Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (2) | Ignore Thread Prev Thread | Prev | Next | Next Thread
Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 19380  
Subject: Re: Investment Views And Strategies Date: 4/20/2000 8:46 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Fingfool asks:

<<1) Are the Foolish Four stocks part of an investment strategy or does this imply that a stock portfolio limited to four stocks is being recommended? If so what is the reasoning behind it?>>

I recommend nothing. As is true throughout Fool portfolios, the three models I have used are for educational and informational purposes only. I have expressed the rationale behind them and the reasons I use the FF (RP4) strategy in my introductory article at http://www.fool.com/specials/1999/sp991206retireports.htm and in my analysis of that issue at http://www.fool.com/retirement/manageretirement/manageretirement8.htm. I further expounded on my choice of the FF (RP4) at http://www.fool.com/retirement/retireeport/1999/retireeport991213.htm and http://www.fool.com/retirement/retireeport/2000/retireeport000103.htm. In short, I think the strategy is appropriate for me. Others have to make that decision for themselves,

<<2) Although the economy is showing good growth and there has apparently been a slight upward trend in equity returns over the past 70 years, can we seriously believe that 5 straight years of 20+ to 30+ % returns can continue into the near future? If we use historical data to plan and test our investment strategies, does not that imply that we accept regression to the mean of the stock market returns as a whole? If we are consistent in this, would not this imply that we would predict returns substantially below average sometime in the near future? >>

I believe that the high returns exhibited over the past five years will not be sustained. I also believe that the FF (RP4), as a value strategy that has been out of favor in that same period, will benefit from that lack of sustainability. In fact, that's a regression to the mean I would welcome most heartily.

<<3) If we predict, as suggested by some market pundits, that prices will simply fall back to historic averages as the economy stabilizes or cools and than resume 20 and 30+ % returns when it spurts ahead again, does this imply that we have a paradigm now where the past data become irrelevant in predicting and planning? If so, with what would we replace it?>>

The question is moot to me. I do not agree that returns will continue at such a phenomenal rate.

<<4) Using a combination of LT bonds rated from Aaa to Baa, I have calculated an average inflation adjusted return of 5.24% for the past 13 years with relatively small year to year variation. From statistical comparisons this variance is very significantly different (smaller) from the historical variance over the last 70 years. If we could count on 0 to near 0 inflation and a bond return of 5+%, would not that make retirement planning easier? While I see much discussion on SS from retirees, I see much less concern about inflation expressed. Have inflation concerns/effects been covered on the message board?>>

I believe inflation is the biggest risk facing retirees, and I do not believe we will see 0 to near 0 inflation. Given today's low rates, I'm comfortable with using a 3% rate for the near term. But even at that low rate, it only takes some 24 years for a doubling of prices. And I still watch what's happening from year to year. Still, probably because of the successful efforts of the Fed to rein in inflation during the recent past, you don't see too many people talking about that risk much on these boards.

Regards..Pixy
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (2) | Ignore Thread Prev Thread | Prev | Next | Next Thread

Announcements

Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Post of the Day:
Macro Economics

Ringing the NASDAQ Bell
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement