patrick.net

Hi there. Long time lurker. First post. RE: stock market returns, google John Mauldin and buy his book. He does an excellent job of dispelling the myth that stocks return 12% over any given planning horizon that a 30-50 year old is using. In a nutshell, there was this economist in the 60's that got a nobel prize for something called MPT (Modern portfolio theory). He showed that over a 75 YEAR PLANNING HORIZON, an INSTITUTION can get superior returns through a well diversified equity portfolio vis a vis a bond/debt portfolio. It was the mutual fund industry SALES FORCE that latched onto this concept and applied to individuals over very short time frames (15-20) years. The stock market today is at extremely high historical valuations (PE:20, depending on GAAP/Non-GAAP measures, ie. stock option expense, restructuring charges, etc.) As a point of reference, the great bull market of '82-2000 started with an average PE of 8. In fact, I was reading "Beating the Street" by Peter Lynch, and he was buying stocks in the '80s with PE in the range of 5-8. The reason that we have hedge funds is to bet against the baby boomers who buy into this 12% notion in their 401ks with their index funds and "closet" index funds (i.e. value and growth funds that mirror the indexes for SALES reasons). This behavior of VERY unsophisticated investors (like my mom) has resulted in MASSIVE stock market inefficiency and mis-pricing based on risk/return considerations. In fact, The RE Market, Bond Market, and Stock market are SIGNIFICANTLY overvalued at the same time due to the global liquidity glut and unsophisticated investors who think that they can game the credit bubble. Where should you put your money? Check out John Hussman, who runs a Long/short portfolio and check out commodities, especially Gold, energy (I think Uramium mining companies are way over valued--still researching). Also, peak oil is real. Believe it. I have a buddy who is a CEO of a driller in Calgary and he is very well connected. he tells me that it is 3-5 times more expensive to discover and recover a barrel of oil as it was in the '80s (in real terms!)

--Cheers!

Oops, TYPO. I meant to say that I am looking into Uranium miners because I think that they are UNDER VALUED. Also, I left out an important point in my prior rant. Most people are motivated by greed and focus on MAKING money. When they panic, the desire to not LOSE Money overwhelms greed as everyone heads for the exit at the same time. It is wiser to think about a portfolio in terms of hedged risks from the start. For example, we all use energy. If you buy energy and it goes up, you are happy when others are bitching. If it goes down, your investment goes down, but so do your costs (gas, heating, etc.), so you will still have nothing to complain about as the savings are real money in your pocket that flows to your bottom line (a penny saved is 2 pennies earned at the CA tax rate). If prices stay the same, we will have good economic growth, so you will like have a job and steady income. In addition, you want to hedge against monetary debasement (how else will the feds deal with social security), currency devaluation (you probably are holding a lot of dollars and should worry about trade/fiscal deficits), and finally, you should worry about your marriage. Yep, that's right, loses from poor financial planning/investing are very stressful on both you and your spouse, and divorces are exteremly expensive. Keep that in my mind when you are running your spreadsheets.

--Off soap box

Deo Vindice!

Speaking of reckless and over-leveraged, I was closing on a $600,000 shack by the beach when my $2.5 Million in mostly unvested stock options crashed and went under water. I was an idiot and thought that I was rich. I lived the home renovation/ home debtor nightmare ahead of the pack beginning in 2000. The only reason that I did not go bankrupt is because the housing market went up, and I reluctantly sold, at a profit. Best move I ever made, next to marrying my wife. I feel for these homedebtors. I know what that fear is like, and I know that the pain will harm many familes and their children one way or another.

But then again, sometimes people just need to take the beating that they deserve. Sorry for their kids, thoughs.

There! Fully disclosed.

The society has become too tolerant on illegal immigration. For instance, anyone who knowingly hires illegal aliens should face jail time.

Shit, I'll take cheap produce any day of the week. As I drive through King City, I slow down and yell out to the illegals "you sons o'bitchs, how dare you take yobs from da Amerikans". Really show's them who's boss, fuckers, stay south of the rio grande.

Wait a minute, didn't this used to be Mexico? Wouldn't that make all the McDebtors the actual illegals?

Wait a minute, didn’t this used to be Mexico? Wouldn’t that make all the McDebtors the actual illegals?

LOL :lol:

the problem is that many employers don’t match

You must extremely interesting experiences, your data set is very odd, every single job I've ever worked has matched 401k contributions. Regarding early retirement, yes, the hi-tech sweat shops of the sillycon valley, ie Intel etal. will chew you up and spit you out, so, go earn a hard science Ph.D. and teach when they show you the door. Or better yet take your Ph.D. and find the American dream in Central or South America.

Universities are very allergic to old PhDs trying to get in - not much hope there.

You are basing this on what, your knowledge of video games or french movies. Kindly remove head from ass, whats odd about your illinformed dribble is that each university I have been, Cal Poly BS, MS and UC Davis Ph.D. embrace seasoned vets from industry, especially Cal Poly. Again, I truly appreciate your illinformed comments, perhaps you should consider a career on the fox network.

Most Americans work for small businesses, and many of these don’t match.

Oh really. So from your vantage point, most AmeriKans mirror your narrow viewpoints which come from their experience being exactly like yours?

"...so I don’t understand why the “experts” can get away with it, and why people believe in myths such as the 10% average annual return."

I agree that much financial services industry marketing is overly rosy, but the fact remains that an investor has a higher probability of earning a higher rate of return investing in equities than any other asset class. Like anything to do with investing & money in general, if you don't know what you are doing you are more likely to get burned, and if you're a pro you're more likely to better than average. And that of course is why the financial management industry is important--there will always be a large amount of people who lack the knowledge, motivation, time, or discipline to manage their money. I don't think anyone will deny that a big part of why the RE market here is currently out of balance is because of the influx of new amateur investors who think they're going to be the next Trump, just like the dot bomb era saw everyone and their mother suddenly decide they were going to strike it rich as a day trader.

The right way to do it is to get a PhD from a top-notch department when you’re young, get a tenure-track job, get tenure, and then you’re fine as an old-geezer PhD with tenure.

Wow, you've now ventured so far into troll-dom I think there is no return for you. You clearly do not know what the fuck you are talking about. Do you hold a Ph.D? If not, kindly refrain from making comment about topics which you know little or nothing.

Wow, Face Reality knows everything! Let me guess, you are a gray-haired old WASPy fuck of a boomer? Are you aware of how transparently your own personal insecurities come out in your posts on here?

Dude, I think it's time you Face Reality, put the gun in your mouth and pull the trigger. You life is obviously not worth living. Let’s see according to your vast treasure trove of knowledge, housing in Ca has reached a permanently high plateau, all renters should FACE REALITY and never ever even consider home ownership as a goal. Likewise, Ph.D's in industry should likewise put gun in mouth because Universities won't hire them. I know a guy like you, works as a troll for IBM, funny thing about this guy, is that he, like you, is a vast treasure trove of knowledge, all gleaned from some mysterious source, as he rarely ventures far from his monitor, Doritos, and Mt.Dew.

Again, you Sir are a shining bright light on this Blog. Your comments are not only welcomed, but encouraged.

Why the attack on Face Reality?

He makes ill-informed comments on topics he clearly knows nothing about, i.e. the hiring practices of Universities.

"Why the attack on Face Reality?"

His know-it-all take on "how to make it America" really started to piss me off. Everyone's situation is different.

Furthermore, if you're over 40, you are protected by Federal Law.

www.eeoc.gov/types/age.html

I for one fucking hate ill-informed comments. Ok, FR, if you are over 40, you are protected by Federal Law, why would a University risk the Uncle Sam smack down?

He makes ill-informed comments on topics he clearly knows nothing about, i.e. the hiring practices of Universities.

Perhaps different universities have different practices. At UC Davis, I have had many profs who have returned from the industry (usually a researching job at a major lab though). At Stanford, profs appear to be less so.

"Yes, I hold a PhD."

You sure as Hell don't have a PhD in Economics.

His know-it-all take on “how to make it America” really started to piss me off. Everyone’s situation is different.

I thought it would be good if every know-it-all gives his/her opinion. ;)

I work with a guy, has a Ph.D from back in the day, has published ~5 articles a year for the past 30fuckingyears, works in industry, is 60, as is actively courted by Universities, in fact, even Stanford has come calling. All one has to do is look at simple demographics in regards to hiring at Universities, there simply won't be enough young professors to hire in the next 15-20 years. The population distribution simply does not allow it.

Yes, I hold a PhD.

Perhaps you might want to consider applying for a refund. Where and what was your Ph.D. in?

industry research lab

Hasn't existed for over 25 years.

The one thing that I really don’t get about some RE bulls is the argument that RE is always good, and stocks are always bad. That makes no sense to me.

