Bernstein new book: Rational Expectations

[gayl]

I don't know what you mean by not getting the "real" dollar back.

It's an old economic term.

When I started driving, I got a gallon of gas for 99.99c. I now pay almost $4. So if I put $1 in an investment and got $1 back years later, I would have lost 75% of purchasing power

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[daylatedollarshort]

It's an old economic term.

When I started driving, I got a gallon of gas for 99.99c. I now pay almost $4. So if I put $1 in an investment and got $1 back years later, I would have lost 75% of purchasing power

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I think that is the whole point of the TIPS and I bond recommendations. You don't get the dollar back later. You get the $4 per the link in the prior post.

 

[mathjak107]

i got the book today but to be honest every time i read a page my hair hurts or i fall a sleep.

so far i think it is way to dry to hold my attention.

 

[retirementguy1]

I feel like there are maybe 5 financial books that one must read to become financially literate. Bernstein has now written 6 books and only one is mandatory. I hate it when someone has one great idea and needs to turn it into a franchise. He has become a windsock, whichever way the wind blows. That's what happens when you become a financial advisor. It's hard to justify your fee when all you can say is "stay the course."

Also, a +1 for Haha comments

 

[clifp]

I'm now about 2/3 of the way finished with it. I must say the graphs on the kindle are kinda of hard to read. It is a loaned book so I can transfer it to the PC.

Bernstein is good writer and makes interesting points, but I kinda of agree 6 books is sort of overkill.

http://www.early-retirement.org/forums/f44/berkshire-hathaway-now-35239-4.html

 

[clifp]

Indeed it could have been much worse. During that time I remember thinking to myself, this is probably the best buying time in my lifetime, on the other hand, there are some very unpopular political decisions that had to be taken in Washington, and if we took the wrong ones, this could indeed have turned out very badly. Luckily we squeaked through. I didn't sell anything but I didn't buy either, partly because of my age, nearing retirement, and partly because I had been 100% equities, but mostly because I worried that there was so much popular pressure to immediately balance the budget (from all the panicked equity selling crowd I guess), that the politicians would succumb and send us rolling into a long depression.

In hindsight it did turn out to be one of the best buying opportunities ever. But we were lucky and dodged that bullet. Will we continue to be as lucky next time? Remember the majority is panicked and selling, and they are voting and panicking the politicians at the very time we need cool heads. That is the really unpredictable part.

Honestly, I don't think it could have been much worse, if you were familiar with stock valuations it was obvious at the time.

Here are couple of posts I made at the time.

Ziggy bought Berkshire at $<50 B shares (75K A shares) at the time I said I'd be shocked if he didn't double his money in 5 years. I also confidently predicted that Dow would close above 16,000 by 12/31/2013.

Another post written a few days before the bottom of the market. I do say the market could drop another 25%, but honestly that is as bad as it could have gotten. No matter what the government did.

In Nov 2008, I was looking at Apple it was selling for about $13 once you subtracted out the cash the company was selling for $10/share. Even if the government screwed up the economy so bad that nobody could ever afford an Apple product ever again the company was easily worth $20, just on its Chinese and emerging market sales. I didn't have any cash so I couldn't buy the stock but I wrote 1+ year put at the equivalent of $8/share


The great thing about multinational (and Berkshire is more domestic) but most Dow +big tech companies are highly international, is that no matter how badly the US government screws up they'll still do ok. Apple at that price I think would have required the complete collapse of the financial system world wide.

 

[kramer]

One of things I did after reading the book is move out of intermediate corporate bonds (and reduce short term corporate bond exposure) and to instead prefer Treasuries and CDs.

 

[mathjak107]

i started skipping around the chapters last night. no way i can actually read this stuff. i rather watch paint dry.

 

[kramer]

i started skipping around the chapters last night. no way i can actually read this stuff. i rather watch paint dry.

We all have different interests ;-) I found if fascinating, finished it in about 18 hours after I downloaded it, and there was a full night's sleep in there ;-)

 

[gayl]

We all have different interests ;-) I found if fascinating, finished it in about 18 hours after I downloaded it, and there was a full night's sleep in there ;-)

Ever see the commercial where the actor says he read cover & cover not cover to cover? That's me

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[clifp]

One of things I did after reading the book is move out of intermediate corporate bonds (and reduce short term corporate bond exposure) and to instead prefer Treasuries and CDs.

The last two chapters of the book were to me be far the most valuable.

I agree conceptually about putting the money you need in to live at minimal level in a super safe investment (e.g TIPs). Then rest of the money is in a risk portfolio, which can be any thing from almost no stocks to 100% equities depending on your risk tolerance. However, I didn't find has methodology that much better than say keeping 5 years of expensive is CD ladder, or a bucket etc. So the books was fine just nothing special

The last 2 chapter had some insights. So for instance I've been waiting to make big purchase of Chinese stocks. The economic growth of the place is amazing, and I think culturally Chinese are just amazingly entrepreneurial and super hard working (Rice farm is uniquely demanding). However Bernstein pointed out something that I didn't know. The 50 richest Congressman have collective net work of $1.6 billion pretty impressive, but that pales compared to the 50 richest Chinese politician who are worth almost $100 billion.. A large part of the reason investing in Chinese stocks hasn't been very rewarding is that most of the huge profits Chinese companies make go entirely to the ruling class not shareholders.

A second nugget is why you shouldn't buy a bond ETF, (it has to due with redemption issues) and really you shouldn't even own Vanguard Total Bond Market fund. Since BND/VBTLX portfolio is 50% treasury, instead buy treasuries direct and not only avoid paying Vanguard modest fees, but when the next financial crisis hits you've got a ready source of cash. Then use a corporate bond fund for the 25% and perhaps a GNMA fund for the 25% of the market that is in mortgage backed securities.

There were a couple of similar insights like that that made the book worth reading.

 

[mathjak107]

i will try reading the last 2 chapters, i tried and tried to read this thing but it just bores me to no end and i lose focus.