The sky is falling, the sky is falling

[Martha]

Well Greg, you aren't much of a bear. Come on man, the middle of the road is for roadkill!

Ha

I think he is just trying not to scare me with his bearishness.

 

[greg]

Buying Real Estate Thoughts

"Medius tutissimus ibis You will go safest in the middle course." page 325 - 4th ed The Intelligent Investor.

When I first started investing in RE I told the DW that this was like our bond portfolio portion of asset allocation. This idea worked well for me during a rising market environment. In fact, we had significant, steady gains in this portion, and when we sold the original money had ‘compounded’ nicely.

Now I believe we’re in a bubble housing market. IMO.

I disagree with Allen Greenspan and believe he has manipulated this market: A few weeks back he said that we were NOT in a general housing bubble. He did say there were some bubble areas. This bothered me. So he doesn’t think we are in a bubble market but does think there is a bunch of foam out there? And to top it off, he implies that there are plenty of spaces between the bubbles (rural RE anyone?).

This encourages those speculators who are enraptured by ‘the greed’ to continue the hunt, much like the tech bubble of 1995-2000 enraptured newbies into investing in tech stocks, overweighting their portfolios near the top of the market. We know how that last one ended.

In a world of relativity, it is easy to look at a property and say “You know, that’s a pretty good value compared to all the other properties I’ve looked at” or “If this market keeps going up the way it has in the past, then we’ll make tons of money.” It is also easy to rationalize the importance of your property selection skills. (Just ask Uncle Mick about his well known skills at picking individual stocks—this-he admits-is not where he made his big money.) By talking in foam language, ‘I never pop a bubble I’ve made Greenspan’ leaves open the door for speculators to continue the hunt. In a world of absolutes, housing is overpriced, unless you ‘see’ that incomes will also perpetually rise too—and pretty quickly. Right now many speculators can barely afford the properties they are purchasing. What’s going to happen when the non-speculators arrive to do the last buy?

In a world of relative absolutes (hey, this is MY goofy story), when the crash happens it drags everyone and everything down with it, just as the tech dump of 2000-2002 affected not only tech stocks but also all other stocks—and even the unemployment rate. To my mind, the next crash won’t be just a contained housing crash but, possibly, a full blown debt crash. As the Boy Scouts say “Be Prepared.” Debt is the modern, American form of slavery. If the housing bubble pops, the construction industry and the financial industry will hurt. The down part of the cycle will purge the excesses—and then some—as it always does. Uncle Mick and I will be there: we like to make our money the old fashioned way, buy low-sell high and collect dividends and interest in between. We don’t hurry time in a frantic effort, we enjoy it. I suspect.

Balance and moderation are good. Not having too many of your assets packed away into RE is good. Not having it all leveraged up to the edge of your ability to pay is better.

Uncle Mick, did I read your mind?

--Greg

 

[greg]

Well Greg, you aren't much of a bear. Come on man, the middle of the road is for roadkill!

Ha

NO. As of today I'm a politician trying to get all of you over to the dark side. That requires lies, half truths, and Greenspanisms--at the minimum. Wait, maybe that is roadkill.

--Greg

 

[unclemick]

Yep

Except - that I was young once - hormonally - like individual stocks - I have had to learn the limits of my RE skill the hard way early on - Spotted Owls on Oregon timberland and a 10% interest in a non working Colorado gold mine are two things from the sixties and seventies - I'd prefer NOT to discuss in detail.

 

[greg]

Yep

Except - that I was young once - hormonally - like individual stocks - I have had to learn the limits of my RE skill the hard way early on - Spotted Owls on Oregon timberland and a 10% interest in a non working Colorado gold mine are two things from the sixties and seventies - I'd prefer NOT to discuss in detail.

I now owe you an interesting hormone story and Laurence a bull semen story. Some day um . . . soon. . . hehehehe!

--Greg

 

[TargaDave]

?Who - don't recognize the names.

