Inflation and Idiots

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Ron 14's picture
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I am so sick of explaining the risks of inflation to prospects/clients/idiots. Anyone have tips in order to get people to take a realistic view of money.

Moraen's picture
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That's bank customers for you!

henryhill's picture
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This works well with older clients.  Ask them, "Did you pay more for your last car then your first house."

snaggletooth's picture
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You could get one of those birthday cards from about 30 years ago that shows how much things cost back then.  Can't remeber the company that makes them.
 
But have a few things on hand, like a movie ticket stub or loaf of bread or whatever.  Ask them if they plan on eating or going to movies in retirement.  They say yes.  Then tell them, 30 years ago, if you were starting your retirement, the loaf of bread would have been .25 cents and the movie ticket would have been $1.
 
Then put a $1.25 in front of them and ask them, "If I gave you $1.25, would you be able to go to the movies or eat in retirement?".
 
Pick whatever items you want.  You can find those prices of things 30 years ago online I'm sure.
 
Off to play some charity golf...

Wet_Blanket's picture
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snaggletooth wrote:You could get one of those birthday cards from about 30 years ago that shows how much things cost back then.  Can't remeber the company that makes them.
 
But have a few things on hand, like a movie ticket stub or loaf of bread or whatever.  Ask them if they plan on eating or going to movies in retirement.  They say yes.  Then tell them, 30 years ago, if you were starting your retirement, the loaf of bread would have been .25 cents and the movie ticket would have been $1.
 
Then put a $1.25 in front of them and ask them, "If I gave you $1.25, would you be able to go to the movies or eat in retirement?".
 
Pick whatever items you want.  You can find those prices of things 30 years ago online I'm sure.
 
Off to play some charity golf...
 
Just don't use technology as an example or even cars.  I had a 97 Toyota Corrolla, and looked at the old window sticker one day - $17,995 (boy have things changed in 12 years).

JackBlack's picture
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Ron:
Use Stamps.
 
The rate for First Class stamps in 1932 was 3 cents the rate for a First Class stamp in 2009 44 cents.  3 cents to 44 cents over 77 years is a 3.49% rate of inflation.
<?: prefix = o ns = "urn:schemas-microsoft-com:office:office" /> 
On a shorter time horizon you can use the cost of stamps from 1999 33 cents to the cost of stamps from 2009 44 cents. 33 cents to 44 cents over 10 years is a 2.88% rate of inflation.
Go out and buy some old stamps, show your clients the old stamps and a new stamp and it will show them how much inflation adds up.
 

Ron 14's picture
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Moraen wrote:That's bank customers for you!
 
There is no doubt that the type of customers I am dealing with is part of the issue.

Gaddock's picture
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I use stamps. Put a .03 and a current first class in front of them and ask what does this mean?
 
Then tell them about the guy that was styling in 1975 with his early retirement $20k a year pension. He was the envy of all his friends and family. Then say loudly with conviction pound your fist once on the table and stand up squarely facing them... 
 
NOW HE CHOOSES BETWEEN FOOD AND MEDICINE!
 
Stare them right in the eye and say nothing, don't even blink and wait until they look away (when  they do you have set the hook, now reel them in)
 
A DOLLAR IN THE MID SEVENTIES WOULD TAKE $3.28 TODAY TO HAVE THE SAME BUYING POWER.
 
Here you use the words we & us while putting the back of one hand into the other with intonation on the words we & us...
 
WE WILL NOT LET THIS HAPPEN TO US!!
 
Now lower your voice to below normal just a little bit as if there has been a great weight taken off your chest and sit as you're saying it.
 
We need to start asap Mr. prospect, like maybe today, no - YESTERDAY!
 
You in? (nodding your head up and down a tiny bit while saying it.)
 
Look them in the eye and then look off into the sunset for a few seconds and look back like you would as if you just took a drag off a cigg after having great sex.
 
SHUT UP AND DONT SAY A WORD. Anything less than a yes or no you simply repeat the question and do the same.
 
All the world is a stage. The above truly works well he he he.

Ron 14's picture
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Thats gold, thank you Gaddock.

Gaddock's picture
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Ron 14 wrote:Thats gold, thank you Gaddock.
 
Oh yeah, when they agree you say to them;
 
Doesn't that feel good? grabbing your future by the horns?
 
 
No prob Ron. I've said it hundreds of times. I say it with conviction as I believe it to be of the highest importance and it's a right now account opener.
 
