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Author: mikeg1382 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76398  
Subject: Am I wrong? Date: 7/23/2002 11:04 PM
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I have at least 40 years 'till retirement, and so the current prices on VFIN.X are exciting to me. Am I wrong, or isn't now the time for me to be buying what I can? I also have small positions in MO, CCE, and INTC. They are all down by a bit, so shouldn't I be buying more? My wife and I had plans on buying a house this year, but now I am thinking that we should put off the house and buy stock on sale, but my mind is not made up yet on that. What do you folks think?

Mike in NJ
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Author: jbking Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34881 of 76398
Subject: Re: Am I wrong? Date: 7/24/2002 12:58 AM
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Greetings Mike,

I have at least 40 years 'till retirement, and so the current prices on VFIN.X are exciting to me. Am I wrong, or isn't now the time for me to be buying what I can?

Now could well turn out to be a good buying time BUT we can't know that until a few years later when we have some hindsight on the market now.

I also have small positions in MO, CCE, and INTC. They are all down by a bit, so shouldn't I be buying more?

Yes, if you have faith in those companies and don't believe that there is anything fishy going on with them unlike the Worldcom or Enron case.

My wife and I had plans on buying a house this year, but now I am thinking that we should put off the house and buy stock on sale, but my mind is not made up yet on that. What do you folks think?

Well, I think that question is more a matter of priorities as some thought last September was a great time to buy although many stocks are down more than they were then. What would you do if these 4 or 5 year lows turn into 8-10 year lows and stock prices stay depressed for a while? Are you prepared for that scenario?

Regards,
JB

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Author: feleck Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34882 of 76398
Subject: Re: Am I wrong? Date: 7/24/2002 10:32 AM
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Do you think the stock market will magically bounce back within a single week? Or a single month?

If not, why not simply wait untill it botoms out and rebounds. Once you see a proven pattern of increases, than buy.

If you buy now, than your investment will decrease till it hits bottom and then goes back up.

If you buy later, than you may pay more for it if it bounces up higher than it is now before you buy.

Either way, your looking at such a long window for your money to grow(40 years) that will it really matter if you miss out on a few dollars now?

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Author: FoolishWarthog Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34884 of 76398
Subject: Re: Am I wrong? Date: 7/24/2002 11:15 AM
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"Never put money in to the stock market you can't afford to loose"

"Never put money in the stock market you will need within five years"

etc, etc....

There's no guarantee this is bottom, or that we will recover very quickly.



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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34885 of 76398
Subject: Re: Am I wrong? Date: 7/24/2002 12:48 PM
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What do you folks think?

The more important question is what does your wife think?



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Author: jbking Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34886 of 76398
Subject: Re: Am I wrong? Date: 7/24/2002 1:23 PM
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Greetings feleck,

Do you think the stock market will magically bounce back within a single week? Or a single month?

No, although the start of an upward market will start with some week and some month in the future.

If not, why not simply wait untill it botoms out and rebounds.

How do I find that bottom and how much of a rebound do I miss? Was the 4th quarter 2001 return of 10.65% a rebound? If so, then I miss that and get in on this market by my interpretation of that system. If I'm wrong please state in quantified terms what is a bottom and rebound, please.

Once you see a proven pattern of increases, than buy.

Why not just DCA all the way?

If you buy now, than your investment will decrease till it hits bottom and then goes back up.

True, but how do you know this will be worse than your jumping in after the rebound?

Either way, your looking at such a long window for your money to grow(40 years) that will it really matter if you miss out on a few dollars now?

My view is that if one is investing for that long a time period they should have a system and be prepared to stick with it through thick and thin but hey's that my cybercents.

Regards,
JB

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Author: feleck Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34887 of 76398
Subject: Re: Am I wrong? Date: 7/24/2002 2:26 PM
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Oh, I am LMAO now.

So THAT's what was holding up a rebound. I hadn't opened my big yap and said "why not get out now"?

The nice thing at looking at things over the long run, whether I leave it in or pull it out for a few months, its no big loss(IE either way, I will lose less than I will put in this year alone).

Still, it's quite amusing to see it start going up soon after I post.

And I still stand by my thoughts. Why try to time the market? I don't need the headache. I'm not looking to make a fortune, just looking to make my retirement nestegg. No matter what, though, I'm hoping this upward trend continues throughought the day/week/month.

