Dow Jones Big Boom

[Emil 0]

I wish I would have bought 100 shares of Berkshire Hataway 30 years ago. I don't know how much of an increase this stock has experienced during this time but I do know that if I cashed out today I wouldn't have to stay in the small rooms at the Skytop as I could afford one of their suites.

 

Also, although your income should be less when your retired ( could be higher if your selling off some stock ) that doesn't necessarily mean your taxable income will be less. If you sell your house and move to LOS your itemized deductions will be significantly less as your home interest and property taxes will be gone and if your living in a state like California or New York your state income tax deduction will be gone. You'll more than likely be better off taking the standard deduction. Also if the Democrates get back in power don't be surprised if the tax rates return to the pre Bush years or go even higher.

Edited April 27, 2006 by Emil

[Eneukman 1]

Gentlemen, I got no desire to fight about this. Do whatever you want. No one rational was going to do anything without double checking the concept anyway.

 

Eneukman returns from Vietnam, I see. I kind of knew this thread was on its way to boring the UK guys. They probably have IRAs and Roths, but named something different with different rules.

 

Eneukman, how goes the retirement so far and are you on budget and has the FTSE mirrored the Dow to date?

Retirement is coming along very nicely, thanks, Owen. I was actually only in Vietnam for 4 days and have since been to Malaysia (now way was I going to spend Songkran in Pattaya ).

 

I've no idea what IRA's, Roths and 401's are but assume that they are some sort of investment vehicle.

 

The FTSE 100 is doing well at the moment at just over 6,100, which must put it close to the highest point for 5 or so years. Last report I saw today, it was down slightly but nothing to be worried about.

 

My concern is that the FTSE (as well as the Dow) has risen too fast and that there will be an over reaction in the opposite direction at some point.

 

Alan

[Owen` 2]

I've no idea what IRA's, Roths and 401's are but assume that they are some sort of investment vehicle.

 

The FTSE 100 is doing well at the moment at just over 6,100, which must put it close to the highest point for 5 or so years. Last report I saw today, it was down slightly but nothing to be worried about.

 

My concern is that the FTSE (as well as the Dow) has risen too fast and that there will be an over reaction in the opposite direction at some point.

 

IRAs, Roth IRAs and 401K (paragraph number of the Internal Revenue code) are ways in the US to put money in a special account that grows tax deferred, or tax free, for retirement. Outside those accounts, the US taxes you on savings interest or stock share gains. Inside the accounts, generally not. Lots of details and complexity. I'm sure you have a UK equiv.

 

The market is up, but only about 6% year to date. 5% last year. Barely 10% the year before that. 20+% in 2003 coming off the multi-year big declines starting in early 2000 and aggravated by 9/11. The 6, 5 and 10 numbers are not the high teen% numbers of the 90's. Kind of hard to call 6% and 5% a silly speculative "bubble", but no one has a crystal ball.

 

So how was Malaysia? A lot of early retirement websites talk of it as an excellent option with fewer long term visa impediments than Thailand and very cheap flights up to BKK to indulge when the spirit moves.

[Hub 203]

So how was Malaysia? A lot of early retirement websites talk of it as an excellent option with fewer long term visa impediments than Thailand and very cheap flights up to BKK to indulge when the spirit moves.

I know CheshireTom has a lot of information on Malaysia, as we have discussed it several times, so hopefully he reads this thread.

 

Apparently there are several advantages to Maylasia as compared to retiring in LOS, including the government being much more "retiree friendly", but he could elaborate.

 

Hub

[Shilo 371]

Owen,

 

I tend to agree with about 90% of what you say but I think with the following:

 

The market is up, but only about 6% year to date. 5% last year. Barely 10% the year before that. 20+% in 2003 coming off the multi-year big declines starting in early 2000 and aggravated by 9/11. The 6, 5 and 10 numbers are not the high teen% numbers of the 90's. Kind of hard to call 6% and 5% a silly speculative "bubble", but no one has a crystal ball.

