How you just lost money in a stock market that's up 40% August 5, 2009
Posted by Jeff Nabers in : Money, Personal Productivity, Self Directed IRA Solo 401k , add a comment
Headlines abound, the stock market is up 40% from its March lows!!! Let’s all celebrate. Those who spoke badly of Obama, Bernanke, and Geithner have their foots in their mouths, right?
Not even close. These types of misleading headlines are the very weaponry of a financial system that tricks you, lures you, spikes your drink, robs you blind while you’re partying, and then nurses you back to sobriety in the morning by giving you another spiked drink.
Imagine you have $100 in the stock market. You experience a 40% loss. You now have $60. And, abracadabra, the economic rescuers have juiced the market back up 40%. You now have $84. Wait a tick, how exactly do I get back to $100? Well to recover from a 40% loss, you would need a 67% gain. You see, 40% of $60 is much less than 40% of $100, so the initial 40% loss was much larger than the 40% gain that followed. For those whose livelihood involves serious math, this is very obvious. For the rest of us, it should be an “ah ha” moment that exposes the red arrow, green arrow game.
Watching and listening to the financial news networks report about the stock market is like watching a sports game. And it entertains just like a sports game. In the midst of entertaining, it lulls us into watching the red and green arrows. Oh, it’s down today a few points. Hey look, it came back up. It feels very much like watching a basketball team surrender and regain the lead in a basketball game. If they are down by 40 points, and then they score 41 uncontested points, they have the lead and they win the game!
But it doesn’t work the same in percentage points. But just wait, over the long term the losses will be recovered and there will be profit, say the “experts” whose payroll checks are signed by Wall Street. If you buy that line of baloney, you will be further tricked. Because over the long term those losses will be recovered and there will be profits… but only as measured in dollars. If you factor in how over the long term those dollars buy less stuff, you will not find a substantial long-term profit.
Today the Dow closed at $9,320. But the dollar has lost over 96% of its purchasing power since 1913. Take 96% out of today’s Dow price and you get $372. In 1913, the Dow was at about $62. So the Dow Jones Industrial Average grew from $62 to $372 (in constant 1913 dollars) over a period of 96 years. That’s an annualized rate of return of 1.88%.
This bears repeating…
The Dow Jones has returned 1.88% per year for the past 96 years
Can you still get excited about a stock market that’s up 40% since its March lows when it is still a stock market that hasn’t even been able to produce an actual 2.00% return over the long run?
Or even more important questions: Is it worth the risk of losing a big chunk of the money you worked for just to “get some action” in a market that produces less than a 2.00% return over the long run? When you are down, can you wait decades without touching your money just to get back to your break-even point?
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Jeff Nabers is author of 5 STEPS TO FREEDOM: How to Cut Your Dependence on Institutions and Escape Financial Slavery
The Top 5 Investing Myths of 2008 January 5, 2009
Posted by Jeff Nabers in : Money, Personal Enjoyment, Personal Productivity, real estate, Self Directed IRA Solo 401k , add a comment
2008 was a very interesting year to say the least. Possibly the most productive outcome of the year was the restless message of “rethink things” coming from the little voice beckoning each of us in our minds.
Myth #1… The SEC keeps investment information honest and accurate
The Securities and Exchange Commission (abbr “SEC”) should be done away with. The Madoff debacle along with the dozens of other securities frauds that draw less (or no) attention every single year should be evidence that the SEC is failing. It is tasked with making investments safe and transparent and is having the opposite effect. When an investor or fund manager is considering a particular investment, they believe that the investment is truthful, transparent, and honest because the SEC is supposed to regulate it into such a position. The result can be decreased due diligence because of reliance on the SEC. This leads to disaster when the SEC ends up not doing its job very well. If we didn’t expect the SEC to be “keeping investing safe and honest” then investors and asset managers would take a closer look at investment opportunities which would result in better thought out decisions. I’m not saying the SEC should be doing a better job – I’m saying we shouldn’t expect regulation to create investment safety in the first place.
I believe the SEC does more harm than good by offering a false sense of security.
Myth #2… Financial planners give good investment advice
Something very interesting happened in the last 15 or so years: Stock brokerages spent millions of dollars convincing the American public that securities salesman had become “financial planners”. That move alone shifted the perception of almost every American and the magnitude of Wall Street’s success (theirs, not yours). A “stock broker” is to securities as a car salesman is to cars… but a financial planner sounds a lot like somebody whose job it is to plan your finances. What actually changed to make stock brokers become financial planners? (more…)
Is this the bottom? How to recover your stock market losses September 30, 2008
Posted by Jeff Nabers in : Money, Self Directed IRA Solo 401k , add a comment
This question is on the minds of millions of Americans. I know exactly how to recover your losses: get out of the U.S. stock market and recoup your losses elsewhere.
S&P 500 loses 28% in one year
The sales pitch of securities salesman is that the stock market goes up around 8% or 9% per year over the long run – so don’t ever sell as a reaction to losing money. Let’s examine this, and assume your investment performance equaled the S&P 500 (even though the majority of mutual funds’ performance is inferior to that of the S&P 500).
Scenario A – You entered the (more…)
Grading Promoters – Fairpointe… B May 1, 2008
Posted by Jeff Nabers in : Self Directed IRA Solo 401k , add a commentI ran across a site advertised on Google today – www.coloradodeedsoftrust.com – run by a company called Fairpointe. This post is just my initial opinion from reviewing their web site. I haven’t spoken with or met these people or anyone who has done business with them. Once I have I will post an update.
Fairpointe offers self directed IRA investors the ability to invest in deeds of trust for properties in Colorado. A deed of trust is essentially a mortgage. Fairpointe’s site says in one place that the minimum investment amount is $25,000, while in another place they claim it’s $50,000. Either way, I immediately can respect what they are promoting more than those who promote putting all your retirement funds into one or two pieces of real estate through direct ownership. They also seem to allow, possibly encourage, forming an investment group so that each investor can invest a smaller amount which allows for diversification. I like the sound of that.
In the past, I’ve run across self directed IRA/401k promoters who really bash the stock market. Usually it’s in a very emotional way that just comes across as a cheap shot, and those people lose credibility in my book. Now, Fairpointe on the other hand does oppose the stock market, but in an interesting way. They point out what I believe to be the single misunderstood fact about numbers, math, money and investing. In fact, I think that the securities industry would not exist if everyone understood this concept:
Lying averages
Ever heard the phrase “numbers don’t lie”? Oh, yes they do. If 4 different investment portfolios each start at the same time, start with the same amount of principal, experience different gains/losses each year, but have the same average return during a period of time, would they perform the same during that period of time? No.
While many people believe (more…)
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