Length of time to recover our lost money?

[ziggy29]

One last point: One can continue to buy on down days (as today is shaping up to be). That may or may not prove be a bargain. But eventually one runs out of cash or one is taking on more risk than preferred. A part of me would prefer to give up those potential gains just to be even around now.

The good news is that I get paid on the 15th and last days of each month, and on those paydays new 401K money is invested. So if the market has to have a crappy day, the 15th is as good a day as any for it...

 

[ziggy29]

Regarding dividends, they allow the investor to purchase more stock at a lower price in a bear market...

And dividend reinvestment may never be more important than in a terrible bear market.

This is best seen by the "break-even" time of the Dow after the 1929 peak as I've repeatedly mentioned recently. The conventional wisdom says the break-even point was in 1954, just by looking at the actual reading of the Dow. But that ignores reinvested dividends. When the market was WAY down in the 1930s, dividend yields were often in the 8-10% range, and that was a hefty dividend yield which could by a large number of dirt-cheap shares if reinvested.

The net result is that someone who reinvested dividends at the most important time to do so -- with the highest dividend yields and the lowest stock prices -- came back to flatline in 1944, ten years sooner than someone who received and spent the cash dividends.

 

[NW-Bound]

I am not even thinking about dividends...

I was 50% in cash 2 months ago. It is 62% as I write this. Call me a dirty market timer, but I am licking my chop, waiting for institutional investors to finish folding.

Down $500K from Oct 2007. In percentage, still a lot less than Nords' 35% that he reported in another thread... Sorry Nords, I couldn't help it

PS. By the way, my cash portion is 36% higher than my total portfolio in the bottom of 2003. And I took time off then (actually when I withdrew myself from a venture business that was dying), and went see Nice and Venice during their Carnival. Me worry?

BTW, just had my colonoscopy last week. Clear bill of health. That's the most important thing in life.

PS. I am not market timing, only waiting for the right moment to "rebalance".

 

[Canadian Grunt]

And dividend reinvestment may never be more important than in a terrible bear market.

This is best seen by the "break-even" time of the Dow after the 1929 peak as I've repeatedly mentioned recently. The conventional wisdom says the break-even point was in 1954, just by looking at the actual reading of the Dow. But that ignores reinvested dividends. When the market was WAY down in the 1930s, dividend yields were often in the 8-10% range, and that was a hefty dividend yield which could by a large number of dirt-cheap shares if reinvested.

The net result is that someone who reinvested dividends at the most important time to do so -- with the highest dividend yields and the lowest stock prices -- came back to flatline in 1944, ten years sooner than someone who received and spent the cash dividends.

To add to your point, the investor who also invested on a monthly basis throughout would probably have broken even within 5 years. Dollar cost averaging on the bottom takes nerve, but the benefits will be compounded when the market recovers.

The key is not to bet on individual stocks but on the entire market. If the market goes to zero, you might as well spend your last few dollars on guns and ammo.

 

[Canadian Grunt]

One last point: One can continue to buy on down days (as today is shaping up to be). That may or may not prove be a bargain. But eventually one runs out of cash or one is taking on more risk than preferred. A part of me would prefer to give up those potential gains just to be even around now.

Your risk actually goes up with the price of the investment. A lower trend price does not increase your risk as long as you stay within your personal asset allocation. Risk will go down


What actually goes up is your perceived risk. Mathematically your risk goes down when averaging down as long as you don't pick individual stocks and bonds and remain within your targeted asset allocation.


This is easy to do with a broad sell off.

 

[NW-Bound]

I'd like to add that I am not a "number man", who splits hair trying to divine what a stock is worth, down to the last dollar. I am amazed at stock analysts who set "price target" for a stock. How valid are their assumptions on a company's revenues, production costs, competition, etc..., or the macroeconomic picture?

Being a simple guy as it comes to finance - I reserve exact calculations for engineering problems, and then only for the ones that merit them - I only try to guess if the market is likely to go lower or higher. Even that is tough, because market action depends on human emotions and all other economic factors that no one can predict.

When is the sell-off done? Obviously not today. Maybe next month? Next year? If you buy now, I think you'll be OK in a few years. However, retirees, or semi-retirees like myself have to be careful... I will try to be a bit more patient.

PS. CG is right that while there is always risk in the market, it is lower with low prices, and higher with high prices. We all know it, but it is tough to fight our flee instinct. Gosh, that's why I love the market... I am trying to fight myself here...

 

[Gardnr]

The good news is that I get paid on the 15th and last days of each month, and on those paydays new 401K money is invested. So if the market has to have a crappy day, the 15th is as good a day as any for it...

Ditto. I've accelerated my 401K contributions for the rest of the year so that in addition to my employer's contribution made for a good chunk of change buying in at today's prices.

 

[jIMOh]

Gee, you really want a lot! Just kidding, because who wouldn't want some.

a) As the charts of historical yield show, it is not common for companies to pay out big dividends like they did in the 30-60s.

As I pointed out the dividend yield on the S&P 500 according to article is 1.9%.
I believe VFINX (S&P 500 index fund) has a dividend yield which is usually around 2-2.2%.
Managed large value funds (PRFDX- T Rowe Equity Income and Vanguard Windsor II) both yield around 2.5%.

I get most of my fund yield data from yahoo, then check it with the funds. I have owned Windsor II in a 401k and own T Rowe's fund in my IRAs.

Many investors on this site suggest their yield on stocks (individual) is well north of 3% (see this thread http://www.early-retirement.org/forums/f28/dividend-investing-do-you-get-a-3-yield-37716.html)

My issue is that I do not see many "solid" mutual funds duplicating the 3% yield I seek. I realize this is slightly off the OP, but the charts and articles brought this out. If this tangent bothers anyone, I can start this as another thread.

