Stock Market Facts

ChippewaPartners

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This post is not meant to solicit new clients. My firm is closed to new clients. It is meant to make you think about your retirement and your financial health. I hope it helps.

You don't need analysts in a bull market and you don't want them in a bear market. It is time to revisit some common sense for all of you in the fly-over states who will have brokers calling with the sell-this, buy-that meme as their commission runs dry up in this bear market.

Having been through a fair amount of volatility in my trading career I can only say for certain there is some massive spikes of volatility ahead. I started in this business on April 1, 1982, what a joke eh?

There is going to be alot of pain with your money. It is coming just as sure as the lies and campaign promises of Republicans and Democrats.

Let me share some advice in a speech that I gave long ago and not too long ago. It never seems to go out of style.

I was born in 1953. That year the price of a 1st class postage stamp was 3 cents. Maybe I am old-fashioned, maybe I have been around too long, maybe I‘ve made too much money sitting in stocks over many years. You see, I’m one of those guys what believes stocks solve long-term problems. You should too. If you are like many investors maybe you turned off TV and stopped watching financial news as the market corrected back in 2000, 2001 and 2002 from the excesses of the 1990’s. I know the drivel on CNBC from the buy-this, sell-that crowd drowns out basic, common sense. To me, and probably to you, the hallmarks of a successful retirement are dignity and independence, the ability to go hunting where and when you want and the ability to meet the basic needs of life that continue to only go one way in price. Up.

Today, the average American male lives to be 77, the average female lives to 81. I know the key to financial independence, perhaps over decades of retirement is an income you can’t outlive, an income that is rising even as your cost of living continues to go up.

Personally, I think the biggest financial risk to all of us besides losing one’s money, is outliving it, which means owning the stock market is more critical today than ever before. Remember the cost of living has tripled over the last 30 years, yet few triple their income in retirement? Risk is the extinction of purchasing power. Safety is increasing your purchasing power. Last week I paid 49 cents for a postage stamp. I will bet my Lowa boots the price of stamps is only going one way. Care to guess which way the price of stamps will go?

The stock market is simply a facility for the exchange of shares. Just like the markets for fur, guns, traps or fish it is driven by supply and demand. My friends on the NYSE floor understand fear and greed better than most but they can’t tell the difference between preferred stock and livestock, they only care about payouts on commissions generated with your money, not theirs. When I last checked fear and greed hadn’t changed for around 10,000 years. Today, capitalism is the organizing principle for most of the human activity on the globe, for no one can stop capitalism. Here are 10 reasons why the United States stock market is going to continue up much like it has during your entire lifetime, (1) the U.S. has the greatest number of entrepreneurial managed companies in the world, bar none. (2) we have the leading military in the world (3) we have the leading high technology in the world in both hardware and software (4) we have the leading medical technology in the world (5)we have the leading political system in the world (6) we have 25 times more Nobel prize winners that any other country in the world (7) we create more jobs than Japan and Europe combined (8) we have 11,000 companies that trade publicly under some of the better accounting rules anywhere (9) you as an American have the freedom to accumulate wealth and extract out of life what it is you want and (10) the stock market doesn’t care who you are, what color you are, where you went to school, and, (because I grew up in the poorest county in America on the Pine Ridge Indian Reservation), it doesn’t care where you came from.

Things are great and they are going to get better. I feel the 21st Century started in 1989 when the Berlin Wall came down. Change is certain. I am one of those guys that believe you set your goals in life ahead of time. Mine includes being a free person; freedom is what this country is all about. The opportunities for success are greater now than ever before. For the first time in the history of the world all the people who are poor know they are poor. Success has nothing to do with money and everything to do with how you feel about yourself. Your net worth is your ability to function. When I was a cadet at the United States Military Academy at West Point postage stamps cost 8 cents and the Dow crossed 1,000 for the first time. That same year the microprocessor was invented. Today, 85% of the scientists who have ever lived are still working! When I took my degree in Economics the price of a stamp was 13 cents. Still think you don’t need exposure to the stock market?

The market is a funny place. It is the only business in the world when things are on sale, people don’t want to buy. The greatest enemy of long term investment success is not ignorance, it is fear. You see, fear leads to panic and panic breeds the inability to distinguish between temporary declines and permanent losses. When people panic they don’t discriminate. Since all market declines have been temporary and all advances permanent, we know the key to investment success is not found in intellectual babble like beta’s, standard deviations or chaos theory. It’s time in the market. Put time on your side. The single greatest thing you have going for you is time because no one can successfully forecast interest rates over the long term and no one can forecast short to intermediate term stock market moves. Long term the market always goes up, that is inevitable. But, why do investors lose in the market and why has the average mutual fund investor only averaged a small return in his mutual fund holdings?

