[2020] A little stock market sense

[VacationForever]

In 1973-74, it took 6 years to get back to even
In 2000, it took 8 years only to get back to even only to run into 2008
where it took another 6 years to get back to even
For tech stocks it took 17 years to get back to even after the 2000 crash.

I know many people who thought like you and were burnt and had to sell their homes and move away because they lost their jobs and life savings. The same people who mocked my tortoise approach that allowed me to pass them by. Taking my profits, yes reduced my growth but allowed me to keep it and then taking advantage of the fire sale.

Why would you need to sell your home and move away because the stock market drops? Stock market recovers after a few years, and typically within 18 months. Even if it takes 6 to 8 years to recover, it is only a loss if you were to sell your positions. Job loss is a different problem. Because I have made more during the up years, the drops that I experience are less in absolute value because I had more gains. Even if our investment drops by 50% now, it does not affect our retirement. No fire sale for us.

 

[Brett]

In 1973-74, it took 6 years to get back to even
In 2000, it took 8 years only to get back to even only to run into 2008
where it took another 6 years to get back to even
For tech stocks it took 17 years to get back to even after the 2000 crash.

I know many people who thought like you and were burnt and had to sell their homes and move away because they lost their jobs and life savings. The same people who mocked my tortoise approach that allowed me to pass them by. Taking my profits, yes reduced my growth but allowed me to keep it and then taking advantage of the fire sale.

I didn't lose my home or my job or my life savings because of the stock market.
Actually I could retire, upgrade my house and increase my "life savings" because of the stock market !

.

 

[Ralph Sir Edward]

@VacationForever and @Brett:

The underlying assumption of RENTER is that one is going to live off the capital earned on a day-to-day basis. If you do that, you get a reverse dollar-cost-averaging, selling more assets when down and having less when they go back up. If, on the other hand, you change your portfolio to more dividend producing stocks (with solid companies), and then spend the dividends on a day-to-day basis, the price fluctuations matter much less, as you have noted.

This is a very uncommon viewpoint in this day and age, everybody is focused on building capital values, rather than cash flow. I still hold that the best way to build capital over time is to save money and buy what had been top growth companies, which still had solid businesses, when they are very cheap (usually in a recession, but not always. Think the computer stock crash in 1985.), and then holding them for the long term (or until you think the business is no longer going to be a solid business.

 

[rapmarks]

@VacationForever and @Brett:

The underlying assumption of RENTER is that one is going to live off the capital earned on a day-to-day basis. If you do that, you get a reverse dollar-cost-averaging, selling more assets when down and having less when they go back up. If, on the other hand, you change your portfolio to more dividend producing stocks (with solid companies), and then spend the dividends on a day-to-day basis, the price fluctuations matter much less, as you have noted.

This is a very uncommon viewpoint in this day and age, everybody is focused on building capital values, rather than cash flow. I still hold that the best way to build capital over time is to save money and buy what had been top growth companies, which still had solid businesses, when they are very cheap (usually in a recession, but not always. Think the computer stock crash in 1985.), and then holding them for the long term (or until you think the business is no longer going to be a solid business.

This is my financial advisors theory. Over twenty years ago, he put us in these baskets of dividend producing stocks that cashed in at five years. We then would buy a new unit trust with the proceeds. We made a lot of money when they came due every five years and we reinvested it. Plus we earned lots of dividends.

 

[HitchHiker71]

@VacationForever and @Brett:

The underlying assumption of RENTER is that one is going to live off the capital earned on a day-to-day basis. If you do that, you get a reverse dollar-cost-averaging, selling more assets when down and having less when they go back up. If, on the other hand, you change your portfolio to more dividend producing stocks (with solid companies), and then spend the dividends on a day-to-day basis, the price fluctuations matter much less, as you have noted.

This is a very uncommon viewpoint in this day and age, everybody is focused on building capital values, rather than cash flow. I still hold that the best way to build capital over time is to save money and buy what had been top growth companies, which still had solid businesses, when they are very cheap (usually in a recession, but not always. Think the computer stock crash in 1985.), and then holding them for the long term (or until you think the business is no longer going to be a solid business.

Actually it's increasingly common for dividend funds that seek both capital preservation and enhanced dividend payouts using covered call strategies for example. JEPI and JEPQ from JPMC come to mind. For those with a higher risk tolerance, there are funds that mix in option strategies to significantly enhance the dividend payouts, such as APLY (Apple specific) or JEPY or SPYI for example.

 

[Icc5]

Why would you need to sell your home and move away because the stock market drops? Stock market recovers after a few years, and typically within 18 months. Even if it takes 6 to 8 years to recover, it is only a loss if you were to sell your positions. Job loss is a different problem. Because I have made more during the up years, the drops that I experience are less in absolute value because I had more gains. Even if our investment drops by 50% now, it does not affect our retirement. No fire sale for us.

