreasonable.
Yep. The good news is that We're almost at a mathematical point at which we're over the worst of it because it's very close to down 50% now.

Be wary of guys calling bottoms, we've heard that call many, many times during this process.

I'm calling a bottom...

NOT :(
 

StageLeft

No Lifer
Sep 29, 2000
70,150
5
0
I think the DOW opened in 1896 with a value of 40 or something like that. With 7200 in 2009, is there a calculator to tell yearly return? Also, knowing average inflation over this time would be helpful. I can't seem to find one with numbers that track into 2009, and I cannot find an open-ended return calculator.
 

sactoking

Diamond Member
Sep 24, 2007
7,648
2,924
136
Originally posted by: Skoorb
I think the DOW opened in 1896 with a value of 40 or something like that. With 7200 in 2009, is there a calculator to tell yearly return? Also, knowing average inflation over this time would be helpful. I can't seem to find one with numbers that track into 2009, and I cannot find an open-ended return calculator.

Well, if you assume:

You invest $40 in 1896
You get $7200 in 2009
You invest and get nothing in the interim
1896 and 2009 are both full years
Return is compounded monthly

Then:
The Internal Rate of Return of the stock market from 1896-2009 is 4.6043%
 

dullard

Elite Member
May 21, 2001
26,042
4,688
126
Originally posted by: sactoking
Well, if you assume:

You invest $40 in 1896
You get $7200 in 2009
You invest and get nothing in the interim
1896 and 2009 are both full years
Return is compounded monthly

Then:
The Internal Rate of Return of the stock market from 1896-2009 is 4.6043%
That number looks just about right (I didn't do the math). I already posted earlier in the thread that stocks historically return roughly 5% from share price inflation (very close to your 4.6%) and that they returned an additional ~5% from dividends. Total those up and you get your 10% that people used to expect. They just fail to realize that is an AVERAGE, some years you'll do far better and some years you'll do far worse. Plus, as long as the dividends stay slashed, you'll not be getting 10% long term any more (but I've been ridiculed many times on ATOT or P&N for stating that over the last couple of years).

Historical inflation can be calculated from the CPI, but it only goes back to Jan 1913. Inflation over that whole time is 3.25% (calculated by annual compounding).