When they say yes have the paperwork ready to go and talk as little as possible. Try to move as many questions forward as possible. Talking about anything at this point can only shoot you in the foot and that's enough for them to chew on for one appointment as well. Once that's done you tell them the next thing they are going to do is get all their statements so you can provide a review on the next visit.

Ron 14's picture
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Biofreeze-
Well I give them suckers and free checking. Isn't that enough for someone to trust me during the first meeting ?

BondGuy's picture
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Who are we talking about here? Old folks? How much inflation protection does a 70 something need? And, even for  40 somethings, exactly what would you propose as an inflation hedge? Please don't say stocks, because we all know that stocks are no longer the answer. Well, maybe in a disinflationary world.

Gaddock's picture
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BondGuy wrote:Who are we talking about here? Old folks? How much inflation protection does a 70 something need? And, even for  40 somethings, exactly what would you propose as an inflation hedge? Please don't say stocks, because we all know that stocks are no longer the answer. Well, maybe in a disinflationary world.
 
Age isn't relevant when speaking of idiots .
 
"we all know" That's a pretty broad brush stroke. I for one don't know that at all.
 
I think your posts are very informative and I'm surprised that you appear to think inflation isn't relevant to investing decisions. Please correct me if my interpretation of your post is wrong.
 
That being said a 60-65 year old it becomes very relevant. If he put his $$ in a SPIA and lived to 100 he would be the guy in my 1970's $20K guy.
 
Beyond that it's important to use a real return number when considering an investment.
 
As for stocks they are the very best answer especially when you hedge them.
 
"exactly what would you propose as an inflation hedge?"
 
My accounts are up 40 to 70% (depending on the baggage they brought with them) YTD and just under 20% from the high tick of the bubble. That is clearly a hedge against inflation and damned good return to boot.
 
 

Ron 14's picture
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Stocks are no longer the answer ? What is the answer, bonds ?

It is more than just providing income for 20 year retirements. It is also about multigenerational wealth. If your father was a big time executive who retired in 1990 and will be leaving you his fortune in 2020, do you want that nut in 2% CD's or in stocks paying a 3% dividend, regardless of the short term principal fluctuation. How about the portion of that nut that will be paying for his grandson's college in 2030 ?

anonymous's picture
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Ron 14 wrote:Stocks are no longer the answer ? What is the answer, bonds ?

It is more than just providing income for 20 year retirements. It is also about multigenerational wealth. If your father was a big time executive who retired in 1990 and will be leaving you his fortune in 2020, do you want that nut in 2% CD's or in stocks paying a 3% dividend, regardless of the short term principal fluctuation. How about the portion of that nut that will be paying for his grandson's college in 2030 ?

 
I would choose neither CDs or stocks.  If the intention is to leave the money behind, I want it in life insurance.

voltmoie's picture
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anonymous wrote:Ron 14 wrote:Stocks are no longer the answer ? What is the answer, bonds ?

It is more than just providing income for 20 year retirements. It is also about multigenerational wealth. If your father was a big time executive who retired in 1990 and will be leaving you his fortune in 2020, do you want that nut in 2% CD's or in stocks paying a 3% dividend, regardless of the short term principal fluctuation. How about the portion of that nut that will be paying for his grandson's college in 2030 ?

 
I would choose neither CDs or stocks.  If the intention is to leave the money behind, I want it in life insurance.No sh!t ... I would have never guessed.How do you solve world hunger?  life insuranceHow do you solve health care? life insuranceHow do you shut windy up? life insurance

Gaddock's picture
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voltmoie wrote: anonymous wrote:Ron 14 wrote:Stocks are no longer the answer ? What is the answer, bonds ?

It is more than just providing income for 20 year retirements. It is also about multigenerational wealth. If your father was a big time executive who retired in 1990 and will be leaving you his fortune in 2020, do you want that nut in 2% CD's or in stocks paying a 3% dividend, regardless of the short term principal fluctuation. How about the portion of that nut that will be paying for his grandson's college in 2030 ?

 
I would choose neither CDs or stocks.  If the intention is to leave the money behind, I want it in life insurance.No sh!t ... I would have never guessed.How do you solve world hunger?  life insuranceHow do you solve health care? life insuranceHow do you shut windy up? life insurance
 
 That with a sprinkle of DI and a DRB (wow I'm reaching way back for that one)

Ron 14's picture
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voltmoie wrote: anonymous wrote:Ron 14 wrote:Stocks are no longer the answer ? What is the answer, bonds ?

