Rational Investing Will Be the Death of Us

Does this mean that what was old and obsolete is true?

Like the business cycle and financial fundamentals?

We are all ENRON/GLOBAL CROSSING/LEHMAN BROS/PETCO/NORTEL now.

“Prudent investors are now buying stocks in huge quantities.”
John Jacob Raskob, Oct. 30, 1929. He was an investment “guru” and later chairman of the DNC.

Now that I have become a financial expert I can validate your conclusions. A bubble economy will burst sooner or later. Everything runs on credit. No one actually has any money only the promise of money. And it’s all held together by faith.

But if we live in a world run by reason they have nothing to talk about on tv. Plus, you can make a LOT of money in a bubble if you get in early and get out in time. Next bubble? Green industries.

“the single most important fact about stocks at the dawn of the twenty-first century: They are cheap….If you are worried about missing the market’s big move upward, you will discover that it is not too late. Stocks are now in the midst of a one-time-only rise to much higher ground–to the neighborhood of 36,000 on the Dow Jones industrial average.”

-James K. Glassman, from the introduction to his bubble promoting tragicomedy: Dow 36000.

BTW: Glassman is still a respected policy analyst in conservative circles, which is to say conservative publications are still eager to publish his bullshit as long as it says what they want to hear –a history of being right in one’s predictions being largely beside the point to a conservative commentator’s saleability, appeal and popularity, as William Kristol has so aptly proven time and time again.

@Serolf Divad: Cf. David Brooks, Tom Friedman, Charles Krauthammer, et seq. ….

@Benedick:
I was thinking more bullets and beans.

@Serolf Divad:
Pretty much since the Civil War.

@blogenfreude:

Krathammer proves that the surest way to a conservative’s heart is to promote Manifest Destiny along with the mass slaughter of brown people, and explain how it was they brought it upon themselves.

David Brooks is basically the Alan Colmes of conservatism. I’m sure he believes what he believes in his heart of hearts, it’s just not that clear what that thing is or why we should care.

Tom Friedman wrote a book called The World is Flat which, if you interpret the title as devoid of irony, tells you all you need to know about Tom Friedman.

@Serolf Divad: We like Brooks as that nerdy foil to the rumpled Andy Rooney Mark Shields on the News Hour. The comparison with Colmes is apt; I’ve caught that guy on am radio late at night and it would appear that he only inserts his spine when off camera.

@Serolf Divad: This was the moment when it all came together for me re: Friedman.

TJ: at 8:41 pm last night TPM posted a link to the DCCC’s Rush Apology Widget. It can be found at http://www.dccc.org/content/sorry

@lynnlightfoot: Good thing Rush’s ass is so big, since there are so many Repub noses up it.

@lynnlightfoot: This might be funny if it weren’t so deeply depressing. No wait. It is funny. Or not. Is! Not.

Is a puzzlement.

P/E ratios are for investors; speculators don’t need no stinking P/E ratios.

Investors build and create things. Speculators gamble.

The data in the graph is somewhat different from that which I’ve seen via MarketWatch or Google Finance which shows most stocks’ current P/E ratios are actually below historical averages, and if you look at the individual stocks in the S&P 500, their individual ratios are quite low, even for essentially healthy companies.

OK, here’s the deal: People invest in stocks and bonds because those are among the few investments that can actually produce returns that beat inflation. Even people who currently have all of their money in cash are losing value hand-over-fist due to historically (ridiculously) low interest rates for cash that have persisted for a decade.

Yes, the current crisis is scary, but if you only buy equities when they’re going up and sell them on the way down, then that’s the perfect formula for losing money 100% of the time. Besides, if this is The End of The Economy As We Know It, then it doesn’t really matter if the value of your investment account goes up or down because your US dollars will be worthless anyway.

However! If there is an economic recovery at the end of this year/beginning of next, and investments bounce up, then doesn’t it make sense to continue a regular systematic investment program into a diversified portfolio of equity and bond mutual funds take advantage of the low prices?

