A Rich Life

The Old Ideas on Saving & Investing Don't Work -- Here's What Does

Beyond Buy-and-Hold #99 — Once Stock Prices Drop Hard, There’s Only One Way They Can Go

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I’ve posted Entry #99 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s titled Once Stock Prices Drop Hard, There’s Only One Way They Can Go.

Juicy Excerpt: We need to train ourselves to tune the market’s short-term message and focus in on the helpful, enriching, long-term stuff. I think that the best way to do that is by looking at the numbers.

Say that stocks are priced as they were priced in 1982. What will a $100,000 stock portfolio be worth in 30 years? Let’s compare that to what a $100,000 stock portfolio will be worth in 30 years if stocks are priced as they were in 2000. Let’s assume a 70 percent fixed (Buy-and-Hold) allocation in both cases.

ITNR #107 — Most Explanations of Stock Price Changes Are Tall Tales

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I’ve posted Entry #107 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s titled Most Explanations of Stock Price Changes Are Tall Tales.

Juicy Excerpt: It shouldn’t be possible for lobbyists to just make up claims that a stock crash was caused by this or that proposal and have serious people buy into the assertion. But that’s how messed-up our understanding of how stock investing works is today. My lobbyist friend was able to get away with such foolishness because none of the “experts” in this field know any better. People believed him because he spoke with confidence. When no one knows what they are talking about, the guy who speaks gibberish with confidence wins the day.

Are Stock Gains and Losses Real?

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I’ve posted a Guest Blog Entry at the Consumerism Commentary site titled Are Stock Gains and Losses Real?

Juicy Excerpt: Losses suffered starting from super-high prices are never recovered. When you pay more than a fair price for stocks, a portion of your money is going to the purchase of stocks and a portion is going to the purchase of cotton-candy nothingness. Prices always return to fair value. So these price drops are not so much losses as they are the market coming to recognize phony gains experienced at an earlier time for what they really are.

Juicy Comment #1: In some cases I find this article confusing, in others cases I find it dangerous.

Juicy Comment #2: Gains are only real gains when you sell.

Juicy Comment #3: Once you get to retirement, the income statement rules!!

Juicy Comment #4: This entire article leans on the parenthetical definition of fair value “(that’s a P/E10 value of 15)”. Since it’s in a parenthetical I guess that means you don’t have to prove it?

Juicy Comment #5: “(That’s a P/E10 value of 15)” assumes:  (1) That stocks have a fair value; (2) That that fair value can be determined; (3) That the metric to determine it is P/E10; and (4) That the correct number for that metric is between 14 and 16.

Juicy Comment #6: The concept and strategy is so sound, that in my mind, it is irrefutable. Investors need to grasp the concept of how important valuation is in determining future returns. Everyone can make there own variations of how they implement the concept.

Investing: The New Rules #16 — Stock Price Drops Are Better Than Stock Price Gains

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I’ve posted Entry #16 to my Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called Stock Price Drops Are Better Than Stock Price Gains.

Juicy Excerpt: Why then do we cheer price increases and boo price drops? We think of ourselves as seller of stocks rather than buyers of stocks. Our focus tends to be on the shares we already own. The owners of things being sold always want the highest prices possible to apply.

But we are wrong to adopt this attitude. If you are a few months away from retirement and you plan to go to a zero stock allocation on the day you retire, it makes sense to think of yourself as an owner/seller of stocks. However, if you’re like most of us, you will be buying stocks for many years to come (that’s true even of a good number of retirees). For so long as you are buying stocks, you should be looking at things from the standpoint of a buyer. Buyers prefer low prices, not high prices. The logical thing is for most stock investors to root for low prices.