 

[NW-Bound]

Stock prices have been so volatile that last week it was one thing, and today it's something else. Both 1.9% and 2.2% are correct, depending on the price when they computed it. And by the way, the future dividend is going to drop, but I'll leave that to the stock analysts to predict.

Your two MF's are "value-oriented" (a good thing if they did not load up on financial stocks), hence their dividend is higher than the S&P500.

About individual stocks, you can get much higher yields, but of course you may not be as diversified as the MF managers want to be. Perhaps they are afraid to lose their "solid" record if they concentrate too much on a few that pay really high dividends.

By the way, there is an advantage to owning individual stocks compared to MFs. Say a good company is in trouble, and the bad news hit the press. Owning a few thousand shares at most, one mouse click and you are out. Compared that to a MF manager who owns several million shares. It takes him days to get out. If he dumps his 10M shares, the price is instantly down in the mud.

I once read about a manager of a not-so-big MF, an account of his daily activities, not unlike our own thread "what did you do today". After researching and finding a good company, he wanted to build a position in this stock. In order for the position to make a dent in his bottom line, he got to get several million shares. It took him 3 months buying slowly to build up that position. Buying too fast, and the price rose beyond what he wanted to pay. Similarly, it took that long to unwind.

MF managers often lament that their portfolio size makes it tough for them to jump in and out quick like small individual investors. If I sound like I am defending these MF managers, it is only because I try to explain the probable reason they are not getting you the dividend that you want.

I hope the above explains why your 2 MFs do not want to load up on just a few companies. You can, as owner of individual stocks, but at your own risk.

 

[jIMOh]

Stock prices have been so volatile that last week it was one thing, and today it's something else. Both 1.9% and 2.2% are correct, depending on the price when they computed it. And by the way, the future dividend is going to drop, but I'll leave that to the stock analysts to predict.

Your two MF's are "value-oriented" (a good thing if they did not load up on financial stocks), hence their dividend is higher than the S&P500.

About individual stocks, you can get much higher yields, but of course you may not be as diversified as the MF managers want to be. Perhaps they are afraid to lose their "solid" record if they concentrate too much on a few that pay really high dividends.

By the way, there is an advantage to owning individual stocks compared to MFs. Say a good company is in trouble, and the bad news hit the press. Owning a few thousand shares at most, one mouse click and you are out. Compared that to a MF manager who owns several million shares. It takes him days to get out. If he dumps his 10M shares, the price is instantly down in the mud.

I once read about a manager of a not-so-big MF, an account of his daily activities, not unlike our own thread "what did you do today". After researching and finding a good company, he wanted to build a position in this stock. In order for the position to make a dent in his bottom line, he got to get several million shares. It took him 3 months buying slowly to build up that position. Buying too fast, and the price rose beyond what he wanted to pay. Similarly, it took that long to unwind.

MF managers often lament that their portfolio size makes it tough for them to jump in and out quick like small individual investors. If I sound like I am defending these MF managers, it is only because I try to explain the probable reason they are not getting you the dividend that you want.

I hope the above explains why your 2 MFs do not want to load up on just a few companies. You can, as owner of individual stocks, but at your own risk.

I appreciate your replies.

I think the concentrated positions is the answer, I am just surprised I have not found a mutual fund which is doing the same thing. If novice investors and non professional investors here have duplicated this and sustained this, I would think a professional money manager would figure it out too.

But I guess a mutual fund with more than a billion in assets cannot own just 20 stocks like GE, PG and similar and get the 3% average yield.

I am still 18 years from needing to live on 100% dividends, so I have some time to make this work with MF, stocks and similar.

 

[ladelfina]

Nah, it isn't fascist, it's socialist...haven't you seen the huge nationalization of assets going on

deserat.. Mussolini did the same thing. Socialists complained.

“In actual fact, it is the State, i.e. the taxpayer, who has become responsible to private enterprise. In Fascist Italy, the State pays for the blunders of private enterprise. As long as business was good, profit remained to private initiative. When the depression came, the Government added the loss to the taxpayer’s burden. Profit is private and individual. Loss is public and social. In December 1932 a Fascist financial expert, Signor Mazuchelli, estimated that more than 8.5 billion lire had been paid out by the Government from 1923 to 1932 in order to help depressed industries. (Rivista Bancaria, December 15th, 1932, p. 1,007). From December 1932 to 1935 the outlay must have doubled.” [Gaetano Salvemini, Under the Axe of Facism (London: Victor Gollancz LTD, 1936) p. 416]
. . .
“In order to avert the bankruptcy of the big concerns that were on the verge of ruin, the Government created certain public institutes to take over the shares of the rescued companies in question until they were again in a healthy condition. Mussolini described these institutes as “convalescent homes, where organs which have more or less deteriorated come under observation and receive appropriate treatment” (January 13th, 1934). These institutes have been hailed as instruments of a managed economy.” [Ibid, p. 417]

these are quotes from Gaetano Salvemini..

From 1919 to 1921 he served in Italian Parliament. As member of the Italian Socialist Party he fought for Universal Suffrage and for the moral and economic rebirth of Italy's Mezzogiorno (southern Italy), and against corruption in politics.

Gaetano Salvemini - Wikipedia, the free encyclopedia

The Italian Socialist Party (Partito Socialista Italiano, PSI) was a democratic socialist/social democratic political party founded in Genoa in 1892. Once the dominant leftist party in Italy, it was eclipsed in status by the Italian Communist Party following World War II.

---
Socialism is when the state owns industries (in theory for the good of the people; sometimes that works out and sometimes no). Fascism is the merger of state and corporate power. Paulson has been dragged to the point of buying shares.. but they are non-voting shares. There is no real state control, only public handouts to private business. That's a distinct difference.