NEWSFLASH: Bernstein slams early retirement!!!

[haha]

One thing I think Berstein hit square on the head was our real risk tolerance.  His analogy was the plane crash drill versus the real thing. Everyone talks a big line until they are in one and then the machismo confidence goes out the window.  I'm not talking some 1-3 yr  market blip I'm talking 15 years of negative real returns on the S&P

He made one other good point that is relevent to people on these boards.  He asked "how often do you check your portfolio?" If you check it often (who here could go 6 months without checking let alone 6 days) then your "real" (long term) risk tolerance is much less than you think. I would add that running Firecalc often is another sign of low risk tolerance. 

BTW 1-2% real on AVG sounds great compared to a large portion of the 70's.  My conclusion: ER's got nothin to do with productivity it's all about "real"  risk tolerance.

I think you are exactly right. I've been retired a bit over 20 years, but I am well aware that they were mostly 20 years with wind at my back. One conceit that goes out the window real fast when you are actually retired is "a down market is just a buying opportunity." Well, it may be and it may not be, but unless you have an SWR of about 1%, or a federal pension, it won't necessarily look that way to us while we are in it. And don't forget, even if the main investor is a diehard, and would sleep in his car if necessary to hold on, remember he likely has a wife, who most likely would prefer a bed and some money to visit the grandkids.

I have posted this story here before, but it bears repeating I think. Back very near the final bottom in fall of 1974 I opened a brokerage account in downtown Seattle. I went in to talk with my rep-- BP was selling for $5, and I wanted to buy some. (I was employed, making good money, and just beginning to invest seriously).

In the cubicle next to me was an Eastern Washington wheat farmer crying. Now these guys live with daily risk, and they are not the crying type. But his life had been destroyed, at least as he saw it. He had retired, sold his farm, and "invested conservatively." Fat lot of good it did him. He was cooked, out of the game for good, and he knew it.

This event had a big effect on me. I know I am not as tough as he was, so I definitely want to use my imagination to try to preview various possibilities.

If I lost unrecoverable, large amounts of money, I would not only be sad, but I would feel like a real idiot. So when some young guy with various sources of income posts about how brave he is, I reflect that there is a time for all things and ol' mikey's time for bravery ain't when the S&P is at 1216.

And if the poster is not young, not truly rich, and not supported by some other income stream, I just think “Ride ‘em Cowboy! Send me a postcard when it is all over.”

Ha

 

[Cut-Throat]

In the cubicle next to me was an Eastern Washington wheat farmer crying. Now these guys live with daily risk, and they are not the crying type. But his life had been destroyed, at least as he saw it. He had retired, sold his farm, and "invested conservatively." Fat lot of good it did him. He was cooked, out of the game for good, and he knew it.

Mikey,

Obviously not conservative enough. I'd like to hear the guy's portfolio details!

Run FireClac with all the defaults(75% stock)  and assume retiring in 1962 - with your $650K.  At the end of 1974, you'd still have over $620K!  - And real Bigtime Inflation had not even kicked in by then. If the guy actually retired in 1973, he'd still have $450K at the close of 1974 ! - A 30% hit, bad?, yes but Hardly someone would have been cooked, if they did this! What he probably did that day was sold at the low point.

I'm sure this guy was crying but for a different reason than being conservatively invested!  - He was into something far risker than a diversified 75/25 stock portfolio, if he truly lost almost everything and really was 'cooked'.

Diversification is the message here. Not - Do not invest in the Stock Market! - Yes it has risk, therefore it has possible returns. No one is telling you that you have to be invested in the Market, but that does not mean that it rules it out for everyone else.

 

[haha]

No one is telling you that you have to be invested in the Market, but that does not mean that it rules it out for everyone else.

Well, it isn't even ruled out for me. At present, I don't have much in diversified S&P stocks, though I do have some individual stocks that are also in the S&P. Overall, I have 50% fixed income, more than I have ever had in my entire investing life.

By the way, nothing I write should ever be construed as trying to influence anyone to do or not do anything. I see this as a free forum to share ideas. I see the behaviors that people follow as being entirely separate, and to some extent part of an interesting Darwinian experiment.

Then there is the sheer enjoyment of words. Never put much faith in those, ever.

Ha

 

[Cut-Throat]

Well, it isn't even ruled out for me. At present, I don't have much in diversified S&P stocks, though I do have some individual stocks that are also in the S&P. Overall, I have 50% fixed income, more than I have ever had in my entire investing life.

By the way, nothing I write should ever be construed as trying to influence anyone to do or not do anything. I see this as a free forum to share ideas. I see the behaviors that people follow as being entirely separate, and to some extent part of an interesting Darwinian experiment.