It is more than just providing income for 20 year retirements. It is also about multigenerational wealth. If your father was a big time executive who retired in 1990 and will be leaving you his fortune in 2020, do you want that nut in 2% CD's or in stocks paying a 3% dividend, regardless of the short term principal fluctuation. How about the portion of that nut that will be paying for his grandson's college in 2030 ?

 
I would choose neither CDs or stocks.  If the intention is to leave the money behind, I want it in life insurance.No sh!t ... I would have never guessed.How do you solve world hunger?  life insuranceHow do you solve health care? life insuranceHow do you shut windy up? life insurance
 
LOL ! Why do you insurance guys feel so confident that these insurance companies will be able to pay off all of these benefits in the future, but you don't feel confident in stocks for the long run ? If you don't think stocks are going up then the insurance companies are going to lose a ton because they are all betting on the increasing value of their own investments. It all goes hand in hand. If the long term view of the stock market isn't up, the entire system folds and it doesn't matter if your money is in mattress federal, stocks, or bonds because nothing will have value.  

2wheeledbeemer's picture
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Gaddock wrote: I use stamps. Put a .03 and a current first class in front of them and ask what does this mean?
 
Then tell them about the guy that was styling in 1975 with his early retirement $20k a year pension. He was the envy of all his friends and family. Then say loudly with conviction pound your fist once on the table and stand up squarely facing them... 
 
NOW HE CHOOSES BETWEEN FOOD AND MEDICINE!
 
Stare them right in the eye and say nothing, don't even blink and wait until they look away (when  they do you have set the hook, now reel them in)
 
A DOLLAR IN THE MID SEVENTIES WOULD TAKE $3.28 TODAY TO HAVE THE SAME BUYING POWER.
 
Here you use the words we & us while putting the back of one hand into the other with intonation on the words we & us...
 
WE WILL NOT LET THIS HAPPEN TO US!!
 
Now lower your voice to below normal just a little bit as if there has been a great weight taken off your chest and sit as you're saying it.
 
We need to start asap Mr. prospect, like maybe today, no - YESTERDAY!
 
You in? (nodding your head up and down a tiny bit while saying it.)
 
Look them in the eye and then look off into the sunset for a few seconds and look back like you would as if you just took a drag off a cigg after having great sex.
 
SHUT UP AND DONT SAY A WORD. Anything less than a yes or no you simply repeat the question and do the same.
 
All the world is a stage. The above truly works well he he he.

First place is a Cadillac ElDorado. Second place is a set of steak knives. Third place is..you're fired.

Otane's picture
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Ron 14 wrote: Stocks are no longer the answer ? What is the answer, bonds ?
It is more than just providing income for 20 year retirements. It is also about multigenerational wealth. If your father was a big time executive who retired in 1990 and will be leaving you his fortune in 2020, do you want that nut in 2% CD's or in stocks paying a 3% dividend, regardless of the short term principal fluctuation. How about the portion of that nut that will be paying for his grandson's college in 2030 ?

You are assuming that US stocks will resume its past behavior in the future. Take a look at the Nikkei and see what Japan has been experiencing for the last 19 years - US is probably not that far behind.

Ron 14's picture
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Yes, I am. So you mean to tell me stocks arent going to provide any returns moving forward, but other products like bonds, cds, insurance will ?

Gaddock's picture
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2wheeledbeemer wrote: Gaddock wrote: I use stamps. Put a .03 and a current first class in front of them and ask what does this mean?
 
Then tell them about the guy that was styling in 1975 with his early retirement $20k a year pension. He was the envy of all his friends and family. Then say loudly with conviction pound your fist once on the table and stand up squarely facing them... 
 
NOW HE CHOOSES BETWEEN FOOD AND MEDICINE!
 
Stare them right in the eye and say nothing, don't even blink and wait until they look away (when  they do you have set the hook, now reel them in)
 
A DOLLAR IN THE MID SEVENTIES WOULD TAKE $3.28 TODAY TO HAVE THE SAME BUYING POWER.
 
Here you use the words we & us while putting the back of one hand into the other with intonation on the words we & us...
 
WE WILL NOT LET THIS HAPPEN TO US!!
 
Now lower your voice to below normal just a little bit as if there has been a great weight taken off your chest and sit as you're saying it.
 
