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Re: Big Question is "Yes or No"
Old 03-16-2005, 04:13 PM   #41
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Re: Big Question is "Yes or No"

Call me an old traditionalist but frankly the rabbit with the pancake on its head is the best way to go. *I think the pizza is a little too risky. With pizza the rabbit may be tired and not hop around too much, but on the other hand he may have a lot of energy and what a mess that would be.

Definitly the pancake, but don't complicate adding syrup etc.
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Re: Big Question is "Yes or No"
Old 03-16-2005, 06:04 PM   #42
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Re: Big Question is "Yes or No"

In regards the "Big Question". I think is very ok to hold cash....although that is not a risk free activity (inactivity?), 'cause the market moves on regardless. Call it an opportunity cost. But if the alternative is to invest in uncertain conditions its money well not spent.

Another question, perhaps is what motivates us to put our money at risk beyond the level justified by the return we need. I believe for myself that I try and "overachieve". That is, I set an annual goal of return, and am delighted when I overachieve. But, that essentially means that I am taking more risk that necessary, if my original investment goal was properly grounded in need, and risk vs reward. After reaching that goal (hopefully), I should really then reduce my risk profile significantly.

But in reality I don't....it's just human nature....and why casinos always end up winning in the end. But if you only need 3%, and can get that with "risk free" investments, why the need to reach for higher returns and run the higher risks?

Steve
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Re: Big Question is "Yes or No"
Old 03-16-2005, 08:07 PM   #43
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Re: Big Question is "Yes or No"

Oh heck yeah, the actual thread topic.

I'm about to go to 25% in cash instruments. And stay there a while. I dont feel very comfortable being at that level and may 'fritter' every now and then into something that I decide doesnt scare the pants off of me. I sure would like a nice firm correction right now though. I'd be a buyin'...
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Re: Big Question is "Yes or No"
Old 03-17-2005, 03:51 AM   #44
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Re: Big Question is "Yes or No"

Our special Safe Pizza/Pancake Handling Tool has been specially designed to properly remove the pizza and replace it with the pancake on the head.

The Dr. Seuss thread at the Motley Fool board provides background on the development of this nefarious tool. Here's a brief excerpt from the Seuss book at issue here ("The Sneetches and Other Stories"):

"Just pay me your money and hop right aboard!
So they clambered inside. Then the big machine roared.
And it klonked. And it bonked. And it jerked. And it berked.
And it bopped them about. But the thing really worked!
When the Plain-Belly Sneetches popped out, they had stars!
They actually did. They had stars upon thars!"

Those with a serious desire to see this board community realize its potential in days to come need to engage in an in-depth examination of this work, and of other Dr. Seuss studies detailing the origins of many of the other tools now being put to use advancing the cause of the seemingly "cute" and "innocent" bunnies.
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Re: Big Question is "Yes or No"
Old 03-17-2005, 04:04 AM   #45
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Re: Big Question is "Yes or No"

After reaching that goal (hopefully), I should really then reduce my risk profile significantly.

I very much agree, Stephen C. I believe that you are making an important point here.

There are many who have a negative reaction to the Data-Based SWR Tool because they find the numbers generated by looking at the historcal data in an analytically valid way to be "depressing." I view this as an entirely wrongheaded reaction. It is true that some should be cutting back their stock allocations. But it is NOT true that all need to. What you should do with the information generated by the tool depends largely on your risk profile, as you suggest in your comments here.

Someone who is desperate to retire quickly might want to invest entirely in stocks even at times of extremely high valuation. Are they taking a big chance by doing so? Of course. Is it possible that taking a big chance will pay off, that they will obtain a 30 percent spike in their portfolio in one year's time despite entering the investment at a time of great overvaluation? Again, the answer is "Of course!"

This is what happened to those who invested heavily in stocks in early 1997. Valualtions were already high and the SWR for the S&P index was already low. Still, we saw a fantastic run-up in prices in 1997, 1998, and 1999. Those who claim that the SWR Tool requires people to get out of stocks at tims of low SWRs for stocks simply do not understand the purpose of the tool.