 

you're making a common error.... your numbers are based on the S&P 500 which many people use to "index" the market. I think a better index is the Wilshire 5000 which still gives an over weighting to the large caps but also captures the mid and small caps. If you buy in to the "4 year market cycle" then we are seeing a classic cycle. This theory says that the first year is the strongest, followed by a strong (yet weaker) second year, the third year is weaker yet and the fourth is a common year for a pullback setting up for another good year when the cycle begins again.

 

In 2003 the Wilshire returned 31.24% (year 1), then in 2004 we got 12.11% (year 2), last year 2005 it was 6.42% (year 3) and this year started strong but the market ralley is getting "long in the tooth" (we haven't had a 10% correction in over 800 days (third longest period without a correction on record) and we are starting to see the market react. This year (to date) we are up 5.05% and starting to see the market react to the higher interest rates and commodity prices....

 

As you say, but no one has a crystal ball. but if the "4 year cycle theory" holds then we may see a correction over the next 2-3 quarters to set up what has a chance of being a strong 2007.

[Owen` 2]

In 2003 the Wilshire returned 31.24% (year 1), then in 2004 we got 12.11% (year 2), last year 2005 it was 6.42% (year 3) and this year started strong but the market ralley is getting "long in the tooth" (we haven't had a 10% correction in over 800 days (third longest period without a correction on record) and we are starting to see the market react. This year (to date) we are up 5.05% and starting to see the market react to the higher interest rates and commodity prices....

 

Good data. The 800 day thing is interesting. I wonder if the other 2 occasions were in recent times. If so, maybe the nature of market behavior has inflected. I did see a very recent study which said implied volatility numbers in the options markets had collapsed in the past decade. Trends just don't get established as powerfully as they once did. Probably because of program trading.

 

Don't rightly know what's coming next.

 

Personally I focus on asset allocation and don't do timing. I'm at about 65% equities, 10% cash and 25% fixed income. Mild heads up to anyone who cares; when one thinks one has some position in equities because of holding a mutual fund (not an index fund), don't forget to include the internal asset allocation of that fund. A good performing equity income fund is likely to have 15% cash internally. That has to add to your own cash position evaluation. You might therefore add up all your "stock fund" positions and come out to be 75% when your target was 65%, but you've still hit your target.

 

Other links of interest (full disclosure: I have no financial relationship with DFA or any of these links, I advocate nothing, I don't care if you read what I type, I hope everyone's investment results are super) :

 

http://www.dfaus.com/

 

http://www.dpcmgmt.com/pages/f_dfa.htm

[Shilo 371]

I'm at about 65% equities, 10% cash and 25% fixed income.

 

It must be true....great minds do tend to think alike. I'm sitting at 55% equities and 45% cash. But I only have about 30% in the US, 25% International, and I'm chosing to be in cash over bonds because of the flat yield curve. A money market yields you 4.57% while an Investment grade bond fund is 4.88% To much added risk for to little added yield in bonds.

 

The 800 days referrence was something I caught on CNBC this past Friday. The longest period without a 10% correction was over 1000 days (can't remember the exact number) and I am sure it would have been in the late 90's, while the second longest period was 860 days. Bottom line.... we're overdue.

 

I agree with you that asset allocation will save your ass more often then not. I tried to never make big bets on any ideas. But I'm not above doing a little timing and when I see the right opportunity I'll over weight. The next 20 or so weeks should be interesting. We are following a simular path to what happened in 1987. Interest rates were going up as were commodity prices (read inflation) and the market shrugged it's collective shoulders and marched on. It was like a rubber band that was pulled to tight and when it popped we had Black Monday of Oct '87. It's not quite the same this time around because interest rates have gone up from a much lower base but commodity prices are much much worst.

 

I'm guessing that the market will "find" reasons to pull back between now and late fall. And a number of things are lining up to make for a strong year in 2007.

[ginseng 0]

We are following a simular path to what happened in 1987. Interest rates were going up as were commodity prices (read inflation) and the market shrugged it's collective shoulders and marched on. It was like a rubber band that was pulled to tight and when it popped we had Black Monday of Oct '87. It's not quite the same this time around because interest rates have gone up from a much lower base but commodity prices are much much worst.