That's why I have mostly dividend paying stocks and most keep increasing the dividends. In 52 years of investing only a couple stopped the dividend and over time reinstated it. During my investment time I've had 2 stocks go bankrupt but have also gained about 6 stocks from spinoff. Worked well enough for us that we both retired early and between a pension for each of us and early SS we do better today then when we worked.
Up to now I have never sold any stocks and this year will be forced by age to take from my 401. We travel all the time,especially cruises and both my kids will be millionaires when they inherit.
Bart

 

[PigsDad]

In 1973-74, it took 6 years to get back to even
In 2000, it took 8 years only to get back to even only to run into 2008
where it took another 6 years to get back to even
For tech stocks it took 17 years to get back to even after the 2000 crash.

Can you please provide a reference or some proof for these numbers? It looks like you just took a look at the indexes and noted where the index recovered to the previous high. Any investor knows that the indexes do not include dividend reinvestment, so that is a false comparison.

Dividend reinvestment makes a huge difference on those recovery times, plus those who are just regularly investing in their 401k, etc. as they are working will also dollar cost average through these bear markets, automatically buying more shares when the prices have dropped.

I was working through the largest stock market crash since 1929 (2008 Great Recession), and my 401k account that was invested in at least 98% equities through all of it recovered to its previous balance in less than 3 years. That's a real-life example, not just looking at indexes and charts -- real-life, where it only matters. And since then, it more than quadrupled by 2022 when I retired. No market timing required.

My main point is that these "recovery times" are often touted as scary monsters that wiped out everyone's savings, and used to scare people away from the stock market and usually into "safer" investments that are "managed". That is probably fine for those who don't have the capability to handle the rollercoaster ride, but they also give up huge potential gains.

Kurt

 

[WaikikiFirst]

looks like you just took a look at the indexes and noted where the index recovered to the previous high ... Any investor knows that the indexes do not include dividend reinvestment

I hear this all the time, as if it is the ending thought on this. Count me as a hugely successful investor who doesn't know, nor care really. I get what I get.
Many charts DO adjust price for dividends. I am sure many do not. All indices?
Many tables of historical prices DO adjust past price for dividends that occurred since that date. I am sure many do not.
Anybody who wants to claim either side needs to provide a reference or some proof. ... maybe a doctor's note "from Missouri". And if you do have proof, Thank you very much. It won't change my life, but I've wondered now & then over they years.

and btw, if someone takes their do-re-mi out of the market, they get dividends from the bonds or $-mkt. Current $-mkt rate is > 2x that of the SP500 div yield

 

[WaikikiFirst]

since then, it more than quadrupled by 2022 when I retired. No market timing required.

This is what made me laugh when Renter started this stuff. Trying to debate buy-and-hold vs anything else is a laughable proposition when "The Market" is at all-time highs. LOL. Why should any B&Her listen to you? They've doen just fine thank you. Better to sell popsicles to Eskimos.

 

[WaikikiFirst]

Current $-mkt rate is > 2x that of the SP500 div yield

actually, I need to keep up. I just got a quote that says SPY div yld is 1.25%. If correct, current $-mkt rate is 4x that of SP500 div yield.
W Buffett loves his dividends and he is selling huge amounts of stocks that pay big dividends to stash $$ in $-mkts and other short-term $ holdings. Not that it makes me want to sell, sell, sell, but there it is.
AAPL or cash? WB likes cash. BAC or cash? WB likes cash. go look at most recent 10Q

 

[WaikikiFirst]

stuck here looking at NVDA #s, so decided to quickly look at Buffett's #s, which I have wondered about a few times this year. You can see the huge drop in equity in Q2 due to selling (about half?) his AAPL, & corresponding jump in Cash, etc. THen I realized he started selling BAC in mid-July, so that will show up in Q3, and of course, we don't know whether he is buying something else with the BAC proceeds. He did not with the AAPL proceeds. Look to the right @ Div Ylds on AAPL & BAC.

