Spanky
Thinks s/he gets paid by the post
Nw -16.45%
Today, my savings breathes in and out with a lusty life of its own. That's because I've felt forced into the mosh-pit, aka the stocks and bonds markets, in order to have some hope of keeping up with inflation.
May 2009 be a healthy and more profitable one for us all.
From one day to the next, these days, I make or lose more in a day than I can save from my labor in a week or a month or maybe even a year. Indeed, during 2008 I have lost more than I earned from all sources for several prior years.
However dismaying this is, it's also a source of some hope, for income from labor is something I'd prefer to graduate from.
May 2009 be a healthy and more profitable one for us all.
Let's look on the bright side. If the S&P 500 price is distributed approximately log-normally, as most academics believe, the probability of a 50% increase is the same as that of a 33% decline.
Well said Grep. Last year I lost more than DW and I earned - gross - in the previous year. On the first trading day of 2009 I gained more than I earn in a month. Not thought about it that way before. Interesting perspective - and disturbing.
On the other hand I really wish I had established a small CD ladder to help get me through years like 2008...
Does this mean that you were forced to sell stocks to meet expenses?
ha
If on the other hand if I had 100K in 4 year CD ladder. I wouldn't have cashed out the CD early to buy stocks. In Oct I would have slept better knowing that if the market really really tanked, I still had 25K+ in cash coming in for the next 4 years, plus income from Govt bonds I would ok.
IIRC we both resolved to do this when the market recovered. Remind me when I forget LOL
Well, for its entire history the market has risen out of slumps before, so each 33% decline had to be followed by a 50% increase. The problem is that the time to decline is much shorter than the time to increase.
OK, I must have already forgotten this exchange. The exact same thing happened to me. This would be kind of building in some stickiness, so that when it really hits the fan we will still have some dry powder. I would be cursing my idiocy to have CDs when there were so many bargains around.
This was a weird event, IMO. Unlike 2000, fall of 2007 was not grossly overvalued in most sectors. I still expect O&G to enjoy the mother of all booms.
Ha
Originally Posted by clifp
I am with Ha Ha, absent a COLA pensioned I am not a a fan of auto pilot retirement plans.
I think just as no battle plan survives contact with the enemy no withdrawal plan survives its first bear market.
One of the things I've learned the hard way, is that it is too easy for me use my money market "living expenses" to buy stocks in bear market. I've said for years that I am going set up a CD ladder but never really got around to it. I set one up for my mom that is working out ok.
Interest and dividends are nice, but I think I'd feel much better if I really had 3 years living expenses in cash.
Cliff, this is my problem too. I think the next time we have some decent prices I will sell off at least $100,000 and keep my greedy hands off it.
ha
I guess I wasn't clear. The probabilities are theoretically the same per unit time, so the probability of an up 50% year is the same as that of a down 33% year.
Wow, didn't know that! I like it.
BUY, BUY, BUY.
Another way of saying it is that the stock market is not a coin toss, or a dice throw, where each outcome is independent of the last. The stock market has memory, else we would not talk of "reversion to the mean", or the business cycle.
Or, just as likely if future returns are independent of past returns, there will be no tendency to revert to a past mean but rather things will "be what they will be" with zero regard to descriptive statistics of the past.
I tend to agree with NW-Bound on this particular subject. Financial returns are not independent and random. But, sadly, I have absolutely no clue about the causes of tomorrow's numbers........
Or, just as likely if future returns are independent of past returns, there will be no tendency to revert to a past mean but rather things will "be what they will be" with zero regard to descriptive statistics of the past.
I tend to agree with NW-Bound on this particular subject. Financial returns are not independent and random. But, sadly, I have absolutely no clue about the causes of tomorrow's numbers........
Maybe you are implicitly saying that future returns are independent of past returns, but come from a new normal distribution with a different mean and standard deviation. That seems to be consistent with the "after-the-fact" research of Malkiel, Cootner, and others, who found that the ex-post returns of the S&P 500 were approximately normally distributed.
In any case, I am comfortable making the bet that I'm drawing from a normal distribution with a 10% mean return and 20% standard deviation; and that over many years (e.g. drawings) I will realize close to that mean return. I'm certainly not going to bet against that, by trying to time the market.
I suspect that the market does this on a regular basis: it both overshoots valuations in bull markets where "irrational exuberance" reigns, and undershoots in bear markets where there is panic in the streets.My gut feeling about this is that the value of the market is a combination of the (unknowable) true value of the stocks and the speculative value of the stocks. The speculative component oscillates rapidly around the more stable true value.
If the recent downturn was caused by a change in mostly the speculative part (investor fear), then you'd expect it to be followed by a return towards the true value.