We need to start asap Mr. prospect, like maybe today, no - YESTERDAY!
 
You in? (nodding your head up and down a tiny bit while saying it.)
 
Look them in the eye and then look off into the sunset for a few seconds and look back like you would as if you just took a drag off a cigg after having great sex.
 
SHUT UP AND DONT SAY A WORD. Anything less than a yes or no you simply repeat the question and do the same.
 
All the world is a stage. The above truly works well he he he. First place is a Cadillac ElDorado. Second place is a set of steak knives. Third place is..you're fired.
 
Reality is BIG MONEY!! YEEEEEEEEEHA for all involved.

BondGuy's picture
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I love stocks. I've made lots of dough investing in stocks using strategies of every ilk. Everything from day trading to dividend roll to bull spreads to position building to long term hold. I've been around a long time and I have the balls and where-with-all to try a lot of things. Still, the days where i could pull out a stamp from 1952 and pound the table that equities are the SUREST way to guard against inflation are gone.
 
The evil that unregulated capitalism has become has wrecked the wealth building gravy train that equities once were. Meanwhile advisors rely on statistics that were built in a different era to continue to build a case that equities are the answer. That's not to say, don't buy stocks, and that's not to say that there aren't some exceptional geniuses among us that can still get positive returns without burning down the house every six or seven years. But for us average geniuses, we scratch our heads and wonder why top quality companies like GE are trading at 1/3 of where they were just seven or eight years ago?
 
What happened to the market in 2001-2003 was an explainable event. What happened to the market in 2008 was a criminal event. And, until the government moves to put back the regulatory safguards that they removed over the past decade I can't look any retirement prospect in the eye and say "Stocks are the answer!"
 
 

voltmoie's picture
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BondGuy wrote:I love stocks. I've made lots of dough investing in stocks using strategies of every ilk. Everything from day trading to dividend roll to bull spreads to position building to long term hold. I've been around a long time and I have the balls and where-with-all to try a lot of things. Still, the days where i could pull out a stamp from 1952 and pound the table that equities are the SUREST way to guard against inflation are gone.
 
The evil that unregulated capitalism has become has wrecked the wealth building gravy train that equities once were. Meanwhile advisors rely on statistics that were built in a different era to continue to build a case that equities are the answer. That's not to say, don't buy stocks, and that's not to say that there aren't some exceptional geniuses among us that can still get positive returns without burning down the house every six or seven years. But for us average geniuses, we scratch our heads and wonder why top quality companies like GE are trading at 1/3 of where they were just seven or eight years ago?
 
What happened to the market in 2001-2003 was an explainable event. What happened to the market in 2008 was a criminal event. And, until the government moves to put back the regulatory safguards that they removed over the past decade I can't look any retirement prospect in the eye and say "Stocks are the answer!"
 
 I see alot of words but not answers. 

Ron 14's picture
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I do believe the decades of 15% annual returns are gone. 8% annual returns over 10 year periods in stocks is still very much achievable and I believe has to be part of an effective retirement portfolio. If bonds are in the 4% range and with an obvious risk premium to stocks, 8% is a mathematical probability. 20 years ago you could only make money is US markets, now it is global. JUMP ON !!!

Otane's picture
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Ron 14 wrote: I do believe the decades of 15% annual returns are gone. 8% annual returns over 10 year periods in stocks is still very much achievable and I believe has to be part of an effective retirement portfolio. If bonds are in the 4% range and with an obvious risk premium to stocks, 8% is a mathematical probability. 20 years ago you could only make money is US markets, now it is global. JUMP ON !!!

Well, you are forgetting volatility, and that is what will make clients nervous. You have volatility on no-margin equity competing with leveraged commodities - that is not a good sign. I don't have a crystal ball, but I would venture to guess that our situation is very similar, if not worse, than Japan. The debt on our balance sheets here will take a long time to manage.

I would say that equities sectors on the international front are viable, so I will agree with you there. I just think it is almost over here for the time being. Investing internationally is not trip in the park either since the equity swings, as I mentioned above, can give you ulcers.

Ron 14's picture
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No, I am not forgetting volatility, that is exactly where the RISK PREMIUM is. People, like yourself, have given up on stocks because of the last 10 years. The only people getting ulcers from holding stocks are the ones with no faith in the future. As Nick Murray would say, "Optimism is the only realism."

