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REHP 2005 Portfolio Update

 
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unclemick
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Joined: 12 Jun 2004
Posts: 231
Location: LA till Katrina, now MO

PostPosted: Mon Feb 28, 2005 6:00 pm    Post subject: REHP 2005 Portfolio Update Reply with quote

just skimmed thru the article - with my preprejudiced glasses on.

Here's my non math initial thoughts:

1. Boy was I lucky taking ER in 1993. History's tailwind was kind to me.

2. There is always somebody smarter than me in hindsight(Dent, Buffet).
BUT - all praise be to Bogle my quasi 60/40 Index(via Lifestrategy) - was o.k.

3. The what if you retired in 2000 section illustrates a lot of what SWR Research has been finding. I wonder how many people casually gloss over that section and the implecation of some of the charts and tables.


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JWR1945
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Joined: 26 Nov 2002
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Location: Crestview, Florida

PostPosted: Tue Mar 01, 2005 4:18 am    Post subject: Reply with quote

Here is a link to the article.
http://www.retireearlyhomepage.com/reallife05.html

Have fun.

John R.


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Mike
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Joined: 06 Jul 2003
Posts: 278

PostPosted: Tue Mar 01, 2005 1:29 pm    Post subject: Reply with quote

Quote:
Boy was I lucky taking ER in 1993. History's tailwind was kind to me.

Indeed. The S&P/Fixed Income 1/1/2000 retiree is still under water.


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hocus2004
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Joined: 10 Jun 2004
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PostPosted: Wed Mar 02, 2005 2:43 am    Post subject: Reply with quote

Intercst: "Retirees following this approach [the REHP approach] over the past ten years have been generally pleased with the results. "

That's sort of what you would expect when the first five years of the 10-year time-period being examined are the years at the tail-end of the greatest bull market in history, isn't it?

One of the many games that intercst plays when reporting on what the historical data says is to pretend to be taking a long-term view by pointing to his use of SWR analysis [which is a tool that generally does indeed focus on what happens in the long run] and then, when someone points out what the historical data really says about how stocks do starting from the sorts of valuation levels that have applied since the late 1990s, engage in the sleight of hand of focusing people's attention on how stocks did at the tail end of the greatest bull market in history.

Ask intercst how early retirees should invest, and he says: "They should put it all in stocks regardless of valuation levels, just look at the results obtained in the late 1990s." Mention that perhaps an examination of results over a ten-year time-period doesn't take enough of a long-term view, and he responds: "My study looks at 130 years of blah, blah. blah." But he of course is completely unwilling to take into account what the 130 years of data says about the effect of starting point valuations. If he were to look at all of the data that affects SWRs, the entire house of cards would tumble to the ground.

Intercst was a guy who got lucky with stocks. That's pretty much his whole story. He got real lucky with stocks, and getting real lucky caused him to get a really swelled ego. He happens to be an extremely nasty individual, so even his closest friends are too afraid of him to ask any hard questions of him. So he continues walking along through his self-created fantasy world where it is 100 percent safe to assume that valuation levels have zero effect on long-term returns until...

...Until the prices of stocks drop. What does he do then?

What intercst does is steal away from the scene. That's what con men always do when their cons are exposed for all the world to see once and for all.

What do the rest of us do when the Great Intercst Con is exposed for all the world to see? That's one of the questions uppermost in my mind at this moment in the history of this wonderful movement we have built for the benefit of middle-class workers seeking to win financial freedom early in life.


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unclemick
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PostPosted: Wed Mar 02, 2005 4:54 am    Post subject: Reply with quote

Duh?

The numbers intercst posted don't say that - at least to me.

I'll go back to what I read into it. Bull markets are really nice - especially when they occur just when 'you' retire. Someone(in hindsight) will always have a better portfolio than yours.

If you retire into a high valuation market (I'm not convinced we've seen that last of the bear) - defense, defense, defense. Notice how the different portfolio styles shifted between 94 and 2000.

And there is alway's a smart guy. To paraphase Clint Eastwood:

Do you think you're Warren Buffett? - well! - do you punk!

Pick your style and take your chances. Ben Graham is looking better and better as the years pass - but then again I'm prejudiced.

Again - not inconsistent with SWR research. Although MPT hasn't been examined(here) in depth yet - I think the wide range of possible portfolios and quality of data sets might make that a little chewy.

Offense in accumulation - defense in distribution and may fortune grant you a ten year bull when you retire.

The transition phase - say within ten years of ER - now that's a tough one to answer.

REHP- 2005 Update -- is a good post. Understanding what you are looking at - is more difficult AND then appyling it to 'your' ER - ah there's the rub.


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peteyperson
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Joined: 26 Nov 2002
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PostPosted: Wed Mar 02, 2005 10:21 am    Post subject: Reply with quote

I find it a confused hotchpotch of stuff.

I don't think the 1993 onwards timeframe right thru a bull market is either long enough sample or a good sample period to use. It does not reflect investing reality at all. S&P 500 returns were way above the norm, growth went thru an abnormal spurt and so a MPT portfolio might lag such a period. The point really though is whether you are aiming to do better over the long-term or just using a mainly large-cap growth boom index for a limited sample period. So I think the example is lacking.

