Posts
October 7, 2008
The Capitulation Stages of an Optimist
Stage 1: Lean Towards Safety
Stage 2: Consider Panicking
Stage 3: Admit Defeat
January 20, 2009
Advice for Uncertain Times
Stage 4: Panic!
First, taking the advice of my dear pal Ray Lucia, rock and roll star and investment guru, I can tell you that, no matter what happens, it will be good to have a nice chunk of money in cash or near cash. Yes, I know we may soon have inflation. But if we do, the rates on money market funds will rise. Cash is just a lovely thing to have in almost situation. Cash or near cash offers a level of comfort that even a large portfolio of stocks does not offer.
How do I know this is a clear sign of panic? Other than the obvious stock market crash today, that is?
Cash is just a lovely thing to have in almost situation.
Almost situation? What's an almost situation? Is that like trying to use the phone to sell your stocks during a severe market crash only to find a busy signal instead? Is it like trying to use your computer to sell your stocks but finding that the website is down? Is it like driving down to the brokerage office in person but finding a huge line of disgruntled investors waiting at the door? If indeed those are almost situations, then yes, cash would indeed be a lovely thing to have.
Cash or near cash offers a level of comfort that even a large portfolio of stocks does not offer.
Remember the days when a large portfolio of stocks offered more comfort to the optimists than cash did? Good times, good times.
I love following the stock market. In the very long run it's a beautiful thing, at least in the postwar world, and I hope it doesn't turn around and bite my head off the way it did in the tech crash. - Ben Stein, September 4, 2007
The DJIA closed at 13,448.86 on September 4, 2007. Today it closed at 7,949.09 (41% loss). Behold the power of hope.
Real Estate Newsletter Articles this Week: Existing-Home Sales Increased to
4.15 million SAAR in November
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At the Calculated Risk Real Estate Newsletter this week:
[image: Existing Home Sales]*Click on graph for larger image.*
• NAR: Existing-Home Sales Increase...
11 hours ago
10 comments:
Won't you let the good times roll?
Barack Obama was inaugurated this day as stocks sank, sending the the Dow Jones Industrial Average to its worst Inauguration Day decline in American history.
"Behold the power of hope."
Hope, hope and there is no hope.
Behold the illusion of hope.
Anonymous,
Barack Obama was inaugurated this day as stocks sank, sending the the Dow Jones Industrial Average to its worst Inauguration Day decline in American history.
I'd like to think the market was just giving Bush one last finger on his way out. That's probably me just being too optimstic again though!
Behold the illusion of hope.
I just wish the "expert opinion" of people such as Ben Stein could be counted on to be wrong 100% of the time. Think of the money we could make doing the opposite!
Unfortunately, the expert opinions seem to be right about twice a day. I'm tempted to write a book about it.
Using Stopped Clocks to Expertly Predict the Future
My gut tells me this: Obama and company are masters of the political--all the right words and symbols and props set up in all the right places--intravenously dripping into the populist psyche the things dreams are made of. What I saw yesterday, millions converging on the capital chanting, crying, high, crazed, is not a sign of hope. People who do this are constantly drifting, afloat without anchor, desperately reaching for a grandiose feeling. Not loyal. Not true. Fickel. Shifting one way, then the opposite. The overdone idolatry of Obama and equally overdone hatred of Busch, who once had their love, is a telling sign. For me, not a sign of hope.
Stag,
Unfortunately, the expert opinions seem to be right about twice a day.
Something you said earlier caught my attention. It was your barber shop experience when you told the barber that the herd was trampling the contrarian and he laughed. Your line of thinking was:
"Let's assume for a moment that the herd is wrong. That does not necessarily mean that the contrarians are right to bet against them though. Picture this. What if the herd isn't too pessimistic. What if the herd simply isn't pessimistic enough?"
I think that's what's been happening with the experts over the last year or so. Time revealed that they weren't pessimistic enough. Many analysts who saw that things were going in a not-so-good direction tended to under-predict the outcome. I think it happened because most analysts seeking credibility try to avoid risky predictions by targeting the safety of the middle. And why not? Taking the general middle ground means you're probably going to be right, or at least partially right, more than you're going to be wrong. Being wrong in the middle will always happen when events slip outside the curve to the outlying extremes. With that, I am actually surprised that the experts are right only twice a day!