Oh, I define a rebound as at least 4 weeks of increases, and at most 2 consecutive quarters. Depending on your comfort level.

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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34890 of 76398
Subject: Re: Am I wrong? Date: 7/24/2002 10:02 PM
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Author: feleck Date: 7/24/02 2:26 PM Number: 34887
Oh, I define a rebound as at least 4 weeks of increases, and at most 2 consecutive quarters. Depending on your comfort level.

IMHO, you'll have lower gains by following this approach than by simply Dollar Cost Averaging on regular intervals.

Heck in a robust recovery, the market could achieve most of its recovery in the first four weeks while you're sitting there waiting to see if it is a recovery or not!

RK

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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34891 of 76398
Subject: Re: Am I wrong? Date: 7/24/2002 10:05 PM
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Author: mikeg1382 Date: 7/23/02 11:04 PM Number: 34880
I have at least 40 years 'till retirement, and so the current prices on VFIN.X are exciting to me. Am I wrong, or isn't now the time for me to be buying what I can? I also have small positions in MO, CCE, and INTC. They are all down by a bit, so shouldn't I be buying more? My wife and I had plans on buying a house this year, but now I am thinking that we should put off the house and buy stock on sale, but my mind is not made up yet on that. What do you folks think?

If your wife is willing to forego the house (mine wouldn't), then I say put the money in the market. It is clearly far more 'on sale' than it was a couple of years ago, and lots of people were dumping money in then!!

Also, folks like Warren Buffett are buying. That is usually a good sign!

RK

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34892 of 76398
Subject: Re: Am I wrong? Date: 7/24/2002 10:37 PM
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Also, folks like Warren Buffett are buying. That is usually a good sign!

Just curious -- how do you know WEB is buying? His trade information is usually not released until many months after the actual trade due to a special agreement with the SEC...

ACME

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Author: andyz151 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34893 of 76398
Subject: Re: Am I wrong? Date: 7/24/2002 11:05 PM
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Mike,

I am sort of in the same boat as you as we are looking to sell my house and buy a new one. We toyed with selling, banking the near 80% appreciation we have made and then renting, but in the end we are going to buy another house.

And while I think now might be a great time to buy certain stocks - especially those whose dividends are backed by abundent cash flow but yield significantly more then Money Market account - NOTHING beats a house for piece of mind.

Some of the great advantages of home ownership:

Part of the Mortgage is paying off the principal. None of your rent does that. This is almost like a savings account. Every month my mortgage payment reduces my principal and I own more and more of my house, which means when I sell I get more and more of the selling price.

Second, you get a huge tax rebate from the mortgage interest deduction. If you pay 15,000 in mortgage interest, you could get 5K or more in a refund. Do you think you can expect that kind of return in a year if you invested money in the market? What about that plus the amount of principal you paid off? I believe I am paid about 4500 of my prinicipal in the last 12 months. So when I sell the house, I will get $4500 more back once i pay off the balance. That plus the tax refunds and the increase in my homes value, have made being a home owner a very good investment even though it wasn't meant to be an investment.

Finally the best thing about owning a home is that you get to make it yours in ways an apartment can never be. And if there are financial benefits to it as well, and there are, it was a no brainer for me in the end.

Good luck to you and your wife on this decision.

Andy

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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34896 of 76398
Subject: Re: Am I wrong? Date: 7/25/2002 2:33 PM
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Author: AcmeFool Date: 7/24/02 10:37 PM Number: 34892
Just curious -- how do you know WEB is buying? His trade information is usually not released until many months after the actual trade due to a special agreement with the SEC...

It was reported not long ago in the press that he had taken over a company (don't remember which company it was) that was deeply depressed in price. In that same article it said he was beginning to buy othe stocks as well.

RK

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Author: jh4986 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34897 of 76398
Subject: Re: Am I wrong? Date: 7/25/2002 3:49 PM
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I heard WEB just bought Level 3 stock...

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Author: Aljo Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34900 of 76398
Subject: Re: Am I wrong? Date: 7/25/2002 5:01 PM
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Hi ACME,

In reference to Warren Buffett, you said: "His trade information is usually not released until many months after the actual trade due to a special agreement with the SEC..."

I don't doubt that such an agreement exists, but I would be interested in reading about it. Do you have a reference or link that would give the details of the agreement?