I don’t mean to be critical, but most people invest through the rear-view mirror. They buy mutual funds after they have gone up substantially. They have bought into what I call the Sesame Street School of investing. They buy into the hottest fund, in the hottest sector, in the hottest country, from the hottest brokerage firm and the one that has the most “stars” next to it in Money magazine. Then what happens? You know the drill. They turn cold. In fairly short order, a perfectly normal market correction comes along. The cycle comes to an end. Investing like that is like enlisting in the Taliban on September 12th, 2001. Yes, you are joining the proudest fighting force in the world that day. Yes, your outfit just pulled off one of the greatest disasters of all time. But you know what? You are toast. Your obituary is written. It is all downhill. I have no wish to drive this message into the ground like a ICBM but I want to make one point very clear. Pay attention. At the end of an investor’s life, less than 5% of his total lifetime return will from what his investments did versus other investments. The other 95% will come from how the investor behaved.

You see, I have a firm belief that there is absolutely no relationship between investment performance and investor performance. Stock market success is a function of two things. One, recognition that the markets will go down and sometimes go down a lot, and two, prepare to regard those declines as either non-events or buying opportunities and never as an occasion to sell. With all certainty, I know that the most boring and mediocre stock fund in your portfolio, the one you hold onto during a vicious bear market is infinitely better than the world-class stock fund that you sell out of at the bottom of a temporary decline. The secret to making big money in stocks is to not get scared out of them. Americans, God bless them, are totally unable to distinguish between fluctuation and loss. The bottom line is this, and if you don’t believe me you have the right to be wrong, but don’t forget it, the higher your exposure to stocks as a percentage of your assets the better your overall return, over the long term. In the long run, no one controls our investment fate. We control it. Bailing out of markets is like quitting a marathon because you get tired.
 

TheLBLman

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WOWZER! :)
Heck of a GREAT, INSIGHTFUL POST!

TOTALLY AGREE with everything you said.


I encourage everyone to very thoughtfully read the above post in its entirety.

A few items particularly meaningful to me personally . . . . . .

ChippewaPartners":xlfefnmh said:
To me, and probably to you, the hallmarks of a successful retirement are dignity and independence, the ability to go hunting where and when you want and the ability to meet the basic needs of life that continue to only go one way in price. Up.

Remember the cost of living has tripled over the last 30 years, yet few triple their income in retirement? Risk is the extinction of purchasing power. Safety is increasing your purchasing power.

Just like the markets for fur, guns, traps or fish it is driven by supply and demand. . . . . . . . When I last checked fear and greed hadn’t changed for around 10,000 years. Today, capitalism is the organizing principle for most of the human activity on the globe, for no one can stop capitalism.

I am one of those guys that believe you set your goals in life ahead of time.
Mine includes being a free person; freedom is what this country is all about.

The greatest enemy of long term investment success is not ignorance, it is fear.
 

muddyboots

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Im with you 100 per cent. I been in the stock market for 20 years. I haven't lost a dime yet. The only regret I got is at the last crash I could have gambled and made a mint but with a family it hard to risk everything but it would have worked. Hindsight is 20/20.
 

Snowwolfe

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Excellent post. But I have seen many people take a different approach to stocks. That is, they become a stock collector and not an investor as they rarely ever sell anything. Seems most brokers are always saying buy buy and buy again yet few ever call up their clients and say "now is a good time to sell"
Why is that?
 

TheLBLman

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Dean,

Don't know if you ever had the pleasure to meet him, don't know if you've ever read any of his writings, but what you wrote is incredibly similar to what my most significant financial mentor was saying long before 1981.

Did you ever meet Sir John Templeton, originally from Winchester, TN?
I'm positive you would appreciate many of his investment philosophy thoughts.
 

7mm08

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Thank you for your insight. It is unnerving to see this downturn.

Is it true that only 5% of the population of folks over 50 have $500,000 or more in their 401k's? And if so then to me the ONLY way to grow wealth is through equities ( stock) or real estate. One certainly will not grow wealth in CD's or the bond market, or the" Incredible " gold and silver markets.
 

