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Pivo Cerveza
Junior Member
Username: Pivo

Post Number: 35
Registered: 03-2003
Posted on Friday, March 13, 2009 - 05:26 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

http://www.thedailyshow.com/video/index.jhtml?videoId=220252&title=cnbc-gives-fi nancial-advice

http://www.thedailyshow.com/video/index.jhtml?videoId=221517&title=jim-cramer-un edited-interview

As somebody who has spent the last 12 years doing the "right" thing by buying well diversified mutual funds with the intention of buying and holding, I feel like a complete chump and it was good to hear Stewart say exactly what I feel.

One thing that Cramer said struck me. At one point, he indicated that we saw 30% returns from 1999 to 2007. We did? If that was true, here is what the Dow would have looked like for that period:

1999 9,400
2000 12,220
2001 15,886
2002 20,652
2003 26,847
2004 34,902
2005 45,372
2006 58,984
2007 76,679

If my 401K was down by 40% off of this supposed 2007 high, I would feel a lot better about the situation.
 

David Lewinnek
Intermediate Member
Username: Davelew

Post Number: 478
Registered: 02-2005
Posted on Friday, March 13, 2009 - 05:45 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

Cramer didn't say we had 30% annual returns from 1997 to 2007. He just said we had 30% returns. The Dow went from 10,000 to just shy of 14,000, so that seems reasonable to me. Of course, since it took over 8 years, that works out to about 3.3% a year, which is not a good rate of return for an investment as risky as the stock market.

The trick is to figure out where the dumb money will go next. Our money supply has been expanding at a high rate since the early 1970s. We had consumer price inflation in the 70s, stock inflation in the 80s and 90s, real estate inflation in the 2000s, and a brief period of commodity price inflation before the current downturn.

What will be the next type of asset to have its price inflated out of all proportion to its value?
 

Paul Hayslett
Senior Member
Username: Paulhayslett

Post Number: 2092
Registered: 02-2002
Posted on Friday, March 13, 2009 - 06:05 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

> What will be the next type of asset to have its price inflated out of all proportion to its value?

Political punditry and stock market picks? (Oh, wait. That's already happened.)
 

Pivo Cerveza
Junior Member
Username: Pivo

Post Number: 36
Registered: 03-2003
Posted on Friday, March 13, 2009 - 06:14 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

I went back and listened to the quote, and he says: "The world that made you 30% year after year after year beginning from 1999 to 2007". I agree that he probably meant to say that it returned 30% over that period, but since they were talking about in what world is a 35:1 leverage position sane, it indicates that we were all enjoying massive returns during the period and should have known better.

That's a good point about the next bubble. Maybe precious metals are poised for a big runup as the dollar crashes. Then again, you can't drink gold, I'm investing in high-end beer.
 

Bill Pierce
Moderator
Username: Billpierce

Post Number: 10093
Registered: 01-2002
Posted on Friday, March 13, 2009 - 06:27 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

I'm with Paul about the inflation of punditry. The number of blowhards (Cramer among them) and bloggging heads has been increasing like the price of houses a few years ago. That bubble has to burst eventually.

(Message edited by BillPierce on March 13, 2009)
 

Daniel Bishop
New Member
Username: Whatshisface

Post Number: 17
Registered: 01-2009
Posted on Friday, March 13, 2009 - 06:35 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

"Then again, you can't drink gold, I'm investing in high-end beer."

That does it, I'm Brewing tonight.
 

Bill Pierce
Moderator
Username: Billpierce

Post Number: 10094
Registered: 01-2002
Posted on Friday, March 13, 2009 - 06:45 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

There is the oft-repeated (and probably fictional) tale of two employees of an Internet startup during the dot.com boom. One of them invested all of his bonus in company stock, while the other spent it all on beer. Later when the stock went bust the first employee was wiped out, but the second had more than $200 in bottle and can deposit returns for the empites.
 

Paul Hayslett
Senior Member
Username: Paulhayslett

Post Number: 2093
Registered: 02-2002
Posted on Friday, March 13, 2009 - 07:20 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

Yeah. If you are going to piss your money away anyway, you might as well enjoy drinking it first!
 

Denny Conn
Senior Member
Username: Denny

Post Number: 7172
Registered: 01-2001
Posted on Friday, March 13, 2009 - 07:30 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

Check this out...

http://www.registerguard.com/csp/cms/sites/web/news/sevendays/8952511-35/story.c sp
 

Pivo Cerveza
Junior Member
Username: Pivo

Post Number: 37
Registered: 03-2003
Posted on Friday, March 13, 2009 - 07:46 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

That's a great article.