To finish off my last post: It's when you can predict the outlier that you've really got something special. I don't know of any "experts" that can do that well.
Anonymous,
Time revealed that they weren't pessimistic enough.
Many analysts who saw that things were going in a not-so-good direction tended to under-predict the outcome.
If it can happen to Warren Buffett, it can happen to anyone.
May 2, 2005
The oracle speaks
http://money.cnn.com/2005/05/01/news/fortune500/buffett_talks/
Warren Buffett and Charles Munger warn of real estate 'bubble,' the risk of terrorist nukes.
August 14, 2007
Buffett Buys Stakes in Bank of America, Dow Jones
http://www.cnbc.com/id/20268157
Billionaire investor Warren Buffett bought a major stake Bank of America...
http://finance.yahoo.com/q/bc?s=BAC&t=2y
I'm still scratching my head over that one. I can say that if anyone could suffer unrealistic optimism about the future, it would probably be someone who has consistently beaten the overall market since the invention of dirt and therefore has one heck of a nest egg.
As I see it, there are at least seven things that have helped protect me in this environment.
1. I do not have a job. Each passing year makes my future job prospects worse. My programming skills are not what they once were. I therefore play defense with my nest egg. Further, if I am ever forced back into the job markets it will only mean that the economy is doing VERY poorly and I'll therefore be competing with a great number of unemployed. It will always be a risk, but I very much try to minimize it.
2. Free time is priceless to me. I am not a believer in the theory that he who dies with the most toys, wins. I like toys. Don't get me wrong. I would never buy one just to compete with my neighbor though. For example, my car is now nearly 13 years old. That being siad, I'm not quite Ebenezer Scrooge. A car that old helps me enjoy Sony's Playstation 3.
3. I have always enjoyed a good scare (horror movies) and I also enjoy watching the economy. I've been able to kill two birds with one stone lately. It's a frickin' productivity miracle!
4. I know I cannot count on Social Security. I just barely qualify as it is. What paltry sum I do get (from not working until my sixties), assuming I get anything at all, won't come for decades. Not counting on other people to manage my money for me is just one short skip and a hop from not counting on Social Security.
5. I worked at a company that made the front page of the Wall Street Journal for nearly a month straight because they were cooking the books. Forgive me if some of that has helped to form a permanent skepticism of all things financial. It also didn't hurt that I managed to invest some money in Healthsouth and Conseco on the side (fortunately, I was very diversified and I managed to exit before much damage was done). Fool me once, shame on you. Fool me twice, shame on me. Fool me three times though and I'm tempted to think there's a system in place designed to separate me from my money, lol.
6. I do not have enough retirement money to screw up and recover. Perhaps if I had ten times the money, I could afford to put 90% of it into riskier assets. This is probably the most important reason I play defense, and not just during bad times.
7. Someone once told me that I should spend my money now while I can still enjoy it. I am very thankful to that person. It made me think. Here was my response. If it really is true that I can't enjoy the money later in life, then imagine how miserable I will be if I am forced to work! I imagined myself at the age of 85 working at McDonalds running the fry section. This really did have an impact on me. It even turned me from a modest saver into a much more aggressive saver. It was also probably my first adventure into the economic laws of unintended consequences! Bernanke is finding this one out the hard way. If I am any indicator at all, you simply cannot scare people into spending more money!
You will note that none of my reasons have anything to do with me thinking I can be smarter than the market. I don't.
In hindsight, perhaps all it took to beat the market was a belief that I couldn't beat the market though. Based on the continual advertising of day trading software on the TV, I'm slowly becoming starting to become a serious believer in this theory.
Of course, I can't exactly write a book using that theory. Let's assume the book has merit. Let's say you can beat the market but only if you believe you can't. That would be one heck of a tricky book to write. It would be even harder to market.
Bizarro Investing
If you believe you can underperform the market you will prosper. This book can help you believe you will underperform.
Hey, maybe I can do a blog instead. I could put up a lot of scary charts of the economy and what not. Maybe I should call it Illusion of Prosperity! That's just crazy enough to work! Hahaha!
Hey, maybe I can do a blog instead. I could put up a lot of scary charts of the economy and what not. Maybe I should call it Illusion of Prosperity!
