Excellent William Bernstein post

[kevink]

Dr. Bernstein reflects on living through the October 1987 stock market crash and lessons learned. Witty and wonderful as always, and made more special (for me anyway) by being on Jonathan Clements' "Humble Dollar" site. The two have them have certainly been beacons of sanity and clear thinking for decades.

https://humbledollar.com/2022/01/a-day-to-remember/

 

[Chuckanut]

+1 on the Humble Dollar website.

In regards to the massive one day crash in 1987, I Personally owe a debt of gratitude to a TV show called Wall Street Week and its host Louis Rukeyser. He filled the panic gap with some solid information from the likes of the legendary John Templeton (Young folks, look him up). When I realized I was not much worse off than I was at the start of the year 1987, I calmed down and sat it out. Eventually, I got it all back (not that I had much to get back at that time) and more.

 

[tulak]

I'm a big fan of Bernstein. Four Pillars started me on my way and it's served me well.

Thanks for sharing the article.

 

[sengsational]

I appreciate the more nuanced "when you’ve won the game, stop playing with the money you really need" (my bold), as opposed to "stop playing (full stop)".

 

[Lsbcal]

I read and liked that Bernstein article. Thanks!

I looked at our current portfolio. And computed the years of fixed income that covered generous portfolio withdrawals. Then I took 1/2 of the equities as more years of income that we could cover. I used 1/2 because I think that might be the limit of long term equity declines. That turned out to be 11 + 13 = 24 years of generous income with social security.

Bernstein is in our age range and he suggested to have 20 years of safe withdrawals so that makes me feel good.

FWIW, it I mentally divide our portfolio in 3 pieces:
1) safe fixed income (nowadays in Treasuries both inflation adjusted and Tbills)
2) a percentage of equities that will not be withdrawn from the market if it declines substantially
3) a percentage of equities that will be market timed and whose purpose is just to beat bond returns

That #3 should easily beat bonds so I do not have to have great expectations regarding its performance. And I do have a researched plan for this.

 

[Midpack]

I'm a big fan of Bernstein. Four Pillars started me on my way and it's served me well.

Thanks for sharing the article.

+1. My AA is still rooted in Four Pillars, even though Bernstein has changed since 2008 when many of his high NW clients panic sold against his advice. Maybe a more recent quote by the ever clever Bernstein better describes his new "faith" in investors and their real risk tolerance under stress (point 1 in the OPs link)...

“We are the apes who tell stories,” writes Bernstein in The Delusion of Crowds, “and no matter how misleading the narrative, if it is compelling enough it will almost always trump the facts.”

 

[RobLJ]

Dr. Bernstein reflects on living through the October 1987 stock market crash and lessons learned. Witty and wonderful as always, and made more special (for me anyway) by being on Jonathan Clements' "Humble Dollar" site. The two have them have certainly been beacons of sanity and clear thinking for decades.

https://humbledollar.com/2022/01/a-day-to-remember/

Bernstein was very helpful to me when I read his 4 Pillars back in the 2000s. He discusses those who are withdrawing less than 2% with 100% stock portfolio, which reminds me of many on the blog with high stock allocations, who have done quite well over the last 10-12 years.

However, the role of safe assets for those withdrawing more than 2% (or even 4.5% like me) is well worth reading, at least as a cautionary tale:


"Once you’ve filled your retirement safe-asset bucket, you can begin filling and growing your risk-and-aspirational bucket. Never forget, if you’re going to survive retirement, your portfolio first has to survive. If you play portfolio Russian Roulette, by taking more risk than you can handle during a frightening economic and investment crunch, you’ll inevitably pay the price."


I'm not criticizing those here with >85% stock portfolio, just reminding some here withdrawing 4% or more that events like 2000 and 2008 do occur, and that the recovery can be painful particularly in retirement. (I was lucky to recover peak value in 8 months of the 2008 crash largely because I had scaled down from 90% stocks to 65%, diversified with value and international, and increased extra contributions, so the 2008 crash was relatively painless--for me. Not so if we had been retired.)

 

[6miths]

Similar to others, 'The Four Pillars of Investing' was the book that really set me on my way. I've read all of Dr. Bernstein's books and have had the pleasure of chatting with him on a number of occasions at the Bogleheads' Conference.

Like Dr. Bernstein, I remember Black Monday well. I had virtually no equity investments at the time but was working in a setting where there were many HNW investors and there was much chatter. I learned quite a bit and interestingly, in retrospect, I don't recall ever hearing the words 'buying opportunity'. Black Monday helped me remain calm during subsequent downturns.

 

[Love This Community]

Do these rules apply to our young dreamers and / or someone in the accumulation phase?

 

[Lsbcal]

Do these rules apply to our young dreamers and / or someone in the accumulation phase?

There is some discussion in the Bernstein article on pre-retirement portfolios.

 

[steelyman]

Track your spending is good advice for everyone.

 

[OldShooter]

I appreciate the more nuanced "when you’ve won the game, stop playing with the money you really need" (my bold), as opposed to "stop playing (full stop)".

Yes. Warren Buffett on Long Term Capital Management's demise: “To make money they didn’t have and didn’t need, they risked what they did have and did need."

 

[cj1717]

i appreciate the more nuanced "when you’ve won the game, stop playing with the money you really need" (my bold), as opposed to "stop playing (full stop)".

ditto!

 

[6miths]

It has been posted on the Forum many times but here is Bernstein's 'If You Can'. Should be required reading for all.

https://www.etf.com/docs/IfYouCan.pdf

 

[NW-Bound]

I remember well the crash of 1987. I read about people jumping off windows, and about an enraged investor shooting and killing his FA. I was busy with work and my young child, and did not even bother to look up what happened with our investments which were mostly in 401k.

