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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 58776  
Subject: SWR and irrational exuberance Date: 2/7/2007 8:41 PM
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I noticed this post on the BMW method board just now:

http://boards.fool.com/Message.asp?mid=25139417

I could post my thoughts over there, but I really don't want to annoy the board members there. Rather, I want to address the question of whether this is sound retirement advice here, with people more interested in the general topic of retirement savings.

I've seen a few posts by BuildMWell along the same lines as this post. Honestly, it feels like reading a post from 1999, or a common naive post from a newcomer to RE who think that if inflation is 4% and the S&P return is 10%, you can safely withdraw 6% indefinitely, whereas Intercst's study shows that a market downturn or a bump in inflation will probably destroy your savings.

But, the argument goes, if you're following the BMW method, you're not investing in the S&P 500. I'm pretty skeptical of the BMW approach for reasons that aren't important right now. But for the purposes of discussion, let's assume that you have a system that reliably outperforms the S&P 500.

He states that if the system returns 15%, and inflation is 2.5% (is it really that low over the long haul?) you can withdraw 10% safely. That's right, 10%. $60K / year from $600K. That seems like awfully naive reasoning to me. Because normally when you talk about a system returning 15%, you're talking about CAGR over a multi-year period. This reasoning requires that it always return at least 15%, with no significant losses during the early years.

To take a forced example, suppose we lose 50% in the first year, stay there for a year, and gain 200% in the third year, for a cumulative CAGR of 15%.

Year 1: $600 -> $300K, spend $60K, $240K left.
Year 2: $240K -> $240K, spend $60K, $180K left.
Year 3: $180K -> $540K, spend $60K, $480K left.

This is clearly a pretty serious loss, and the death spiral isn't hard to see with just a few numbers. Yeah, it's very unrealistic, but I'm trying illustrate how much a few bad years can affect your total capital if you withdraw a big chunk during a down period without resorting to 30+ years of numbers and boring you, the reader.

Can any system promise no down years, no significant losses? But wait, the BMW method is a value approach. It doesn't buy overvalued stocks that are going to drop. Doesn't that protect against losses?

Leaving aside whether charting historical returns is really enough information to protect you, the unforeseen happens. Sometimes companies take serious downturns because something happens to the business, or a competitor manages to pull a rabbit out of a hat.

It happens that I have my own value-based approach to stock investing, and it's served me quite well in the last 6 years. I've consistently done better than the S&P 500, and I have yet to lose money over an entire year using it. It's actually kind of scary how steady my gains of been, I keep waiting for the other shoe to drop.

It's awfully tempting to think I don't need quite as much money as I think I do for true financial independence. BuildMWell's post is the devil whispering in my ear. "You're smarter than the S&P 500. You can do better than Intercst's simulations. You won't have a big downturn."

Except that, you know, some of my stocks have lost money. The method is nothing like 100% predictive. Yeah, I made money during 2001-2003 while the S&P was still dropping, but will I do that the next time? I hardly know.

- Gus
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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1300 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/7/2007 8:57 PM
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GusSmed writes,

It's awfully tempting to think I don't need quite as much money as I think I do for true financial independence. BuildMWell's post is the devil whispering in my ear. "You're smarter than the S&P 500. You can do better than Intercst's simulations. You won't have a big downturn."

Except that, you know, some of my stocks have lost money. The method is nothing like 100% predictive. Yeah, I made money during 2001-2003 while the S&P was still dropping, but will I do that the next time? I hardly know.

</snip>


I think the Governor of Texas must be reading the BuildMWell board. He thinks he can sell the Texas Lottery to a private company, set up an $8 billion endowement with the procedes and then withdraw $800 million per year (a 10% SWR) to fund education in the state.

http://www.dallasnews.com/sharedcontent/APStories/stories/D8N4NFG00.html

Perry also said the sale could provide more than $8 billion to be dedicated to a public education endowment, providing $800 million a year for public schools. However, the state-run lottery currently contributes $1 billion per year to public schools.

Perry spokesman Ted Royer said the governor's proposed two-year budget would make up the $200 million gap, and that if the lottery were sold for more than $14 billion that would produce extra money for education.

</snip>


Most universities and large charitable foundations limit their endowement withdrawals to 4%-5% of assets per year

intercst



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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1301 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/7/2007 9:06 PM
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To take a forced example, suppose we lose 50% in the first year, stay there for a year, and gain 200% in the third year, for a cumulative CAGR of 15%.