You don't get it? They are RE bulls! Of course they will attack all other competing asset classes. ;)

New thread: “Rummage $ale Chic: Why We’re Going Gaga Over Pinching Pennies”

New thread: Everyone's rich but you, why are you such a loser. :)

I don't speculate. I hedge to reduce risk. My number one investment is FDIC insured CDs yielding around 4%. I am worried about inflation and currency devaluation because of the dollars that I hold. Bernanke will under report inflation by 2-3% over the next decade in order to erode the federal budget deficit and the entitlements by 25-35%. It will also be a less painful way of lowering consumer/mortgage debt than an 80% crash in nominal prices. NOT inflating the currency would encourage systemic collapse. There is no other alternative. The PB of China, Bank of Japan, and other creditors will tolerate this because it is in their interest to do so. If currencies revalued in a dramatic single event, we would have a depression and no one would buy asian goods, causing extreme unemplyment and political unrest. By agreeing to a **slow** devaluation, Asian governments will have time to diversify away from the dollar standard (Bretton Woods II) and to create a domestic consumer class that eases their dependence on the American consumer. Remember, it takes a banker to see the downside in everything. They act to prevent the worst case scenarios, not to maximize upside. They will gladly accept the gradual erosion of the dollar denominated paper that they hold in exchange for avoiding a precipitous collapse. That's how bankers think. I work with lots of them. It's the result of being in a low margin business.

Commodities and currencies may sound **Exotic**, but they are in fact an alternative asset class that can increase diversification and act as portfolio insurance--a risk reducing strategy, not a speculative one. As far as it goes, excess returns are generated by getting into investments ahead of the herd, and bailing once the herd has discovered them and widened the PE to unsustainable levels. Time and time again, behavioral finance experts have proven that "investors" chase performance. They buy when a stock has peaked, and sell at a loss when it crashes. A half-trained monkey could have made money from 1982-2000 by buying an index on the S&P. Much of that gain was from PE expansion, ie investors believed that stocks would out perform bonds, so they were willing to pay more, and thereby eliminated any potential for future profit. Past performance does not guaranteel future profits. In fact, it prevents them. The herd piles in. What is contra-cyclical to equities? Commodities. We are in year 5 of a secular bear market for stocks that will last 15-18 years, and year 5 of a secular bull market for commodities. Remember the above thesis that the dollar will be worth(less) due to currency revaluation and inflation while at the same time the world loses its reserve currency? Central Banks have to find an alternative store of value, and for 10,000 years, that has been gold, hence the bullish long term fundamentals. What will happen? The herd will eventtually catch wind, pile into the 'Safe haven', and over value gold into a speculative bubble. That has not happened yet, making it a far safer investment than the over valued S&P. If you price gold in terms of the number of barrels of oil that gold shoud buy, it is still cheap. As for energy, remember the law of diminishing returns: you go after the low-hanging fruit first because it makes the best returns. The easy oil is gone. Does that mean that we will run out? No. It means that we will pay ever higher prices for our oil because it is more expensive to recover. As billions of people in Asia become consumers, we will not be able to adequately increase capacity, and prices will further increase. These price increases will spill over into other forms of energy, i.e. coal, nat gas, and nuclear. That is our best case scenario. what's the worst case scenario? Massive energy shortages that result in hyperinflation. Again, I don't speculate, I evaluate the risk and hedge so that I win no matter what. I want to prevent the worst possible outcomes (bankruptcy, lower standard of living, low liquidity) while still making above average returns.

I am gen x, not a baby boomer. I learned that losing money and taking excessive risk is a bad idea during the dot com boom. I learned it the hard way. what is the riskiest thing that you could do right now with a 401K? Buy an index on the S&P, a long dated bond fund, and the "closet" indexes called growth or value funds in a "Set and forget" style. Dangerous as hell. BTW, I love investing. If I was retired, I would be worrying about my net worth on a daily basis, because I think that it is fun to compete against the smart guy on the other end of the trade. Fun as hell. Yippeee! Apart from that, I have a family, and I want to make sure that will be taken care of.

I would encourage anyone out there NOT TO TAKE MY INVESTMENT ADVICE. Do your own homework, and learn your own style. Just don't be lulled into thinking that an employer 401k is a safe way to get a guaranteed 12% for retirement as you pick all the same funds that your co-workers pick. It wont. There is no safety in numbers when investing for the long term. The herd always gets it wrong. Period.

Sorry for the rant,
Deo Vindice

I'm sorry FR, I just checked and the Brothers Grimm University (BGU) does indeed offer a Doctorate in Troll. Apologies on the refund comment.