The tool does not require particular investing choices. It tells you what the historical data says re the level of risk you are taking on. That's ALL it does. How to react in response to that information is a choice left to the investor making use of the tool. The Data-Based SWR Tool is a descriptive tool, not a prescriptive tool.
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Re: Big Question is "Yes or No"
Old 03-17-2005, 04:29 AM   #46
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Re: Big Question is "Yes or No"

Quote:
Interesting post. But there seem to be some confusions. The topic here is titled "The Big Question Is Yes or No?" Charlie Munger and Seth Klarman, who have standing I would think, are suggesting that there are good and not so good times for making an investment. So that pretty well implies that there is an important choice of whether to make an investment at whatever price happens to be available, or to try to wait for better opportunities.

All ***** did was say the exact same thing. Are you arguing with *****, because he is *****, or do you reject the whole thesis, even when presented by Munger, Klarman, Buffet et al?
Mikey, I'm not arguing with ***** or anyone else. If you had quoted my whole post, you would see that this is an opinion based on MY personal experience:

Beachbumz wrote:
"Reminds me of years ago, when I just knew the market was too high (the DOW had just pasted 3000), so I put my IRA money in a money market account. I finally put it in the market at DOW 5000."

I just believe a lot of these guys are smarter (more knowledgeable) than me when it comes to this. Of course I'm always looking for opportunities and try to avoid really stupid investments like buying yahoo at $500 a share. I prefer to invest in Berskshire Hathaway and let Buffet figure it out.

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Re: Big Question is "Yes or No"
Old 03-17-2005, 05:15 AM   #47
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Re: Big Question is "Yes or No"

I'm not arguing with ***** or anyone else. If you had quoted my whole post, you would see that this is an opinion based on MY personal experience

You made a comment in your earlier post re "market timing," BeachBumz. Intercst supporters have put forward deception posts re market timing on hundreds of earlier occasions. It may be that you are not aware of this history. But I can hardly blame Mikey for reacting when he sees a claim that has been used for purposes of deception many times in the past surfacing once again.

William Bernstein explores the market timing question in great depth in Chapter Two of his book "The Four Pillars of Investing." He explains that the historical data provides great cause to be doubtful of short-term timing schemes. He also points out that that doesn't matter to the buy-and-hold investor. The buy-and-hold investor is concerned only about the long term, and the same historical data that casts great doubt on the workability of short-term timing shemes also shows that long-term timing has always worked in the past. Bernstein says that changes in valuation will continue to affect long-term returns as a matter of "mathematical certainty."

The suggestion that you put forward, that my views on the use of cash as a strategic asset are somehow the result of some sort of thought that short-term timing may be an effective approach to investing, is a false one that has caused us great trouble in the past, BeachBumz. It is my sense that you simply were not aware of the history of these discussions as I do not recall you participating much in the past.

The fact that someone like you would end up making the mistake you made reveals to all community members why we need to rein in intercst-type posting practices when we see them appear on our boards. Had responsible community members asked intercst to knock off the funny business the first time he posted deceptively on the market timing question, we would not have someone like you now unwittingly putting foward the timing argument as a point against the validity of my views, BeachBumz.

We are 34 months into this. It is time for responsible community members to begin putting their influence to bear against the continued deceptions of intercst and his supporters. The result of our long-running tolerance for nonsese is that fine posters like BeachBumz are not able to make sense of the discussions. I have never said a word in favor of short-term timing, and no one in our community should ever have been led to believe that I had. Intercst-type posting practices do great harm to us all.
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Re: Big Question is "Yes or No"
Old 03-17-2005, 05:53 AM   #48
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Re: Big Question is "Yes or No"

I tend to view the yes or no as primarily an alpha male(although women can get brainwashed) horminal urge thing - probably incurable.

Warren Buffett's famous quote about a teenager in a cathouse during the 73-74 downturn comes to mind.

In my mutli - asset days(before slice and dice was coined), I was always rebalancing into the cheaper asset class(? more bang for the buck?). The idea was to capture the long term expected growth of that class. Some were depressingly long cycles - I gave up on gold after twenty years - right before it turned up.

