Patriotism Means Staying in the Market? - My Rant de Jour

[Ultimate Cheapskate]

It’s ironic that I’m writing this, since I’m regularly bashed (not here, thankfully) for being un-American, even a socialist, for my anti-consumerism views.

But here we are at the very moment when hordes of Americans are fleeing the market, making an already bad situation exponentially worse, raising in my mind a question: Am I the only guy out there willing to stay in the market for the common good?

Sure, I’m hoping that things turn around and that those of us who have the guts to stay in come out ahead. But honestly, most of all I’m staying in because I’m too proud (or perhaps too stupid) to play the role of a rat jumping off a sinking ship … no offense to anyone already out there in the water. I’m reminded, of course, of when the markets reopened after 9/11: I was one of those fools who, on that day, bought and bought big, not because I was that stupid (that’s already been verified by multiple sources over the years), but because I thought it was the right thing to do. No brag, just fact.

Of course I do admit that I’ve always had issues when it comes to self-professed patriotism and money. Even though I’m proudly “America’s Cheapest Man,” I’ve never minded paying taxes. In fact, IMO, I think I generally get good values for my tax dollars, the $400 hammers notwithstanding. For example, I pay a small fortune to get my short driveway blacktopped every few years, but hardly anything in comparison for the millions of miles of public roads that short strip of pavement connects me to.

So I’ve always wondered why, for example, being supportive of higher taxes – or, in this instance, staying in the market rather than bailing out – isn’t considered an act of patriotism? Many a self-proclaimed patriot has lectured me over the years about their willingness to tender the ultimate price – a human life (although generally not their own, I’ve noticed) – for our country and freedom, but has recoiled at my contention that we should also be willing to pay for the American way of life with our checkbooks as well.

I think those are the days we are facing now, and I hope more Americans will show their grit – and patriotism - by staying the course, rather than making things worse than they already are.

Stay Cheap!
-Jeff Yeager

[audreyh1]

I'm staying the market in because:
A ) It's too late to sell, and
B ) I have a long time horizon for portfolio survival - 50 years, and
C ) I already had enough in fixed income/cash to cover at least 10 years so I can afford to wait this out.

(Long-term) self interest here. Not really patriotism, although I do take pride in owning a piece of great American businesses and entrepreneurship, and I do choose to be a US citizen.

It's been tough witnessing this crash and seeing my retirement fund decimated, but I don't really know how to do anything other than "stay the course".

Audrey

[Midpack]

Quote:

Originally Posted by audreyh1 I'm staying the market in because: A ) It's too late to sell, and B ) I have a long time horizon for portfolio survival - 50 years, and C ) I already had enough in fixed income/cash to cover at least 10 years so I can afford to wait this out. (Long-term) self interest here. Not really patriotism, although I do take pride in owning a piece of great American businesses and entrepreneurship, and I do choose to be a US citizen. It's been tough witnessing this crash and seeing my retirement fund decimated, but I don't really know how to do anything other than "stay the course". Audrey

I agree. I refuse to give in to panic as well, seems a little late for that anyway. Even though those who have panicked contributed to the decline, I realize everyone has to do what they can live with. I will also wait it out, and expected to be rewarded in time...

[dex]

Quote:

Originally Posted by Ultimate Cheapskate So I’ve always wondered why, for example, being supportive of higher taxes – or, in this instance, staying in the market rather than bailing out – isn’t considered an act of patriotism? -Jeff Yeager

I appreciate the intent of your post. However, you really haven't provided the reasoning that staying in the market or higher taxes are patriotic.

[Ultimate Cheapskate]

Quote:

Originally Posted by dex I appreciate the intent of your post. However, you really haven't provided the reasoning that staying in the market or higher taxes are patriotic.

Gosh, in the case of staying in the market, because it helps to preserve the economy and the way of life we enjoy, as opposed to taking your share and getting out before the next guy? As for higher taxes, because if we want the "greatest nation on earth," we need to pay for it with more than words and even, sadly, lives, but with our money?

[dex]

Quote:

Originally Posted by Ultimate Cheapskate Gosh, in the case of staying in the market, because it helps to preserve the economy and the way of life we enjoy, as opposed to taking your share and getting out before the next guy?

The stock market is not the economy. The stock market is a place to buy and sell shares of companies who are part of the economy. Many businesses are not listed in the various stock markets. The valuation of the stocks in the markets may incorporate expectation for the companies that operate in the economy and other micro and macro economic factors.

