First up is an article from Michael Panzner passing a long some gloom about the economic storm that baby boomers find themselves in. Basically a combination of big declines in their portfolios and job loss during peak earnings years will have serious ripples.
US News and World Report (via Yahoo Finance) says to prepare for the end of social security but then the article takes an odd turn about the entitlement programs not being about quid pro quo from one generation to the next but more of a moral obligation that society has to take care of lower income people.
Gene Epstein at Barron's had some good news. He weaved together an argument that the government is too pessimistic in its assumptions about social security running out of money. The combination of boomers working longer and the likelihood that the people working longer will simply be staying in their final job longer--the job they are likely to be making their highest income in which means they are paying in the max to social security. Put another way, fewer people taking out and more people paying in more money.
One of the people interviewed in the Epstein piece was a 68 year old demographer (who obviously still works) who mentioned that his 81 year old sister works full time at the local small town newspaper because she enjoys it so much. I love that story.
Regardless of the reality of when the entitlement programs go into the red or simply go bust a financial plan that overly relies on these payments is probably asking for trouble, well for people below a certain age anyway. I kind of view Epstein's argument, even if it turns out to be correct, as hoping we grow out of the social security problem (not all the way out so much as buy a little more time to figure things out).
This always garners a good conversation but I'm a huge believer in working a long as you can. Aside from relieving some of the burden off of your portfolio it also makes for healthier aging. I don't necessarily advocate working longer in the same job unless you really like that job.
As I've been writing about this stuff for a while another tie in occurred to me. Maybe this will make sense, maybe it won't. One phrase that has come up in the past here is it being about the journey not the destination. In the past I've mentioned that for however much planning or financial modeling you do when you get to the destination (however you define) you have will have X amount of dollars and it will either be enough or it won't.In that context the exploration for building a second career for yourself that you find fulfilling that you would want to do for a while becomes more about the journey. This part of the journey (the post retirement career) could begin in your pre-retirement career as you start to figure out what you might want to do, then figure out how to do that thing, then start doing that thing and then maybe have some sort of goal for your post retirement career.
If you look at Seeking Alpha it seems like a lot of contributors are folks writing about investing as some sort of post retirement gig as one example. There are plenty of creative ways figure something for yourself.
Part of the potential problem with normal planning is that it focuses too much on the destination and as we have learned there can be so many variables that prevent people from getting to that destination that a reorientation to focusing on the journey instead could help reduce problems that some people will have.
Or not.
Lastly a shout out to reader BillB for being a dog foster. Very cool thing to do.
15 comments:
Roger,
I have only looked at the yesterday’s comments this Sunday morning. Roger, I have been following you since mid 2008 and found this blog very helpful. It is uncalled for anyone to insult you and the other participants. You have never given out per say any stock tip or strategy but have commented on the markets and the way you go about doing your work. To me that that has been very helpful. But most of all if anyone has had the guts to say what he was doing you where very helpful in providing very helpful comments in a very generous and kind way, along with other guest. I first started (mid 2008) to read this blog to get a good idea of market turnaround. Not only you shown that you have a better timing that many others out but you have help me set up some critical systems that now I depend than depend on TV, Radio and news paper commentators. This blog does not make you more dependent but a starting point to get you thinking and if someone is willing to work hard can become not only independent but also much better than the rest. Since the helpful comment that you made on financial TV pundits and the use of software I have set up some system that can give me a good reading as to what is going on. I must also thank yestarday’s anon 6.02 since his comment I have revised my system Mov.Av. on some indicators that now give me not only short term reading but also medium, long and very long term reading. I like to end by saying that without Cimabue there are no Giottos. Not only ROGER is a Giotto but there are many simple investors that are taking the path hopefully for them self become Giottos or at least become better investors without relying on others. Tx to Roger, Clive, SD, Bill B, and many others that have been helpful for my growth to become a better investor.
Best,
Jeff from Milan, Italy
P.S. Is it Yosemite Park? I miss Yosemite, but then we have the Alps.
thank you for the kind word Jeff
the picture is from Watson lake here in Prescott
Hi Roger- a co-worker of mine continues to advocate that any forward looking market analysis is purely speculation and that the likes of Peter Bernstein, Bogle, Harry Browne, William Berntein, Mauldin, etc. advocate that forward looking analysis is rather challenging. attached is a link whereby even Barry Ritholtz admits the same.
I have read where you do not believe in broad based passive products and if I interpret your comments correctly do not like to look backward but attempt to look at te macro picture via a top down sector approach. Please clarify how this approach is not speculation?
http://www.thestreet.com/_tscana/comment/barryritholtz/10226887.html
I also have enjoyed Roger's column and found the information to be thought provoking. I have my own plan and as said before if you get it right most of the time you will do fine.
My question is what would be considered "doing well". I have beat the S&P this year by 11%, on a mostly passive method.
Good or just so-so???
anon 7:29,
My idea of speculating would be something like whether or not to buy RIMM ahead of the earnings number.
The idea that forward looking analysis = speculation makes no sense to me but others think it so and I have no intention of trying to convert anyone.
I made a big deal of underweighting financial stocks when the yield curve inverted. Yield curve inversion makes lending less profitable which is bad for banks.