Year 1: $600 -> $300K, spend $60K, $240K left.
Year 2: $240K -> $240K, spend $60K, $180K left.
Year 3: $180K -> $540K, spend $60K, $480K left.


of course that can happen regardless of system & expectations.

that's why 'they' say at least five years expenses in fixed income ...
and recommend index funds.

no system can promise. no system gives a moneyback guarantee.


-j
.... remember similar discussions when TMF was pimping "the Foolish Four" ... and became very skeptical of systems --but i could be wrong


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Author: patchdodd Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1303 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/7/2007 9:09 PM
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Can any system promise no down years, no significant losses?

Of course not and bear in mind that BMW's post related to a ten year period where his mothers' net worth declined by 60%, even though she was (presumably) on public assistance for the entire time. On the other hand I do not doubt that active management and excellence can beat intrcst's necessarily conservative plan. He offers a cookbook plan for retirement, and the nice thing about it is that it is time-tested. It works.

I do not think that someone can count on 15% returns to fund their retirement and I do not think that BMW does.

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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1304 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/7/2007 9:09 PM
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Most universities and large charitable foundations limit their endowement withdrawals to 4%-5% of assets per year

Playing the Devil's Advocate for a few seconds here, the counterargument is that large institutions can't reasonably expect to outperform the S&P 500 or dodge market drops. Even with someone exceptional at the helm, big funds have inertia.

The Motley Fool ads for their newsletters have been repeating Buffet's comment about making 50% CAGR if he was dealing with smaller amounts, pumping it for all it's worth. Maybe so, but somehow I don't think reading a TMF newsletter will turn you into Warren Buffet.

Maybe smart guys can outperform the S&P 500 consistently. I like to think I have a shot at it, for example. Maybe BMW's approach is really sure-fire.

But 10% withdrawal? I think you need to be Buffet or really lucky to have that work for 30+ years. BMW says he did well with his mother's retirement funds through 2000-2003, but will the approach never stumble right after retirement?

- Gus

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Author: patchdodd Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1305 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/7/2007 9:11 PM
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large institutions can't reasonably expect to outperform the S&P 500

Some of the largest endowments have tremendous returns - far exceeding the &P - but they are also investing in vehicles not available to you and me.

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Author: vickifool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1309 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/7/2007 9:20 PM
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My theory on the BMW method is that I need enough money to meet my budget on Intercst's Safe Withdrawal Rate.

Then I take, maybe 10% and invest in BMW stocks. If it works, I get to re-set my withdrawal amount. If it doesn't work, I've got to figure out how to tighten my belt 10%.

If you aren't retired yet, it just moves the retirement date.

Vickifool

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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1310 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/7/2007 9:22 PM
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Of course not and bear in mind that BMW's post related to a ten year period where his mothers' net worth declined by 60%, even though she was (presumably) on public assistance for the entire time.

I read it that way at first, but I think he did better than that. As stated in the post, her net worth was $300K initially, but then he had to shell out $98K, so the starting funds were $212K, off which he had to generate $20K income. Final stated value was $120K, so that's a 43% decline. Still a decline, but not quite as much.

I don't really want to speculate exactly how the numbers went, but I'm assuming that the story's outcome would be different if he'd taken over in 2000 with $212K rather than 1995.

He offers a cookbook plan for retirement, and the nice thing about it is that it is time-tested. It works.

Yeah, I think it's a lot more appropriate for most people, honestly. Active management and investing in individual stocks isn't for everyone.

I do not think that someone can count on 15% returns to fund their retirement and I do not think that BMW does.

I don't really know how else to read these statements:

If you can grow your nestegg at 15%/year, you can withdraw 10% per year and also grow your portfolio faster than inflation will devalue it.

The problem is in believing that you can gain at that 15% rate. That is something you will need to prove to yourself.


- Gus

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1312 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/7/2007 9:25 PM
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The Motley Fool ads for their newsletters have been repeating Buffet's comment about making 50% CAGR if he was dealing with smaller amounts, pumping it for all it's worth. Maybe so, but somehow I don't think reading a TMF newsletter will turn you into Warren Buffet.

Maybe smart guys can outperform the S&P 500 consistently.


i read an unauthorized biography of Buffett ..... he wasn't just smart (based on the book), he worked REALLY hard and was a little bit lucky.

and 'smaller' is relative ...iirc, he started with several hundred K$ ... equivalent of maybe several mill now.



=

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1313 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/7/2007 9:26 PM
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patchdodd writes,

<<Can any system promise no down years, no significant losses?>>

Of course not and bear in mind that BMW's post related to a ten year period where his mothers' net worth declined by 60%, even though she was (presumably) on public assistance for the entire time. On the other hand I do not doubt that active management and excellence can beat intrcst's necessarily conservative plan. He offers a cookbook plan for retirement, and the nice thing about it is that it is time-tested. It works.