Quote:

Originally Posted by Ultimate Cheapskate as opposed to taking your share and getting out before the next guy?

Two parties voluntarily enter into a every trade - a buyer and seller. So if you want to sell; you need the next guy to buy.

Quote:

Originally Posted by Ultimate Cheapskate As for higher taxes, because if we want the "greatest nation on earth," we need to pay for it with more than words and even, sadly, lives, but with our money?

"higher" is a term that needs to be defined. Higher than what? What will be the benefits and effect of "higher"?

So where is the link to patriotism in these issues?

[unclemick]

'God Looks After Drunkards, Fools and The United States of America.'

Pssst - Wellesley.

For those who read the book and accept the theory - Target Retirement.

I have the most Patriotic of computers at Vanguard rebalancing as we speak buying stocks hand over fist in Valley Forge. No sunshine whoosies there.

Whoopeee!

heh heh heh - I file single so I'll save my opinion on taxes til Gramatica learns to kick, the Saint's and/or my Pac 10 Huskies get out of the cellar. . Having been thru a few dipsey doodles since 1966 - sometime this stuff gets amusing - of course repeating a 1966-1982 type flat might alter my humor.

[Ultimate Cheapskate]

Dex, buddy, you're killin' me here. Plus your avatar really scares the bibs off me...

Second question first: IMHO, we should, as tax payers, be prepared to pay at least as much in taxes as is necessary to fund the spending plans approved by our duly elected officials. Sorry, simple me, but I think that's a civic (aka "patriotic") duty.

First question: Thanks for explaining the stock market. So, does that mean there ain't nothin' noble about those of us who stay in for the long term good, rather than bail out with everybody else?

[dex]

Quote:

Originally Posted by Ultimate Cheapskate Dex, buddy, you're killin' me here. Plus your avatar really scares the bibs off me...

The last one I had was an old guy in a easy chair looking scared - I like this one.

Quote:

Originally Posted by Ultimate Cheapskate Second question first: IMHO, we should, as tax payers, be prepared to pay at least as much in taxes as is necessary to fund the spending plans approved by our duly elected officials. Sorry, simple me, but I think that's a civic (aka "patriotic") duty.

I agree

Quote:

Originally Posted by Ultimate Cheapskate First question: Thanks for explaining the stock market. So, does that mean there ain't nothin' noble about those of us who stay in for the long term good, rather than bail out with everybody else?

Right, nothing noble, nothing patriotic.

If Osama Bin Ladin keeps his retirement funds in Vanguard total US Stock market - is he a USA patriot?

[freebird5825]

every investment book i've ever read has always stressed
"do not panic"
"don't follow the herd"
"stay the course"
"buy and hold"
now, i'm smart about a lot of techno-geek stuff, as we all are in our own specialties, but i am NOT smart about the history of the stock market, nor am I smart about market timing (TG!), nor about stock picking...but i am smart enough to listen to folks who have been at this game a lot longer than li'l ol' me.
patriotic to not bail out? maybe...but methinks that investing in your country's businesses in the first place is a very basic patriotic act. Our investment money helps to grow small businesses into bigger businesses, which create more jobs, which improves our collective standard of living, which...well, you know the rest.

[Ultimate Cheapskate]

Quote:

Originally Posted by dex Right, nothing noble, nothing patriotic. If Osama Bin Ladin keeps his retirement funds in Vanguard total US Stock market - is he a USA patriot?

Thanks Dex, at least we agree on half. And I'm forever thankful for your explanation of the stock market; I always wondered about that thing.

So, you're not refuting my premise - that staying invested in the market helps the common good - but giving a fictional example of an evil doer doing as I propose. Kind of like, if a mass murderer stops and gives CPR to a heart attack victim enroute to slaying another one of his victims, is he a good guy or a bad guy? All very interesting, but oh so irrelevant.

I’m pretty new to this forum, but I’m guessing that no one here would doubt your ability to ask questions. Answering questions, though, maybe not so much?

So, here's my question Dex: How do you define patriotism?

[dex]

Quote:

Originally Posted by Ultimate Cheapskate Thanks Dex, at least we agree on half. And I'm forever thankful for your explanation of the stock market; I always wondered about that thing.

You're welcome - I thought you didn't get the idea that to sell another person had to buy.