How speculative is the above? Some would say very and some would say no. I don't really care whether anyone things it is speculative or not, my job is to grow assets and also protect them.
Anon 7:29, you're leaving out a lot of key information. On the surface, beating the S&P by 11% so far this year sounds good. But you've left out the risk taken to beat the S&P. In other words, is this alpha or beta?
7:29. Until we can find a way to make money from the past market movements then we are forced to rely upon some level of forward looking market analysis. Even just putting your money into a bank's savings account is speculating that the bank wont go under and speculating that the fed government will cover your federally insured money. Taken to the extreme we are merely speculating that the sun will rise tomorrow morning, it might go super nova today.
Speculation seems to be this nasty dirty word used to insult other people's investing strategies. I fully agree with Roger.
Some may say that what I do is speculative. Others that I am way too conservative. If a person sets out financial goals, and is meeting them successfully then does it really matter what adjective is used to describe their strategy?
7:41 continuing with successfully meeting your goals... if your objective is to beat the S&P500 then I would say you are doing well.
I agree with Bill that we would need a little more context to answer your question. Perhaps a better question for yourself is "Are you happy with your performance?"
Oops. When I said I agree with Roger I was meaning I agree with his point on other people labeling what he does as speculation or not. Re-reading my post it was a bit vague.
Bill B not sure how to answer your question. My Alpha is < 0.8, Beta is reasonable also. I basically look at things simplistically. I may be stepping on Rogers theme. But I take the S&P where it was on 1/1/2009 and my portfolio on 1/1 and compare. Year after year I beat by several percentage points 2 or 3 and was courious if that was OK?
My view, am I up or not. For instance 2008 S&P was down 38% I was down 25%, YUCK but it is what it is. Beat by 12 or so % but still bad.
I guess I am average or slightly better than most. I'd like to improve and the 200 day vs 50 would have helped me last year. Learning every day striving to be better... I appreciate the words of wisdon and different points of view.
Anon, that sounds like alpha.
Alpha means gains over the market with the same volatility (risk). Beta is gains over market because of risk. If your portfolio's beta risk or standard deviation is equal to or less than the S&P 500, I'd say you're on to something and congratulations!
If you bought a bunch of biotechs or solar energy stocks that rattle up and down much faster than the S&P 500, that's beta risk and would need to be normalized (perhaps with drawdown measurement or a Sharpe ratio).
Roger, your "keep working" mantra I share but I call it something else = I fully expect to retire even though I like my job because I just have too darned many other things that I enjoy and have not been able to do to the degree that I would like because a person needs to make as much coin and save, save, save in the salad years.
After retirement, I will be able to "PICK MY BUSY" but a person needs to get to the point where they don't need the salary any more. I'm not there yet at 50 but if I get there at 56 or 58 or 62 or whatever, it's out the door for me!!
DE
I see older people working. I see them at McDonalds doing the jobs they did as teenagers.
My own eclectic social group has engineers, computer types, accountants, one lawyer (our pet weasel), medical, real estate, banking, and small business types all in the age range 40 to 70 years.
The business owners and self employed might make it to retirement age in their current situations. No one else will. That assessment is based on observing the group employment dynamic over the last few years. One of our engineers in an industrial construction specialty lost his job this month due to his company's orders collapsing. He is 62 next month and is going to start collecting SS. He is opting out of a rat race that the rats are winning.
Roger- I was curious if you had any thoughts on this fund as an "alternative" investment...The Eaton Vance Risk-Managed Diversified Equity Income Fund, ETJ. This fund writes puts but also buys puts to gain both income and price protection. Read their literature at the site to see how they do this. They are paying over 10%, but did much better pricewise during the crash and after than any of its competitors.
Any asset class in which we place our money is our speculating that it will be worth more in the future than it is now. So all forms of 'investment' are necessarily speculative. There's prudent speculation and then there's imprudent speculation a/k/a gambling.
The difference between speculation and gambling is control of risk, is it not?
Justin Mamis' "The Nature of Risk" is a terrific book that helped me think about market/stock risk in a way in which I had not considered. It helped me a great deal in framing my stock purchase/sale decisions.
Hmmm...went to see the the comments in the last section.
I do believe that there is both an art and science in the stock market. Those trying to emulate the greats is similar to doing a paint by numbers to duplicate a masterpiece. Seems like ALL of the great billionaires made bone-head decisions last year. And look at Bill Miller who beat the market for 15 years and then lost a pile of money.
I'll go to my grave believing that minimizing one's losses in the great down drafts goes a long way toward outperforming the indices. The nice thing about being an individual investor is that we don't have to settle for mediocre relative performance.
I imagine that one reason so many money managers, even active ones, participate in the downdrafts is that they hear a lot of yapping from their clients if they miss a big move.
I've invested in my own education--listening to interesting, knowledgeable perspectives such as Roger's (and his bloggers)and making my own decisions.
There is no holy grail to investing--though proponents of this or that would have you believe it. Plus there are many successful strategies, and Roger spends a good deal of time sharing his process with others. Process is important. I think that the back drop against any strategy is winning by NOT losing.
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