Down goes the Dow

Math Mann wrote:

Ghost of Igloi wrote:

Here is something to contemplate. The power of compounding only works when you don't lose money. After three straight years of a 10% returns, a drawdown of 10% cuts the compound growth rate by 50%. It then requires a 30% return to regain the average return of 10%. Most investors make the mistake of ignoring portfolio risk in their allocation strategies.

You're still ahead 20% from where you started. Not too shabby.

That 1 down year cuts your CAGR from 10% to 4.6%. Even worse, if you sat through the 2008 bear market and lost 30%, it took you through 2011 to get back even, and that cut your effective return for this whole bull market from about 15% to 8%.

Igy is right about this. Avoiding bear markets is very important for your future gains, particularly with compounding. The only question is when the present market cycle ends.

coach d wrote:

agip wrote:

what does this mean?

The CAGR of the SP500 since 1/1/1970 in 5.96%, not the 10% the mutual fund industry has indoctrinated people to believe. The difference over 45 years is 31 times less money. And that's why we have the situation as Fortune demonstrated last year that of the 13 million 401k accounts at Fidelity, the odds of someone making less than $150K getting $1 million in their 401K is about 3 times less than being struck by lightning.

http://www.moneychimp.com/features/market_cagr.htm

and that 401k stat you cite there is a half truth at best. It is true for any one 401k, but as you know, people have multiple 401ks, multiple IRAs, multiple brokerag accounts, multiple annuities, multiple social security accounts....

it's not a very meaningful stat

there was a good column in the WSJ about this in the last month or two - it shows that Boomers are fine for retirment when you add it all together.

NFLX earnings cheered in the after market?

GAAP Net Income Q4 2014 $44,759,000

GAAP Net Income Q4 2015 $29,740,000

"Given out expected cash needs, we are likely to raise additional debt in late 2016 or early 2017. We are managing our balance sheet to lower our blended cost of capital over time, while maintaining financial flexibility. Despite being FCF negative as we grow our original content and invest in international, our bonds trade like BB (vs. their single B rating) due, in part, to the long-term growth of internet TV globally and low debt to market cap ration, which provides bond investors with a very thick cushion of protect."

Oh, ok, the overvalued NFLX common stock provided a "very thick cushion of protection" on the B rated bonds. Sounds like a bunch of malarkey if I ever heard it.

Igy

Ghost of Igloi wrote:

NFLX earnings cheered in the after market?

GAAP Net Income Q4 2014 $44,759,000

GAAP Net Income Q4 2015 $29,740,000

"Given out expected cash needs, we are likely to raise additional debt in late 2016 or early 2017. We are managing our balance sheet to lower our blended cost of capital over time, while maintaining financial flexibility. Despite being FCF negative as we grow our original content and invest in international, our bonds trade like BB (vs. their single B rating) due, in part, to the long-term growth of internet TV globally and low debt to market cap ration, which provides bond investors with a very thick cushion of protect."

Oh, ok, the overvalued NFLX common stock provided a "very thick cushion of protection" on the B rated bonds. Sounds like a bunch of malarkey if I ever heard it.

Igy

you just don't like it when companies invest in growth.

NFLX up 3% today and 7% more in after hours.

IBM laid an egg tho

Netflix (NFLX) Stock Up in After-Hours Trading, Q4 Profit Surpasses Expectations

http://www.thestreet.com/story/13428775/1/netflix-nflx-stock-up-in-after-hours-trading-q4-profit-surpasses-expectations.html?puc=barchart&cm_ven=BARCHART

You just got struck by a FANG??

The stock market is a Ponzi scheme, no less an expert than Bernie Madoff admitted as much. It will eventually crash, the only question is when. Many of the speculating crooks will get their money out and many of the honest folks will see their retirements go down the hopper.

Agip,My data includes dividends and inflation. As far as people having large numbers of accounts:

According to the latest data available from Bureau of Labor Statistics, 16.75 percent of the 72.5 million participants in 401(k)-type plans in 2009 had left their money in the retirement plan of former employers.

A more recent study by AON-Hewitt showed that of all workers who terminated their employment in 2011, 40 percent took a cash distribution, 30 percent left their assets in the plan and 30 percent moved their balances over to another qualified plan.

In other words, most people with 401ks do NOT have a multiplicity of accounts, so the comparison with getting struck by lightning is indeed valid. And the present situation goes along with an academic study that Standard and Poors popularized in 2003: People investing in mutual funds/401k made NOTHING from the 1990's bull market when the following bear market was taken into account.

The WALL STREET Journal is going to try to do everything they can to cover up the fraud of mutual funds/401ks, but the truth is that the system has had horrific results for people. And notice that the people who own Fidelity are worth $20 billion.

I've changed the thread title to reflect the Wall Street mentality of Ghost, Maserati, and some of the other windbags here. They almost certainly work for WS investment firms based on their "sky is falling" mantra. Don't fall for it. Invest in index funds and sit back. You'll beat them 9 times out of 10.

agip,

You are blind to the foolishness of your growth beliefs. Today an investment in NFLX is more Ponzi than based on a valuation that can be supported by any metric.

Igy

coach d wrote:

Agip,

My data includes dividends and inflation. As far as people having large numbers of accounts:

According to the latest data available from Bureau of Labor Statistics, 16.75 percent of the 72.5 million participants in 401(k)-type plans in 2009 had left their money in the retirement plan of former employers.

A more recent study by AON-Hewitt showed that of all workers who terminated their employment in 2011, 40 percent took a cash distribution, 30 percent left their assets in the plan and 30 percent moved their balances over to another qualified plan.

People investing in mutual funds/401k made NOTHING from the 1990's bull market when the following bear market was taken into account.

.

YES

because they picked stocks like you wanted them to do. They picked pets.com and worldcom and got destroyed.

I'll try to find that piece in the WSJ.

You are including inflation? Real returns? That's a different kettle of fish, esp when you had to live through 1980. After inflation I'd expect Sp500 to have done something like 7% after inflation, counting dividends.

better than 1% for bonds or nothing for cash.

coach d,

And you will get defanged and wish you had locked into your gains on NFLX.

Igy

coach d wrote:

Math Mann wrote:

You're still ahead 20% from where you started. Not too shabby.

That 1 down year cuts your CAGR from 10% to 4.6%.

But you're still 20% ahead of where you were when you started. What's wrong with that? Reaching for the sky will, on average, cost you more.

Bogle,

First point, no Wall Street firm is saying the "sky is falling." Second point, do you realize that all those index funds are packaged and sold by Wall Street firms? Third point, there are clear and present risks in index funds in that they are being used as trading vehicles by institutions and hedge funds. The negatives have been foreshadowed in the "flash crash" and the 1.000 point Dow drop in August.

Good luck on your sit back strategy when we hit S&P 1,300 this year.

Igy

Math,

You are taking a narrow view. The point you are missing is that compounding works both ways. That is why portfolio risk management is so important.

Igy

Ghost of Igloi wrote:

Good luck on your sit back strategy when we hit S&P 1,300 this year.

Igy

What about in 10 years when it's 2700?

Igy,

It was your view. I just crunched the numbers.

MM

TAA,

That is an assumption. Back test your return for 15 years, 4% is same as Barclays Aggregate Bond Index. So what?

Igy

Math,

Check your math this fall and see if 2-1 = 1.

Igy

?