Mick, I think it is a great fund and I agree with the middle of the road approach, though I do keep a few krugerrands around for semtimental reasons.

Vanguard Balanced Index VBINX

Morningstar Category Morningstar Rating
Moderate Allocation 4 stars
NAV (08-09-05) Day Change
$19.70 $0.08
Total Assets($mil) Expense Ratio %
7,752 0.20
Front Load % Deferred Load %
None None
Yield % (TTM) Min Investment
2.62 $3,000
Manager Start Date
Gregory Davis 04-22-05
Michael Perre 04-22-05

 

[unclemick]

Hey - how about that.

I have a tendency not to check managers of index funds - them being indexes and all that.

Although - I should after reading Bernstein's stuff on tracking error.

Skill in execution and all that rot.

 

[REWahoo]

Unclemick, I recall back in my working days (that's soooo much fun to say) there was a financial planner that "all the guys" at work used to manage their portfolios. The guy even made house calls. I have always managed my own affairs but everyone was raving about how good this guy was so thought I would at least talk to him.

First meeting he recommended a fund for some of my semi-short term savings (college fund for the kids). Talked about the great track record of the fund and its manager. Did a little research on my own and found the fund manager had jumped ship a month earlier.

Reconfirmed my conviction that no one cares more about my money than me.

REW

EDIT: And as far as I know, all my peers that used this planner are still working...

 

[greg]

Well Greg, you aren't much of a bear. Come on man, the middle of the road is for roadkill!

Ha

You're right. I'm a moderate bear. This is because I'm not sure yet whether we are going to have anihilation due to hyper-inflation or anihilation due to deflationary depression . Or something in between. If you know, please tell me? An extreme inflationary bear, would have a portfolio and backyard filled largely with PM shares and such stuff; an extreme deflationary bear would have cash and "safe" bonds. Both would have "safe" hideouts. I'm content with sticking my head under the bed or wearing my tinfoil hat when emotionally distressed. That's my middle course.


The really scary middle of the road stuff, for me, is all the indexers, right in the middle of the herd, who tweak Vanguard Funds for an extra 1/2 percent/yr. When all these thirty somethings with too much leveraged investment RE get crunched in a liquidity squeeze, guess where they're going to find the mortgage payments? Maybe their 401K retirement funds filled with . . . index funds.

I feel much safer in the middle of the road than in the middle of a herd. IMO

--Greg

 

[mikew]

If there is going to be a sky falling, I hope it would hurry up and get here already. Now some are saying the housing bubble is hissing out no crash. I would rather see a crash than this soft landing stuff. Why draw it out? I want it to go Kaboom Get it over and done with I say. I am sick of waiting for this crash. I read that book "The Great Depression of 1990". It made perfect sense then. It makes perfect sense now. It will probably make perfect sense in 15 years.

The question becomes what to do while waiting. Sit on the sidelines or be exposed. I say no exposure no risk, no pain, but no gain. Yes America will be punished for its evil ways but probably not today. 

If you are expecting a crash how are you preparing? HaHa has said he has cash and puts. Worry is good if you do something about it but if not there is no point. Going the middle way is ok but what would you do otherwise? If the answer is the same thing, there is no point in worrying. Set and forget.

CHP sorry. Will walk dog, pass out and be punished by the beer god in the morning. 

Cheers
Mike

 

[preben]

I like these dooms day discussions, and my first read in the morning with a cup of coffee is dailyreckoning.com so I get lots of bear vibes!
If I felt that a crash situation was near I would probably look at what asset classes I think would be hit the hardest and find replacements. US large/mid cap replacement would probably be something like the Hussman fund HSGFX - not a 100% bear fund, but with good protection.
Cheers!

 

[JPatrick]

While some say the fact that most sectors have benefited from this run up is a warning sign, here's a smart guy who says the broad advance is good for you.

