Comments on: Felix TV: Time to chill out A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: TFF Sun, 07 Aug 2011 12:11:57 +0000 “You have a lot more faith in companies’ reported earnings than I do.”

Depends on the company, JayCM, but I suppose I do…

By: JayCM Sun, 07 Aug 2011 01:58:26 +0000 TFF,

You have a lot more faith in companies’ reported earnings than I do.

By: TFF Sat, 06 Aug 2011 17:55:26 +0000 “This change could easily take the Dow south of 5,000 and keep it there for a decade or two; the Boomers’ overall market power is just that strong.”

That makes no sense whatsoever!

The Dow at 10,000 would represent a P/E around 12, i.e. an investment return of 8% even without growth. For the Dow to stay at that level for “a decade or two” would require massive wealth destruction — essentially burning the earnings for 20 years. I suspect you of pulling numbers out of of a hat?

At a sufficiently low P/E, earnings absolutely matter. A company with a P/E of 10 and zero growth can self-capitalize in a decade, eating its tail like the legendary Ouroboros!

It is very reasonable to expect P/E ratios to fall to historically low levels (from their present historically high levels) and to remain there for a decade or two as Boomers retire. It is very reasonable to expect global growth to slow as all of the major world economies age. But even without growth, the earnings ability of the multinationals will kick out a steady 6% annual “coupon” on their stock price. As P/E ratios fall, that coupon will rise.

Based on these assumptions, a Dow of 10,000 would be reasonable this year (anything lower would be a tremendous buying opportunity), and a Dow of 20,000 should be anticipated in roughly 10-15 years after that based on the ability of these companies to self-capitalize.

That’s not a great investment return, especially if inflation picks up, but it is a far cry from what Jay suggests.

By: JayCM Sat, 06 Aug 2011 14:05:51 +0000 The real problem is that the Boomers are starting to retire. They’ve been in their “gradual accumulate” phase for 30+ years, and the market has priced their demand in. As they shift to their “gradual liquidate” phase (when they try to live off their savings), it’s going to fundamentally change the supply and demand curves for pretty much all investment assets. This change could easily take the Dow south of 5,000 and keep it there for a decade or two; the Boomers’ overall market power is just that strong.

By: Danny_Black Sat, 06 Aug 2011 08:46:52 +0000 Curmudgeon, then expect to be ripped off if you can’t be bothered to learn anything about a major investment decision. Would you have sympathy for someone who bought a house sight unseen after telling the estate agent that he wants somewhere big and cheap?

By: TFF Sat, 06 Aug 2011 02:09:27 +0000 Interesting point, y2kurtus. Matching portfolio to lifestyle makes a lot of sense (and is one reason to weight domestic stocks more heavily than foreign stocks).

By: y2kurtus Sat, 06 Aug 2011 01:50:18 +0000 Just a thought reguarding asset allocation. If you are a home owner in the northern U.S. with a 25 mile commute to and from work and an average size house how much money do you spend on oil every year?

My family spends about $6,000 which is probably about double the U.S. average. Because I love where I live and love where I work and the two places are 30 miles apart I’m a bit locked into that fuel spending unless I buy a prius (which is on my short list) or put in a solar thermal heating system (which would require cutting down lots of trees I like to look at.)

So what happens to me if energy prices double… then I’ve got to cut $4,000ish out of my discrecionary spending / savings budget… and even that assumes I cut back usage to the bone. That hurts and I’ll estimate that about 50 million Americans are in the same boat. My insurance is that I’ve got roughly 35% of my net worth in energy stocks. If rising prices crush my spending power at least that part of my portfolio doubles and on net I’m breaking even.

My boss who has tripple my expierience in the industry, who has pleanty to retire today but works by choice, thinks 35% in one highly volitile sector is to risky for clients. For my personal account though the risk of rapidly rising energy prices makes me think I can’t afford NOT to over allocate to that sector.

Like it or not the safest retirement decision you can make is to find work you enjoy and dealy retirement until it is forced upon you or until you have TWICE what you think you will need squirled away. Thats a tough pill to swallow but it beats eating cat food my friends.

By: y2kurtus Sat, 06 Aug 2011 01:31:29 +0000 Felix…

I’ve read at least 1,000 of your generally execelent posts… but this is by far the best. I espically like the following quote:

“one thing I can say: the amount of stocks you have the day before you retire shouldn’t be vastly different from the amount of stocks you have the day after you retire.”

-Pure gold!

You keep up the great work and I’ll keep telling everyone I know to add your blog to their regular reading. Have a great weekend!

By: TFF Fri, 05 Aug 2011 22:25:48 +0000 Curmudgeon, there are always choices in life, and I wouldn’t presume to make yours for you. I have never pretended that my way is the only way. It is simply the approach that works best for me, and one that some people may wish to consider.

You noted that you’ve seen zero returns from index funds over the last decade. I expect you will continue to see mediocre returns from index funds over the next decade. If you have enough savings to retire comfortably on that, then go right ahead!

But I don’t see any alternative for small-time investors that promises respectable returns over the next decade WITHOUT personal effort. Do you?

By: jpersonna Fri, 05 Aug 2011 22:23:11 +0000 Actually, my goal was always my age in bonds, but I’m light stocks because I also kind of trust Shiller’s PE10. That cuts me out of Bogle circles a bit.

But the PE10 kind of ties to my idea of good and bad decades.