Balanced index - does something similar rebalancing to hold a preset ratio.

Managed funds ala Wellington(1929), Dodge and Cox Balanced(1931) et al - add the value twist attempting capture the value premium.

An individual holding cash and searching/waiting for value to appear is doing the same thing with the skill set he brings to the party.

Ala POGO - I will let the computers do my market timing for me in balanced index.

The others: Ben Graham, The Norwegian widow, De Gaul, and pssst Wellesley are for another post.



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Re: Big Question is "Yes or No"
Old 03-17-2005, 06:16 AM   #49
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Re: Big Question is "Yes or No"

Quote:
In regards the "Big Question". I think is very ok to hold cash....although that is not a risk free activity (inactivity?), 'cause the market moves on regardless. Call it an opportunity cost. But if the alternative is to invest in uncertain conditions its money well not spent.

Another question, perhaps is what motivates us to put our money at risk beyond the level justified by the return we need. I believe for myself that I try and "overachieve". *That is, I set an annual goal of return, and am delighted when I overachieve. But, that essentially means that I am taking more risk that necessary, if my original investment goal was properly grounded in need, and risk vs reward. After reaching that goal (hopefully), I should really then reduce my risk profile significantly.

But in reality I don't....it's just human nature....and why casinos always end up winning in the end. *But if you only need 3%, and can get that with "risk free" investments, why the need to reach for higher returns and run the higher risks?

Steve
Practically speaking, you would have to be VERY wealthy in order to make do with 3% returns, far above that of most aspiring or current FIREees. So unless you are worth several million, it really doesn't apply to any of us.

On a more general note, I struggle with the same issues. My base plan is to retire in my mid-40s. If I manage to sock away more dough than expected or have above historical returns, then I could check out earler, but otherwise I seem to be on track for my planning horizon. In fact, when I did some sensitivity analysis, I realized that I probably only need to get 4 points over inflation between now and my expected check-out date. As a result, I don't need to reach for the stars in my portfolio. If I do reach, the potential upside would be a modest shortening of time til FIRE, while the potential downside is several more years of work.

As a result, I have been re-working my portfolio for the past 6 or 8 months. I was almost 100% in small caps (my specialty). I have moved into about 20% foreign equity, added ~8 or 9% commodity futures, and am now adding some domestic fixed income (target is roughly 10%). If GIM gets cheap enough, I will also be adding at least 5% foreign bonds. I find this hard to do, since it means sometimes selling out of small cap positions that have been very good to me, but I know it is the right thing to do. My risk is falling (very clear, based on daily volatility in my net worth) and I am not sacrificing much return.
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Re: Big Question is "Yes or No"
Old 03-17-2005, 07:53 AM   #50
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Re: Big Question is "Yes or No"

Quote:
On a more general note, I struggle with the same issues. *My base plan is to retire in my mid-40s. *If I manage to sock away more dough than expected or have above historical returns, then I could check out earler, but otherwise I seem to be on track for my planning horizon. *In fact, when I did some sensitivity analysis, I realized that I probably only need to get 4 points over inflation between now and my expected check-out date.
Exactly my realization too. If you're trying to really retire early (early 50's and younger) then it really does become a savings exercise rather than an investment exercise. Sure a home run smash in the investment side of things would help but do you want to take the risk involved to get it?

It may be better for a FIREee wannabe to work the income and expenses side of things to improve the savings rate. Or at least work them enough without destroying your enjoyment of the years leading to financial independence.
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Re: Big Question is "Yes or No"
Old 03-17-2005, 08:18 AM   #51
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Re: Big Question is "Yes or No"

Quote:

Exactly my realization too. *If you're trying to really retire early (early 50's and younger) then it really does become a savings exercise rather than an investment exercise. *Sure a home run smash in the investment side of things would help but do you want to take the risk involved to get it?
.
Hmmm, I think this also an age/progress thing. When I was just starting out, swinging for the fences was a good thing. Relative to lifetime savings, the amount invested was modest and I had the longest investment horizon in my adult life. Month to month or even year to year volatility didn't matter, since I could easily wait it out. Now that I have gotten myself reasonably far along, I have more to lose. If I cripple my nest egg now, I am really in trouble, unlike when I was in year 1 of the plan.
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Re: Big Question is "Yes or No"
Old 03-17-2005, 08:41 AM   #52
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Re: Big Question is "Yes or No"

I have nothing against tweaking your asset allocation
at the margin in response to long term predictions
of future return a la the "Gordon Equation". This
sentiment has been expressed by Bogle and codified
by Vanguard's creation of the Asset Allocation fund
for like minded investors.

What I think is silly, however, is the "all or nothing"
mentality.

Young investors in the accumulation mode should
decide on an AA they can sleep with and stick with
it, IMHO. Time in market will heal all wounds over
the long run, according to history. Old pharts like
myself should cut back on the throttle in the
distribution phase but never abandon the market altogether.

And, old pharts with a little juice left can feel free to
do a little dirty market timing at the edges but
don't bet the ranch on anything.

Cheers,

Charlie
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Re: Big Question is "Yes or No"
Old 03-17-2005, 09:10 AM   #53
 
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Re: Big Question is "Yes or No"

You're a wise man.
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Re: Big Question is "Yes or No"
Old 03-17-2005, 09:27 AM   #54
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Re: Big Question is "Yes or No"

What I think is silly, however, is the "all or nothing mentality."

I don't believe that you were making reference to JWR1945 or me with this comment, Charlie. Just in case anyone has gotten any funny ideas in his or her head, however, I thought it might not be a bad idea for me to note that I do not endorse an all-or-nothing approach either.

My view is that the typical aspiring early retiree should go from about a 30 percent stock allocation at times of extreme high valuation to 50 percent at times of moderate valuation to 70 percent at times of extreme low valuation. There is no one rule that can sensibly be applied across the board, however. Investors who are in a position where they can afford to take on more risk can afford to go with higher stock allocations and investors who are in a position where they cannot afford normal levels of risk might want to look into the option of going with lower stock allocations.
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Re: Big Question is "Yes or No"
Old 03-17-2005, 09:27 AM   #55
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Re: Big Question is "Yes or No"

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Re: Big Question is "Yes or No"
Old 03-17-2005, 09:57 AM   #56
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Re: Big Question is "Yes or No"

Hi ***** ,
about a 30 percent stock allocation at times of extreme high valuation to 50 percent at times of moderate valuation to 70 percent at times of extreme low valuation. There is no one rule that can sensibly be applied across the board, however. Investors who are in a position where they can afford to take on more risk can afford to go with higher stock allocations and investors who are in a position where they cannot afford normal levels of risk might want to look into the option of going with lower stock allocations.


He,he that is VERY broad guidelines. OK, I will apply them to my situation. Believing the we are in the 30% range according to the tool - but I can take a bit more risk(single/no debt/can work longer) so 40% is ok! I am there! As long as reits/mining stocks are not included.

I will sleep better tonigh *****, knowing that I have the FIRE-proof stamp of the data based swr tool. Cheers!
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Re: Big Question is "Yes or No"
Old 03-17-2005, 10:23 AM   #57
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Re: Big Question is "Yes or No"

Charlie, good post. I've heard it before, but for me it's important to read again and again, especially in volitile markets. I'm too young and too early in my plan to sweat daily swings.....
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Re: Big Question is "Yes or No"
Old 03-17-2005, 10:37 AM   #58
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Re: Big Question is "Yes or No"

Quote:
You made a comment in your earlier post re "market timing," BeachBumz. . It may be that you are not aware of this history. But I can hardly blame Mikey for reacting when he sees a claim that has been used for purposes of deception many times in the past surfacing once again.
*****, I am aware of the history between you and Intercst, I think most are. I'm not at all sure that Mikey reacted the way he did because of this history. He simply asked was my post just 'arguing' with you or rejection of the whole thesis. I think I answered that in my previous post.