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Quote:People, like yourself, have given up on stocks because of the last 10 years. The only people getting ulcers from holding stocks are the ones with no faith in the future.
I haven't given up on equities, I just trade it smarter than people like yourself - but that is for my own account. You are forgetting that you have to deal with OTHER people's expectations and risk tolerance. Unless you are a CTA, and have the client base that understands volatility, good luck to you.

Quote:As Nick Murray would say, "Optimism is the only realism."
That is a gambler's mentality. I think we are in the business of capital preservation first, then results second.

Ron 14's picture
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How many investors have you met that were 100% exposed to Japanese equities over the last 19 years ? Zero. And that would have them getting in after their index went from 200, which was where the Dow was at the same time, to over 40,000. Give me a break.

Otane's picture
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Ron 14 wrote: How many investors have you met that were 100% exposed to Japanese equities over the last 19 years ? Zero. And that would have them getting in after their index went from 200, which was where the Dow was at the same time, to over 40,000. Give me a break.

Just from your statement, you like to deal in absolute terms. Good luck to you.

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Buying diversified equity holdings, asset allocation, and rebalancing is the gambler's mentality, but trading in and out is logical ? Ok. Sounds good Jim Cramer,  See you at S&P 2000.

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Ron 14 wrote: Buying diversified equity holdings, asset allocation, and rebalancing is the gambler's mentality, but trading in and out is logical ? Ok. Sounds good Jim Cramer,  See you at S&P 2000.

Well, that is for my personal account and not for client's. BTW, I would have them in bonds for the majority and not equities going forward. With the market tanking 50% and then rising 30% I would say it is a gambler's market now. You also misread my response to your optimism quote - it was only until afterwards did you define that term.

As for your James Cramer crack (who I don't care for, but you seem to have labeled me), that is why there are rich and poor folks in this business. Many of the successful hedge fund managers are really traders - the term buy and hold doesn't exist for them. Their results are quite dramatic and superior compared to straight equity holdings. That is why they are able to command 2%-3% management fees and 20% incentive since they deliver results. This market going forward may be a hedge fund manager's dream - I wish I was as confident and absolute as you are.

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Bonds going forward with interest rates at all time lows? Sounds like a wonderfully disasterous philosophy. You go ahead and put people in bonds. I will continue to buy the great companies of the world at unbelievable prices. I will also let those companies pay me a dividend that is about 80% of what your glorious bonds are paying with no upward gain in principal.

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Ron 14 wrote: Bonds going forward with interest rates at all time lows? Sounds like a wonderfully disasterous philosophy. You go ahead and put people in bonds. I will continue to buy the great companies of the world at unbelievable prices. I will also let those companies pay me a dividend that is about 80% of what your glorious bonds are paying with no upward gain in principal.

Who said that rates will go up anytime soon? You think the balance sheet of consumers and corporate in the US are any stronger than Japan was in 1990? Look at the BOJ's discount rate for the last 15 years - it is about where we are now. And...there is no credit (at ZERO rates) to get us out of this hole. Neither Keynesian or Supply-side will help at this point.

Sounds like a wonderfully disastrous philosophy of putting your clients in equities that will do nothing for the next 10 years. I will continue to make money for my clients year after year in bonds, with no dividend loss and lower share prices due to lower corporate revenues.

There is always 2 sides to a trade buddy. Good luck to you.

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I will, thanks. And most of them aren't 70 years old, so if it takes 20 years for the S&P, or whatever gauge of the broad equity market you want to use, to reach 2000, so be it. Did you sell your home and start renting ? You should because with your outlook real estate won't have increased in value either.

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Ron 14 wrote:
I do believe the decades of 15% annual returns are gone. 8% annual returns over 10 year periods in stocks is still very much achievable and I believe has to be part of an effective retirement portfolio. If bonds are in the 4% range and with an obvious risk premium to stocks, 8% is a mathematical probability. 20 years ago you could only make money is US markets, now it is global. JUMP ON !!!
 
How so? I'm quadrupling that now.
 
I guess it's all how you play the game.

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BondGuy wrote: I love stocks. I've made lots of dough investing in stocks using strategies of every ilk. Everything from day trading to dividend roll to bull spreads to position building to long term hold. I've been around a long time and I have the balls and where-with-all to try a lot of things. Still, the days where i could pull out a stamp from 1952 and pound the table that equities are the SUREST way to guard against inflation are gone.
 