TIA, Aljo

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Author: mikeg1382 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34903 of 76398
Subject: Re: Am I wrong? Date: 7/25/2002 7:19 PM
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<<<Why try to time the market? I don't need the headache. I'm not looking to make a fortune, just looking to make my retirement nestegg.>>>

That's a good point, and kind of sums up what I really believe anyway. I think I am just getting greedy!

<<<Second, you get a huge tax rebate from the mortgage interest deduction. If you pay 15,000 in mortgage interest, you could get 5K or more in a refund. Do you think you can expect that kind of return in a year if you invested money in the market?>>>

Good post, Andy, and I definitely like the idea of home ownership, especially as my wife is harping about having a baby and I don't want that to happen in an apartment. But, your quote above puzzles me. If I pay $15K in interest, and only get $5K back as a tax refund, how is that a great return? It looks like a $10K loss, to me.

Mike in NJ

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34904 of 76398
Subject: Re: Am I wrong? Date: 7/25/2002 9:15 PM
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I don't doubt that such an agreement exists, but I would be interested in reading about it. Do you have a reference or link that would give the details of the agreement?

Aljo,

Unfortunately, I cannot find anything useful to help you out here. The only times I see mention of it are when certain buy/sell activities are disclosed. There will be notes included in the activity log stating that the actual event took place x months ago and is just now being released to the public per the agreement with the SEC.

The reasoning behind the agreement (and there are other people with similar deals) is really quite simple -- WEB's activity draws a lot of interest and can cause dramatic movements in a stock. To minimize the negative impact due to the spikes that were occuring whenever WEB bought/sold a stock, the SEC put this deal into place. Even so, WEB's movements -- typically released something like 6 months after the fact -- have an impact on a stock once the data is released.

Sorry I could not be more help. If you happen upon a press release that mentions the deal, let me know...

ACME

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Author: mikeg1382 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34905 of 76398
Subject: Re: Am I wrong? Date: 7/25/2002 10:22 PM
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I was looking too to see if i could find something about that agreement between WEB and the SEC, and i found nothing. However, this interesting article from June of 1999 came up on the search. Pretty forsighted, wouldn't you say?

Mike in NJ

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Author: mikeg1382 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34906 of 76398
Subject: Re: Am I wrong? Date: 7/25/2002 10:23 PM
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Sorry, I forgot to include the link!: http://www.sec.gov/news/speech/speecharchive/1999/spch291.htm

Mike in NJ

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Author: andyz151 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34907 of 76398
Subject: Re: Am I wrong? Date: 7/25/2002 10:41 PM
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But, your quote above puzzles me. If I pay $15K in interest, and only get $5K back as a tax refund, how is that a great return? It looks like a $10K loss, to me.

Poor choice of words on my part. Perhaps a better explaination is warranted.

Taking my mortgage as an example. I pay $2300 a month. Of that $110 is for my homeowners insurance, $200 is for my taxes $350 or so [it increases a dollar or two every month] is principal repayment and the rest - about $1640 - is interest. Now rent on a place similar to my house is about $2500 a month but lets say its $2300 a month so I dont need to do much math. [That number would not include renters insurance but renter's insurance when I last had it was only 40 a month so lets not add that to the cost of renting to make it easy for me] By buying a house I pay about the same as rent BUT I add $350 or so a month toward my equity - which to me is similar to a savings account as eventually I can cash it in - and my interest and my taxes are deductable on my federal taxes [Interest is deductable in DC too so the actual refund for us is even higher then my example]. So of the $2300 a month I pay, $1840 a month is tax deductable. When I file my taxes, I get back about 1/3 of that $1840 in the form of a rebate. So in essence by purchasing a house, I cut my housing costs by over $600 a month or about $7200 a year.

As I see it [ or saw it at the time when I chose to buy] if I had 70K to invest in stocks or use it to put 20% down on my house, putting the money down on my house I would get a $7200 return every year [the refund that I would not get if I rented] plus another $4200 in savings/equity. So any investment I make would need to return better then that $11,400 a year in refund/increased equity or else its not a better investment then buying a house instead of renting.

Remember too that this does not include the increase in the value of your house. And when you look at an increase in a house's value, your $70K is a highly leveraged investment. For example: Buy a $350K house and put 20% down or $70K and if the house goes up just 5% thats $17,500. But on a $70K investment, your make 25% add that to the $11,400 and you can see that a home investment - can be a very wise choice. These examples assume that had housing [rent] expenses prior to buying a house and that the mortgage payment takes the place of such a home/rent expense.