Hahaha! I think it's working pretty good, myself.
If you believe you can underperform the market you will prosper. This book can help you believe you will underperform.
I like the idea of your book but only if it were serious and that's the tough part. Hey, I really believe it’s what people should be thinking!
It’s my guess is that a lot people are thinking along the lines you are. You rarely, if ever, go down a path that hasn't already been well trodden. Not from my experience, anyway.
I imagined myself at the age of 85 working at McDonalds running the fry section.
Oh boy! I can't imagine that, either. But, you know, I can't imagine 85, period, one way or the other.
The other day I had surgery for a hernia and woke up with that horrible anesthesia ora and just felt like I wanted to die. Didn't want to lay down, didn't want to sleep, didn't want to stay awake, didn't want to walk... I just didn't want to be. "You're such a wuss!" I kept telling myself. There was my wife with whom I had stood beside while she screamed bloody murder giving birth without ANY pain medication. I started thinking, "Man, I don't think I am going to be able to handle getting old."
Wouldn't it be more humane just to take a bottle of whiskey on foot into the snow-capped mountain and never return? I think it might be a beautiful way to go. Otherwise, it's like standing in front of a dartboard hoping it's not cancer or something similarly horrible that's going to stick you.
There I go again. Let's face it, getting old sucks! There's got to be a better way then waiting for your turn. Maybe something better than the snow capped mountain?
anonymous,
The other day I had surgery for a hernia and woke up with that horrible anesthesia ora and just felt like I wanted to die. Didn't want to lay down, didn't want to sleep, didn't want to stay awake, didn't want to walk... I just didn't want to be.
I remember waking up the 1970s thinking the same thing once. I was laying there feeling like somebody had stabbed me in the gut.
Oh wait. Somebody did stab me in the gut. They stole my appendix! Right there in the hospital.
One reason I can remember it so vividly is because I was asking for painkillers. I was told I'd be getting some once it was determined I was okay. That put me in a pretty bad spot. I was NOT okay or I would not be begging for painkillers.
Flash forward thirty years or so.
I was heading into the operating room. They were going to steal my gall bladder. I remember thinking that I should prepare my begging speech ahead of time. How could I ask differently? I need to show them I am okay even though I've been stabbed, lol.
I woke up after the surgery. There was not a full hour of intense pain. Apparently modern medicine can use medical instruments to determine if you are okay now. Who knew? I was amazed.
I can't quite convey the euphoria one experiences when one expects a great deal of pain that never comes. I honestly can't remember ever feeling happier. I laid there in the hospital bed with this huge stupid grin on my face.
Hopefully I am done having organs removed from my body. I'm running a bit short of non-vital ones these days.
This brings me back to the economy of course. Can you picture how euphoric I'd be right now, as a saver, if the great deal of pain I expected this country to experience had never arrived?
Me either, but hey, trillions in painkillers are headed our way. Forget partying like it is 1999! We're ready to do some 476 style partying!
http://en.wikipedia.org/wiki/Decline_of_the_Roman_Empire
The traditional date of the fall of the Roman Empire is September 4, 476 when Romulus Augustus, the last Emperor of the Western Roman Empire was deposed by Odoacer.
http://en.wikipedia.org/wiki/Dark_Ages
"The Middle Ages is an unfortunate term. It was not invented until the age was long past. The dwellers in the Middle Ages would not have recognized it. They did not know that they were living in the middle; they thought, quite rightly, that they were time's latest achievement."—Morris Bishop, The Middle Ages (1968)
Stag,
6. I do not have enough retirement money to screw up and recover.
Woah! I'm trying to square that with the other 99% of Baby Boomers that have far less than you and DID screw up. We definitely need a second half recovery.
I'm also trying to figure out how bailing out banks and wealthy asset holders on the backs of those that have nothing is going to improve our eCONomic ills.
Perhaps supply side eCONomics will save us. Hannity keeps stating that Reagan's tax cuts actually raised government revenues. Funny thing that Hannity and the supply siders never CONsider that the additional revenue came not from the tax cuts but from vastly increased federal debt.
I've always struggled with fuzzy math though. Something about an equals sign and a balanced ledger always trips me up.
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