The evil that unregulated capitalism has become has wrecked the wealth building gravy train that equities once were. Meanwhile advisors rely on statistics that were built in a different era to continue to build a case that equities are the answer. That's not to say, don't buy stocks, and that's not to say that there aren't some exceptional geniuses among us that can still get positive returns without burning down the house every six or seven years. But for us average geniuses, we scratch our heads and wonder why top quality companies like GE are trading at 1/3 of where they were just seven or eight years ago?
 
What happened to the market in 2001-2003 was an explainable event. What happened to the market in 2008 was a criminal event. And, until the government moves to put back the regulatory safguards that they removed over the past decade I can't look any retirement prospect in the eye and say "Stocks are the answer!"
 
 

I have a theory as to why GE is trading so low. After the 2000-2002 recession, there was a "flight to quality" of which people thought GE was one. Analysts assumed the valuations were fair, but in reality, all valuations needed to be looked at under a microscope. To be fair, I don't think GE is valued accurately now, but you could make a case that it should only be slightly more pricey than it is now.

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voltmoie wrote: BondGuy wrote:I love stocks. I've made lots of dough investing in stocks using strategies of every ilk. Everything from day trading to dividend roll to bull spreads to position building to long term hold. I've been around a long time and I have the balls and where-with-all to try a lot of things. Still, the days where i could pull out a stamp from 1952 and pound the table that equities are the SUREST way to guard against inflation are gone.
 
The evil that unregulated capitalism has become has wrecked the wealth building gravy train that equities once were. Meanwhile advisors rely on statistics that were built in a different era to continue to build a case that equities are the answer. That's not to say, don't buy stocks, and that's not to say that there aren't some exceptional geniuses among us that can still get positive returns without burning down the house every six or seven years. But for us average geniuses, we scratch our heads and wonder why top quality companies like GE are trading at 1/3 of where they were just seven or eight years ago?
 
What happened to the market in 2001-2003 was an explainable event. What happened to the market in 2008 was a criminal event. And, until the government moves to put back the regulatory safguards that they removed over the past decade I can't look any retirement prospect in the eye and say "Stocks are the answer!"
 
 I see alot of words but not answers. 
 
You're right! I don't have the answer and i admit that i don't have the answer. That seperates me from about 99.999% of the advisors out there who claim they do have the answer. Advisors whose battle cry is "We will go to the edges of this flat world to get you the returns you need!"

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Morean, Obviously GE was over valued. As was most of the market. But a 2/3 drop? And then there is this: it is only with the 20-20 benefit of hindsight that WS recognizes its valuation miscue. Where does that leave us today?

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Ron 14 wrote: I will, thanks. And most of them aren't 70 years old, so if it takes 20 years for the S&P, or whatever gauge of the broad equity market you want to use, to reach 2000, so be it. Did you sell your home and start renting ? You should because with your outlook real estate won't have increased in value either.

The powers of equity from a home are gone. Many small business relied on HELOC and 2nd mortgages to start and increase their business...those days are gone. I am a small business owner, with a 7 figure revenue base.I would not have achieved that without tapping into my home equity.

No credit = no growth (like is use to be)

The US is in a much different place. Economies are dynamic and change regardless of what some robots like Barton Biggs or Abbie Cohen say on weekly basis. When Long Term Credit was the canary in the cave of the hazards of leverage, so is Japan on the excess of credit growth. The US didn't take the lessons of both, and now we are in that boat.

FA's have to step up to the plate and become more global or learn to trade in these markets (like Gaddock) - if their clients expect returns above bonds. I can tell you from first hand experience is that if you have one bad month, you would rather have your mother-in-law scream in your ear 24/7 then hearing from a pissed off client.That is why I would rather concentrate on raising money and put them in bonds - less headaches.

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BondGuy wrote: Morean, Obviously GE was over valued. As was most of the market. But a 2/3 drop? And then there is this: it is only with the 20-20 benefit of hindsight that WS recognizes its valuation miscue. Where does that leave us today?

I didn't buy GE until it was actually undervalued. Not in the late nineties. So if you bought undervalued back then, you would be fine today. Just because everyone SAYS that something is quality, doesn't mean it is.

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Joined: 2007-02-23

iceco1d wrote:Gaddock wrote:Ron 14 wrote:
I do believe the decades of 15% annual returns are gone. 8% annual returns over 10 year periods in stocks is still very much achievable and I believe has to be part of an effective retirement portfolio. If bonds are in the 4% range and with an obvious risk premium to stocks, 8% is a mathematical probability. 20 years ago you could only make money is US markets, now it is global. JUMP ON !!!
 