</snip>


How many studies have they done showing that 75% to 90% of actively-managed mutual funds underperform the S&P500?

I'm willing to take the risk of holding a portfolio of individual stocks rather than index funds, but only because my withdrawal rate is 1% to 2% of assets annually. I realize that there is a significant risk I might underperform even though I have have a 25-year history of excellent returns behind me. For more on the risks of holding a concentrated portfolio of individual stocks, see link:

http://www.retireearlyhomepage.com/concport.html

intercst




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Author: patchdodd Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1314 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/7/2007 9:30 PM
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I don't really know how else to read these statements:

"If you can grow your nestegg at 15%/year, you can withdraw 10% per year and also grow your portfolio faster than inflation will devalue it.

The problem is in believing that you can gain at that 15% rate. That is something you will need to prove to yourself."


I don't doubt that he believes he can maintain those returns. Just from reading his other posts throughout the years I get the strong idea that he could get by on much less. That's all I meant.

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Author: cliff666 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1316 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/7/2007 9:58 PM
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i read an unauthorized biography of Buffett ..... he wasn't just smart (based on the book), he worked REALLY hard and was a little bit lucky.

and 'smaller' is relative ...iirc, he started with several hundred K$ ... equivalent of maybe several mill now.


There once was a cartoon, I believe in the New Yorker. Two distingushed older gentlemen sitting in the exclusive New York men's club. The one is indicating a similarly DOG across the room and saying, "That's that young intercst fellow. Took a small inheritance of ten million and ran it into a fortune."

Or something like that.

cliff

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1317 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/7/2007 10:03 PM
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There once was a cartoon, I believe in the New Yorker. Two distingushed older gentlemen sitting in the exclusive New York men's club. The one is indicating a similarly DOG across the room and saying, "That's that young intercst fellow. Took a small inheritance of ten million and ran it into a fortune."

Or something like that.


i think i remember that cartoon..... recall the name was "cliff" ..... not "intercst"


(>:

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Author: sykesix Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1333 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/8/2007 1:55 AM
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Sounds great. But here is the bet: If the BMW method works as advertised (and I have no opinion either way) then you have a higher standard of living.

But if it doesn't, then you wind up eating Alpo in your golden years.

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Author: alan81 Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1335 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/8/2007 3:09 AM
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I posted a general reply, with my numbers here:
http://boards.fool.com/Message.asp?mid=25142703

I agree with earlier comments about better safe than sorry. If the return turns out better than plan, you will grow the nest egg faster than plan... as a result your spending can grow faster than inflation, resulting in improved life style over time. I have found it is way easier to increase your life style, than to cut it back.

I think the other factor is the amount of discretionary spending in your budget. If you could easily chop out a significant amount of spending without feeling too much pain it would be more acceptable to take more risk and use more aggressive numbers. another case of more success to the successful:-)

In terms of the BMW method, the belief that you can get greater than market returns must be accompanied by a belief that you know something the market does not. In the case of the BMW method, I believe that "thing" is that historical growth rates are a better predictor of future growth than the market assumes... and it appears this has been true for the past several years. I think this is not true, over the long term. I believe that while the BMW method will produce greater than average returns during an "UP" market, it will also produce greater than average losses during a "down" market... that of course, could be catastrophic.
--Alan

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Author: markr33 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1349 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/8/2007 9:09 AM
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He thinks he can sell the Texas Lottery to a private company, set up an $8 billion endowement with the procedes and then withdraw $800 million per year (a 10% SWR) to fund education in the state.

But he can take a 10% WR, if he runs out of money, he can simply raise taxes. If you use a too-high withdrawal rate, and run out of money, you have to go back to work ... shudder.

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Author: MDGluon Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1368 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/8/2007 11:07 AM
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The mehtod as you have outlined it is workable, simple, and likely to leave one in trouble given that the base assumptions are wrong, IMO:

1.)Inflation - a tricky number which depending on which gubmint official/administration is churning the data will not reflect the real world. Inflation numbers do not take into account real world energy costs, sudden rises in production costs (due to energy costs), and the power for poor government policy to cause drastic erosion of the value of our currency. The low of 2.5% reflects a probable temporary low which is unlikely to remain for long...i.e. I would plug in 3% with a high of 5% for yearly spikes due to fubars such as a war with Iran (energy cost max out). The other thing looming on the horizon that will eat our dollars and raise the hidden tax of inflation is the ever larger Federal Debt which is in effect squeezing the available cash out there...and prinint more...well that causes inflation.

