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Old 03-03-2008, 02:54 PM   #41
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We do the same thing at work, telling management that the project will take X months to complete and getting it done in X-4 months.
I assume these weren't software projects.

My rule of thumb for estimating software projects was to take whatever the engineers estimated move to the next unit of time and than double it.

So a one week project was 2 months, two months project 4 quarters etc.
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Old 03-03-2008, 03:12 PM   #42
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I was just ranting. I am in a bad mood after spending the weekend listening to a couple of boomers whining about their situation. First, my FIL is hitting us for big time money to take care of a few "mistakes". Then, my mom was complaining that inflation was eating through her social security check and that life was becoming tough (meaning she might need "help"). Coming from the woman who just bought new sofas to replace a perfectly good 5 year old sectional, but the color did not suit anymore, you see... When I told her that at least she was lucky to get SS, and that I probably will not be so lucky, her answer was just: So what? I am just sick and tired of it right now.
I guess it is pointless to remind her that her SS check increases each year at the rate of inflation...

My mom is always trying to give me money, eventhough I have more than she does.

Reading about how others have to deal with family member who think that their LBYM lifestyle means they should subsidize there lifestyles makes me realize how lucky I am. Not to menition, while mom loved interior decorating her dad taught her not to waste money with silly color changes!

You have my sympathy FIREDreamer
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Old 03-03-2008, 03:14 PM   #43
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Sorry, I don't know what to do with your post. It is so laced with cynicism that I don't quite understand what point you are trying to make.
It isn't directed at you, and it is not cynical. It's that old Red Queen problem once more.

Ha
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Old 03-03-2008, 03:18 PM   #44
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I guess it is pointless to remind her that her SS check increases each year at the rate of inflation...

My mom is always trying to give me money, eventhough I have more than she does.

Reading about how others have to deal with family member who think that their LBYM lifestyle means they should subsidize there lifestyles makes me realize how lucky I am. Not to menition, while mom loved interior decorating her dad taught her not to waste money with silly color changes!

You have my sympathy FIREDreamer
Thanks for your sympathy clifp. She is aware that her SS check increases each year at the government-established rate of inflation, but she thinks that the increases are way too low to keep up with real inflation.
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Old 03-03-2008, 03:20 PM   #45
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Oh Dear Lord, tell us this is not so. We are your chosen people, we surfed on 20 years of astounding returns, we feared not the market but obedient to thy grand plan sought time-in-the-market. We cast out our intelligence and careful judgment, knowing that thy indexes gave bountifully to all thy believers.

We revered thy prophets Bogle and Bernstein. Financial Planners went forth and multiplied to serve in thy righteous army.

We have learned to seek 20 years of employment followed by 60 years of heedless pleasure. We need robust returns to live the lives you have led us to; Lord do not forsake us now!

Where have we sinned, Lord? What sacrifice is wanted?

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I believe a "reversion to the mean" will occur going forward. October 2002-October 2007.......we're not going to see that kind of 5-year growth again in my lifetime.............
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Old 03-03-2008, 03:22 PM   #46
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It isn't directed at you, and it is not cynical. It's that old Red Queen problem once more.

Ha
Oh! I am terribly sorry about misunderstanding your post. But when I am in a bad mood, I tend to take everything the wrong way. Maybe I should cheer up before I continue posting...
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Old 03-03-2008, 03:31 PM   #47
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Oh! I am terribly sorry about misunderstanding your post. But when I am in a bad mood, I tend to take everything the wrong way. Maybe I should cheer up before I continue posting...
Really, I agree with what I think is you point that boomers and especially pre-boomers had some things easier. Mainly, we were able to front-run the late boomers and those who came immediately after. But this will be changing with Boomer retirement, and things should be getting better for you.

College graduates today really have to scramble, and even when work is secured it is hard and not very secure for most.

My post was about the trap of extrapolating the past into the future. Eighteen fat years is rarely followed by another 18 fat years.

Ha
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Old 03-03-2008, 04:19 PM   #48
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The arguments of Buffett and Bogle go something like this (I'm being a little loose with the numbers) ...

The total equity return in the 20th century was 10%. 5% of this return was due to market-value gain (e.g., Dow increased from 66 to 11,497) and 5% was due to dividends. Today, the dividend rate is only 2%. Hence, if we assume a 5% market-value gain and a 2% dividend rate for the 21st century....

I believe this argument is flawed because it doesn't consider the cause of the lower dividend rate. Why is it only 2%?

