It's inevitable that my thinking about investing and investments also be tied up with the concept of retirement. That's because I'm facing retirement in the not too distant future. Also, because so are about 78 million of my fellow baby boomers.
It's very unlikely that we'll treat old age the same as our parents.
Based on the expectation that baby boomers will begin selling stocks at age 65 to meet their retirement expenses, a lot of people expect stocks to go into a long bear market starting roughly 2009 or 2010. I'm not so sure the moment will be a dramatic, for several reasons.
It's unlikely every baby boomer who turns 65 will immediately sell all their stocks and go into bonds.
Not all baby boomers will turn 65 at the same time. When the first bunch hit 65, there'll still be many millions of us who are not yet 65, and still buying up stocks for our retirement funds.
From what I read, people who want their resources to last for the rest of their life, should not sell off more 4% of their assets in a year. Baby boomers following that advice will not immediately sell everything right away.
Many baby boomers will simply switch jobs and careers to something they enjoy doing, and so will delay having to live on investments.
A few of us plan to hang on to income-generating investments for the rest of our lives. Why sell stocks that are paying out good dividends? I don't want to live on the total yield generated by selling off shares of stock. Then I'd have to pay too much money to the government in capital gains taxes. I want to live dividends that keep growing every year
baby boomer retirement
baby boomer retirement
Friday, May 4, 2007
Thursday, May 3, 2007
Dow breaks 50-year old streak record
The Dow's best winning streak since 1955!
That's the latest news from the stock market. It's risen 21 out of the last 24 trading sessions -- total gain 7.4%. It's closed at a record high five out of the last six trading sessions.
Am I cheering? Hardly. But I admit that I'm glad that one cause is higher corporate earnings and the other is lower oil prices.
Higher corporate earnings is the backbone of corporate health, enabling companies to pay out more money in dividends, which is good for income investors.
I like lower oil prices as a consumer, though local gasoline prices are rising at the pump -- hitting $3 a gallon for the first time since late 2005.
High stock prices mean that companies that pay out dividends have a lower dividend yield, because their stock price is higher. So it costs more to buy that stream of dividends.
Here's the link to the details:
Dow Jones winning streak
It appears that the second leg of the bubble boom predicted by Harry Dent has begun. According to him, the real strength behind this stock market is the buying of baby boomers. Eventually boomers will start selling (because of retirement) and then the stock market will go into a long bear market.
I don't know if that will happen, but I do know that the long run never arrives, and these figures are not permanently etched in stone. They can go up more. They can go down.
Dow records
Dow records
That's the latest news from the stock market. It's risen 21 out of the last 24 trading sessions -- total gain 7.4%. It's closed at a record high five out of the last six trading sessions.
Am I cheering? Hardly. But I admit that I'm glad that one cause is higher corporate earnings and the other is lower oil prices.
Higher corporate earnings is the backbone of corporate health, enabling companies to pay out more money in dividends, which is good for income investors.
I like lower oil prices as a consumer, though local gasoline prices are rising at the pump -- hitting $3 a gallon for the first time since late 2005.
High stock prices mean that companies that pay out dividends have a lower dividend yield, because their stock price is higher. So it costs more to buy that stream of dividends.
Here's the link to the details:
Dow Jones winning streak
It appears that the second leg of the bubble boom predicted by Harry Dent has begun. According to him, the real strength behind this stock market is the buying of baby boomers. Eventually boomers will start selling (because of retirement) and then the stock market will go into a long bear market.
I don't know if that will happen, but I do know that the long run never arrives, and these figures are not permanently etched in stone. They can go up more. They can go down.
Dow records
Dow records
Tuesday, May 1, 2007
Would Warren Buffett invest in Berkshire Hathaway today?
The issue of BARRON'S I've been reading also has an interesting, contrarian article on Warren Buffett and Berkshire Hathaway -- Questioning the Cult of Buffett by Stephen P. Mauzy.
One criticism is of Buffett's steadfast refusal to split stock shares, so one is now worth upwards to $100,000. He says that the stock market would not be a place for small investors if all companies did this. True, but so what? Berkshire Hathaway is not a huge public company like General Motors.
He makes a good point that most of Berkshire Hathaway's outstanding returns occurred before the past 5 years. The real villain is size. It's grown so large thanks to its past successes. As the author points out, Berkshire Hathaway is in effect a closed end mutual fund.
What's a more serious defect for would-be buyers, is that it's selling at a 60% premium to its net asset value.
Also, I insist, it should pay out a dividend as well. Buffett invests for a high cash return. He is consciously raising the market value of the stock, but it means that money used to buy shares of Berkshire Hathaway today will not return any money to you until you sell it. What is the time value of the money you use to buy a share, when you get no immediate return? And presumably will never get a return because you wouldn't want to buy it while Buffett is still in charge, would you?