2.)The model proposed, as you noted, does not factor in sudden market drops which alter how much you can safely take out and retain your capital....this is why dividends in corporations do not always go up and may suddenly vanish. More advanced models run through Monte Carlo simulations which look at a variety of changing inputs (some linked, some not) creating a variety of outcomes...they then average the results and give you a probable most likely scenario.

3.) His model ignores medical costs which can rise suddenly, it ignores the tree falling over and causing needs for new roof, it ignores the things that happen in real life.

4.) A "on auto-pilot" portfolio/method will work for short periods of time yet without readjustment and input of new real world numbers it can cause failure very quickly. You need that rainy year cushion for when inflation/markets go wrong and you need the discipline to put away and increase your capital when the stars align and all goes better than expected.

As a initial model it is ok....as a long term guide it is lacking in feedback and new data....it is worth noting that most "professional" models are more conservative since they assume worst cases and financial advisers can be sued or lose business by giving bad advice (well sometimes that is).

Just my view

md




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Author: ChilkatSally Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1382 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/8/2007 12:46 PM
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I have the "live a long time" gene. Both my parent's parents and their siblings live into the 90's. My parents are doing just fine at 87 and 85. sort of.

They do have some financial things that are slipping through the cracks.

What I don't have a feel for, is can you continue to actively work your portfolio when your mind starts slowing down "just a little"?

I don't think you can assume that you can manage your port till you die.

At some point, you need things either on auto-pilot or with a financial advisor who is following your direction.

If you start making financial mistakes in your 80's then your 90's might not be any fun.

Sally

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Author: joseph714 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1384 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/8/2007 1:04 PM
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At some point, you need things either on auto-pilot or with a financial advisor who is following your direction.

If you start making financial mistakes in your 80's then your 90's might not be any fun.

Sally
----------------

Most likely correct for most of us, yet there seems always to be those few who break the boundaries & plug along clear as a bell into 90's +.

I remember an interview on CNBC of a fellow at 102 was still an active floor trader . Of course "active" was likely a relative term.

Here, the head of psychiatry at a local hospital retired at 97. His reason was he still wanted to have a romance & travel a little before he got too old.

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Author: MDGluon Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1385 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/8/2007 1:05 PM
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I don't think you can assume that you can manage your port till you die.

Probably unwise for a number or reasons...including probable dementia and not being able to keep up mentally with the tricksie folks out there. Although the old adage still works that "if it seems to good to be true it proably is not true."

At some point, you need things either on auto-pilot or with a financial advisor who is following your direction.

Autopilot is as dangerous as making decisions when your mind has turned to mush IMO since the is changing and caveat emptor still applies to hoomans....that is where a good finanical adviser/group does pay off but you must factor in the expense charges and avoid those that do not understand fiduciary responsibility (all too many).

You can also develop and groom relatives/children/grandchildren to handle this if you also make sure to have a good independant audit function built in (which can be making sure many or all of your relatives/heirs are sanely fiscally trained and want your fortune to last beyond your lifespan....greed can be used effectively at times).

If you start making financial mistakes in your 80's then your 90's might not be any fun.

Sally


Plan now....also edumacate your children/relatives about financial and health situations that can and probably will occur in the future...and make sure to have a backup plan in case they are all doofus greedheads (some families are really dysfunctional).

Even Schwab now has financial advisers, very conservative for good reason, who to my mind are more trustworthy since Schwab is not a market maker and has no "hot stocks*" to push.

* - Hot Stocks: crap the market maker doesn't want to eat.

Oh...and of course remember..your stock broker is not your friend...even when he is your neighbor.

md



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Author: AngelMay Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1386 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/8/2007 1:16 PM
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If you start making financial mistakes in your 80's then your 90's might not be any fun.

Sally

Plan now....also edumacate your children/relatives about financial and health situations that can and probably will occur in the future...and make sure to have a backup plan in case they are all doofus greedheads (some families are really dysfunctional).



And if you have no family?
(And do remember that most people's friends will be about as old as they are - so how much good will they do? And can they be trusted?)

I keep thinking that a good backup plan might be a Browning and a Bullet -- but maybe you'd be too zonked by then to remember where you put them.

Here is a "preview" of a couple of articles that will appear in the next issue of Money Magazine:


RETIREMENT: NOT SO FAR OUT ANYMORE
Start late, retire rich. The “R” moment looms closer than ever. But if you get serious now, you can catch the magic bus. (Page 76)

SCHOLAR OF THE BOOMERS' FUTURE
Tune out the most dire forecasts, says the Wharton School's Olivia Mitchell in this interview with columnist Jason Zweig. You may be pleasantly surprised. (Page 82)


I thought it might be of interest.
And at least on-topic enough that whafa won't be giving me flak.