Quote:

Originally Posted by Ultimate Cheapskate So, you're not refuting my premise - that staying invested in the market helps the common good

You did not establish that there is a causality between staying invested helps the common good (what happened to the "other guy"?).

Quote:

Originally Posted by Ultimate Cheapskate - but giving a fictional example of an evil doer doing as I propose. Kind of like, if a mass murderer stops and gives CPR to a heart attack victim enroute to slaying another one of his victims, is he a good guy or a bad guy? All very interesting, but oh so irrelevant.

Your example about the mass murderer is not appropriate. The murderer must take an action.- stop to give CPR. In the example I gave, Osama doesn't have to do anything - he stays invested and goes on with his life. So why is it irrelevant?

Also, I've seen that analogy before. Generally, a predominately bad person can do good things and a predominately good person can do bad things. They both share one thing in common - their humanity.

Quote:

Originally Posted by Ultimate Cheapskate I’m pretty new to this forum, but I’m guessing that no one here would doubt your ability to ask questions. Answering questions, though, maybe not so much? So, here's my question Dex: How do you define patriotism?

I agree with this:
Patriotism is commonly defined as love of and/or devotion to one's country.

[cute fuzzy bunny]

Thanks for the perspective, Jeff.

[CompoundInterestFan]

On a similar note, I've been wondering whether choosing a bank has became fraught with social consequence. For example, let's say I don't do my research and put my money in a bank that's in dire straights. Now if that bank goes under, the FDIC has to step in and reimburse me, which ultimately costs my fellow taxpayers. Had I done my research and chosen a bank that was on better footing, I would have saved the taxpayers some money. Maybe that's not quite how it works, but it made sense in my head.

[clifp]

I am not quite willing to say that staying invested is patriotic. However, I think it is clearly for the common good. Selling puts downward pressure on the market, lower prices of financial assets creates additional stresses on the financial system.

We see these stresses in the form of decreased credit, lower confidence, and just outright panic in many cases. The real economy is affected not only directly in the form higher credit cost which hampers expansion etc, but indirectly in the form of a reverse wealth effect, people who feel poorer spend less. Decreased spending results in lower sales profits which in turn leads to increased unemployment. Increase unemployment leads to lower tax revenue, higher spending for social spending unemployment benefits, assistance for the poor. Higher social spending leads to increase deficits and either higher inflation or higher interest rates or both. Higher interest rates of course mean a tighter credit market and we are in dangerous feedback loop.

[Ed at AAFR]

I'm puzzled as to why you feel you are doing a good deed by "staying in the market." All this means is that you own the stocks you own instead of somebody else owning them. How does that help the country?

Presumably, you believe that when large numbers of people rush to sell their stocks, the market tanks, and that's a bad thing. If people would only refrain from doing this, the market would not crash, and everybody would be happy. You want to be one of the good guys who are not contributing to the problem.

I find this laudable, but quite frankly, misguided. When the stock market plunges as it is now doing, people often say things like "everybody is selling, and that's why we're having a crash." This is a fallacy. For every seller there is always a buyer, otherwise there is no transaction. This is true regardless of whether the market is rising or falling.

It would be more accurate to say, "the market is falling because the vast majority of investors feel it is overpriced, and have agreed to transact business at a much lower price."

Perhaps you see "panic selling" in the same light as other "unpatriotic" behavior like, say littering the highways. You know that if everybody would refrain from littering, our country would be more beautiful, and therefore, you want to do your part. Similarly, you want to hold onto rather than dump your shares because if everyone would do this, the markets would be okay.

Unfortunately, this too is a fallacy. As I mentioned above, there are just as many people buying, even now, as there are selling. The market has fallen because a consensus has emerged that it was overvalued. At the market's relatively high values of a few weeks ago, there were indeed more people willing to sell than to buy. Prices fell, and will continue to fall, until equilibrium is reached.

Theoretically, your decision not to sell might have an infinitesimal effect on where that equilibrium settles. But for the overwhelming majority of investors, deciding at what point to sell and when to buy has nothing to do with patriotism or good will, and is a result of hard-nosed calculation (or fuzzy intuition, or emotion) and nothing more. People like yourself who believe that they are doing a good deed by attempting to influence the markets in a "good" direction by buying, selling, or refraining from buying or selling will always be a tiny minority, and will have no effect.

The bottom line: you can't influence the market by basing your investment decisions not on hard facts, but on what you think is "right," but you may suffer financial losses by doing this. Therefore, it would seem more prudent to abandon any such attempts, and to base your decisions solely on economic factors.