Rational investing requires formulating a plan and sticking to it, even though it may mean bearing out some gut-wrenching changes in the markets and making some contrarian moves during the highs and lows, but it’s the only long-term investment plan that’s been empirically proven to work successfully.

@Prommie: True.
@Original Andrew: Also true.

@blogenfreude: What makes Krauthammer particularly dangerous is how recklessly he wields his background in psychiatry as a weapon (i.e., “diagnosing” his political opponents as deranged). The man lacks any ethics.

He played a battered wife on TV, too?

@Serolf Divad: David Brooks is basically the Alan Colmes of conservatism.

I just read that the lone winner of the $212 million powerball lottery bought his ticket in my little town last night. Where I also bought a ticket last night, which I had not checked yet; I never check, I figure I will read in the news that the winner was bought in my town, and that will make it worth my effort to check.

So I checked, and its not me. I haz a sad now.

@Prommie: Why sad? In a few months, all currency will be worthless, anyway. That $212 million will be worth less than a potato inside of a year.

@FlyingChainSaw: Sunshine, you always know how to brighten my day!

@FlyingChainSaw: But still worth more than a flatulence-inducing rutabaga?

@SanFranLefty: No, because the flatuence can be used for lighting.

@flippin eck: Just got some fan mail from a potato farmer.

@FlyingChainSaw:
That will be good for starting fires for cooking our tins of food in the hobo camp.

Sorry I missed you when you were in town, BTW.

@SanFranLefty: Where did I post that? I lost it.

@Original Andrew: Besides, if this is The End of The Economy As We Know It, then it doesn’t really matter if the value of your investment account goes up or down because your US dollars will be worthless anyway.

Glad that Hopey didn’t put it quite this way yesterday, but your point is well made. In hindsight, however, I wish I had cashed out in 06 and sunk it into that beach property in central america, taking whatever taxes and penalties they wanted. I’d still be poor, but man the view would be awesome!

@Benedick:

I used to call it a “Tinkerbell Economy”, because we all had to clap our hands and really believe to keep it alive…

The stock market can eat a bag of dicks.

Seriously: I’ve just gotten into a position where I can sock away a non-insignificant amount of money with every paycheck. (I have a three-week emergency fund right now. I rock.)

In an effort to grow that fund a little more quickly, I bought into the idea that the stock market is half-real, half-panic. Looking for the panic selling and trying to ride the wave upwards. Buying stocks that actually make stuff that I understand and actually have, you know, value to other people.

This has lost me, over time, about 10% of the money I put in thus far. I haven’t risked a lot, but haven’t lost a lot. But I am just going to sit back on the sidelines unless things get really undervalued. When the job losses start to drop significantly, that’s when I’d get back in.

[ADD: My 401k, however, was until this week a total black hole. My contribution goes in, and disappears into the ether within a couple of days. I finally got wise and shifted everything to bond funds this week. I know: my economic skill set has a raging case of the stupid.]

@Original Andrew: To get all wonk about it, the trick I always heard was that unless you had money to burn, throw a fixed amount each month into an index fund, maybe two (stocks and bonds) if you wanna get mildly fancy about it.

And let simmer for thirty or forty years.

Long term, presuming the ocean doesn’t consume Florida, stocks remain a solid investment. But only if you start young and invest wisely. (Or at least not foolishly.) Dumping everyone into 401(k)s (or heaven forbid, social security accounts) whatever their point in life, was always a recipe for disaster.

All of which is theoretical for me, what with being freelance and all. That half-percent bank account is all I got.

We’re all doomed.

@chicago bureau: I find it interesting that E-trade’s representative day-trader is a baby.

@FlyingChainSaw: Conversely, that potato farmer will be a quadrillionaire, such as.

@nojo & @chicago bureau:

Definitely you should build up a cash reserve of at least three to six months living expenses in a cash money market account that you can access quickly if need be.

