“I am a natural optimist”
Respectfully, Nadjdorf. If one reads most of your posts, you come across as a natural pessimist!
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Steve,
Saul’s proven acumen in the stock market isn’t the only reason many of us are reading Saul’s Investing Discussions. There are many others who are contributing by sharing further insights…often casting a new light on a company. I have seen Saul change his mind from simply reading of the experience and thinking of another astute investor…there are a ton on them on his board. Saul attracts some of the brightest investment thinking I’ve come across in over 35 years.
Come on over, Steve, and join us. You won’t be disappointed.
Jim
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I can provide a real life example. You guys can argue these data are a bit skewed since they start from 2008. I’ve normalized the money but the returns are real returns.
My Dad, 8% CAGR since 2008.
Me 22% CAGR
If you plug this into a CAGR calculator starting with 100 dollars and adding dollar each year you get the following after 10 years.
Dad: 389 dollars
Me: 1890 dollars
In a major recession lets say I lose 80% and he loses 50%.
Dad: 194 dollars
Me: 378 dollars
In short, even losing 80% I still come out almost equal to him in his best case scenario. There are so many assumptions and ways things could go differently but I wanted to show a scenario that is plausible and not cherry picked. I respectfully agree that one has to be financially ok to weather volatility if you pursue this strategy. I also think there is a very important message that people need to hear and understand…you WILL lose money. Lots of it occasionally. It feels bad. You and your significant other/family need to understand that and live below your means for this to work. Don’t invest money that you need to live on.
Best,
Ethan
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I went on a hike and was ruminating on this post. The numbers seemed off the more I thought about it so I doubled checked them manually and with a different compound interest calculator on the internet. Not sure if I did something wrong initially or the calculator was broken but here are the correct numbers.
Dad: 231
Me: 765
80% haircut for me, and 50% for my Dad
Dad : 115
Me: 153
doesn’t change the story much but I wanted to make sure I corrected the math.
Ethan
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If you aren’t going to be in stocks - aka businesses …
then what else are you going to buy? good point but the answer varies according to your wealth, health , age, and appetite or need or to take risks.
Extreme example I know , but for instance if I had a $100 million dollars I can think of no way I could spend it all before I die, I would de-risk by very wide diversification.
Aso agree that if it is safe it’s probably not an investment. In the Victorian pre inflation era Brits could say they had “a thousand pounds a year” and it was interest from safe government bonds. Not any more.
I have seen Saul change his mind me too and he has a singular talent at it.
But others can either be a blind follower ( which Saul says not to do) or develop that talent on their own. Good luck with the latter.
Fact is few retirees with no pension and limited savings can stomach huge losses for long periods. And if you manage to make it to your 80’s you will be faced with the combination of a surprising 10 year life expectancy yet be too old and puny to earn any money working during that time .
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Respectfully, Nadjdorf. If one reads most of your posts, you come across as a natural pessimist!
I think you are taking few posts of caution as pessimism. Recklessness should not be equated with optimism, caution is not pessimism either.
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I, on the other hand, am unreservedly pessimistic, I hope on the basis of logic and the sequence of events.
Encouraged by their elected politicians who should have known better but really deeply preferred to be popular, the people created false gods. Not one people but ALL the world’s richest peoples!
Unfortunately, all their gods - not one but all four - for a full seven years went on a full-scale binge of reckless profligacy. They behaved like sailors on shore leave. What at first had been warranted remedial action (after the previous binge) became normal. It was great and everybody, well, everybody who mattered, seemed to be enjoying themselves. We certainly were here.
All this time their central banking gods were held to be soothsayers; all-wise and all-knowing, the ultimate arbiters of economic wisdom. Their wisdom was the wisdom of Zimbabwe and Argentina and Venezuela but the gods found these places’ economic histories admirable and sought to emulate them so the people did not worry. They were gods after all. The magical results they could conjure out of the stock market were just one miracle to point to, and Wall Street did not hesitate to do so. They, above all, paid homage to the gods! And so did CNBC and others! Who could argue?
(Quite a good book recently about the great John Cowperthwaite of Hong Kong; a fine example of the utmost high standards, integrity and probity. The funny thing is, he did the opposite. His views are well worth comparing to the modern central banker.)
