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Old 06-29-2008, 10:07 PM   #161
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I'm satisfied with my 8-9% over the long haul.

Harley
I'd be very very very happy with 8 or 9%. I will not get there because I will not accept the amount of risk necessary.

Historically when owning stocks at the current PE of around 23, stocks haven't done that well. From some research I have seen even 6% going forward for 10 years or so (unless prices decline significantly and it is measured from that bottom) may be too high. John Bogle of Vanguard will tell you that, I am not just making it up. Some research says to only expect 3 to 5% when buying at these PE levels. With quality bonds selling at rates of 4 or 5% and then considering fees, it seems hard to expect more than about 4.5% out of bonds.

P.S. Try this: When will we see average stock returns again...NEVER, (written in 2005)

http://www.crestmontresearch.com/pdf...0For%20Avg.pdf

or try this, from the same source:

http://www.crestmontresearch.com/pdf...g%20Future.pdf
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Old 06-29-2008, 10:12 PM   #162
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I've seen big ups and big downs, and while I like to fantasize about kicking the market's ass, I'm satisfied with my 8-9% over the long haul.
All we need is 5-6% per year for 6+ years, and we are set for an early retirement. I don't know what gets that return anymore. In the past, a 20/80 portfolio would have no problem achieving this, but now I think you need to settle on at least 40/60 and the increased risk that comes with doubling the stocks.
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Old 06-30-2008, 06:05 AM   #163
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Ahhh, looking at the past through rose-colored glasses.

Do you know what mortgage rates were then?

I got one, blended down to 17% (IIRC) - what a deal - I think the going rate was around 20%. Even though everyone thought it was crazy, I went with an adjustable rate mortgage - they were new at the time, realtor called 'em 'animals'. All but one payment was lower than the previous, so it worked out for us.

But no one back then was thinking that those were 'simple' times, believe me. People were freaking out over the high inflation rates. Every period in time has it's own challenges, deal with it.

25 years from now, someone might say to you - 'oh, the 2000's - what a great time, 5% 30 year fixed rate mortgages, you guys had it made in the shade!'.


-ERD50
Yeah, I know what interest rates were and I wasn't borrowing any money at that time. People were still buying houses back then and not foreclosing on them like they are now. So things were not that bad. People were not freaking out over inflation. Most people wouldn't even have known about it had it not been for the media telling them how bad things were.
I would be happy if interest rates would get back where they should be. 4% on a passbook savings and 6 or 7% for a CD. The FED are ruining the free market system with their manipulation of interest rates.
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Old 06-30-2008, 07:34 AM   #164
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Ten seconds of googling ( ' foreclosures "1980's" ' ) . Everything was just fine, right. This was number one on the list:

After Heady 1980's, Homeowners Face a Hangover of Foreclosure - New York Times
Quote:
After Heady 1980's, Homeowners Face a Hangover of Foreclosure

  • By ROBERT HANLEY, SPECIAL TO THE NEW YORK TIMES
Published: July 30, 1990

LEAD: Mortgage foreclosures are soaring in the New York metropolitan region as growing numbers of property owners are overwhelmed by crushing real-estate debt.

Mortgage foreclosures are soaring in the New York metropolitan region as growing numbers of property owners are overwhelmed by crushing real-estate debt.

Just months after the giddy boom years of the 1980's, with their rising home values, generous bank lending policies and firm optimism about the regional economy, banks have started declaring defaults on thousands of delinquent mortgages and forcing owners to scramble for new financing or face property losses.

Officials in the region say they are stunned by the depth and suddenness of the increase in foreclosures.

Worst Market in 50 Years

In many cases, officials attribute it to declining real-estate values, people including well-paid professionals carrying too much debt and the slumping construction industry.
It may be worse now, but that does not make the past 'simple times' for everyone.