From Don Dion:
In fact, from a technical standpoint, the recent rally appears broader and deeper than previous rallies, i.e. the upward trend is not relying solely on the buying of a handful of narrow constituencies, but rather has broad participation. This has implications for the sustainability of this particular rally as well. According to the market breadth theory, if more stocks are advancing than declining over a period of time (daily, weekly, or monthly), the indicator is positive, which denotes bullishness and the potential for a continuation of the upward trend. The recent breadth and price breakouts for the S&P 500, therefore, suggest higher prices in the near future. So unless the fairy tale is given a rude dose of reality, these dog days might still have legs yet.

 

[haha]

While some say the fact that most sectors have benefited from this run up is a warning sign, here's a smart guy who says the broad advance is good for you.
From Don Dion:
So unless the fairy tale is given a rude dose of reality, these dog days might still have legs yet.

Well, if that is the bull case I don't think I have anything to worry about. 

haha

 

[haha]

If you are expecting a crash how are you preparing? HaHa has said he has cash and puts. Worry is good if you do something about it but if not there is no point. Going the middle way is ok but what would you do otherwise? If the answer is the same thing, there is no point in worrying. Set and forget.

CHP sorry. Will walk dog, pass out and be punished by the beer god in the morning. 

Honestly Mike, you write better under the influence than I do stone sober. Excellent point. All this only matters if one is prepared to act on his conclusions. (Act differently from the base case.)

As a clarification, I also hold some stocks. Other than energy, they are a relatively small allocation. And energy formerly was small, but has grown larger recently. 


Haha

 

[Cut-Throat]

If there is going to be a sky falling, I hope it would hurry up and get here already. Now some are saying the housing bubble is hissing out no crash. I would rather see a crash than this soft landing stuff. Why draw it out? I want it to go Kaboom Get it over and done with I say. I am sick of waiting for this crash. I read that book "The Great Depression of 1990". It made perfect sense then. It makes perfect sense now. It will probably make perfect sense in 15 years.

The question becomes what to do while waiting. Sit on the sidelines or be exposed. I say no exposure no risk, no pain, but no gain. Yes America will be punished for its evil ways but probably not today. 

If you are expecting a crash how are you preparing? HaHa has said he has cash and puts. Worry is good if you do something about it but if not there is no point. Going the middle way is ok but what would you do otherwise? If the answer is the same thing, there is no point in worrying. Set and forget.

CHP sorry. Will walk dog, pass out and be punished by the beer god in the morning. 

Cheers
Mike

Whenever I read something like this, it reminds me of the old saying:

"More money has been lost waiting for the correction, than the actual correction itself."

 

[greg]

"More money has been lost waiting for the correction, than the actual correction itself."

Sometimes just resting for a while prepares you for the next day's work. I agree with you though, doing the correct things at the correct times is important .

--Greg

 

[bosco]

This is because I'm not sure yet whether we are going to have anihilation due to hyper-inflation or anihilation due to deflationary depression . Or something in between.

I vote inbetween.

None of us will get out of this alive, is my prediction. 8)

 

[greg]

After all these years when out and about with the DW I sometimes sneak a peek at a young lady—to look, to dream, to fantasize, etc. I’m sure the DW does the same (but with boys, I hope). No harm, no foul. There are a number of things going on in this process, but there are two that I’d like to extract and examine—in this forum—and then apply to FIRE..

First, there’s the dream world-real world dichotomy. As humans we always live in both worlds. Even the ninety-nine year old man on his death bed dreams he’ll make it to the commode the next morning (or the commode will come to him) and he’ll be able to use it. Dreams are very important.

To my mind, John Bogle lives in a very well constructed, conventional, and back tested dream world: It’s a dream world of projected 7-8% growth that is mostly captured by the investor. But until that money is harvested and spent, it is fantasy. We have huge dream factories: Model Portfolio Theory, FIRE/Calc programs, etc. that can modify dreams to suit the “present pleasure.”

Determining the balance between the dream world and the real world can only be determined by the individual (with some assistance/hindrance by the spouse).