I appreciate the more nuanced "when you’ve won the game, stop playing with the money you really need" (my bold), as opposed to "stop playing (full stop)".

Yes. My expenses are less than the dividend and interest I am getting. And there's SS for both of us.

I am not doing anything different with my investment than when I was working, other than paying more attention to it because I now have more time. Same as I now spend more time gardening, and taking better care of my plants, and getting better crop.

 

[Midpack]

There were a few jumpers after the ‘29 crash, but nothing like the numbers in folklore. And no jumpers after ‘87. Vernon Lamberg gassed himself and one investor in Miami shot his broker and then himself. All statistically insignificant compared to baseline suicide rates in ‘29 and ‘87.

https://nymag.com/news/intelligencer/53341/
https://www.washingtonpost.com/arch...s-of-29/17defff9-f725-43b7-831b-7924ac0a1363/
https://www.history.com/news/stock-market-crash-suicides-wall-street-1929-great-depression
…and many more sources.

So goes the legend. What are the facts? How many people jumped in 1929? From "Black Thursday," Oct. 24, until the end of the year, 100 suicides and attempted suicides were reported in The New York Times, including cases around the country and overseas. Eight of these people had jumped from building, bridge, boat or airplane. Half of these plunges were attributed to losses suffered in the Crash. The number of suicide leaps in Wall Street during this period was a mere two.

They do tend to have access to tall buildings, but judging from newspaper reports and a statement by New York’s chief medical examiner at the time, the immediate aftermath of 1929’s Black Thursday produced fewer suicides than the same period of time in 1928—and just four were high-rise plunges. Black Monday in 1987 also failed to trigger any significant statistical uptick.

Contrary to popular lore, there was no epidemic of suicides—let alone window-jumpings—in the wake of the Stock Market Crash of 1929. “In the United States the suicide wave that followed the stock market crash is also part of the legend of 1929. In fact, there was none,” wrote economist John Kenneth Galbraith in his book The Great Crash 1929.

 

[SJ1_]

+1 on the Humble Dollar website.

In regards to the massive one day crash in 1987, I Personally owe a debt of gratitude to a TV show called Wall Street Week and its host Louis Rukeyser. He filled the panic gap with some solid information from the likes of the legendary John Templeton (Young folks, look him up). When I realized I was not much worse off than I was at the start of the year 1987, I calmed down and sat it out. Eventually, I got it all back (not that I had much to get back at that time) and more.

[/QUOTE

That was a great show

 

[Midpack]

It has been posted on the Forum many times but here is Bernstein's 'If You Can'. Should be required reading for all [WB says: Millenials and such - "my children, my grandchildren, and for the millions of young people who don’t have a prayer of retiring successfully unless they take control of their saving and investing"].

https://www.etf.com/docs/IfYouCan.pdf

In essence:

Start by saving 15 percent of your salary at age 25 into a 401(k) plan, an IRA, or a taxable account (or all three). Put equal amounts of that 15 percent into just three different mutual funds:

• A U.S. total stock market index fund
• An international total stock market index fund
• A U.S. total bond market index fund.

Over time, the three funds will grow at different rates, so once per year you’ll adjust their amounts so that they’re again equal. (That’s the fifteen minutes per year, assuming you’ve enrolled in an automatic savings plan.)

• Hurdle Number One: Even if you can invest like Warren Buffett, if you can’t save, you’ll die poor.
• Hurdle Number Two: Finance isn’t rocket science, but you’d better understand it clearly.
• Hurdle Number Three: Those who ignore financial history are condemned to repeat it.
• Hurdle Number Four: We have met the enemy and he is us.
• Hurdle Number Five: The financial services industry wants to make you poor and stupid.

 

[rkser]

I appreciate the more nuanced "when you’ve won the game, stop playing with the money you really need" (my bold), as opposed to "stop playing (full stop)".

So well said !!

 

[523HRR]

In regards to the massive one day crash in 1987, I Personally owe a debt of gratitude to a TV show called Wall Street Week and its host Louis Rukeyser.

Wall Street Week with Louis Rukeyser was a classic. As a youngster, I would watch him every week with my Dad. I'm sure it had a big influence on me as I look back.

 

[lem1955]

I'm 66 and have not begun drawing SS. I have 13.5 yrs of basic needs in bonds and cash. I intend to wait until 70 to take SS. I would think that would suffice. What do you think about considering delayed SS as part of the 20 years suggested by Bernstein?

 

[Chuckanut]

I'm 66 and have not begun drawing SS. I have 13.5 yrs of basic needs in bonds and cash. I intend to wait until 70 to take SS. I would think that would suffice. What do you think about considering delayed SS as part of the 20 years suggested by Bernstein?

IMO, you are 'buying' the best deal on a COLA'd annuity that you can find when you take SS at 70. The cost is the years of SS payments you give up.

So the issue for you may be - how does the beefed up SS payment fit in to the rest of your retirement financial plans. If it provides more income security allowing you to spend more and enjoy life more that is great. If not, perhaps it's not worth doing.

 

[FREE866]

Dr. Bernstein reflects on living through the October 1987 stock market crash and lessons learned. Witty and wonderful as always, and made more special (for me anyway) by being on Jonathan Clements' "Humble Dollar" site. The two have them have certainly been beacons of sanity and clear thinking for decades.

https://humbledollar.com/2022/01/a-day-to-remember/

He recommends 10 and up to 20 years of expenses in cash equivalents? Am I reading that correctly?

 

[audreyh1]

I think he includes fixed income in that category, but yes.

 

[steelyman]

He recommends 10 and up to 20 years of expenses in cash equivalents? Am I reading that correctly?

That would be great, especially for a retiree.