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Old 01-04-2009, 07:10 PM   #61
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On the other hand I really wish I had established a small CD ladder to help get me through years like 2008...
Does this mean that you were forced to sell stocks to meet expenses?

ha
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Old 01-04-2009, 07:31 PM   #62
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Does this mean that you were forced to sell stocks to meet expenses?

ha
No expenses is what dividends and interest are for.
I was forced to sell stocks to buy other stocks which I thought were even bigger bargains, only to discover if I waited a bit longer they would have been even cheaper .

I think you and I discussed this earlier my 100K in a money market quickly got turned in to "wow GE... is under $20 let me buy some". If on the other hand if I had 100K in 4 year CD ladder. I wouldn't have cashed out the CD early to buy stocks. In Oct I would have slept better knowing that if the market really really tanked, I still had 25K+ in cash coming in for the next 4 years, plus income from Govt bonds I would ok.

IIRC we both resolved to do this when the market recovered. Remind me when I forget LOL
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Old 01-04-2009, 07:40 PM   #63
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If on the other hand if I had 100K in 4 year CD ladder. I wouldn't have cashed out the CD early to buy stocks. In Oct I would have slept better knowing that if the market really really tanked, I still had 25K+ in cash coming in for the next 4 years, plus income from Govt bonds I would ok.

IIRC we both resolved to do this when the market recovered. Remind me when I forget LOL
OK, I must have already forgotten this exchange. The exact same thing happened to me. This would be kind of building in some stickiness, so that when it really hits the fan we will still have some dry powder. I would be cursing my idiocy to have CDs when there were so many bargains around.

This was a weird event, IMO. Unlike 2000, fall of 2007 was not grossly overvalued in most sectors. I still expect O&G to enjoy the mother of all booms.


Ha
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Old 01-04-2009, 08:22 PM   #64
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Well, for its entire history the market has risen out of slumps before, so each 33% decline had to be followed by a 50% increase. The problem is that the time to decline is much shorter than the time to increase.
I guess I wasn't clear. The probabilities are theoretically the same per unit time, so the probability of an up 50% year is the same as that of a down 33% year.
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Old 01-04-2009, 08:47 PM   #65
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OK, I must have already forgotten this exchange. The exact same thing happened to me. This would be kind of building in some stickiness, so that when it really hits the fan we will still have some dry powder. I would be cursing my idiocy to have CDs when there were so many bargains around.

This was a weird event, IMO. Unlike 2000, fall of 2007 was not grossly overvalued in most sectors. I still expect O&G to enjoy the mother of all booms.


Ha
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I am with Ha Ha, absent a COLA pensioned I am not a a fan of auto pilot retirement plans.

I think just as no battle plan survives contact with the enemy no withdrawal plan survives its first bear market.

One of the things I've learned the hard way, is that it is too easy for me use my money market "living expenses" to buy stocks in bear market. I've said for years that I am going set up a CD ladder but never really got around to it. I set one up for my mom that is working out ok.

Interest and dividends are nice, but I think I'd feel much better if I really had 3 years living expenses in cash.

Cliff, this is my problem too. I think the next time we have some decent prices I will sell off at least $100,000 and keep my greedy hands off it.

ha
I guess the memory is slipping FYI, The Dow was at 8400 when we posted this.

In all seriousness when the Dow gets 12,000 and/or long CD rates exceed 5%, send me a PM telling me to take 100K out of the market it and put it in CDs. Frankly, other than the 6% PenFed CD a year or so ago, I always think I can do better in stocks or even bonds... I am likely to pay attention to a wise, serious investor with similar investing strategies and risk tolerance, where as I'd dismiss this advice from many other sources. I'll be happy to do the same for you at what ever criteria you think is appropriate as well as in any other investor who's testosterone rises during a bull market...

Interesting your comment about O&G. While I've owned pipelines and such for several years. I've never been to interested in pure Oil or even oil companies. I made my first oil related transaction last writing a put on USO. I don't believe $40 Oil is likely to last long.
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Old 01-04-2009, 08:48 PM   #66
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I guess I wasn't clear. The probabilities are theoretically the same per unit time, so the probability of an up 50% year is the same as that of a down 33% year.
Wow, didn't know that! I like it.

BUY, BUY, BUY.
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Old 01-04-2009, 09:18 PM   #67
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Wow, didn't know that! I like it.

BUY, BUY, BUY.
Well, I only said the probabilities were equal, not high.
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Old 01-04-2009, 11:06 PM   #68
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Continuing on our jesting...