How we default and to whom we default I do not know. Politicians prefer the inflation default and, next, the devaluation default. The default on promises will also be a major part and less comfortable for them.)
The sums involved are so astronomic as to be incomprehensible.
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I, on the other hand, am unreservedly pessimistic, I hope on the basis of logic and the sequence of events.
Optimistic, pessimistic… What matter is how well we muddle through!
The full phrase ‘If the mountain will not come to Muhammad, then Muhammad must go to the mountain’ arises from the story of Muhammad, as retold by Francis Bacon, in Essays, 1625:
Mahomet cald the Hill to come to him. And when the Hill stood still,
he was neuer a whit abashed, but said; If the Hill will not come to
Mahomet, Mahomet wil go to the hil.
Don’t waste your time on what you cannot change.
Denny Schlesinger
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IOW it’s not actionable.
It seems likely that his mountain of debt will eventually implode. But Japan has not crashed. Europe as not crashed Both are in worse shape than the US. So it could be many decades away.
Even if the currency is destroyed good companies will remain afloat. BMW survived a run away inflation and being bombed while on the losing side in WW2.
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I also think people also need to be careful of echo-chambers. I notice that when negative analyst comments, or a bearish short-seller report is posted here, they are almost always overwhelmingly dismissed as “not getting it”, “wrong”, “idiots”, etc. In fairness to people here, you guys have overwhelmingly been proven correct that these reports have been wrong. But again, this can cause
a certain blindness if one is not careful.
My complaint on that is similar to Denny’s. Stating, "there will be a downturn is like saying, “It’s going to rain.” Well, no kidding. Also, the sun will shine, and the waves will crash on the shore, and there will be earthquakes, etc. Without a plan (and nobody ever seems to want to talk about the plan aspect), those are basically useless bits of information.
Kathleen
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Kathleen,
What sort of a plan are you looking for?
What to do during a downturn: Don’t sell anything unless the company has a problem, which is what you would do anyway. Right?
Hold a cash position: If you hold cash, have a plan on how to use it. If the market or some other “index” falls 10%, invest a portion of your cash. Here is a link to an article with some ideas.
http://www.fool.com/investing/general/2013/08/19/what-i-plan…
I have read that Saul stays invested and manages his portfolio much as he always does. He isn’t going to sell to “lock-in” profits or any of the things you hear from the mainstream media.
It is impossible to truly know what the market will do tomorrow or the day after. Most people lose money by trying to out-guess the market.
Does that help you?
Gene
All holdings and some statistics on my profile page
http://my.fool.com/profile/gdett2/info.aspx
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What sort of a plan are you looking for?
What to do during a downturn: Don’t sell anything unless the company has a problem, which is what you would do anyway. Right?
Hold a cash position: If you hold cash, have a plan on how to use it. If the market or some other “index” falls 10%, invest a portion of your cash. Here is a link to an article with some ideas.
http://www.fool.com/investing/general/2013/08/19/what-i-plan……
I have read that Saul stays invested and manages his portfolio much as he always does. He isn’t going to sell to “lock-in” profits or any of the things you hear from the mainstream media.
It is impossible to truly know what the market will do tomorrow or the day after. Most people lose money by trying to out-guess the market.
Does that help you?
Gene, I did not post that as a request per se, but as a personal gripe about most “knowledgeable” stocks folks. They basically act like Chicken Little running around screaming, “The market is going to crash! The market is going to crash!!” bUt that is all they do, and it is simply annoying. I can say the market is going to crash and be correct. But the intelligence resides in having a plan for that time and they never submit one.
Kathleen
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I can say the market is going to crash and be correct. But the intelligence resides in having a plan for that time and they never submit one.
I don’t attempt to predict crashes. But if I did, my plan would be simple, buy back at lower prices than when I sold. But clearly what you are talking about is the problem with Perma Bears.
A view must be actionable in order to profit from it.
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One reason that just buying systematically, as is the way most of our investable money comes in, if you are not in a bubble, is that you buy in bull markets, and then although it may be down for a year or 18 months (as is the usual norm) you also buy during the crash, that often looks quite savvy when/if the market returns.
Of course buying quality companies.
The permabear is pessimistic in a bull market, and possibly panicked in a bear market.
Tinker
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