AM

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Author: MDGluon Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1388 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/8/2007 1:19 PM
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-j
.... remember similar discussions when TMF was pimping "the Foolish Four" ... and became very skeptical of systems --but i could be wrong



If the system works everyone starts using it and it either collapses or reverts to the mean....a good read (yeah, yeah, I know more of the "you have to edumacate yourself") for much of this are:

"A Random Walk Down Wallstreet by Burton G. Malkiel" which explains it quite well along with so much more,

followed by Bernsteins book titled "The Intelligent Asset Allocater" which helps you figure out, using simple tools like spreadsheets, how to divide up the lucre

with a topping off of Mr Bogles book "Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor" since the man really is on the side of the small investor (big investors have >+100 million really) and knows his stuff,

and then finish with some history of the madness of the markets with "Devil Take the Hindmost: A History of Financial Speculation
by Edward Chancellor" and "Where Are the Customers' Yachts? or a Good Hard Look at Wall Street by Fred Schwed".

And yes I have read all of the above, and many other such silly books, so I recommend them because I really did find them useful and educational...err edumacational.

md (Are we what we read? or do we read what we are?)

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Author: vickifool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1389 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/8/2007 1:19 PM
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What I don't have a feel for, is can you continue to actively work your portfolio when your mind starts slowing down "just a little"?

Probably not.
I'm going to set mine up easy. With regular rules so no real mind work is involved.

Vickifool -- went through a patch where my mind worked so poorly I couldn't write checks.

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Author: MDGluon Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1397 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/8/2007 2:11 PM
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And if you have no family?

Mentor a young financial adviser feller....I am doing that as backup plan C with my neighbor who is a stock broker at Schwab and who still has not been drawn to the "Dark Side".

It is more difficult when the family is far away or just not there...although I hark back to the days when a community really was one and folks kept tabs on each other to make sure everyone was ok....sort of a civic responsibility thing.

I plan to stay put and grow older in my same community and be an active, vocal, liberal, progressive PITA who everyone checks on, if for no other reason than to hope I have died.

Advantage of staying put for tha last 16 years is that I have coached, taught, and mentored kids who now have kids...sort of an extended family...the problem is that the B-Day Card budget is huge.

Doesn't work for everyone but it mostly works for me.

md (How can I eat as my friend starves...share was my first lesson in life)




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Author: tedhimself Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1399 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/8/2007 2:15 PM
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If you start making financial mistakes in your 80's then your 90's might not be any fun.

Sally


Sally, that is such an important observation. We need a discussion on the various ways to automate things, and what organizations provide the best financial mananagement and/or advice.
Ted


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Author: whafa Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1404 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/8/2007 2:39 PM
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I thought it might be of interest.
And at least on-topic enough that whafa won't be giving me flak.

AM


Very well, I will allow it to remain.

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Author: whafa Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1405 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/8/2007 2:39 PM
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and then finish with some history of the madness of the markets with "Devil Take the Hindmost: A History of Financial Speculation
by Edward Chancellor"


This is one of the best books I've ever read. It reads like a novel.

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1418 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/8/2007 4:17 PM
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.... remember similar discussions when TMF was pimping "the Foolish Four" ... and became very skeptical of systems --but i could be wrong



If the system works everyone starts using it and it either collapses or reverts to the mean...


that was one of the major arguments during the FF wars.... "if everyone discovers this, it won't work"

the other was, "you've created a pattern from the past and there's no reason to think it will continue" [ flipping coins: Htt Htt Htt ....? tHx ]


-j
..... heh .. the arguments were almost as heated as current lib v con debates.

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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1425 of 58776
Subject: Re: SWR and irrational exuberance Date: 2/8/2007 5:00 PM
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the other was, "you've created a pattern from the past and there's no reason to think it will continue"

That's what I currently think of the Foolish Four. For a while I was a convert, but I remember stumbling when trying to explain the theory to my mother in law, who uses the NAIC method. I couldn't explain why price squared should be part of the equation, since straight stock price is an entirely arbitrary measure. A company's valuation shouldn't change after a stock split, yet the Foolish Four did change a company's rank after a stock split.

These days, I give little credence to approaches that can't be rationalized from basic principles. Anything that relies on pattern matching, I assume is no more valid than the FF was.

I currently value stocks based on discounted cash flow. If everyone used my current method, in theory the stocks should still be worth what I think they're worth, but it'd be impossible to find stocks that were cheap enough to match my buy criteria.

- Gus

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