I also have a problem with the Bernstein 9-asset-class model. Anyone who has studied and understood value investing would not wish to own a blended fund. Both "growth" & "momentum" styles typically involve paying above intrinsic value for companies that on average (which is what you get with an index fund) will not provide good returns. Valuations fall out of bed over time as not all these richly priced "growth" stocks can be winners and there aren't enough of them to beat out the alternative. This also drags down the blend returns. As Buffett has commented, the term "growth and value" is wrong because growth is a part of a value investment, not a different style. For those who have come across the idea of buying $1 of earnings for 60 cents - those that truly get the simplicity of that - will not want to own a blend index or a "growth" index. Furthermore, the idea of owning either to lessen the volatility of your value stocks is a poor reason. I certainly think there is a benefit to owning stocks in large, mid, small & possibly micro-cap sizes with a value slant on a global basis.

So I don't find the traditional 60/40 S&P 500/FI attractive, nor the MPT portfolio which contains a lot of blended indices. That just means you're overpaying for your returns. There are not enough faster growth, well-run, affordable companies with which to buy an index of them - you have to seek them out and buy them individually to benefit (as Buffett has done).

Lastly, using the 90s as an example of substainable portfolios is invalid. The fact that the end of the period saw most portfolios needing less than 3% to meet the inflation-adjusted initial withdrawal amount missed the point. The return were not normal. Yale University Endowment went thru the inflationary 70s beginning with a portfolio 20% above their inflation-adjusted 1950s value and ended the 70s sitting at 60% discount to the inflation-adjusted value. It took until the late 90s and stellar returns annualised over the last decade at over 17% to fix the problem. This just shows the damage that can be wrought via the evil twins of market declines coinciding with double-digit inflation. Indeed, the situation was still worse in the UK where 1973-4 saw a 74% market decline (not 40%) and inflation peaked at 28%! Simply indexing the total market would not have been a viable strategy for most investors. Few would have held thru the decline. Value premiums are necessary in order to boost returns sufficiently to overcome these kinds of temporary losses. Size premium also helps when it is present. However one must be careful with value index funds because there you own a cross section of the weakest companies. In a recession this puts your capital at substantial risk as many of these companies will not survive the period. Such companies lost 92% between 1929-1932 in the US and many didn't survive either providing the deep-value index strategy a reall bad idea. One should only own strong, cheap companies, not weak, cheap companies if one wishes to avoid make a little, make little, lose almost everything permanently.

Petey

hocus2004 wrote:
Intercst: "Retirees following this approach [the REHP approach] over the past ten years have been generally pleased with the results. "

That's sort of what you would expect when the first five years of the 10-year time-period being examined are the years at the tail-end of the greatest bull market in history, isn't it?

One of the many games that intercst plays when reporting on what the historical data says is to pretend to be taking a long-term view by pointing to his use of SWR analysis [which is a tool that generally does indeed focus on what happens in the long run] and then, when someone points out what the historical data really says about how stocks do starting from the sorts of valuation levels that have applied since the late 1990s, engage in the sleight of hand of focusing people's attention on how stocks did at the tail end of the greatest bull market in history.

Ask intercst how early retirees should invest, and he says: "They should put it all in stocks regardless of valuation levels, just look at the results obtained in the late 1990s." Mention that perhaps an examination of results over a ten-year time-period doesn't take enough of a long-term view, and he responds: "My study looks at 130 years of blah, blah. blah." But he of course is completely unwilling to take into account what the 130 years of data says about the effect of starting point valuations. If he were to look at all of the data that affects SWRs, the entire house of cards would tumble to the ground.

Intercst was a guy who got lucky with stocks. That's pretty much his whole story. He got real lucky with stocks, and getting real lucky caused him to get a really swelled ego. He happens to be an extremely nasty individual, so even his closest friends are too afraid of him to ask any hard questions of him. So he continues walking along through his self-created fantasy world where it is 100 percent safe to assume that valuation levels have zero effect on long-term returns until...

...Until the prices of stocks drop. What does he do then?

What intercst does is steal away from the scene. That's what con men always do when their cons are exposed for all the world to see once and for all.

What do the rest of us do when the Great Intercst Con is exposed for all the world to see? That's one of the questions uppermost in my mind at this moment in the history of this wonderful movement we have built for the benefit of middle-class workers seeking to win financial freedom early in life.


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unclemick
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Joined: 12 Jun 2004
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Location: LA till Katrina, now MO

PostPosted: Wed Mar 02, 2005 11:41 am    Post subject: Reply with quote

Good Points Petey

You reminded me of something - I believe when Buffett and Bill Gates had a televised discussion at my old alma mater, U of W, Seattle) someone asked about price to book(ala Fama and French) -- to paraphase " sometimes when you stoop over to pick up a wet cigar - what you have is a wet cigar." aka Bershire Hathaway the original company. A lot of people(including me sometimes) miss the that fact that Ben Graham included earnings calculations over a ten year period as well as P/E, P/B, and debt to equity tests. From what I've read, Phil Fisher and of course Munger influenced Buffett's tendency toward concentration on a few outstanding companies. The central difficulty of getting at 60 cents on the dollar in value - is why Graham, Buffett and of course Bogle recommend index funds for average smucks like me. Sir John Templeton hasn't given up on me - yet - provided I stop being a 'provincial' American.


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