	Dec2023	Mar2024	Jun2024	Sep2024e
Cash, cash equiv & US T-Bills	121,845	143,509	224,240	239,240			Div Yld
Equity securities	345,653	327,230	276,140	270,140		BAC	2.6%​
Fixed maturity securities	23,617	17,066	16,644	16,644		AAPL	0.4%​
Other	1,188	1,129	1,044	1,044
	492,303	488,934	518,068	527,068

 

[WaikikiFirst]

Now look at the overall Div Ylds BRK (Buffett) gets on stocks vs cash/bills/bonds. (Few "bonds" since a "T-Bill" is short-term, "T-Bond" long term (duration)). So, selling AAPL & BAC to hold $s in very short-term stuff with a 5.2% yield boosts BRK's near-term income. Net investment income rose by bout $700 M from Q1 to Q2 & my quick guesstimate is it will rise by another $550 M from Q2 to Q3. NICE. But it sure doesn't make the SP500 look like a "dividend vehicle".
Somebody may be thinking "I wonder how much of the declining yield in SP500 is due to NVDA, GOOG, etc having tiny divs but growing into bigger & bigger pieces of the SP500 pie" Yup. That must be it

							YIELD
BRK	1q23	2q23		1q24	2q24	3q24est	1q24	2q24
Dividend income	1,244	1,522		1,221	1,469	1,469	3.7%​	3.2%​
Interest & other Investment Inc	1,141	1,390		1,931	2,599	3,276	5.0%​	5.2%​
Pre-tax net investment income	2,385	2,912		3,152	4,068	4,745
Income tax & noncontrolling	416	543		554	748	872
Net investment income	1,969	2,369		2,598	3,320	3,872

 

[RENTER]

This is what made me laugh when Renter started this stuff. Trying to debate buy-and-hold vs anything else is a laughable proposition when "The Market" is at all-time highs. LOL. Why should any B&Her listen to you? They've doen just fine thank you. Better to sell popsicles to Eskimos.

And you make me laugh. Because I am at all time highs without the peaks and valleys others went thru. Sadly most people will listen to you and when the bear market hits they may be losing their jobs, have huge home maintenance costs, suffer a major medical issue, are getting divorced, their children need a lawyer.

Obviously you are one of the lucky one's in life where nothing ever bad happens to you so you can ride out the bear markets.

And if you did not have cement for brains, you would realize i am buy and hold. i buy and hold every sector of the world's economy. I just don't let my profits ride.

Market Watch had an article about the 4 problems Index funds have. They recommend that people do what that Fidelity Mutual Fund does so they do not have all their eggs in one basket and buy several different indexes. I just take it to the next level and use the sub-sectors.

But since you are so lucky in life that you can ride out bear markets. maybe you can share some of that luck with other people.

 

[RENTER]

Can you please provide a reference or some proof for these numbers? It looks like you just took a look at the indexes and noted where the index recovered to the previous high. Any investor knows that the indexes do not include dividend reinvestment, so that is a false comparison.

Dividend reinvestment makes a huge difference on those recovery times, plus those who are just regularly investing in their 401k, etc. as they are working will also dollar cost average through these bear markets, automatically buying more shares when the prices have dropped.

I was working through the largest stock market crash since 1929 (2008 Great Recession), and my 401k account that was invested in at least 98% equities through all of it recovered to its previous balance in less than 3 years. That's a real-life example, not just looking at indexes and charts -- real-life, where it only matters. And since then, it more than quadrupled by 2022 when I retired. No market timing required.

My main point is that these "recovery times" are often touted as scary monsters that wiped out everyone's savings, and used to scare people away from the stock market and usually into "safer" investments that are "managed". That is probably fine for those who don't have the capability to handle the rollercoaster ride, but they also give up huge potential gains.

Kurt

Well good for you, But many people never recovered.

 

[RENTER]

I guess those attacking me also consider you out there fools who are doing the balance index, a 60/40 or a growth and income fund because you gave up gains for safety.

I just created my own balance index of sectors and subsectors. Unlike you who has to take a loss when your fund drops, I can cherry pick the winners because not every thing goes down when the market drops.

Just ask those with those 60/40 plans who thought they were safe felt when those plans got hammered several years ago. But remember most of us are not as lucky as some of those people because life is good for them and they can ride out down markets.

But somehow this is a difficult concept for some people to understand.

 

[RENTER]

For those who think they are safe with a balance fund, the Fidelity Balance Fund dropped 31% in 2008. So if you are like me and not like the others were nothing goes wrong in their life, if you needed money then from it, you would had to sell down 31%

I on the other hand have made myself my own mutual fund with 83 stock funds and 17 bond funds to choose from. So, if another 2008 occurs, my bears and treasuries will be up, so I do not have to sell anything for a loss if I need to sell. Otherwise when people are crying, I will be buying.

I am the tortoise, small daily gains in a bull and bear market. I match or come close to matching the market over a bull and bear cycle. But I definitely beat a balance or 60/40 plan

 

[PigsDad]

Well good for you, But many people never recovered.