Then there is the sheer enjoyment of words. Never put much faith in those, ever.

Ha

BTW - I Even ran the FIRECalc numbers with 75% stocks which are wayyyy to risky for me. I ran the numbers again with 50% stocks and the guy would still have had $520K at the end of 1974! - I've seen worse than this!

And like you, I am close to 55% stocks, but then again I am younger. The other is in Short Term Bonds and Fixed.

My gut cannot take individual stocks any more. I once took a $175K hit on one individual stock. And this was after I retired. Granted I did not lose money. I still made money after I sold. But the $175K did disappear from my balance sheet after I retired

 

[haha]

This seems like an easily quantifiable argument.  When I run firecalc on having $1,000,000 with a 4% withdrawal rate, many scenarios have my portfolio increasing many times the original investment, in spite of living on 4% withdrawals each year.  It's more than I'd ever have if I kept working, paying for non-deductible things like cars and gasoline for work and shouldering an enormous tax burden... all while working 60+ hours a week. 

Obviously, it's not a guarantee, but the odds are in favor of that kind of long-term asset growth living in the ultra-capitalist US society. 

To me, I cannot afford not to ER.

Give this man a Nobel Prize. He has just repealed entropy.

Ha

 

[TargaDave]

I do have to disagree with you on one large point however. I don't think being aware of your investments and running FireCalc is an indication that you'll change your your Investments when they go south. Hopefully they will change your spending. I think those of us who are aware of our investments and aware of History and our emotions would be most likely to stand there and Do Nothing. Time will tell however. I plan on doing nothing, also recognizing that as the market drops, so does the risk of being invested in it and the more likely that it will rise.

When looking at the period of 1966-82 - When the S&P 500 did nothing. It actually did quite a bit. It managed to stay even with Inflation (which was quite hefty during this period).

CT, I'm not so sure the 66-82 period kept up with inflation but that's another story (equity value was dead flat so dividend yield would have had to match inflation, yes?). I do think that a protracted downturn or flat market would severly test the typical devotee of this site who goes far beyond just "being aware" of his/her investments. We all claim to have a long term outlook but we monitor the pile far more frequently than we need to or should. Why? If you have a 15 year outlook why monitor things every 6 days or even every 6 weeks? Think about the underlying mindset behind that excessive awareness.

Think about your core diversified index investment falling far behind after 10 years while certain sectors are winning out. Could you stand pat for that long, or would you abandon the Berstein game plan and shift to the gaining sector or some other theme? 10 yrs is a heck of a long time for us impatient boomers who are over-aware of everything minute to minute and have never experienced the real plane crash.

I believe that different people will respond differently to a potential protracted downturn, but I'm pretty sure their core values and their investing/work/ER/R mindset will change from what they originally imagined.

 

[Cut-Throat]

Dave,

I understand what you are saying and it is something that I have thought about. So time will tell. My best moves have been to do nothing! And yes a severe market downturn will test us all. But remember the farther the market falls, the less risk there is in staying invested in it.

You ask - Why would you run FireCalc? - The answer is to adjust spending, not investments. Once your mindset is adjusted to favoring undervalued asset classes, the more likely that you'll keep them and the overvalued asset classes you'll avoid.

What your describing is typical investor behavior. Today the typical investor has abandoned stocks and is attending the latest real estate seminar because his IRA is not gaining 15% anymore.

Another point to consider. You are not dealing with 'typical' investors on this forum.

 

[Eagle43]

My gut cannot take individual stocks any more. I once took a $175K hit on one individual stock. And this was after I retired. Granted I did not lose money. I still made money after I sold. But the $175K did disappear from my balance sheet after I retired

Lawdy Lawdy Miss Clawdy. I'd have been terrified of the market and probably put my loot under the mattress, given a 175k hit. I don't do any serious money in individual stocks. I do have about five grand in Brinker, but that was because son-in-law worked for them. I just love them Vanguard indexes. BTW: I believe the dividends are posted/reinvested today.....

 

[wabmester]

I reflect that there is a time for all things and ol' mikey's time for bravery ain't when the S&P is at 1216.

What is magic about 1216?   P/E's are much lower now than they were just a few years ago, yet you say that only now do you have your lifetime-lowest equity positiion.   What makes you more fearful today vs five years ago?

And for CT, who believes that a market drop would be a buying opportunity, do you believe in regression to the mean?   If so, then you should be very afraid of buying after a drop.   If we really regress to the mean, market P/E's will have to be at around 5 for the next 20 years.    That's a sustained 75% drop from today's levels.