I’ve always thought that widespread usage of 401(k) plans, combined with the significant underfunding and reduction of the traditional pension system, was a time-bomb waiting to go off. Most people just aren’t that interested or inclined to become self-managing retirement planning experts. Some kind of pension-annuity (like the traditional pension system, RIP) would probs be the best general solution for most people since they’d receive a specified amount for life and not have to worry about investment returns.

@chicago bureau:

You’re in your late 20s, right? So you’re going to be invested for like 60-70 years, before and after retirement. Your 401(k) provider will likely have a model portfolio based on your risk tolerance and time horizon, a one-stop asset allocation fund or target-date retirement fund that you can contribute to and basically set it and forget it, which takes a lot of the stress out of the process of timing and investment selection, while lowering your taxable income. If you’re really wonky and analytical, a good rundown of the theory and math can be found here:

http://en.wikipedia.org/wiki/Modern_Portfolio_Theory

TJ/ On the other hand, we might NOT need to worry about the coming hobo cannibal anarchy economy.

http://www.huffingtonpost.com/2009/03/04/asteroid-2009-dd45s-passi_n_171722.html

@flippin eck & FlyingChainSaw:

If you’re really bearish, then stockpiling food, water, medicine and ammunition is the way to go since those will be the only items with any intrinsic value in a true collapse.

It does help to keep in mind that the US economy has recovered 100% of the time in the past, and that these kinds of downturns are gonna happen every 7 to 10 years, which they seem to do like clockwork throughout our history.

@nojo: Fixed amount (granted small) in an index fund and money market is the trick I use. Plus I follow the advice that the percentage of your assets invested in bonds should be equal to your age, so therefore you readjust the percentage upwards as you get older and (theoretically) closer to retirement. That way you don’t get hosed like some of the baby boomers I know who were overextended into stocks and have lost hundreds of thousands of dollars two years before or after their retirement.

@Original Andrew: More like 9-12 months cash reserve as a freelancer. I live at the whim of my clients.

@Original Andrew:
I’d have to agree with nojo, especially if the employer (like mine) went into Chapter 11. I have six 1/2 months.

@nojo:

Exactly, same with us. Mr. OA is self-employed, and the only thing saving our Fakin’ Bacon is that we socked away a significant cash reserve during the good times to see us through a drop in his bizniss.

@Prommie:
This one?

http://www.huffingtonpost.com/huff-wires/20090304/mega-millions-winner/

@ManchuCandidate: Months-in-reserve is matter of personal comfort level, but OA’s take is the detailed version of what I’ve always understood, including the problem with throwing American civilians into the stock market.

And none of this is new — it’s all Classic Investment Advice for Dummies. “Momentum” investing is a Ponzi scheme, best left for the other idiots.

@nojo:
Problem is that, like many of Madoff’s clients, folks want more, faster and exciting.

This usually ends badly. Much like folks who want to live in the fast lane.

Cue Marge Simpson: Slow and Steady Win the Race…

I am investing in lottery tickets, mid-cap and large cap. I don’t play the daily pick-3.

@Prommie:

Put one third in Keno, one third in Lotto, and one third in Mega Millions–diversification is a snap!

@ManchuCandidate: I divested myself of RJ Reynolds in 06, when I stopped buying my pack a day. On bad days, I think it would have been better for my kids if I still dropped a fin a day on smokes and stroked out in my 60s rather than live to a ripe old(er) age.

@Original Andrew: Exactly, and Gattling Guns to stave the attacks of hundreds of millions of starving cannibal neonazis. I watch the Omega Man 3-6 times a day for survival tips.

@Prommie: Sorry you didn’t win. I was trying as well. I still play my Mom’s numbers every week in the regular ol’ state lottery too.

@Nabisco:
In a similar vein, an acquaintance of mine once told me that I shouldn’t get so angry because I will die of a heart attack. I nearly told him to go fuck himself.

Of course, this is after I had seen a friend of mine die of brain cancer, knew the sad circumstances of another friend’s father in law dying of lung cancer and a coworker having brain surgery to remove a benign growth.

I’ll take heart attack.

@FlyingChainSaw:

I’m worried about what will happen when those desperate Mercer Island housewives erupt into face-grabbing, brain-chomping cannibal anarchy if their housekeepers stop showing up and their credit cards get turned off.

There aren’t enough yoga-lates classes to keep them distracted, and these women are already hanging by a thread, people!

@Original Andrew: You mean ear-clenching, face-eating cannibal housewives.

@Original Andrew: As long as it’s not Orcas Island. I think I still have some distant relatives there.

@Nabisco: @ManchuCandidate: My approach to both health and faith is very similar: Showing a little discipline and throughtfulness now may or may not include some “perks” in the future, like long life or heaven, but the main motivation for praying or going to the gym is my quality of life right now. For me, the benefit is mostly about living a fulfilling life in the present, including a calm spirit and a working body, when possible.

@flippin eck: Gym and prayer aside, that’s what I do. I’ve been officially retired since 24, and now I just cover the rent.

When not drunk I am furiously angry. I try to live a fulfilling life by indulging every whim and appetite that strikes me. I spend all of my disposable income promptly, and save nothing. I spend a lot on toys, I have 3 remote controlled indoor helicopters, 3 telescopes, digital cameras, computers, etc. But most of my money I literally spend on food and wine. I smoke fake cigars that are really giant cigarrettes (it amazes me that they avoid the cigarrette tax just because the paper wrapping is brown; they even have filters. Fuck it, I say. I am lazy as sin and sleep till noon regularly, because it shortens the wait till the strict 7 PM cocktail hour. At work I do exactly enough to avoid being fired. My hero is Wally from Dilbert.

@nojo: Gym aside! In that case, sir, may I ask you a question? Have you accepted Dirk as your personal trainer and savior? Can I interest you in this tract entitled Treadmill: The Golden Path?

@With a name like Tommmcatt…it has to be good:

What are the ones and zeroes in our bank accounts and the paper in our wallets other than a shared delusion that our fiat currency has a mutually agreed upon value?

I used to call it a “Tinkerbell Economy”, because we all had to clap our hands and really believe to keep it alive…

@Original Andrew:

Exactly. They are as real as any fairy, sprite, or elf you might find flitting around your garden.

@flippin eck:

I must note with some hilarity that the style of hapkido that I’m learning at my gym is called Heuk Choo Kwan, meaning “the Way of the Black Eagle.”

@Prommie: I am lazy as sin and sleep till noon regularly

Noon?! Lazy bastard. I’m usually up bright and early by 10 a.m.

@flippin eck: Can I interest you in this tract entitled Treadmill: The Golden Path?

Solve the soul-crushing boredom inherent in any exercise, and I’m yours. And no, iPods don’t work.

@Prommie: You call that late? Late is missing every brunch in the neighborhood. (Brunch is served until 4.)

flippin eck /nojo: Noon?! Lazy bastard. I’m usually up bright and early by 10 a.m.

I haven’t had the heart to tell my […] minister that the reason that I haven’t been to church lately is that I crave sleep.

Worse: “my [Unitarian] minister.” The one religion that basically has the lowest possible threshold for participation in the entire world, and I can’t roll out for church on Sunday. Yikes.

@nojo: Hire Kato.

Good god, you people get paid every week and have, like, savings? I’m like sooooooo umpressed!

@FlyingChainSaw: Only if he lets me wear my Green Hornet mask and fedora.

@Benedick: Thank you. I saw this
Definitely you should build up a cash reserve of at least three to six months living expenses in a cash money market account that you can access quickly if need be
and wondered what alternate reality everyone else was living in.

@Mistress Cynica: I know, I’m like… huh?

@Benedick: @Mistress Cynica: You’d be surprised. A friend recently got a hefty bonus and and plans to blow it all on a cruise. Meanwhile I’m worried that my 3-4 month reserve won’t suffice if shit really hits the fan.

Sigh.

@nojo: I have a desk on my treadmill. I can use my laptop for the interwebs or read. The webz make the time go by really quickly.

Gotta go see a man about my new addition to the kit and then off to Albuquerque with the boy to see his cousin and . . .(metal voice) Slipknot.

@Benedick @Mistress Cynica:

It wasn’t easy. Building our cash reserve took like 5 years, and we both had to work long hours in jobs that we somewhat hated. But once we achieved that goal, it gave Mr. OA the flexibility to start his own business a few years ago (it was his “Screw You Money”). It’s a good thing too, ’cause the architecture business has gone off a cliff nationwide since last October.

@Original Andrew: I’m impressed.

OMG WILL JIM CRAMER SAVE US ALL OR WHAT?

@nojo: I always heard 6-9 months of cash reserve. A few years ago, I was on a local board where cash reserves were being discussed not long after the association’s office building burned. Other directors thought I was cray cray for supporting the 6 month number. They thought that unreasonable for a non-profit association. Long story short, they decided to redo the entire interior of the building with all sorts of fancy bells and whistles instead of building a serious cash reserve. Three weeks ago, the building burnt to a crisp again (less than 3 years after the first fire) and they have almost nothing in the bank. And here I sit laughing my ass off at them.

@Jamie Sommers is unfairly harsh!: How unfairly harsh.

@mellbell: It ain’t hefty if you can blow it on a cruise, I say, hey, the money won’t last long, but the happy memories of the cruise will last forever. Go for it.

@Ewalda: What are your skills? Whats your field, I can at least ask around, man.

@Promnight: This is someone who routinely buys rounds of shots for groups of twenty or more. He has a knack for blowing through money.

@mellbell: Hey, money is a funny thing. He may feel the need, for self-esteem reasons, to throw it around. Thats a relatively benign ego flaw, he is sharing, after all.

My parents were depression babies. Dad was 10 in 1929, so obviously, 18 in 1937. He was hungry, during those years. Hungry. He worked in the CCC and then joined the army, in 1940, before Pearl Harbor, he felt lucky to get in and start earning $24 a month, from which they deducted the cost of laundering his uniforms.

Mom picked cotton in Texas with her family as a girl. They were, literally, hungry, also.

So, what was their attitude towards money in the 60s and 70s when I was growing up?

Well, they were not afraid of poverty, real poverty, they had been there. They spent their money. They bought rounds. They were big tippers. These are things my Dad taught me as part of the code of honor. Always be the one who grabs the check, after a meal with friends, and treat them, always overtip, always buy a round. To be seen as “cheap” was the lowest shame, to him.

Its funny, though, other people who had lived through the depression became skinflints, penny-pinchers, afraid of ever being poor again, but paradoxically, or ironically, living as if they were poor, out of fear of having to live as if they were poor.

Money is a funny thing.

@Promnight: Thanks for the offer, I do appreciate it.

@mellbell: Mind you, it has given me a rather reckless trend, reckless only because I have never been as poor as they were, so unlike them, I really don’t understand the nature of the risk I run.

@mellbell:
Sounds like a lot of my contemporaries during the go go days of the tech bubble, who were more than happy to blow 5K a weekend on trips to Vegas, hookers and booze at least once a month.

The only guy I know who got something besides fading memories was a friend of mine who cashed out just before it all blew up and built a very nifty beautiful home with the proceeds.

I think it’s a balance between living for today and thinking about tomorrow. What that balance is, is up to the individual. I’m not nearly the saver my parents were, but I learned to save cash from them and be able to spend when I need to. I didn’t go for the flashy car and buy the biggest house among my friends, but I’m also not freaking out about my current financial position like my over leveraged friends. With this financial tsunami to deal with, I’m not sure I have enough anyway.

