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No. of Recommendations: 15
A stock-investing friend with whom I swap emails throughout the trading-day made this comment in response to my half-hearted “complaint” that I have more money than I need. In particular, I wrote the following:

2009 has been a fabulous time to be an investor. With just a medium-sized portfolio that holds no bonds, my average gain --from the lows to present-- has been $5,000 per week. That won't be an annual personal best (when the numbers are converted into percentages). But those gains have established a new equity high for me.

Looking forward, I don’t expect that markets will offer a repeat of those gains for 2010, or 2011, either. But there will be money to be made by those who know how. So even with the more modest gains that can be expected, my portfolio will continue to grow. In fact, given that the ratio of my income-streams to my expenses is 3:1, I expect to die with four times the money I presently have, no matter what the markets do.

To which he replied:

Yah, I'm also wondering what I'm doing spending time on the market. My 401(k) account has an indicator that tells me I should take out 1050$ a month to keep even. Looking at other investments and Monte Carlo retirement-calculators, I should be spending $20k a year more than I am now to be dead even at 90. [Note that he said “even”, not “out of money”.]

To which I replied:

We both assume we have “extra” money, because we both assume the US gov’t won’t do a “Lehman’s” on us, i.e., over-leverage itself on the assumption that the counter-party to the trade can be counted on to fulfill their part of the contract. Personally, I think the chances of the US having to declare bankruptcy are 1 in 3, i.e., barely more likely *not* happening than so. For how long will self-sufficient economies like China and Brazil continue to accept our worthless paper money? For sure, if we go under, they lose a customer for their products. But when they stop accepting our dollars –-or start demanding more than previously-- the US won’t be able to finance its wars except by conscription and higher taxes. At that point, the internal, domestic wars begin in earnest.

So, Yes. Spend freely, because life is short. But keep some reserves.

How short is life? I’ve sent you this death chart before. But it’s worth looking at again. Using a “cohort approach” to estimating life-expectancy makes more sense to me than guesses based on life-style factors and genetics (not smoking, how long parents lived, etc.) The cohort approach is impersonal. “At age X, how many of the original group of 100,000 are still alive?” The numbers are taken from the SS website and are dated 2005. So they aren’t the most recent (which I can’t find.)

The approach I like to use is this. At what point should I start betting against myself? You and I would seem to have a 1:3 chance of making it to age 84, a 1:5 chance of making it to age 88, a 1:20 chance of making it to age 94. Personally, though I don’t think I’ll beat the odds of 1:3, I’m willing to fund my life until the odds go to zero, so that reserves are always available. In order to accomplish that, I need a pre-tax, pre-inflation growth rate of 0.1% (one tenth of one percent). I can make better than that even if I sit in cash at my local bank. In other words, I’ve solved the
<investment portion> of the retirement problem for myself. It’s the other portions that I should now shift my attention to.

Trade well.


The question I would ask you, the members of this forum, is who can beat my numbers? Who of you can say that their retirement-investing requires a pre-tax, pre-inflation, growth-rate that is no greater than one tenth of one percent when a 25% tax-rate and a 6% inflation-rate are used to compute actual returns and expenses and then project them to age 100? Who? Tell me: WHO?

For 25 years, I took the risks I had to take, and did the work I had to do, to get myself to the point where I am now. For sure, that track-record can be dismissed as luck, or it can be explained as skill and experience. But even I wouldn’t claim that. More likely, a combination of benign markets and self-learned skills got me where I am today.

Until recently, I’ve been willing to share what I’ve learned. But I now see that my posting here unwelcomed. The clueless among you would rather read the postings of the clueless. So be it.

For the loyal, thoughtful few you who do want to read what I write, contact me by private message. I’ll add your name to my email list. When and if I do write something of broad interest, I’ll send you a copy without any requirement that you reply. My guess is that you’d receive no more than one message a week, if that, because I do mean “broad”, and broad takes thinking, which takes time and care.

Charlie, the Junkman, taking his leave
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