Second, gentlemen, we have our emotions. If we frustrate them too much, bottle them up, it creates serious problems (ask the DW or a psychologist). If we don’t let some of our natural impulses out where they need to, they back up and come out where they shouldn’t. Conventional thinking isn’t bad, but it mostly has been predetermined by the social contract “stops,” ‘balances,” and “slice and dice.”

Bogle portions out reality in broad, conventional chunks: S&P Index Fund, Small Cap Growth, Mid-Cap Value, etc., etc.—some good and some less good. All created very rationally using the mind, subduing the rawer (more fun?) spirits. But over time our minds and emotions tend to creep around, refine, and seek the stimulations, i.e, we start messing with our own portfolios. Enough said.

I have a Smartypants-Hormone Investment Portfolio that takes some of the above into account. There are two separate but not necessarily equal portions to this scheme. The first part is the smartypants part of the portfolio. (When a child, whenever I was doing something wrong, my mother would always say “Hey, smartypants, bla, bla, bla . . . .” I knew the jig was up when I heard that word. I came back to the real world (Mom) and left the one where I was instigating trouble.) It’s the stable part of the portfolio. You put dividend payers in there, bonds, etc., anything that pays money now, monthly, quarterly, yearly. Cash payers now! Cash payers here! Nothing else. Then you let it compound, Ben Graham style (read the book)—and compound some more. Heh Heh! When you start messing with the first principle of this portfolio, you become a, ah, ah, ah market timer. This can be dangerous. Just ask some of the people who have jumped out of windows when their portfolios disappeared. Keep your workhorses separate; they’re too important.

The second part is the hormone portfolio where you corral everything else. You put your sector bets here, your foal that may be sold as a racehorse someday (the ten bagger), your rental property with the mortgage goes here. You play with these things. Have fun. These are your dreams and fantasies. By segregating it this way it is easy to watch. Also, it allows you to predetermine your risk status in the real world (without that Alpha-Beta stuff). If your feeling frisky at the start, do a 50%-50% split. If you’re laughing too hard at colonoscopy/commode jokes, then 80% smartypants-20% hormone might be right for you. If you have five plays in the hormone part and one drops 50%, you lose 2% of your total portfolio. If you get a couple of five baggers, transfer some of the extra money to your smartypants and buy your spouse a hot dog or trip to Disney World. Greed, fear, surprise, excitement. Put your PM shares here. Put your zeros here.

You can do some asset allocation in the smartypants part. Slice and Dice if desired: Put in international dividend payers, put in bonds and rebalance them if you like. But only put in things that you think will still be paying good dividends even if the market dumps . The payments will protect you in the drop. Your portfolio will go down less than everyone else’s (see Ben Graham). If you really want to play it safe, do your due diligence with the idea that the individual components ‘must’ pay even at Dow 4000—safety second in this portfolio.

The exit strategy: Live in the real world most of the time. The smartypants dividends are your base. Your core budget equals your core dividends. You want a new car, make sure the payments come out of your smartypants. You hit the jackpot, pay cash for the car and go on a splurge. Double enjoy the jackpot now-enjoy being smart about your picks and smart about how and what you bought. You don’t want to live in the desert with an old, regular 4% withdrawal year after year while your Bogle Indexes ride the ups and downs (remember indexed funds are owned by the herd—you go where the herd goes). Enjoy the ups and downs of the terrain as smatypants chugs along throwing off real excess cash in good times and bad.

The above is my portfolio: 70% smartypants/30% hormone—everything else is just slice and dice.

And then I turn my head away from the blonde waitress and look into my wife’s eyes and know that ‘here and now’ is the real thing—and I’ve got it.*

So, Uncle Mick, do I get your seal of approval or no?

--Greg

*I said this mainly for brownie points and the hope that DW now won’t really waste $100,000 of our retirement funds on Johnny Depp.

 

[unclemick]

Yep

75% Lifestrategy mod
10% REIT Index
15% DRIP dividend type stocks

aka: a mini Boglesque 'core and explore' with a tad(REIT's) of Bernstein - correlation wise - in MPT speak.