Fact: S&P500 closed at 1554 on 10/11/07, and at 932 on 1/2/09. It has lost 40% in roughly 1 year. In order to get back to the old high, it needs a gain of 67%.

Talking about probabilities, the question one asks is: "what is the conditional probability that the S&P will gain 67% in X number of years, given that it has lost 40% the preceding year". X here is the time to recoup the loss.

That conditional probability is a lot higher than if one asks: "what is the probability that the S&P will gain 67% in X number of years?".

Another way of saying it is that the stock market is not a coin toss, or a dice throw, where each outcome is independent of the last. The stock market has memory, else we would not talk of "reversion to the mean", or the business cycle.

But, past historical data is simply not sufficiently long for a statistical meaningful answer. And then, I do not know how one can have faith that this is a stochastic stationary process, something that exists only in textbooks. The stock market is an outcome of human endeavors, not a random number generator.

Seriously, I believe successful traders intuitively know the above. It is not a true random walk like Malkiel said. It is a random process all right, but with the output determined from many inputs, some of which can be observed, such as "stimulus packages", the speed of the printing press at the Federal Reserve, etc...

Let's hope for the best. I will continue to buy in the coming months, with concentration in sectors TBD.
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Old 01-05-2009, 08:08 AM   #69
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Another way of saying it is that the stock market is not a coin toss, or a dice throw, where each outcome is independent of the last. The stock market has memory, else we would not talk of "reversion to the mean", or the business cycle.
I don't think this is necessarily true. Over the past 80-some years, the S&P 500 has returned, on average, about 10% per year. So we could have a random distribution with a mean of 10% and a standard deviation of 20% (roughly the historical average), out of which we are drawing future returns. In this context, "reversion to the mean" would simply mean that the expected average future return would revert to the 10% distribution mean, yet still be independent of past returns.
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Old 01-05-2009, 10:15 AM   #70
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Or, just as likely if future returns are independent of past returns, there will be no tendency to revert to a past mean but rather things will "be what they will be" with zero regard to descriptive statistics of the past.

I tend to agree with NW-Bound on this particular subject. Financial returns are not independent and random. But, sadly, I have absolutely no clue about the causes of tomorrow's numbers........
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Old 01-05-2009, 10:36 AM   #71
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We're down about 17%.

Still working though and would have been much worse if not currently at peak contributions stage of life. Assuming sideways-ish market should recover in late 2009.
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Old 01-05-2009, 10:40 AM   #72
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Or, just as likely if future returns are independent of past returns, there will be no tendency to revert to a past mean but rather things will "be what they will be" with zero regard to descriptive statistics of the past.

I tend to agree with NW-Bound on this particular subject. Financial returns are not independent and random. But, sadly, I have absolutely no clue about the causes of tomorrow's numbers........
Maybe you are implicitly saying that future returns are independent of past returns, but come from a new normal distribution with a different mean and standard deviation. That seems to be consistent with the "after-the-fact" research of Malkiel, Cootner, and others, who found that the ex-post returns of the S&P 500 were approximately normally distributed.

In any case, I am comfortable making the bet that I'm drawing from a normal distribution with a 10% mean return and 20% standard deviation; and that over many years (e.g. drawings) I will realize close to that mean return. I'm certainly not going to bet against that, by trying to time the market.
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Old 01-05-2009, 11:15 AM   #73
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Or, just as likely if future returns are independent of past returns, there will be no tendency to revert to a past mean but rather things will "be what they will be" with zero regard to descriptive statistics of the past.

I tend to agree with NW-Bound on this particular subject. Financial returns are not independent and random. But, sadly, I have absolutely no clue about the causes of tomorrow's numbers........
My gut feeling about this is that the value of the market is a combination of the (unknowable) true value of the stocks and the speculative value of the stocks. The speculative component oscillates rapidly around the more stable true value.

If the recent downturn was caused by a change in mostly the speculative part (investor fear), then you'd expect it to be followed by a return towards the true value.
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Old 01-05-2009, 11:59 AM   #74
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Maybe you are implicitly saying that future returns are independent of past returns, but come from a new normal distribution with a different mean and standard deviation. That seems to be consistent with the "after-the-fact" research of Malkiel, Cootner, and others, who found that the ex-post returns of the S&P 500 were approximately normally distributed.