There was a correlation between spiking prices of precious metals and declining dollar values when we had black monday in 1987. There's a very similar correlation occuring right now. I don't know all the factors that caused black monday but we could be setting up for another huge 1 day drop.

 

Asset allocation is so critical, nothing has killed investors quicker and more definitively than too many eggs in one basket. However there are times when you need to double down if you're gut is strong about gains.

 

I also pay close attention to country allocation. For now I have minimal investment in US and am overweight China, SEA, Japan and South America. With China being the slight heavyweight.

Edited May 13, 2006 by ginseng

[soi unwise 6]

So cut to the chase.......................how much for the shag ???

1000 is still 1000 in real life.

[Shilo 371]

Asset allocation is so critical, nothing has killed investors quicker and more definitively than too many eggs in one basket.

 

My best arguement for asset allocation:

 

It's common sence that 100% stocks in a bull market will make more money and 100% cash in a bear market will get you a gain and avoid the loss. But what most people don't seem to understand is that in a "choppy" market a balance mix will beat both the aggressive and convervative approches...

 

A simple math exercise:

 

You have a $100 investment and in one year it goes up 50%, at the end of the year you'll have $150. Now let's say that you leave it alone and the next year it drops 50%. You won't go back to $100.... you'll drop to $75.

 

Or say you start with $100 but you pick the wrong investment and it drops 75% in the first year. You'll go from $100 to $25. But the next year, you don't need a 75% gain to get back to breakeven.... you'll need 400% to get back to your orginal $100.

 

The moral: going down has a bigger impact on your portfolio then going up. So it begs the question... Why do investors spend ALL of their time trying to figure out how to make money and spend so little time looking for ways to limit their risk?

[cottesloe 0]

Hi Chaps,

 

Very interesting thread.

 

Interest rates in U.S up to 5%, commodities took a hit today along with OIL ... I think we'll see at least a 10% correction over the next three months.

 

I know this is posting after the fact ... the start of it was the last few days. I did sell some of my equities last week before the hike in U.S to 5% as (at least) a little hedge.

 

Cheers,

 

C.

[kdc1899 1]

Hi Chaps,

 

Very interesting thread.

 

Interest rates in U.S up to 5%, commodities took a hit today along with OIL ... I think we'll see at least a 10% correction over the next three months.

 

I know this is posting after the fact ... the start of it was the last few days. I did sell some of my equities last week before the hike in U.S to 5% as (at least) a little hedge.

 

Cheers,

 

C.

Reported B4 the fact!

 

Good show.

 

Let's see how much more reality we can inject into the market 2morrow.

 

Dow 10,000 ; here we come.

[Gary 4,119]

The stock market has had a bad time the past few days. Now I remember why I bailed out. I no longer have the stomach for it. I DO enjoy spending my monthly dividends but if interest rates continue to go up I may have to change horses again. By then bank CD's could look good.

[Alfred 26]

I work in the futures markets and have seen these type of moves in different markets.

 

The market will often spike one way before the more defining move the other, in this case the market has taken a hit with a big down move, if there is follow through then yes a decent correction may be under way.

 

Often though the sellers are shaken out of the market and any stabilisation then strength back into the recent trading range may see the buyers come steaming in and drive the market significantly higher, I favour this scenario at present but only if the S&P 500 futures breaks above 1290.

 

 

Cheers

 

Alf

[Owen` 2]

Something odd is going on worldwide about the markets. It's like people have lost track of numbers.

 

The last few days the US markets are down about 4%. That's about what they were up for the year to date. I have no idea how people concluded 4% was some ridiculously overbought speculative bubble, nor does it make sense how they are declaring a 4% down move to be a crash. For the entire year the market was up only 5% in 2005. So we're talking about less than 10% of rise over 17 months and people who lived through the 90's actually persuaded themselves this was a big up move.

 

I got no idea (EVER) if things are going up or down. I do have some idea of what norms are over the past 10 yrs for up or down moves, and 4% is nothing in comparison.