And, and with SS in the bag - the Norwegian widow can lighten up - take up square dancing, ballroom, or with the proper stretching exercises - disco

Insurance is ballpark 3% current yield - in case she gets toooo - wild and free with some stocks.

P.S. When I get the shopping list - going during normal hours - looking is my er ah non monetary commission - so to speak.

Women are not men - I think I finally got that part - the male actors I pick are not the ones she thinks of - and the females she thinks are attractive - well - let sleeping dogs do the sleeping dog thing.

 

[sgeeeee]

I just want to weigh in on this once. Male hormone investing comes up fairly regularly. I think it's fine that some of you want to do this hormone investing thing, but it has no appeal to me. My hormones can make me as competitive as the next guy on a wide range of issues. I can be stupid and stubborn and get in your face for minor things. But I don't invest that way. My goal is not to gain the most. I don't have hobby stocks. My goal is to have enough and reduce my odds of running out too soon.

 

[Eagle43]

I just want to weigh in on this once. Male hormone investing comes up fairly regularly. I think it's fine that some of you want to do this hormone investing thing, but it has no appeal to me. My hormones can make me as competitive as the next guy on a wide range of issues. I can be stupid and stubborn and get in your face for minor things. But I don't invest that way. My goal is not to gain the most. I don't have hobby stocks. My goal is to have enough and reduce my odds of running out too soon.

I concur with this 100%. Play defense with your investments. I think Buffett advocated "the power of negative thinking" when it comes to investing. What can go wrong, and can you live with it, should it do so? As a great old southern comedian used to say, "Where you wanna be when the big bomb hits?" Answer: "Anywhere I can say, whut was that?"

 

[justin]

Picking stocks or timing the market is like gambling in a casino. Let me explain. In a casino, the house always has an edge, however slight it is. Your expected payout on a given game may be .90 to .99. On average, you will lose a small portion of what you bet. But everyone thinks they can beat the house because of their superior skill and/or luck. Some do, but most don't. It is simple math.

If you buy Bogle's and Bernstein's argument that on average, individual investors (or mutual funds) can't beat the market overall, it seems you are best served by buying the lowest expense ration index fund(s) and then dollar cost averaging over time. Any attempts to beat the market will fail, on average, since the expenses incurred in trading (or holding high ER mutual funds) will reduce your average returns below those of the market.

Some may win, but most will lose compared to the market indexes. The reason people gamble must be for the thrill, excitement and entertainment value (plus the delusional thought that they can beat the house). I think actively trading stocks/bonds/options/mutual funds gives the same "thrill, excitement and entertainment"as gambling in a casino. Actively trading in the market is just another form of gambling. And a more socially acceptable form of gambling.

 

[unclemick]

Now suppose you know of a well located casino - at a good price and you happen to have the money. So you buy the casino - because you plan on being alive for a while - and could use the income. Now the price of casino's may fluctuate in the ensuing years - but as long as the casino gets it's cut - you are happy.

The Norwegian widow offers her appolgies to Ben - Graham that is.

 

[justin]

Unclemick, I'm not exactly sure what you're saying. I think I agree with you though... Own the casino (whole market?)... Or pick the dividend payers and let em pay? It sounds like your approach is essentially the latter. That approach works too. But that approach is certainly atypical of the average stock picker's behavior.

 

[unclemick]

12 years into ER:

Think about this - two sled dogs:

Vanguard Lifestrategy moderate - 2.53% current yield

Consolidated Edison - 4.84% current yield

There are a lot of dogs out in the world - BUT as long as your dogs are pulling your sled?

Let golfers and fishermen chase performance - tell tall tales/make bets/etc., etc., etc.

Fishing wise - the last couple years - I done good on AET(Aetna) - maybe this fall - I may go fishing for BUD - or with Bud if the fishing is bad - or just stay home and watch the Saints try to play football.