How so? I'm quadrupling that now.
 
I guess it's all how you play the game.

 
Gad, I'm curious to know something (and this is a serious question)... Do you expect the returns you've gotten over the past 18 months or so to continue once the market returns to "normal?" 
 
Market neutral or not, I don't think a regular trading environment really plays into your hand.  Obviously, don't reveal anything proprietary, OR anything that would compromise your identity for the sake of answering this question.
 
Just like knowing where the market is going, like many of the talking heads on TV think they do, I have zero clue where it will go. Same thing with my trading I can't foresee the future. I can say this; it brings in an additional stream of revenue few use. If I keep my probabilities at 85% or better the larger the sample the more relevant the percentile becomes. That being said and again having that extra stream I should still be able to bring additional alpha to the table that others are not. The beta I'm kicking out at the moment is .37. As far as risk is concerned I consider this strategy to be significantly lower than others that are having like returns.
 
I do admit I have used the volatility to my benefit and will be sorry to see it go.

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Gaddock wrote:iceco1d wrote:Gaddock wrote:Ron 14 wrote:
I do believe the decades of 15% annual returns are gone. 8% annual returns over 10 year periods in stocks is still very much achievable and I believe has to be part of an effective retirement portfolio. If bonds are in the 4% range and with an obvious risk premium to stocks, 8% is a mathematical probability. 20 years ago you could only make money is US markets, now it is global. JUMP ON !!!
 
How so? I'm quadrupling that now.
 
I guess it's all how you play the game.

 
Gad, I'm curious to know something (and this is a serious question)... Do you expect the returns you've gotten over the past 18 months or so to continue once the market returns to "normal?" 
 
Market neutral or not, I don't think a regular trading environment really plays into your hand.  Obviously, don't reveal anything proprietary, OR anything that would compromise your identity for the sake of answering this question.
 
Just like knowing where the market is going, like many of the talking heads on TV think they do, I have zero clue where it will go. Same thing with my trading I can't foresee the future. I can say this; it brings in an additional stream of revenue few use. If I keep my probabilities at 85% or better the larger the sample the more relevant the percentile becomes. That being said and again having that extra stream I should still be able to bring additional alpha to the table that others are not. The beta I'm kicking out at the moment is .37. As far as risk is concerned I consider this strategy to be significantly lower than others that are having like returns.
 
I do admit I have used the volatility to my benefit and will be sorry to see it go.
 
Gaddock, you know I am referring to the returns of the overall equity market during the 80's and 90's. You and I have discussed this at length. What you are doing is much different than 99% of advisors out there. Im referring to simple asset allocation, rebalancing, etc.

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Joined: 2007-02-23

Ron 14 wrote:Gaddock wrote:iceco1d wrote:Gaddock wrote:Ron 14 wrote:
I do believe the decades of 15% annual returns are gone. 8% annual returns over 10 year periods in stocks is still very much achievable and I believe has to be part of an effective retirement portfolio. If bonds are in the 4% range and with an obvious risk premium to stocks, 8% is a mathematical probability. 20 years ago you could only make money is US markets, now it is global. JUMP ON !!!
 
How so? I'm quadrupling that now.
 
I guess it's all how you play the game.

 
Gad, I'm curious to know something (and this is a serious question)... Do you expect the returns you've gotten over the past 18 months or so to continue once the market returns to "normal?" 
 
Market neutral or not, I don't think a regular trading environment really plays into your hand.  Obviously, don't reveal anything proprietary, OR anything that would compromise your identity for the sake of answering this question.
 
Just like knowing where the market is going, like many of the talking heads on TV think they do, I have zero clue where it will go. Same thing with my trading I can't foresee the future. I can say this; it brings in an additional stream of revenue few use. If I keep my probabilities at 85% or better the larger the sample the more relevant the percentile becomes. That being said and again having that extra stream I should still be able to bring additional alpha to the table that others are not. The beta I'm kicking out at the moment is .37. As far as risk is concerned I consider this strategy to be significantly lower than others that are having like returns.
 
I do admit I have used the volatility to my benefit and will be sorry to see it go.
 
Gaddock, you know I am referring to the returns of the overall equity market during the 80's and 90's. You and I have discussed this at length. What you are doing is much different than 99% of advisors out there. Im referring to simple asset allocation, rebalancing, etc.
 