 

[Cut-Throat]

And for CT, who believes that a market drop would be a buying opportunity, do you believe in regression to the mean?   If so, then you should be very afraid of buying after a drop.   If we really regress to the mean, market P/E's will have to be at around 5 for the next 20 years.    That's a sustained 75% drop from today's levels

Well, if you don't believe a 75% drop would be buying opportunity than you are more paranoid than Hocu*

 

[wabmester]

Well, if you don't believe a 75% drop would be buying opportunity than you are more paranoid than Hocu* 

OK, but I'm trying to understand what you believe would be a buying opportunity.   Do you believe in regression to the mean?   If so, that should influence your behavior.

Personally, I do not believe in RTM as anything but a statistical artifact.    However, if the market dropped 75%, you're damn right I would become as paranoid as *****.   In fact, what you'll probably find is that an entire generation will avoid the stock market like the plague if that were to happen.   Which sort of self-reinforces RTM, so it may be a psychological artifact rather than a statisitical one.

 

[Cut-Throat]

OK, but I'm trying to understand what you believe would be a buying opportunity.   Do you believe in regression to the mean?   If so, that should influence your behavior.

A buying opportunity. - If you are Investing $500 a month in stock via Dollar cost averaging and the Market Drops 10% one month you just saved yourself 10%. That is a buying opportunity.

Do you believe in regression to the mean?   If so, that should influence your behavior.

I don't know and I don't care. My Behavior would not change

 

[wabmester]

Do you believe in regression to the mean?   If so, that should influence your behavior.

I don't know and I don't care. My Behavior would not change

Ah, blissful CT, I honestly hope for all of our sakes that you never have to learn what RTM means.

 

[Nords]

I dont know how Bernstein could make such broad statements about ER's, with respect to not retiring.

I think that Bernstein believes the only real way to keep ahead of inflation over five or six decades (not just three or four) is to keep working.

But what the heck does he know. I don't think he can imagine NOT working. He probably has as much of a writing jones as Isaac Asimov.

It's worth pointing out that legions of publisher's lawyers have piled onto guys like Bernstein and told them not to post on discussion boards for just this reason. If he said "C'mon in, the water's fine, you can all retire early!" he'd be sued by thousands of people who drank *****' Kool-Aid. It's much better to say the more conservative "Most people can't afford to ER", which only gets him pilloried by us. And he hasn't exactly rushed right over here to learn more about us, has he?

 

[wabmester]

I don't think he can imagine NOT working.

You're joking, right?   He has retired from neurology and is now "working" as a financial adviser.   Let's see, he's managing $120M in assets, and probably charges 1% -- that's $1.2M year in retirement.    He may not always be right, but he's definitely not stupid. 

 

[Nords]

You're joking, right?   He has retired from neurology and is now "working" as a financial adviser.   Let's see, he's managing $120M in assets, and probably charges 1% -- that's $1.2M year in retirement.    He may not always be right, but he's definitely not stupid. 

Wab, I think that if you're managing $120M in other people's money then it's hard to call yourself "retired". I think he's charging $1.2M/year in SALARY. It pays better than being a Wal-Mart greeter but it's still work and the customers are probably just as demanding.

Maybe on his deathbed he'll be wishing that he was managing $150M.

 

[wabmester]

Wab, I think that if you're managing $120M in other people's money then it's hard to call yourself "retired".

Perhaps. Then my dream "job" is to manage $120M for people who believe in passive index investing!

 

[Nords]

Perhaps.   Then my dream "job" is to manage $120M for people who believe in passive index investing!

Perhaps you should check into this guy. I've been reading about him in the local press for a decade. He lives in Manoa, he always seems to be surrounded by beautiful young staff assistants du jour, and he's made a great living out of taking people's money from them and refusing to give it back. (And believe it or not they're thrilled to pay him for this sadistic abuse. But apparently if you're a consenting adult it's quite legal.) And he's always smiling!

 

[Gone4Good]

So, YTG, how do you define productivity?

Pretty much like the rest of the English speaking population does.  As far as definitions go I'll turn to Webster where my dictionary says productive means "having the quality or power of producing esp in abundance."  

The funny thing about so many of the responses is how many people seemed to think that my comment was disparaging in some way.  Me thinks they doth protest too much.  My point wasn't that surfing the web all day was bad or in any way inferior to some other activity, only that it does not fit the common definition of "productive".  This is neither good nor bad, it just is what it is.  I find it interesting that so many of you feel the need to redefine leisure activity as something else.  Why do you suppose that is?

 

[laurence]

Pretty much like the rest of the English speaking population does. As far as definitions go I'll turn to Webster where my dictionary says productive means "having the quality or power of producing esp in abundance."