Would Buffett buy a stock that pays no dividend, shelling out a 60% premium over its fair market asset value?
Not likely, methinks. If Buffett did that, Benjamin Graham would be spinning in his grave.
Berkshire Hathaway
Berkshire Hathaway
One criticism is of Buffett's steadfast refusal to split stock shares, so one is now worth upwards to $100,000. He says that the stock market would not be a place for small investors if all companies did this. True, but so what? Berkshire Hathaway is not a huge public company like General Motors.
He makes a good point that most of Berkshire Hathaway's outstanding returns occurred before the past 5 years. The real villain is size. It's grown so large thanks to its past successes. As the author points out, Berkshire Hathaway is in effect a closed end mutual fund.
What's a more serious defect for would-be buyers, is that it's selling at a 60% premium to its net asset value.
Also, I insist, it should pay out a dividend as well. Buffett invests for a high cash return. He is consciously raising the market value of the stock, but it means that money used to buy shares of Berkshire Hathaway today will not return any money to you until you sell it. What is the time value of the money you use to buy a share, when you get no immediate return? And presumably will never get a return because you wouldn't want to buy it while Buffett is still in charge, would you?
Would Buffett buy a stock that pays no dividend, shelling out a 60% premium over its fair market asset value?
Not likely, methinks. If Buffett did that, Benjamin Graham would be spinning in his grave.
Berkshire Hathaway
Berkshire Hathaway
Why people don't follow Peter Lynch's advice
I thought about Peter Lynch last night.
I was driving along a stretch of McKnight Road just a little north of Manchester Road, in Rock Hill. It's an area I go down a lot. A year or so ago, this stretch on the east side of the road was pretty much deserted land. As I recall, a tree nursery of some kind used to be there.
But for some months now somebody has been building a group of fancy apartment buildings. And last night I saw a sign up reading, "Luxury Condos - from the Lower 100,000s."
To me, that's serious housing money, and I laughed at the idea of paying that much for a brand new "luxury" condo that had just recently been put together from scratch on land that not long ago was a tree nursery. Plus, I didn't think much of living right there. It's a short way down the road from an apartment complex with some low-lifes in it. It is close to the very nice Tilles Park. It is close to Ladue, which is the St Louis area's wealthiest area. But these condos are separated from the Ladue mansions by plebian areas of Rock Hill. Plus, they're across the street from where I once saw about 20 raccoons late at night all over the road. Plus, it's not far from a poor area that contains some dishonest criminals, so I'd say it's not really a safe area to walk around at night. It is true, though, that there's currently a large building project at McKnight and Manchester that will add a lot to the shopping available, and it's likely the city planners are going to try to move out the criminal element.
However, it's quite likely that soon people will be buying up and moving into those condos and perhaps living quite happily, glad to have such a cheap luxury condo.
Peter Lynch has long advocated that people buy stock in companies they know well from their own employment or their own shopping. Yet many people don't take his advice -- they'd rather invest in a company that sounds exotic.
Familiarity breeds contempt, and that explains why people would rather lose their money in a high tech company they don't understand than invest in a company close to their lives.
(They really should invest in a portfolio that's diversified, using some of the findings of asset allocation, instead of trying to pick any stocks, but many people want to pick stocks.)
Years ago, I used to sell cable TV door to door. I read somewhere that cable TV companies were a good investment, and the one I was selling for one of the best. Did I invest in cable TV? Are you kidding me? It's a high cash business, with all that implies. Sales people ripped off cash (I had a manager fired for stealing to support his cocaine habit, and he was far from the only cocaine user, and I heard that was a commonly used drug in the company headquarters.) Installers sold the cable boxes to customers. And so on.
Plus, I heard constant complaints about poor customer service and picture outages during bad weather.
Yet, years later, the stock had gone up a lot!
peter lynch
peter lynch
I was driving along a stretch of McKnight Road just a little north of Manchester Road, in Rock Hill. It's an area I go down a lot. A year or so ago, this stretch on the east side of the road was pretty much deserted land. As I recall, a tree nursery of some kind used to be there.
But for some months now somebody has been building a group of fancy apartment buildings. And last night I saw a sign up reading, "Luxury Condos - from the Lower 100,000s."
To me, that's serious housing money, and I laughed at the idea of paying that much for a brand new "luxury" condo that had just recently been put together from scratch on land that not long ago was a tree nursery. Plus, I didn't think much of living right there. It's a short way down the road from an apartment complex with some low-lifes in it. It is close to the very nice Tilles Park. It is close to Ladue, which is the St Louis area's wealthiest area. But these condos are separated from the Ladue mansions by plebian areas of Rock Hill. Plus, they're across the street from where I once saw about 20 raccoons late at night all over the road. Plus, it's not far from a poor area that contains some dishonest criminals, so I'd say it's not really a safe area to walk around at night. It is true, though, that there's currently a large building project at McKnight and Manchester that will add a lot to the shopping available, and it's likely the city planners are going to try to move out the criminal element.