-ERD50
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Old 06-30-2008, 08:10 AM   #165
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P/E of 23? Where is that number obtained from? S&P is 16.24 from what I can see, and I see no reason that earnings will not begin to kick up in the very near future. I am not expecting a phenomenal bull run, but over a ten year period starting now, I can see 7% a year being very reasonable for a total market return. Especially if you do not look only at the S&P but total stock market, small cap indices, REITs, international equities, etc., etc.
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Old 06-30-2008, 08:27 AM   #166
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P/E of 23? Where is that number obtained from? S&P is 16.24 from what I can see, and I see no reason that earnings will not begin to kick up in the very near future. I am not expecting a phenomenal bull run, but over a ten year period starting now, I can see 7% a year being very reasonable for a total market return. Especially if you do not look only at the S&P but total stock market, small cap indices, REITs, international equities, etc., etc.
Earning have fallen recently, your 16.24 might be reflecting the peak earnings and not the latest numbers. I don't have time right now to find it for you but 23 is closer than 16.24 for a "current" PE. It might be a little less after the recent swoon.

I think 7% is reasonable for a mix of stocks but that still might be a stretch. All assets went up a lot in recent years, stocks, bonds, real estate, commodities, etc. There are really no bargains out there. When saying 8 or 9%, assuming 60/40 stocks/bonds, I think that is hopeful. If you use 7% for stocks and 4.5% for bonds and go 60/40 you get around 6% total. 8.5% is 42% higher than 6%.
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Old 06-30-2008, 08:50 AM   #167
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Well I just tried jumping out of a window, but I only fell 3' to the ground. Hmm. I need a little more landscaping bark over at this end of the yard.

Whats with the japan comparisons? Japan had problems, knew about the problems, did nothing about the problems, and voila...they still have the same problems. Nasdaq? Yep, it fell a lot after running up a few brazillion percent because investors couldnt tell the difference between a company that was worth investing in and one that wasnt.

The problems we have right now can be resolved in a matter of months.

Anyone with a good plan has nothing to worry about. In fact, you're reinvestments at low prices and rebalancing should benefit you in the long run.

Anyone still making money and investing should be thrilled to be buying investments on sale.

There are few reasons why the markets should fall much further from here, yet they could. So what? I guess if we're still here wallowing downwards 3 years from now I might join the chorus...
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Old 06-30-2008, 08:55 AM   #168
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The problems we have right now can be resolved in a matter of months.

Anyone with a good plan has nothing to worry about. In fact, you're reinvestments at low prices and rebalancing should benefit you in the long run.
Bless you. I'm putting the pistol back in the drawer.
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Old 06-30-2008, 09:09 AM   #169
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Japan also experienced significant deflation which, for the most part, was fueled by their meteoric rise and fall in their real estate market. As the bank reluctantly cut rates, not reaching 0% until 2000 I believe, people were losing money nominally but for many retirees, they found that they could afford better houses, or similar houses at lower prices as the deflation helped offset some of their losses.
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Old 06-30-2008, 09:39 AM   #170
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CitricAcid.. let's assume I'm a Japanese retiree. How do I get a better/similar house at a "lower" price, if I'm selling my current house at a deflated price also? I fail to see the advantage. Even if I had planned on downsizing and buying a smaller, less valuable home, the profit I might have planned to recoup from that trade will have also shrunk drastically. (That's assuming the Japanese have much room to begin with for "downsizing".)
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Old 06-30-2008, 10:11 AM   #171
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Anyone with a good plan has nothing to worry about. In fact, you're reinvestments at low prices and rebalancing should benefit you in the long run.
Exactly what I mean. I'm not looking at next year, or the next 5, or even the next 10 years. I'm only 52, and I'm hoping to have an investing horizon of at least 50 more years. I suspect over that time I'll be able to average my 8-9%. I'm not interested in minor market gyrations like we're going through right now. I figure I've got maybe 30 years of being young enough to do a lot of things (travel, kayak, golf, etc), then a couple of decades of quiet contemplation on my wasted youth. If you can find fairly trustworthy investment vehicles and a good AA, keep an eye on them to make sure they don't get too out of balance, that's all you can do. Jumping around and freaking out over every surge or ebb of the economy isn't good for my digestion. Plus I know that I'm not going to figure out the best thing to do in every situation, at least not until I've already missed it. Peace, dudes, enjoy life and don't get an ulcer. 50 years of Titrilac is not something I'd be looking forward to.