The funny thing about so many of the responses is how many people seemed to think that my comment was disparaging in some way. Me thinks they doth protest too much. My point wasn't that surfing the web all day was bad or in any way inferior to some other activity, only that it does not fit the common definition of "productive". This is neither good nor bad, it just is what it is. I find it interesting that so many of you feel the need to redefine leisure activity as something else. Why do you suppose that is?

Maybe because that's the mindset of those who ER, redefining the mandated paramaters of life, and what's important. You don't have to work to 65, you don't have to have your primary adjective be "consumer" etc. etc.

A lot of what people listed as filling their days sounds like the work of a house spouse. I bet telling a stay at home parent they are engaged in "leisure activity" might cause something to get thrown at you. Seriously, nothing in that definition said the activity had to generate fiat money. It's not money we want anyway, it's the goods and services, and the utility we derive from money, that people want. So if you gain utility from the above mentioned tasks, you've just cut out the middle man. A strong argument for increased productivity in an ER state, IMHO .

(CAVEAT: all statements above come from a punk 31 year old still working full time who doesn't know jack! )

 

[haha]

What is magic about 1216?   P/E's are much lower now than they were just a few years ago, yet you say that only now do you have your lifetime-lowest equity positiion.   What makes you more fearful today vs. five years ago?

Five to six years ago I put maybe $500,000 to work in oil and gas, UST, Altria, and several other tobacco companies; plus a smaller slug into gold stocks. I thought there was some risk in the tobacco, essentially none in the oil and gas. Gold is always risky, since no one needs it and central banks seem hell-bent on getting rid of it. Still, it was cheap enough that to me anyway it seemed like good odds. Similarly there were good buys in fall of 2002.

I don't have positive judgments on any available investments now.

I don't think there is anything magic about 1216, as I suspect you know. It just happened to be the quote when I wrote my post.

Lastly, I am not exactly fearful. I just don't like the odds as I see them. It is a game to me, an important one, but still a game with its own niceties.

Ha

 

[wabmester]

I don't have positive judgments on any available investments now.

From your picks, I'd say that you like brutally beat-up sectors, right? Pharma and financial stocks not beat-up enough for you right now? I think I might buy MRK et al if they get a bit more beat up. I love health care -- one of those relatively rare sectors in which demand will always exceed supply.

 

[Mr._johngalt]

I think that Bernstein believes the only real way to keep ahead of inflation over five or six decades (not just three or four) is to keep working.

But what the heck does he know.  I don't think he can imagine NOT working.  He probably has as much of a writing jones as Isaac Asimov.

Ahh, Asimov.............what an amazing amount of production, and the
most amazing thing is that a lot of it was good.

JG

 

[Mr._johngalt]

OK, but I'm trying to understand what you believe would be a buying opportunity.   Do you believe in regression to the mean?   If so, that should influence your behavior.

Personally, I do not believe in RTM as anything but a statistical artifact.    However, if the market dropped 75%, you're damn right I would become as paranoid as *****.   In fact, what you'll probably find is that an entire generation will avoid the stock market like the plague if that were to happen.   Which sort of self-reinforces RTM, so it may be a psychological artifact rather than a statisitical one.

I avoid the stock market "like the plague" now and my reasons are
almost entirely psychological.

JG

 

[Nords]

The funny thing about so many of the responses is how many people seemed to think that my comment was disparaging in some way. Me thinks they doth protest too much. My point wasn't that surfing the web all day was bad or in any way inferior to some other activity, only that it does not fit the common definition of "productive". This is neither good nor bad, it just is what it is. I find it interesting that so many of you feel the need to redefine leisure activity as something else. Why do you suppose that is?

Well, I don't have anything against actively-managed mutual funds either, but I don't post about them on the Vanguard Diehards board!

You're defining "leisure" activities in terms of work-- "leisure is what you do when you're not working". But most of what you define as "leisure" activities are as close to work as I'll ever come again. And some of those activities create more sweat & muscle fatigue than I ever "produced" in a department-head meeting...

One of the reasons we doth protest so much is that a well-known author, who apparently wouldn't know ER if it bit him in the assets, has dismissed it out of hand. Yet this is a guy who's spent years researching asset allocations before promulgating an opinion on the subject. I think we ERs feel a little slighted by a guy who has a lot of credibility in the asset-allocation area yet apparently feels no need to do any ER research before arriving at a conclusion.

(CAVEAT: all statements above come from a punk 31 year old still working full time who doesn't know jack!  )

Well, I won't pass judgment on the "punk" comment, but you know more than I did at that age...