However, it's quite likely that soon people will be buying up and moving into those condos and perhaps living quite happily, glad to have such a cheap luxury condo.
Peter Lynch has long advocated that people buy stock in companies they know well from their own employment or their own shopping. Yet many people don't take his advice -- they'd rather invest in a company that sounds exotic.
Familiarity breeds contempt, and that explains why people would rather lose their money in a high tech company they don't understand than invest in a company close to their lives.
(They really should invest in a portfolio that's diversified, using some of the findings of asset allocation, instead of trying to pick any stocks, but many people want to pick stocks.)
Years ago, I used to sell cable TV door to door. I read somewhere that cable TV companies were a good investment, and the one I was selling for one of the best. Did I invest in cable TV? Are you kidding me? It's a high cash business, with all that implies. Sales people ripped off cash (I had a manager fired for stealing to support his cocaine habit, and he was far from the only cocaine user, and I heard that was a commonly used drug in the company headquarters.) Installers sold the cable boxes to customers. And so on.
Plus, I heard constant complaints about poor customer service and picture outages during bad weather.
Yet, years later, the stock had gone up a lot!
peter lynch
peter lynch
Monday, April 30, 2007
The "Long Run" is Always Far in the Future
When does the "long run" arrive?
Whenever you read about value investing, you hear that although stock prices bounce around, up and down, in the short term, in the "long run," value the market recognizes value. I don't know about you, but haven't noticed that any stock's price ever stops bouncing around from day to day. Only when trading stops.
Doesn't matter whether it's General Electric or Coca-Cola, which have been trading for over 100 years, or the latest IPO -- the stock's price bounces up and down throughout every trading day.
So, just when is the "long run?" Both stocks have been doing well now for several decades, but both companies went through periods when they didn't look so hot, and their stock prices suffered. Yet those bad periods were still 60 years or more after their IPOs. So were they still not in the "long run?"
It's clear to me that there can be no one, set, truly "correct" price for any company's stock, because during active trading that is going to bounce around constantly due to the flow of sell and buy orders, by the constant battle between bulls and bears, supply and demand. And in the larger picture, that ebb and flow will often produce an up and down trend line.
Did the people who bought General Electric when it was doing a lot worse than now somehow know that Jack Welch would become its CEO? Or did they just figure that GE would somehow attract, find and hire the right person?
With the great increase in interest in the investing culture in investing for capital gains in the past 40 to 50 years, you'd think that somebody pay attention to how ephemeral capital gains actually are, with the vast swings in price. What goes up today can go down tomorrow. What gains are actually permanent? Some price gains are most likely permanent, but nobody knows when that point is reached. Bear markets have in the past taken even good companies down to prices their stocks hadn't seen in many years. And that's just counting the ones that stay in business!
stocks long run
stocks long run
Whenever you read about value investing, you hear that although stock prices bounce around, up and down, in the short term, in the "long run," value the market recognizes value. I don't know about you, but haven't noticed that any stock's price ever stops bouncing around from day to day. Only when trading stops.
Doesn't matter whether it's General Electric or Coca-Cola, which have been trading for over 100 years, or the latest IPO -- the stock's price bounces up and down throughout every trading day.
So, just when is the "long run?" Both stocks have been doing well now for several decades, but both companies went through periods when they didn't look so hot, and their stock prices suffered. Yet those bad periods were still 60 years or more after their IPOs. So were they still not in the "long run?"
It's clear to me that there can be no one, set, truly "correct" price for any company's stock, because during active trading that is going to bounce around constantly due to the flow of sell and buy orders, by the constant battle between bulls and bears, supply and demand. And in the larger picture, that ebb and flow will often produce an up and down trend line.
Did the people who bought General Electric when it was doing a lot worse than now somehow know that Jack Welch would become its CEO? Or did they just figure that GE would somehow attract, find and hire the right person?
With the great increase in interest in the investing culture in investing for capital gains in the past 40 to 50 years, you'd think that somebody pay attention to how ephemeral capital gains actually are, with the vast swings in price. What goes up today can go down tomorrow. What gains are actually permanent? Some price gains are most likely permanent, but nobody knows when that point is reached. Bear markets have in the past taken even good companies down to prices their stocks hadn't seen in many years. And that's just counting the ones that stay in business!
stocks long run
stocks long run
Sunday, April 29, 2007
Investing and Social Security
On Monday, April 23 the Social Security fund trustees reported on the state of the trust fund. It's not pretty. It's one reasons for anybody facing retirement in the next 40 years to save up our own money and not rely on picking the pockets of the younger generation.
It's a prescription for both class and generational warfare.