One thing I wish we could find out is this: How well did the blowhards survive the downturn? It would be nice to know that they are all also down 40% like those of us who didn't know to get out. I guess if they were earning 30% year over year we'd need to know that as well.

It seems, like Stewart said, there are two markets. One for the people who actually work for a living and trust the standard advice of dollar cost averaging, and another for the group who actually know what is going on and know how to manipulate it to make themselves a whole lot of money at our expense.
 

Bill Pierce
Moderator
Username: Billpierce

Post Number: 10095
Registered: 01-2002
Posted on Friday, March 13, 2009 - 08:36 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

We seem to love the notions of inside information and outsmarting the herd. My wife uses a phrase translated from Romanian that basically says you need to be "five minutes smarter" than everyone else.

Bernard Madoff promised and in the beginning delivered returns well above the market. He even posted gains in the first year of this down market, and was lauded for being a genius. People passed his name along to friends like some kind of secret.

I'm reminded of two stories from more than 20 years ago. At the time I worked for a startup company where even then I was about 10 years older than the principals and most of the other employees. One of the investors was a brash young lawyer who seemed terribly glib and sure of himself. Something about him didn't sit right with me, but the owners of the company thought he was a superman.

I left after almost three years and didn't think much about it until the 2007 trial in Chicago of Canadian media baron Conrad Black, who looted more than $10 million (a pittance today) into his own pockets from the Sun Times and other newspapers. The lawyer who engineered most of the shenanigans was this same brash guy I remembered. He avoided jail in exchange for his cooperation with the prosecutors, but he was disbarred and sentenced to long hours of community service.

At the same time I was working for the startup I remember a call from an old college friend who had also become a lawyer. On the day Microsoft went public he called and asked me what I thought of the company. I told him software was a somewhat speculative business and while Microsoft had more going for it than most other firms, there were lots of tech IPOs that had not done very well. I said I was going to stay on the sidelines.

Undaunted, he bought 1000 shares and rode the wave until he used his profits (somewhere around $400,000) as down payment on a McMansion he built in the '90s. I've lost touch with him since then, but a Google search on his name revealed he'd had his law license suspended for three years over unauthorized investments he'd made with some of his clients' trusts.

I suspect I'll die poorer than I was born, and I have to say the thought doesn't bother me too much, although my wife is appalled when I admit it.
 

Tim C.
Member
Username: Timc

Post Number: 163
Registered: 03-2003
Posted on Sunday, March 15, 2009 - 11:35 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

Bill

Time is worth more than money. No one goes to the grave thinking "If I had only spent more time at the office". Drink more beer and die poor and happy.
 

Bob Wall
Senior Member
Username: Brewdudebob

Post Number: 2482
Registered: 11-2004
Posted on Monday, March 16, 2009 - 04:13 am:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

So Tim, are you saying "Fat, Drunk, & Stupid" is the way to go through life?

Would Dean Wormer approve?

 

Bill Pierce
Moderator
Username: Billpierce

Post Number: 10107
Registered: 01-2002
Posted on Monday, March 16, 2009 - 11:21 am:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

Bob, at least we agree about beer.
 

David Lewinnek
Intermediate Member
Username: Davelew

Post Number: 480
Registered: 02-2005
Posted on Monday, March 16, 2009 - 05:26 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

> It seems, like Stewart said, there are two
> markets. One for the people who actually work
> for a living and trust the standard advice of
> dollar cost averaging, and another for the group
> who actually know what is going on and know how
> to manipulate it to make themselves a whole lot
> of money at our expense.

There's a famous finance class at M.I.T. where the professor used to say on the first day, "After taking this class, who here thinks they'll be able to beat the S&P 500 by 1% a year on a risk-adjusted basis?" and the whole class would raise their hands. Then the professor would say, "If you could beat the S&P 500 by 1%, how much would you be worth to the pension fund of Exxon Mobil?" and it turned out that someone with that skill would be worth several billion dollars a year. Then the professor asks the class, "Who here thinks, after taking this class, that they'll deserve a salary of $2 Billion a year?" and nobody would raise their hand.

The point is that the only way to beat the market in the long run is to take on higher risk. Those people doing backroom deals and other tricks might look like they're cheating to beat the market, but in the end all they were really doing was taking on risks that they didn't understand. If they hadn't been taking on new risks, then we would still see proud investment banks like Goldman Sachs, Bear Sterns, Lehman Brothers, AIG and others with positive balance sheets.

It's fun to blame back room deals, but in the end the big guys made money by taking on risk (being leveraged 30+ to 1, investing in unproven vehicles like CDOs, etc.). Those risks have materialized in the last year, and now we all see yet again that you can't beat the market on a risk-adjusted basis.