And like you allude, that's only the finance benefit. Owning the house also has numerous none finance benefits that can be the subject of another post.

Andy

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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34908 of 76398
Subject: Re: Am I wrong? Date: 7/25/2002 10:50 PM
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That's the one.

RK

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34909 of 76398
Subject: Re: Am I wrong? Date: 7/26/2002 8:12 AM
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So of the $2300 a month I pay, $1840 a month is tax deductable. When I file my taxes, I get back about 1/3 of that $1840 in the form of a rebate. So in essence by purchasing a house, I cut my housing costs by over $600 a month or about $7200 a year.

Unfortunately, most people are not quite so lucky. They won't get back as much as you do (on an absolute or percentage basis). I am looking at buying a new construction house that will be ready around late spring of next year (so probably summer!). The cost will be around $225,000 and I will put down $45,000 to be at 20% and keep my payments in my desired range.

Now...to get the full tax benefit (I am in a combined bracket of about 33% like you seem to be), I already have to be itemizing my deductions...but I'm not. The only deductions I have are state taxes (I think around $3000 per year; not sure now that I am married) and my charitable deductions (about $1000 per year, but rising every year). So...with a standard deduction of around $7750, I get no benefit of itemizing from the first $3750 in interest and R-E taxes. After that, I get $1 in reduced taxes for every $3 I spend in interest/taxes.

It is still good money, just not as good as all real-estate agents seem to imply. They never point out the fact that you only get the full benefit if you already itemize! Ah well...what can you expect? They just want you to buy, Buy, BUY! :)

ACME

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Author: marcusfan One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34910 of 76398
Subject: Re: Am I wrong? Date: 7/26/2002 9:01 AM
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Regarding this discussion about houses and taxes, I would just like to point out one issue that hasn't yet come up. Capital gain on the sale of your principal home is excluded up to $250,000 for single and $500,000 for married filing joint. There are some requirements about the amount of time you must live there, however if you were only talking about the financial rewards of a home, the capital gain issue should be considered as well. Assuming that the appreciation hit $500,000 that would be an additional $90,000 in tax that you get to keep in your pocket. Just something else to consider.

Marcusfan

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Author: gurdison Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34913 of 76398
Subject: Re: Am I wrong? Date: 7/26/2002 7:08 PM
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<if you were only talking about the financial rewards of a home, the capital gain issue should be considered as well.>


It's true when you do the math that you will get something back on your taxes when you itemize. The CG issue is also a relevant factor. However, I don't think it is wise to consider your investment in a home the same way you would measure a stock investment. Most people never bother to do ALL of the math. There are too many things to add in and to take out in order to do a complete calculation.

For example, my home has appreciated some 100k over the last 11 years. If I sold, someone could say Uncle Sam is being very kind in letting me keep my gains. Of course when I dig deeper into the numbers the picture changes. I have put some 50k of permanent improvements into the property (new furnace, central air, roof, plumbing, walkways, landscaping, etc). Then you add in homeowners insurance, flood insurance, repairs, upkeep (painting, yardwork etc), property taxes (almost 5k per year) and you see something very different. Of course to be accurate you should factor in any tax savings from itemizing (providing you can itemize both before and after buying the house). If you take the standard deduction, your gain can easily become a loss, especially if you are forced to sell at a bad time.


BRG

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Author: kuvholt2 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34922 of 76398
Subject: Re: Am I wrong? Date: 7/27/2002 5:36 PM
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>I am sort of in the same boat as you as we are looking to sell
>my house and buy a new one. We toyed with selling, banking the
>near 80% appreciation we have made and then renting, but in the
>end we are going to buy another house.


Why not bank the 80% appreciation and buy a new house? Just make the minimum possible down payment and finance at today's low rates. Unless you think it is somewhat likely that we are in or entering a depression similar in scope to the great depression, you should be able to easily beat the interest on your mortage by instead investing in the stock market.

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Author: feleck Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34933 of 76398
Subject: Re: Am I wrong? Date: 7/31/2002 11:14 AM
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For the curious, thanks to the mechanical investing board folks, I found a way to easily yank the S&P data into a spreadsheet. And after some carefull analysis, I have determined that I just aint smart enough to 'time' the market. I have 30+ years till retirement, let the money ride is my motto.

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