In any case, I am comfortable making the bet that I'm drawing from a normal distribution with a 10% mean return and 20% standard deviation; and that over many years (e.g. drawings) I will realize close to that mean return. I'm certainly not going to bet against that, by trying to time the market.
Sociologists will be glad to hear they have now become a hard science.

The economy isn't a physical object dominated by chance like a coin toss or a roll of the dice. And it's not a complex machine designed for a purpose that any slight change or quantum uncertainty will cause failures. It's more akin to having a sack that has an infinite number of things but only one of each kind, then letting random 1000 blind men grab something out of the sack and setting them loose in the woods. You could do it a billion times and each time would be different.

If you took a model of the jobs people have had over the last 20,000 years within 3 standard deviations you would predict that almost the entire economy would be based on farming or hunter-gathering. Today those feilds are only 5% of the economy and is dropping.
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Old 01-05-2009, 12:13 PM   #75
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My gut feeling about this is that the value of the market is a combination of the (unknowable) true value of the stocks and the speculative value of the stocks. The speculative component oscillates rapidly around the more stable true value.

If the recent downturn was caused by a change in mostly the speculative part (investor fear), then you'd expect it to be followed by a return towards the true value.
I suspect that the market does this on a regular basis: it both overshoots valuations in bull markets where "irrational exuberance" reigns, and undershoots in bear markets where there is panic in the streets.

In reality, if you view stocks from a Buffettesque "intrinsic value" concept, the value of a generally sound business wouldn't drop much more than 10-20% in a recession. The sum of all the cash flows from the businesses, discounted out to infinity (or even 20 years), is likely to not change by much more than 10%, 20% in a near worst-case (assuming sound businesses that are very likely to survive economic downturns).

A less precise way would look and see how the PE10 changes. One or two bad years isn't going to reduce the 10-year earnings yield by much more than 10-20%, either.

The "fear factor" is one of general risk-aversion when asset values are falling combined with the fear that maybe *this* is one of the stocks which won't survive or ever be the same.
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Old 01-05-2009, 01:31 PM   #76
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We are down 16% from one year ago. Not bad considering. Our 401k programs took the worst hits as they are more aggressive. But we both turn 50 this coming year and thus increased our contributions to the $22k max, and will max out our Roth again. Figure I am in for it all now--hopefully the extra cash into our 401k will be well rewarded in the future.

I haven't seen the hit to our paychecks yet--but I am sure that will be tight until we adjust. But we are shooting for age 55 to retire and things are still on track.
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Old 01-05-2009, 04:50 PM   #77
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This thread is already apprearing humorous, with the guesses of multiyear periods to comeback. I am already a few bucks short of having half of my maximum drawdown recovered. Also, I harvested massive losses which will be entirely used in 2008 and save me considerable money on my 2008 tax bill.

What I don't(can't) know is whether this rally will continue, or die and return to a new low. My best gains are in taxable accounts and still short term, so I don't think I will be selling yet anyway.

Here is one guy anyway who believes that we have crawled out of the sewer.

http://seekingalpha.com/article/1131...cle_sb_popular

In my opinion, there really is no way other than a small % allocated to issues subject to quotes to be careful in markets. We are halfway back, and during most of that time wise men counseled to go slowly, DCA, be careful, blah, blah. Investing might be one of those "Damn the torpedoes, full speed ahead endeavors."

It never feels good at the time that you fish for a low, but it often is good time to be adding money.

Ha
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Old 01-05-2009, 11:42 PM   #78
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Here is a guy that thinks we may rise briefly from the sewer long enough to gain a breath of fresh false confidence, then be sucked back down even further into the sewage.


Minyanville - Market Commentary, Investing Ideas, Global Finance, The Economy


I agree with him on the probability of government-sponsored hyperinflation.
I would never try to do the risky complex trading he is apparently doing for a lousy 5 or 6%.
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Old 01-06-2009, 07:18 AM   #79
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I'm down 16%, looking at 12/31/07 vs. 12/31/08. This includes a fair amount contributions (which I don't want to compute or I will cry..........). Housing not included.

If I look at from "net worth high water mark" - I'm down 19%.

What a crap shoot when (if ?) I'll get back to those - could be a year, could be 10.
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Old 01-06-2009, 08:54 AM   #80
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I think it always a crap shoot when the market will recover but I think it will recover before the housing . I do not expect to see those inflated prices again for a long ,long time .My house is valued at 20% less than it was in 2006 but it's valued 25% higher than I paid for it in 2001 .
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