Dollar cost averaging might seem like a bad idea right now, but it's better than going as broke as Lehman Brothers or AIG.
 

Joakim Ruud
Senior Member
Username: Joques

Post Number: 1384
Registered: 10-2005
Posted on Tuesday, March 17, 2009 - 06:12 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

"You are not a beautiful and unique snowflake."

Everybody (almost) wants to be a hero in the story of their own life. Outsmarting the herd or accomplishing brilliant feats. However, very few are anything but regular Joes, trudging through their daily routine, trying to keep their heads above water.

The day I realized I didn't have to be anybody special, or rich, or famous; that only a very small group of people would mourn me when I'm gone and that 200 years from now I'll probably not be remembered by a single person; a weight was lifted off my shoulders and I settled quite comfortable into my own life.
 

Kevin Kowalczyk
Intermediate Member
Username: Itsfunbrewingbeer

Post Number: 500
Registered: 10-2007
Posted on Wednesday, March 18, 2009 - 03:22 am:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

"you are not a beautiful and unique snowflake"

Way to burst my bubble, Joakim. My mother told me I was.
 

Pivo Cerveza
Junior Member
Username: Pivo

Post Number: 38
Registered: 03-2003
Posted on Wednesday, March 18, 2009 - 06:27 am:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

"Dollar cost averaging might seem like a bad idea right now, but it's better than going as broke as Lehman Brothers or AIG."

While I agree with this in theory, my feeling about the current situation is that there was another option that most of us were unaware of.

Rather than earn a fair income and save a lot of your money and invest it with the long term goal of matching the averages, some were able to get into positions of power at large corporations and leverage their company at 30+ to 1 and take home massive amounts of money while their companies were left holding the bag.

While Lehman and AIG are left broke or nearly broke, the people responsible are, for the most part, still filthy rich. I assume all of them didn't invest heavily into their own companies, but if they did, then they deserve what they got.

All the while, there was CNBC and the other similar parties who sell themselves as experts on financial matters who didn't do a good enough job of communicating what was going on.
 

Ron Siddall
Advanced Member
Username: El_cid

Post Number: 754
Registered: 12-2005
Posted on Thursday, March 19, 2009 - 02:48 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

Pico, CNBC, Money Mag et al are selling you stuff disguised as financial news and advice. They do not know anything you really don't already know or can't easily find out.

The problem is that a lot of companies are being run be greedy CEO's that use the company to boost their own ego and for their own personal gain.

If Warren Buffett got trashed, what hope do you and I have against this machine?

Your best bet is to get your gains from saving more of your paycheck and being more conservative with your investments.

Stocks will bounce back but it will be a loooonnnng time before we see the Dow at 14,000.
 

Bill Pierce
Moderator
Username: Billpierce

Post Number: 10127
Registered: 01-2002
Posted on Thursday, March 19, 2009 - 04:19 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

Ron, I don't always agree with you, but this time my opinion is just about spot on with yours.

I generally respect Warren Buffett. His was one of the few voices of reason during the dot-com bubble of 10 years ago, for example. He almost liquidated all of his holdings back then because he said the market was behaving contrary to all logic. You're right that if he can't avoid huge losses it's a sign the problem is systemic to the entire global economy. Against that tide virtually none of us is immune.
 

David Lewinnek
Intermediate Member
Username: Davelew

Post Number: 484
Registered: 02-2005
Posted on Thursday, March 19, 2009 - 09:06 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

Ron, there's just one thing I might add to what you said: it will be a long time before we see the Dow at 14,000 in inflation-adjusted terms.

I think there's a chance of hyperinflation, devaluation of the dollar, whatever you want to call it, and that might cause the Dow to rise in nominal terms.
 

Ron Siddall
Advanced Member
Username: El_cid

Post Number: 757
Registered: 12-2005
Posted on Thursday, March 19, 2009 - 09:13 pm:   Edit Post Delete Post View Post/Check IP    Ban Poster IP (Moderator/Admin only)

Bill, I think Barack is right when he says the common folk need to be really mad at this. That is the only way these folks will get the message.

Unfortunately, the message will be short lived as most folks will calm down and go back to their own business.

Greed will once again be set loose on us with various portions of the Government not bothering to protect us (Chris Dodd this is aimed at you).

Therefore, we are and will continue to be on our own.

In these bad times I get to write the Feds a $4,300 check this April (I sold a condo for a modest profit before the entire market collapsed and got hit by the AMT).

Some part of me wants them to choke on this money.

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