Unfortunately, politicians have not gotten across the message to the general public that they should not be counting on Social Security for their retirement under it's current setup. You should hedge your retirement investments so that you don't have to count on either Social Security or selling off the stocks and mutual funds you're now accumulating. You should consider selling off all non-dividend paying stocks and paying stocks and bonds that do pay you interest, and hanging on to them -- forever.
Or you risk selling them without having to pay capital gains tax in the future -- because you're selling them at a loss!
Most people don't realize this is related to money, but you should also protect your health also. Quit smoking. Quit drinking to excess. Go on the Zone diet. Get regular moderate exercise. Take nutritional supplements. Don't go on prescription drugs.
The healthier you are, the longer you're able to keep working, which is going to be important to your financial health. Plus, of course, it should be obvious that the healthier you are, the more you'll enjoy all of your life.
The Medicare Part A trust fund is going to start paying out more than it takes in this year -- 2007. It's going broke faster than the regular RSDI Social Security trust fund. Do what you can to stay out of the hospital because you're going to have to pay more and more of it yourself.
investing and Social Security
investing and Social Security
It's a prescription for both class and generational warfare.
Unfortunately, politicians have not gotten across the message to the general public that they should not be counting on Social Security for their retirement under it's current setup. You should hedge your retirement investments so that you don't have to count on either Social Security or selling off the stocks and mutual funds you're now accumulating. You should consider selling off all non-dividend paying stocks and paying stocks and bonds that do pay you interest, and hanging on to them -- forever.
Or you risk selling them without having to pay capital gains tax in the future -- because you're selling them at a loss!
Most people don't realize this is related to money, but you should also protect your health also. Quit smoking. Quit drinking to excess. Go on the Zone diet. Get regular moderate exercise. Take nutritional supplements. Don't go on prescription drugs.
The healthier you are, the longer you're able to keep working, which is going to be important to your financial health. Plus, of course, it should be obvious that the healthier you are, the more you'll enjoy all of your life.
The Medicare Part A trust fund is going to start paying out more than it takes in this year -- 2007. It's going broke faster than the regular RSDI Social Security trust fund. Do what you can to stay out of the hospital because you're going to have to pay more and more of it yourself.
investing and Social Security
investing and Social Security
Friday, April 27, 2007
Dow 13,000 Lucky?
So the Dow Jones Industrial Average has finally reached 13,000. Hip, hip, hoorah!
Myself, I'm of two minds. As a signifying of the national mood, especially the mood of those who have a lot of money, it's a good sign. It seems to show that despite the various economic worries that we have (the War on Terrorism, the decline of the dollar, the rising price of oil, the growing trade deficit, the rise of subprime mortgages, the overall huge consumer debt, the huge business debt etc etc etc), the smart people with lots of money think we'll over the problems.
On the other hand, I think more logically than most people. Warren Buffett is the only other investment writer I know of to point out that stock buyers should want the price of the stocks they are buying to remain low. Really, if you're buying some stock or stocks on a regular basis to save for your retirement, you ideally want the prices to remain low -- until you sell them.
That's because the lower the price of the stock, the more shares you can buy with the money you have.
Let's say you're spending $100 a month to buy a company's stock, and right now the market price is $25. You can buy 4 shares. Let's say that by next month the price has doubled to $50. Yes, you feel good because the value of the shares you've already bought has doubled -- but now your $100 can buy only 2 new shares instead of 4.
For accumulating stock, you want the price to remain low.
But few people look at it that way -- they'd rather be happy that the shares they already own have doubled in value, although they can't do anything with them.
Dow 13000
Dow 13000
Myself, I'm of two minds. As a signifying of the national mood, especially the mood of those who have a lot of money, it's a good sign. It seems to show that despite the various economic worries that we have (the War on Terrorism, the decline of the dollar, the rising price of oil, the growing trade deficit, the rise of subprime mortgages, the overall huge consumer debt, the huge business debt etc etc etc), the smart people with lots of money think we'll over the problems.
On the other hand, I think more logically than most people. Warren Buffett is the only other investment writer I know of to point out that stock buyers should want the price of the stocks they are buying to remain low. Really, if you're buying some stock or stocks on a regular basis to save for your retirement, you ideally want the prices to remain low -- until you sell them.
That's because the lower the price of the stock, the more shares you can buy with the money you have.
Let's say you're spending $100 a month to buy a company's stock, and right now the market price is $25. You can buy 4 shares. Let's say that by next month the price has doubled to $50. Yes, you feel good because the value of the shares you've already bought has doubled -- but now your $100 can buy only 2 new shares instead of 4.
For accumulating stock, you want the price to remain low.
But few people look at it that way -- they'd rather be happy that the shares they already own have doubled in value, although they can't do anything with them.
Dow 13000
Dow 13000
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