A lower dividend rate can be caused by the over valuation of equities. In essence, if equity prices are much higher than their earnings (PE ratio) then the dividend rate will be low. However, the PE ratio today is only slightly higher than the average PE ratio during the 20th century, which was about 15. Stocks are not excessively overvalued today and this is not the primary cause of the 2% dividend rate.

[deleted lots of good analysis about dividend rates]

For these reasons, I believe that the lower market return estimates of Buffett and Bogle are flawed. Granted, they are incredibly wise and experienced individuals with demonstrated excellence. However, I've never seen them address the cause and implications of the lower dividend rate.

I'd add there are structural reasons why we have lower dividend rates now than in the past.
First investor philosphy has changed dramatically. Before WWII and the 50s investors demanded higher yields from stocks than bonds, because of the risker nature of dividends. The compounding effecting of rising dividends payments wasn't really comprehended by investors.

Second the management composition of major companies changed from founder and then their children/relatives (e.g. Ford Motor company) to professional managers. This is often a good thing, as a bitter ex Ford shareholder, I believe that the excessive cash flow via dividends and prefered stocks (and special voting rights stocks) into the Ford family coffers helped kill the company.

However, CEO/professional managers have much different incentive than CEO/owners. Owners love dividends cause you get income while retaining control. In contrast, CEO gets paid in large part based on the size of the company. Every dollar paid in dividends is one dollar less in retained earning that can be used to fund internal growth, or more often used to fund acquistions. Acquistions are one of those visible CEO activities that compensation boards tend to reward CEOs with bigger salary/bonuses. Finally less dividends also allows for more cash for stock buy backs. Stock buy backs increases the value of stock options and restricted stocked awards etc. Since a CEO typical only lasts for 5 years at company there is strong incentive to focus on the short or intermediate term and not long term (decades).

So I partially agree that Buffet and Boggle are sandbagging by saying that dividends have dropped form 5% to 2% therefore total returns going forward are 7% (5% price appreciation + 2% dividends). The obvious implications is a that lower dividend rates means higher retained earning providing potential for more growth in the future. For example I imagine that R&D investment as percentage of revenue for US corporations as a whole is much higher now than it was 50 years ago.

Where I think they make good points is that people are far more comfortable with investing in the stock market than they were 100 years ago and even 20 or 30 years. Stock market investing = gambling to lot of people even 20 or 30 years ago. That isn't true any more and so we see more investments in the market which lowers the risk premium of the stock market from its historic levels. This is a basic supply and demand argument.
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Old 03-04-2008, 12:56 AM   #49
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Here is another article on the subject:
The bull market won't come back - Mar. 3, 2008
That reminds me of Business Week's special issue on "THE DEATH OF STOCKS?" published in August 1979. It only took three more years to hit bottom.

So we should be back on track by 2012, right?

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I'd add there are structural reasons why we have lower dividend rates now than in the past.
Second the management composition of major companies changed from founder and then their children/relatives (e.g. Ford Motor company) to professional managers. This is often a good thing, as a bitter ex Ford shareholder, I believe that the excessive cash flow via dividends and prefered stocks (and special voting rights stocks) into the Ford family coffers helped kill the company.
However, CEO/professional managers have much different incentive than CEO/owners. Owners love dividends cause you get income while retaining control. In contrast, CEO gets paid in large part based on the size of the company. Every dollar paid in dividends is one dollar less in retained earning that can be used to fund internal growth, or more often used to fund acquistions. Acquistions are one of those visible CEO activities that compensation boards tend to reward CEOs with bigger salary/bonuses. Finally less dividends also allows for more cash for stock buy backs. Stock buy backs increases the value of stock options and restricted stocked awards etc. Since a CEO typical only lasts for 5 years at company there is strong incentive to focus on the short or intermediate term and not long term (decades).
Hey, if dividends were outlawed then only outlaws would have dividends.

I think that Ford (and many other companies) would have found the rocks & shoals by a number of ways, and dividends were just one of their petards. Yet various academic financial studies claim that piling up cash is an invitation to managerial death by acquisition or buybacks, and a certain amound of management discipline is imposed by having to pay a quarterly dividend. Witness Apple being hassled to do something, anything with their cash-- it reminds me of Microsoft deciding to pay their "special" dividend.

Another nice aspect of dividends is a financial truth that's difficult to mess with. You can do a lot of accounting tricks with stock buybacks and acquisitions, but it's hard to mess around with a dividend yield. That's one of the main reasons we use a dividend ETF for international equities, and it's a big drive behind Siegel's "The Future For Investors".