The key is financial flexibility. Of course, I’m an engineer whose personality type is supposedly a penny pinching skinflint bastard.

@Ewalda: In one of Chris Rock’s HBO comedy shows, he defends Clinton against the allegation, during the impeachment, that he used his influence to try to get Lewinsky a job. Rock said “Shit, she was his friend, every person in this room got his job through a friend.” And the room erupted, because its true, most people, they get their job through a friend. I regard you, and everyone else here, as a real friend, not just some internet thing, and goddam, yes, I will keep my eyes open for you.

@ManchuCandidate: Don’t. stop. thinking about tomorrow…

I hate you right now.

@Prommie: I have all the anger, and many of the habits, that you do. Unfortunately (or fortunately) I have an excellent contract job right now, so I have to get up early and work every hour offered (up to 72 per week). Who knows … I might wind up spending my earnings on ammunition, bottled water, and a cheap Volvo (in case I need to flee NYC). Until then I can’t complain.

@mellbell:
I hate me for inadvertently bringing up Fleetwood Mac.

@ManchuCandidate: I love “Tusk.” Its the only piece of music I can stand to hear performed by a marching band. I am charmed beyodn words to learn that the USC marching band only ever performs it unofficially, and the band sings the words “U C L A Sucks” to it.

@mellbell: @ManchuCandidate: Rhiannon rings like a bell through the night and wouldn’t you love to love her?

I fucking LOOOOOOVES the Daily Show tonight.

Cocksucking Newszi Bastard Channel got served.

@homofascist:
@Promnight:
I can see why USC would like the song, but I like UhKla (only because I’ve met some USC grads and University of Spoiled Children isn’t that far off.)

I actually like Fleetwood, just not the “Don’t Stop Thinking ’bout Tomorrow” because I find it annoying.

@ManchuCandidate: Either way. You totally influenced what I playing on my iPod right now, and for that I thank you.

@ManchuCandidate: It was glorious, and, you do understand, incomprehensible to 90% of US American morons?

@Promnight:
Yeah, but I think they framed it beautifully that even some of the slower (ie stoned) members of the audience get it. CNBC has been a meat puppet of Wall St since birth.

I’ve always had problems with the bidniz media. Partially because of my own experiences listening to some “anal cyst” telling me that my company should get rid of more of my coworkers and I and doing stuff that would ultimately destroy my employer faster than it has been going.

Plus the ass kissing nature of bidniz reporters. Sports Reports should get some respect compared these guys. About the only decent bidniz reporter I respect is Greg Palast and he’s not focused on bidniz.

@Promnight: Given the Daily Show’s audience, I think that leaves 9 percent of Americans yet to be reached.

But it was a joy to behold. And to think everyone was fretting about the death of satire.

@ManchuCandidate:

Hey! Stop discriminating against Stona-Americans!

@blogenfreude:

I watched that and it made me sick. I had no idea how twisted some of these guys are. That dude is insane.

@Promnight: Oooh, you’re going to really piss off Dodger with that one.

Re: your parents’ generosity. It’s a paradox. I’m the most thrifty person I know, but I think it’s due to my six years of waiting tables in my past, I’m always the person who overtips or jumps to grab the bill (unless you or Mrs. Prom beat me to it) even if I’m sitting there praying to FSM that my credit card won’t be denied.

@ManchuCandidate: Thank you for reminding me about Jon Stewart – I was dozing and the TV had gone to COPS.

@ManchuCandidate: Favorite part: Jim Cramer saying to buy overvalued stocks because they’ll become even more overvalued.

S-P-L-A-F-F-F-F

Hey! The whoopie cushion works!

@SanFranLefty: I don’t begrudge those kids a bit of fun before they go off to work at what’s left of Daddy’s real estate business. I mean, if not for them, where would the popped collar and Uggs industries be?