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Old 06-30-2008, 10:19 AM   #172
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If you are looking at a timeframe and have deflationary expectations you can sell out at the "already lower" price and then rent for months or whenever you feel that you can hold off untily ou can buy the newer depressed home. This is the backbone to teh argument for why deflationary spirals occur, when people start expecting deflation to happen, they refuse to buy because they can buy the same good for less later and people don't lend money because they would need to offer about 0-1% on their rates when in real purchasing power they could just hold onto the money and get better returns. Thus, in simple purchasing power, it is possible if played correctly for their nest egg to grow if deflationary expectations exist.
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Old 06-30-2008, 10:36 AM   #173
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Psssst - Wellesley! You don't have to buy exactly 'that.' Just work the concept.

heh heh heh - agile, mobile and hostile. .
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Old 06-30-2008, 11:01 AM   #174
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CA, that requires people to have a crystal ball and engage in market timing. You say people can do well if they "play" it correctly. But that's the antithesis of the passive investing promoted by most here. I don't know what Japan's culture and economy is like, but even in the US few retirees eagerly imagine themselves back in the transitory position of renting (moving is a bitch when you are 20, imagine at 70..). What if their predictions are wrong and they have just sold at a bottom?

I think it's a pretty grim affair if the only way to make money is by selling off the roof over your head in a declining market. At that point you might as well do a reverse mortgage: less trauma, no?
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Old 06-30-2008, 11:25 AM   #175
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Well I just tried jumping out of a window, but I only fell 3' to the ground.
Remember that ad? One of my favorites of all time. It was for some online trading company. The guy gets so excited about online stock trading, that he jumps out his window, but he's on the ground floor.

I'll click the "Thanks" button for anyone who can find a video of that.
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Old 06-30-2008, 12:12 PM   #176
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CA, that requires people to have a crystal ball and engage in market timing. You say people can do well if they "play" it correctly. But that's the antithesis of the passive investing promoted by most here. I don't know what Japan's culture and economy is like, but even in the US few retirees eagerly imagine themselves back in the transitory position of renting (moving is a bitch when you are 20, imagine at 70..). What if their predictions are wrong and they have just sold at a bottom?

I think it's a pretty grim affair if the only way to make money is by selling off the roof over your head in a declining market. At that point you might as well do a reverse mortgage: less trauma, no?

It is also that if a greater percentage of your net worth is in many other non-deflationary assets, such as cash. The idea is not so much that they could have had a great retirement, or that people weren't hurting, quite the opposite. It is more that with a situation like Japan's in the early 90's, they had started selling 100-year loans (hmmm, seems a lot like the interest only/negative amortization loans we have now) the real estate bubble was inevitable, so many people were hurt in the fall of the stock market. But, some of the effect of the nominal fall was mitigated by an increase in the value of the yen because of that. Just saying it was mitigated, and comparing the situation to America's now is a little premature.
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Old 06-30-2008, 02:50 PM   #177
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Your PE of 23 is including massive writedowns for the financials in the last year. The real question is what the normalized earnings for the market are, and that depends on what you think the financials will earn going forward.

At any rate, there are a large number of very solid companies selling at much less than a PE of 23.

MSFT is trading at a PE of 16, and a forward PE of less than 14.

HD and LOW are at 12. Forward PE probably higher for a couple years.

WFC and USB are at 10 and 12. Forward PE probably higher for a couple years.

MMM has a PE of about 14

JNJ has a PE of about 16

GIS is at 16

WMT is at 18

There are a lot of good deals in the market right now. If you're afraid of inflation, I think stocks are a good place to put money.


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Earning have fallen recently, your 16.24 might be reflecting the peak earnings and not the latest numbers. I don't have time right now to find it for you but 23 is closer than 16.24 for a "current" PE. It might be a little less after the recent swoon.