I'm waiting for the study that compares dividend yields to tax & accounting law. I bet when dividends are heavily taxed that the dividend yield drops, and when dividends are lightly taxed then the yield goes up.
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Old 03-04-2008, 07:56 AM   #50
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I believe a "reversion to the mean" will occur going forward. October 2002-October 2007.......we're not going to see that kind of 5-year growth again in my lifetime.............
There are a lot of ways to interpret that ... I hope you are ok health wise.
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Old 03-04-2008, 08:25 AM   #51
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Where I think they make good points is that people are far more comfortable with investing in the stock market than they were 100 years ago and even 20 or 30 years. Stock market investing = gambling to lot of people even 20 or 30 years ago. That isn't true any more
It's true for some of us!!! I would really rather not be in equities at all, but have also lived through the rampant inflation we had a quarter century back. Gambling is enforced when the value of your money is constantly shrinking. If inflation did not exist, I would have plenty of money for life and I would have no need to invest it in anything.

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October 2002-October 2007.......we're not going to see that kind of 5-year growth again in my lifetime.............
Tell me it isn't so! I am hoping we'll get right back to that as soon as we are done with this little dip in the road.
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Old 03-04-2008, 08:43 AM   #52
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There are a lot of ways to interpret that ... I hope you are ok health wise.
I don't see the market indexes going up 85% or so in a given 5 year period for a LONG time. We had a huge market bubble, follwed by a national tragedy, along with high interest rates.........
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Old 03-04-2008, 08:44 AM   #53
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I'm waiting for the study that compares dividend yields to tax & accounting law. I bet when dividends are heavily taxed that the dividend yield drops, and when dividends are lightly taxed then the yield goes up.
Well,Bill Gates waited until the dividend rate was the lowest in history, then paid a 10% dividend.......I think he saved a couple hundred million in taxes by waiting............
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Old 03-05-2008, 12:03 AM   #54
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My post was about the trap of extrapolating the past into the future. Eighteen fat years is rarely followed by another 18 fat years.

Ha
i would tend to (naively) agree w/ this statement. but do you have any
reason to believe this other than it 'seems logical' . I find my self thinking
such things sometimes and wonder if its just the same thing as thinking
the next coin toss is more likely to come up heads if it came up tails
18 times before..
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Old 03-05-2008, 12:32 AM   #55
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Eighteen fat years is rarely followed by another 18 fat years.
The evidence is that historically "reversion to the mean" has always happenned. If you look at logarithmic graphs of stock indexes over many decades, they always approximate straight lines. You never see cases where the line changes slope or doglegs. Over the long term (multiple decades).

Over the short term when you look year by year it's nowhere near a straight line, so I wouldn't say "Three fat years is rarely followed by another three fat years".
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Old 03-05-2008, 01:31 AM   #56
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The evidence is that historically "reversion to the mean" has always happenned. If you look at logarithmic graphs of stock indexes over many decades, they always approximate straight lines. You never see cases where the line changes slope or doglegs. Over the long term (multiple decades).

Over the short term when you look year by year it's nowhere near a straight line, so I wouldn't say "Three fat years is rarely followed by another three fat years".
We had a long high quality thread on this topic a few years ago. I think it is called "Triumph of the Optimists". The title is from an axcellent book by Elroy Dimson, et al, and they prove beyond my tendency to doubt that over the long term there is definite reversion to the mean in equity returns.

Ha
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Old 03-05-2008, 03:02 AM   #57
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We had a long high quality thread on this topic a few years ago. I think it is called "Triumph of the Optimists". The title is from an axcellent book by Elroy Dimson, et al, and they prove beyond my tendency to doubt that over the long term there is definite reversion to the mean in equity returns.

Ha
So what is the mean equity return? And over what period of time.
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Old 03-05-2008, 09:41 AM   #58
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So what is the mean equity return? And over what period of time.
5% over inflation, and these guys tend to look at a century's worth of data at a time. So perhaps it could be over the period of several decades.

SWR Question - Yearly Rebalancing Is Good?
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Old 03-05-2008, 12:07 PM   #59
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i would tend to (naively) agree w/ this statement. but do you have any
reason to believe this other than it 'seems logical' . I find my self thinking
such things sometimes and wonder if its just the same thing as thinking
the next coin toss is more likely to come up heads if it came up tails
18 times before..
go to dowjones.com Home and look at the Dow charts going back to the 1800's. it's the first trend that sticks out
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Old 03-06-2008, 10:12 AM   #60
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I couldn't find any long graphs on that site, but here I found graphs of a century's worth of data:

Historical Financial Charts: Are You Invested In These Markets?

In the red and green graph they break the dow jones results up into cycles of 18 years of growth and then 18ish years of stagnation.
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