BTW, BGU went 10-6 in the big game Vs HCAU (Hans Christian Andersen U) this past weekend.

Just don’t be lulled into thinking that an employer 401k is a safe way to get a guaranteed 12% for retirement as you pick all the same funds that your co-workers pick.

Exactly. :)

DeoVindice, how do you trade currencies and commodities? Do you trend-follow or do you implement other strategies?

Deo (won't make the Ronny James Dio comment I swear), what is a good hypothetical mix for a 401k, my company is using Fidelity and they offer about 45 different funds.

Face Reality, now I know why you are so bullish about Bay Area real estates. People tend to generalize according to his surroundings and experience. Since you are an entrepreneur and deal with innovations on a daily basis, it is easy for you to think that the entire Bay Area is full of opportunities.

You are more successful than me at this point and I admire you. However, using your own experience to judge the economic outlook of a region is not necessarily fruitful.

You offer opinion as fact. Bell Labs? Give me a fucking break, Bell Labs hasn't truly existed for 20+ years. Research in the US is done solely at research Universities and guberment labs. Decent research in limited areas, blow me. Your odd statements are wonderful, research comes in two flavors, applied or fundamental. Now research in itself is concerned with the discovery of knowledge, primarily for knowledges sake, applied research is concerned with making more money, therefore, it isn't really research at all. I have found your comments offer no value whatsoever, they are based on your biased outlook and for the large part do not pass any rigor. At least I've got humor value, what the fuck exactly do you bring to the table again? Oh, that's right, encouraging people to face reality, which in your world essentially equates to being a fucking slave.

Sorry to keep ranting, given that I've never posted b4 today. I guess this has just been too cathartic for me. Or maybe it's just all that ex-lax I took. What was it that they called it when Francisco Franco died, el gran destape?

SQT: Right on! All asset classes become over valued, and then they become undervalued. No one investment system works all the time. If people come to believe that have a guaranteed path to riches, they pile in like sheep. Once the bubble pops, they run like hell and abandon the asset to the vultures. Doesn't matter if it is stocks, bonds, real estate, tulip bulbs, or beannie babies. It's as old as dirt. It's never different. The only way to make money in anything long term is to evaluate the fundamentals of an asset class and particular investment opportunity in that asset class. If the numbers don't work, don't buy it. If they do work, jump for joy, but don't bet more than you can afford to lose. RE is a bubble, the bond market is a bubble, and the broad equity market is a bubble.

I personally never rant.

Deo Vindice: excellent post.

Model of Restraints? While the BDSM scene intrigues me, I've never actually modeled restraints.

Note: not investment advice.

No, in my world it means taking some initiative and becoming part of what makes this area unique. Living a passive life waiting for some big crash is “being a fucking slave” (not to mention lazy).

I guess it is good to be optimistic all the time...

There is nothing wrong with passivity. One should attack (be active) only when the conditions are prime.

You have to play the game - be entrepreneurial, invest, take risks, send the wife to work, etc. Sure, luck helps, but it doesn’t tend to favor people who aren’t in the game. Just sitting there collecting even a $100K salary doesn’t cut it here anymore. That’s reality, and you have to face it. How? Either move or work on making more money.

A troll is a troll is a troll, what makes the Bay Area intollerable is money above all else, something you subscribe wholeheartedly to. As far as pearls of wisdom go, how about this one, Universities are very allergic to old PhDs trying to get in - not much hope there. The right way to do it is to get a PhD from a top-notch department when you’re young, get a tenure-track job, get tenure, and then you’re fine as an old-geezer PhD with tenure.

What exactly do Trolls code in again? Let me guess, Bridge++?

FR, if you aren't just some fatty at home swilling MtDew and hoovering doritios, I'd watch the fuck out, because based on your comments which indicate your attitudes, your employee's likely want to kill you.

Money above all else, right? If you aren't willing to work 80+ hrs a week, or can't seem to make 500K a year, Face Reality and move on. Reality is what you make of it asshole and you seem to have a rather bleak one. As far as praying for a crash, I don't believe in a God, as far as "belief" in a crash, doesn't take belief, it's already happening. This area did in fact used to be great, before assholes like you moved in and made it so everyone has to either face reality and make more and more money or move away.

http://tinyurl.com/72j5s

“applied research is concerned with making more money, therefore, it isn’t really research at all.”

I won’t even touch these pearls of wisdom.

Evidently the NSF disagrees with you. Again, kindly shut the fuck up about topics you clearly know nothing about.