Quote:
The suggestion that you put forward, that my views on the use of cash as a strategic asset are somehow the result of some sort of thought that short-term timing may be an effective approach to investing, is a false one that has caused us great trouble in the past, BeachBumz.
*****, below is my entire post, could you please show me where I said anything about short-term market timing.

"That sounds suspiciously like market timing. Ever since my crystal ball got a crack in it, I have had trouble determining the best entry point(s); except in hindsight

Reminds me of years ago, when I just knew the market was too high (the DOW had just pasted 3000), so I put my IRA money in a money market account. I finally put it in the market at DOW 5000. "

No where did I 'SUGGEST' anything about short-term timing. I don't play word-games *****, so if you have a question about my post then feel free to ask me like Mikey did, but don't read anything in to them that isn't there! FTR, it is very obvious to me that your market timing is of a Long-term nature.

Quote:
It is my sense that you simply were not aware of the history of these discussions as I do not recall you participating much in the past.

The fact that someone like you would end up making the mistake you made reveals to all community members why we need to rein in intercst-type posting practices when we see them appear on our boards.
*****, I made NO mistake in my post and I REALLY don't appreciate you saying so. You stated YOUR opinion and I stated MY opinion. I believe we both have that right. As I stated previously, MY, that's MY experience has not been very good timing the market. I would prefer letting those more knowledgeable do that.

Quote:
we would not have someone like you now unwittingly putting foward the timing argument as a point against the validity of my views, BeachBumz.
Once again, there was nothing in my post that was done 'unwittingly', you are really reaching here in my opinion. I simply don't believe in market timing, I've tried it and it didn't work for me. If you want to do it, that's fine by me, I hope it works out for you.

Quote:
The result of our long-running tolerance for nonsese is that fine posters like BeachBumz are not able to make sense of the discussions.
Where did that come from *****? Do you think I'm an idiot? I graduated from the sixth grade highest in my class (I was 5' 11' ). Seriously *****, get a grip! I am quite able to make sense of the discussions, just like almost everyone else on these boards.

Quote:
I have never said a word in favor of short-term timing, and no one in our community should ever have been led to believe that I had.
I, for one, was never led to believe that, nor have I ever made any mention thereof.

Beachbumz :
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Re: Big Question is "Yes or No"
Old 03-17-2005, 11:13 AM   #59
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Re: Big Question is "Yes or No"

I will sleep better tonigh *****, knowing that I have the FIRE-proof stamp of the data based swr tool.

Now you are getting the concept, Ben. There is no one right way for all aspiring early retirees to invest. The quest to find one is an exercise in pure silliness. Each investor needs to take into consideration his particular life goals and financial circumstances in putting together an effective Retire Early plan.
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Re: Big Question is "Yes or No"know for
Old 03-17-2005, 11:25 AM   #60
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Re: Big Question is "Yes or No"know for

It is very obvious to me that your market timing is of a Long-term nature.

That's good.

The distinction between long-term timing and short-term timing is a critical one. 99 percent of the references to "market timing" that you see in the personal finance literature are references to short-term timing. So it's hardly surprising that many of those who have participated in the SWR discussions have been misled by statements saying that the Data-Based SWR Tool "sounds like a market timing scheme" into thinking that the tool requires the use of short-term timing.

Nohing could be farther from the truth. But we have had seen many suggestions along these lines and in some cases we have even seen direct assertions. For example, TH has said that the Data-Based SWR Tool "did not work" in the 1990s. Obviously there is no way yet of knowing whether the SWRs it reported for the 1990s will end up working or not since we won't know for 30 years whether the retirements using those SWRs will have gone bust or not.

We know today that the REHP study "does not work" because we know that it makes no adjustment for changes in valuation levels and we know that changes in valuations affect long-term returns as a matter of "mathematical certainty" (Bernstein's phrase). Whether the future will turn out something like the past or not is something we will just have to wait and see about. It may be that the Data-Based Tool will work and it may be that looking at how stocks have performed in the past will just not be good enough for investors retiring today. We will have to wait for another 30 years to pass to know the answer to that one.
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