I think 7% is reasonable for a mix of stocks but that still might be a stretch. All assets went up a lot in recent years, stocks, bonds, real estate, commodities, etc. There are really no bargains out there. When saying 8 or 9%, assuming 60/40 stocks/bonds, I think that is hopeful. If you use 7% for stocks and 4.5% for bonds and go 60/40 you get around 6% total. 8.5% is 42% higher than 6%.
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Old 06-30-2008, 04:12 PM   #178
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There are a lot of good deals in the market right now. If you're afraid of inflation, I think stocks are a good place to put money.
Stocks are a decent place for money in inflationary periods if businesses can pass on their rapidly accelerating costs.

I remember my dad getting raises of 10-15% during the worst of the late 1970s inflation era. Many others did as well. Because they were getting raises that kept up with rising costs (or close to it), that gave producers an opportunity to pass higher costs along -- meaning earnings could keep up with inflation. So stocks, primarily priced through earnings, could also come close to keeping up with inflation.

I could be wrong and my evidence is only anecdotal, but it just doesn't *feel* like wages will keep up with inflation or even close to it for a while. I got my usual 2% "raise" this year, and I think we know most of us need a lot more than 2% a year to break even with inflation. I don't know many people getting much more than 3% raises these days.

If wages are constrained, businesses will have a harder time passing on the full increase in their cost, particularly in a price-conscious competitive marketplace, and that likely means lower margins and reduced earnings that don't keep pace with inflation.
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Old 06-30-2008, 04:42 PM   #179
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I remember my dad getting raises of 10-15% during the worst of the late 1970s inflation era. Many others did as well. Because they were getting raises that kept up with rising costs (or close to it), that gave producers an opportunity to pass higher costs along -- meaning earnings could keep up with inflation. So stocks, primarily priced through earnings, could also come close to keeping up with inflation.

I could be wrong and my evidence is only anecdotal, but it just doesn't *feel* like wages will keep up with inflation or even close to it for a while. I got my usual 2% "raise" this year, and I think we know most of us need a lot more than 2% a year to break even with inflation. I don't know many people getting much more than 3% raises these days.

.
That was my experience too. My wages did keep up with inflation in the 70s so I really didn't feel the pain the media said I should be feeling.
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Old 06-30-2008, 05:00 PM   #180
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I have been pretty frustrated at trying to figure out the P/E of the S&P 500 having seen number ranging from 14-23, from a variety of source.

I don't even bother calculating P/E for the financial stocks I own, preferring to look at the Tier 1 ratio, dividend yield, and praying that banks with history of conservative lending, continued to do so during the real estate bubble.

I found this article in Sunday WSJ market blog pretty interesting. The essential point is that sales numbers are pretty hard to fake especially over a year. Although folks like Enron managed, and presumably some financials can figure ways of cooking the books also.

Quote:
Is Wall Street still expensive? Not by some measures. The market's latest sell-off leaves the major indices nearly 20% from their peak. A little bit more off the Dow and we will be in an "official" bear market. The sock puppets on TV can all get very excited.
Bear markets have traditionally proven very good times to invest long-term money. And you can see the evidence of panic, and forced disposals, all around.
For real people with real lives, the interesting question now is what kinds of value Wall Street represents now.
To take a look, I've run a chart of my favorite metric: Price to sales. As you can see, on this measure we are nearly down to the levels seen at the bear market low in 2002-3.
It's true that share valuations on this measure were even cheaper until the mid-1990s. But of course shares bought then proved fabulous investments.
The picture, incidentally, is similar if you compare share prices to company net assets. We are down towards lows seen in 2002-3.
No, it's not definitive. There is no perfect answer. But it's reassuring.
The merits of comparing share prices to company sales are simple. Sales are hard to fake. And they aren't too volatile. Even a big company's earnings can double one year and halve the next, but changes in sales are much steadier.
Price to sales charts are usually excellent at showing up valuation bubbles (like Wall Street in 1999-2000) and bear market lows (2002-3).



Contrast that with some alternatives. The problem with using the famous price to earnings ratio is that earnings can swing pretty dramatically. Wall Street, at last autumn's peak, didn't look expensive compared to this year's forecast earnings. Alas, those earnings forecasts are melting away like spring snow.
The rest is here
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