[barker]

Give a thought to real estate also. If you have an investment property you're trying to sell, should you reduce the price until it sells?

By reducing the price you're contributing to the further collapse of the overall real estate market which certainly leads to lower overall prices, more foreclosures, and finally more overall financial market failures. Banks could close because you sold your property at a lower price than a neighbor was willing to do.

Now would you consider that unpatriotic?

I don't think so, you'd say that the property was worth what it sold for - whatever a buyer is willing to pay you is the correct value, generally speaking.

Why would stocks or bonds be any different?

Bill

[Nords]

Quote:

Originally Posted by Ultimate Cheapskate It’s ironic that I’m writing this, since I’m regularly bashed (not here, thankfully) for being un-American, even a socialist, for my anti-consumerism views.

You should ask your pooooor wife to lighten up a little! And notify the moderators immediately if you catch her posting here...

But getting back to your comment-- a few years ago, weren't we being encouraged to go out there and spend our economy back to solvency? I haven't heard much of that lately from either politicians or company execs.

Quote:

Originally Posted by Ultimate Cheapskate But here we are at the very moment when hordes of Americans are fleeing the market, making an already bad situation exponentially worse, raising in my mind a question: Am I the only guy out there willing to stay in the market for the common good?

My reinvested dividends have been right there with you.

However I should announce that on Monday I'm going to engage in a huge gluttonous binge of tax-loss selling in DVY and possibly IJS. But never fear, I'll just be replacing them with different stuff advancing in a different direction and moving my assets back to their original allocations in another 31 days. Hang in there... I'll be right back.

Quote:

Originally Posted by Ultimate Cheapskate But honestly, most of all I’m staying in because I’m too proud (or perhaps too stupid) to play the role of a rat jumping off a sinking ship … no offense to anyone already out there in the water. I’m reminded, of course, of when the markets reopened after 9/11: I was one of those fools who, on that day, bought and bought big, not because I was that stupid (that’s already been verified by multiple sources over the years), but because I thought it was the right thing to do. No brag, just fact.

There are a few other options, too: apathetic, lazy, or paralysis by analysis.

We bought big after 9/11, too, and it laid the foundation for five years of double-digit annual gains. Which is about what it's gonna take to get this market back to parity.

Quote:

Originally Posted by Ultimate Cheapskate Of course I do admit that I’ve always had issues when it comes to self-professed patriotism and money. Even though I’m proudly “America’s Cheapest Man,” I’ve never minded paying taxes. So I’ve always wondered why, for example, being supportive of higher taxes – or, in this instance, staying in the market rather than bailing out – isn’t considered an act of patriotism?

Warren Buffett would agree with you about taxes, although he's still under the impression that he's also one of America's cheapest men.

But I'm still going to take advantage of the provisions of the tax code which allow my personal "mark to market".

Quote:

Originally Posted by Ultimate Cheapskate In fact, IMO, I think I generally get good values for my tax dollars, the $400 hammers notwithstanding.

Hey, those hammers & toilet seats paid for a lot of submarine missions classified operations that we don't discuss!

[cute fuzzy bunny]

Quote:

Originally Posted by Nords Warren Buffett would agree with you about taxes, although he's still under the impression that he's also one of America's cheapest men.

Since my house and my car are both substantially nicer than his, I think thats a "yes!"

[Ultimate Cheapskate]

Quote:

Originally Posted by Nords You should ask your pooooor wife to lighten up a little! And notify the moderators immediately if you catch her posting here...

Don't let her hear you say that, or she'll come after me with that $400 hammer again!

Thanks, all, for sharing your thoughts on this topic. I'm working on a somewhat related article, and this discussion has been very enlightening.

If you'll humor me a minute longer, any thoughts on these three scenarios?

1- In the good old days when there was a run on the banks, was it an act of civic responsibility (or stupidity) to stay on the sidelines and not line up to get your cash out?

2- A friend of mine has "Support Our Troops" bumperstickers plastered all over his car, but he's a fanatical supporter of tax cuts. His position on taxes, BTW, isn't grounded in a belief that lower taxes will necessarily grow the economy (thereby resulting a greater tax revenues in total), but simply that government deserves less fuding. Is there any hypocrisy in those positions?

3- People who insist on buying American-made products: Is that a patriotic act?

Thanks for weighing in if you have any thoughts.

Stay Cheap!
-Jeff Yeager