I guess, if that's true it's sad. I think we should consider how to add alpha to our clients accounts and reduce their fees at the same time. Here come the referrals.

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Joined: 2008-07-10

What is sad about it for you ? You are exactly where a business wants to be. You are offering a unique service, at a low cost, that nobody else is offering.

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Joined: 2006-09-21

Moraen wrote: BondGuy wrote: Morean, Obviously GE was over valued. As was most of the market. But a 2/3 drop? And then there is this: it is only with the 20-20 benefit of hindsight that WS recognizes its valuation miscue. Where does that leave us today? I didn't buy GE until it was actually undervalued. Not in the late nineties. So if you bought undervalued back then, you would be fine today. Just because everyone SAYS that something is quality, doesn't mean it is.
 
Why are you sure that GE is under valued today? GE is one market shake up from being 10 or lower. And if we have to be so careful as to nitpik whether or not a company of GE's size and stature is "Quality", what does that say for the rest of the U.S. equity markets.
 
But i digress,  GE isn't the point. Using the stock market as an inflation hedge is the point. With the S&P 500 still about 25% lower than where it started the decade stock's days as an inflation hedge that a retiree could count on are done. Most who did count on them are in the hole. The average mattress has outperformed stocks over the past ten years and retirees would have been better off investing with Sealy than with financial advisors selling stocks as an inflation hedge. And, that advisors charged a yearly fee for that advice is classic sheep getting shorn.
 
A year ago the fear ruled this board. Now everyone is a genius again. Not unlike the crash of 87. When the market crashed, fear ruled. Everyone had been burned and no one liked how it felt.  A year after the crash you'd be hard pressed to find anyone who'd lost money. They all saw it coming and got out.

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BondGuy - I was never one ruled by fear. Static buy and hold policies will get you nowhere as an inflation hedge. Accurately pricing securities will. As for GE being "quality" - that was certainly not my opinion. My personal opinion is that GE is currently close to being overvalued - when that occurs, we will sell all of our positions in GE.

I've postulated this before. Most analysts are have a condition known as "anchoring" and have a difficult time accurately pricing equities. They are anchored to these higher prices and thus their calculations are off.

As for the "average mattress". I completely agree. I believe my job is to not be "average" for people. Others will say that that is crap. But just my personal opinion. I'm always looking for ways to add value to my company's clients.

BTW - "Investing with Sealy" is hilarious!

Just so you know, I am disagreeing respectfully. I appreciate your posts and have gotten a lot out of them.   Most of mine are inane and useless. Your contributions are appreciated by a lot of people, including me.

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Bondguy -  I am no genius and I did not see this coming, nor did I get anybody out. I follow the classic asset allocation, rebalancing, boring philosophies that nobody, advisors included, believe in anymore. In 10 years of a flat market a balanced strategy is right at a 5% annual return. In a 10yr period that included two absolute disasters that isnt bad at all. It sure as hell isn't going to scare me away from equities.

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Quote:A year ago the fear ruled this board. Now everyone is a genius again. Not unlike the crash of 87. When the market crashed, fear ruled. Everyone had been burned and no one liked how it felt.  A year after the crash you'd be hard pressed to find anyone who'd lost money. They all saw it coming and got out.

The increased volatility (and I think trading range of US equities) is going to force advisors to become more dynamic. It will be detrimental since many of them will start to actively manage, or trade, and that will be disastrous. Learning to trade with client's capital is not good.
It takes years, and some experienced hedge fund guys still manage to blow-up. That is why many refuse to have watermarks on their performance.

5% return on a re-balanced portfolio is too low considering the volatility of this last year. If you have 50% swings on non-margined accounts, that should warrant a much higher return at year-end. Take a look at the John Henry Systematic Funds - he regularly takes those type of swings with leveraged accounts, but with returns in the mid 20's over the last few decades.

Ron 14's picture
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Joined: 2008-07-10

Everytime something unusual happens in the market the cry is "this time is different." It isn't even a market thing, it is a cultural thing. People want results, now. They don't want to be patient, they don't want to put effort in, they just want easy money, easy returns, easy weight loss. You can take your ab roller and your jenny craig and it may or may not work, daily exercise and a balanced diet will and always has. You can take your hedge funds and your Jim Cramers and all that crap, it may work and it may not. Taking ownership stake in quality companies while sticking to diversification, asset allocation, and rebalancing always has.

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Joined: 2009-01-22

Define a "quality company" Ron.

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