The only people who didn't recover were those who panicked and sold. Anyone who stayed in the market did very well with the longest and biggest bull run in recent history that occurred after the downturn, and that was the bulk of the investors. You make it sound like most people got wiped out permanently, and that is just scare tactics. The small percentage of people who panicked shouldn't have been in the market in the first place, and they also shouldn't be people who complain about the "rich getting richer", but they are. They simply made bad decisions and blame it on anyone else except themselves.

I'm happy your system works for you, as it seems you are one that doesn't want to deal with the big roller coaster ride of the markets. But it has been proven time and time again that no one can consistently beat the market with market timing, and when you claimed you consistently beat the market, that is where many people here started questioning your true returns. It makes you sleep better at night knowing you will never take a big loss, and don't get me wrong, that is certainly worth something in the mental comfort department. But that does come at a price of not catching those huge bull markets. I know I got "lucky" by riding the biggest bull market of all, but I'm not claiming that it was anything special that I did -- I simply didn't panic.

Kurt

 

[easyrider]

Anyone who stayed in the market did very well with the longest and biggest bull run in recent history that occurred after the downturn, and that was the bulk of the investors. You make it sound like most people got wiped out permanently, and that is just scare tactics.

I know many investors that were wiped out in 2008. Washington Mutual was big in our area and they disappeared in 2008. Anyways, many people that were newly retired or about to retire had to go back to work. We caught a dead cat bounce and sold most of our stocks and bought more real estate. I know you and many others have done well in stocks but I really lost faith in that system as it was the third time losing gains. I think I like real estate better because I only need to have faith in myself.

Bill

 

[Brett]

I know many investors that were wiped out in 2008. Washington Mutual was big in our area and they disappeared in 2008. Anyways, many people that were newly retired or about to retire had to go back to work. We caught a dead cat bounce and sold most of our stocks and bought more real estate. I know you and many others have done well in stocks but I really lost faith in that system as it was the third time losing gains. I think I like real estate better because I only need to have faith in myself.

Bill

yes, if anyone had their "life savings" in Washington Mutual stock they were "wiped out" just like Enron or other bankruptcies.
But if a company in the S&P 500 or Vanguard 500 or Schwab 1000 mutual fund goes bankrupt it's a small effect.
As one gets older, CD's, bonds and other fixed income investments is a larger proportion of "life savings".




And real estate tends to follow other assets like stocks in the long term

7 of the Best Residential REITs to Buy Today​

Residential real estate is booming. Residential REITs provide consistent income and growth potential.
https://money.usnews.com/investing/articles/best-residential-reits-to-buy-today

 

[Brett]

Well good for you, But many people never recovered.

well good for U 2
Actually investors that didn't panic sell in a stock market downturn completely "recovered"

Dow Jones 100 Year Historical Chart​

https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

 

[easyrider]

And real estate tends to follow other assets like stocks in the long term

Maybe some real estate follows stocks but income producing residential real estate does well regardless of what the economy is doing because people like having a roof over their heads. In 2008, residential property prices decreased about 30 - 40 % or more in some areas, so the prices were attractive. Interesting is rents didn't decrease. From 2008 until now , property values have increased at an unbelievable rate and rents have followed.

Bill

 

[Tia]

On assets over 100 million

''25% tax on unrealized gains.''

I'm never going to have to worry about that problem if they decide vote to do it

 

[emeryjre]

Maybe some real estate follows stocks but income producing residential real estate does well regardless of what the economy is doing because people like having a roof over their heads. In 2008, residential property prices decreased about 30 - 40 % or more in some areas, so the prices were attractive. Interesting is rents didn't decrease. From 2008 until now , property values have increased at an unbelievable rate and rents have followed.

Bill

Good thing you have never had a tenant that went in and destroyed your property
Paid you no rent for months on end
Fought all efforts to be evicted
There are risks to real estate as well as there are risks to the stock market
I thank my lucky stars that I never saw that type of tenant
There are plenty of stories about small mom and pop real estate investors ending up with negative cash flow properties
No investment is risk free

 

[Ralph Sir Edward]

''25% tax on unrealized gains.''

I'm never going to have to worry about that problem if they decide vote to do it

Tia, it always starts that way. The first US income tax was 3% of incomes over $1 million.

Besides, how much real estate equity (over original purchase price - not including any loans taken out against the gains) do you have? (rhetorical - I am not asking the amount) All of it would be subject to the unrealized capital gains tax. . .

 

[PigsDad]

''25% tax on unrealized gains.''

I'm never going to have to worry about that problem if they decide vote to do it

Yes, you would, but indirectly. Do you know what a 25% tax on unrealized gains would do to the market in general? How many entrepreneurs would head for the hills (other countries) and stop investing in the US if this happened? How many jobs would be lost? Millions of people's 401k accounts would be wiped out along with any other market investments. To think such a radical tax would not affect the common person is delusional.

Kurt