Cazador

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Why have you not been retired for several years and on easy street? I have always wanted to ask a person in your business that. Are you living solely on commission or do you have a salary plus a cut of the fees? 30 plus years in the business with less than 15 years of life expectancy I would think you would have cashed out and be enjoying the good life. Several years ago I read a story about a man that cashed out everything he had. Sold his house for more than he paid for it. He didn't owe on it. Sold cars, jewelry and anything of value. He went to Atlantic City, I think. He found a casino that would cover his bet and laid it all down on red on a roulette table. He beat the odds. After that I don't know what happened to him.
After losing big in the last crash. And a business that got hit pretty hard. I guess I am on the expirement plan. I have the feeling I will work till I expire. Maybe It's time to look and see what's out there now that my nose is getting to water level again.
Very good post BTW.
 

Birdiekiller

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Great post! I had the itch today to sell and pull back on some of my stocks. That was a great reminder that this is not the first market correction, or the last.
 

TN Whitetail Freak

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ive been wanting to do something stock market related to began retirement at 28 yrs old but I dont know where to start.....I got to reading and reading and reading trying to educate myself on lingo, processes, percentages, etc. to the point i became overwhelmed and gave up on it...this was back in October when I was 27
 

Chaneylake

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TN Whitetail Freak":3tk6j9gw said:
ive been wanting to do something stock market related to began retirement at 28 yrs old but I dont know where to start.....I got to reading and reading and reading trying to educate myself on lingo, processes, percentages, etc. to the point i became overwhelmed and gave up on it...this was back in October when I was 27

start buying the stocks that people use daily when times are good or bad, food, paper products, cell phones, home depot, lowes, tobacco, etc

whether everyone is working or not the above items will be purchased
 

fairchaser

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I've been a professional investment advisor for 30 years and I second what Chippewaw says. I will add that the older you get and the more dependent you are on the income from your investments the more protection you need on your portfolio. But, you still should be an investor your entire life. While the stock market does go up over the long term, there can be long periods of time where it doesn't. If you happen to be withdrawing for retirement during these periods, you might not have time to recover. Invest for the long term but protect your income.
 

Snake

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I can honestly agree with most of your quotes but one should come to the realization that not all is well !! With a debt we see over our heads when will it all come tumbling down ?? I am not a pessimist but do realize if our government don't some how turn things around it could be very bad in the future . Ford is fixing to build a new facility in Mexico and another one of our giants is moving taking jobs with them . I do believe this is why Trump is gaining support in this country of ours which is great but our government is not ! I watched a special on HBO documentary show Vice which told of a power plant built in Afghanistan which cost our government (us) the sum of 400-700 million dollars can't remember the correct number but a bunch ! The kicker is that it is powered by bought power from another source just to run the very minimal things such as lighting etc. Just setting there doing nothing because it runs on diesel and diesel is so high there it would be running in the red to operate . Also our own people was selling good equipment to a scrap dealer for scrap and then putting a purchasing order for new ones ! We just can't continue to run things of this nature . Hopefully things will get better .
 

Crosshairy

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TN Whitetail Freak":vt3v9i4v said:
ive been wanting to do something stock market related to began retirement at 28 yrs old but I dont know where to start.....I got to reading and reading and reading trying to educate myself on lingo, processes, percentages, etc. to the point i became overwhelmed and gave up on it...this was back in October when I was 27

By your post, I assume you don't have a work-sponsored 401k plan. If so, you should talk to someone in supervision/HR about how to get that started.

If you are on your own and overwhelmed about where to invest, then you probably shouldn't be buying individual company stocks until you get an idea of how things work. In fact, most people avoid buying individual company stocks (like Google or Apple, for example) altogether due to the increased risk of betting lots on a certain company. Traditional investment advice is that mutual funds are your friend. Go on the website of an investment firm like Merrill Lynch, Vanguard, TD Ameritrade, etc. and create an account.

Most of these sites have some generic investment advice for those in a certain stage of your life. Some even have a generic set of mutual funds they can sign you up for that fit your particular stage of risk (e.g. a higher percentage of stocks at an earlier age). Sign up for that and get started. Now is the time to get into the market - as Chippewa said, in a "down" market, stocks are on "sale" and you can kick-start your investment portfolio with some solid growth when the market recovers this next time.

Longer term, you can monitor your mutual funds and perhaps go with some more specific directions based on research you do about global trends in spending, economics, etc. For example, a lot of people might consider looking at mutual funds that invest in energy stocks (oil and natural gas, for example) right now, since the market is turning down and so there are future gains to be made.
 

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