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MotherofMeursault
Forum Full Member


Registered: 09/28/08
Posts: 380
Location: , United States
 
Re:Brace for impact
Friday, November 13 2009 @ 07:53 PM CST

Quote by: SmokeyVW
Quote by: guitapick
... The money that's been "lost" on Wall Street went somewhere. Whether it's 'fake' or not...it's being used by somebody. ...

This is mostly off-topic, but Bob raised an interesting idea.

I don't know enough about economics to comment on this with any authority. But I have an opinion. Don't we all? Smile

I wrote the following about "you" - not really you you, but a stand-in hapless investor called "you" to make it easier to explain it and to put a face on it. Nothing at all personal intended Bob.

And this is way oversimplified I suspect. I'm sure the smart folks here will jump all over it. That's OK. Maybe I'll get learned up on economics.

Say you take your hard-won savings to buy some shares of stock for $1000. To be realistic, you also need to pay the "broker's fee" - let's say $5 - to buy the stock. You intend to hold on to the shares for a long while: for years. Your expectation is that in the long run, you will see a gain in value. The whole reason you bought that stock is because it beats the best interest rate you can find in a savings account or other things, and it's better than just stuffing the money in your mattress.

( An aside: Some people would say you've already gone wrong: you should have either used a mattress, or better yet, bought food, or ammunition, or some commodity such as silver or gold coins instead. Some folks will say you should simply have spent the money immediately and enjoyed yourself, perhaps because the future is uncertain, or maybe because the crash of civilization is imminent. Whatever. Let's just say you bought the stock. )

Unfortunately, the whole market comes tumbling down, and with it, the value of your shares of stock drops to $200. Yikes.

Due to the terrible economic circumstances, you begin to fear that your $200 might just drop to $20 or less. Or worse yet, you've lost your job and you need that $200 right now to buy food, or help pay the rent...

So you sell your stock at $200. Before you can even execute your "sell" it's already dropped to $180. You also must pay another $5 broker's fee to sell it. Thank goodness you got out before you "lost it all"...

You started with $1000 but now you have $175.

Where did the $825 go?

Overall, your broker got $10 in fees; you can gripe about that, but no one is going to do those transactions for free.

But where did the $825 go? Is it really "lost"? Who is using its value now?

In a very real sense, you gave it away to whomever bought the stock at $180.

( An aside: They are using its "$180" value. They might see its value dip down to $20. But if they don't sell it, and hang on long enough, it will most likely rise once again to $1000 and eventually grow beyond that value. Doomsayers will say that'll never happen. This is the end of the world after all... We'll see I guess. )

Of course, they also paid $5 to a broker, and someday when they sell that stock, another $5. So in this entire little tale, the broker made $20. Hmmm...



It is my opinion that a few mistakes were made by "you" the hapless investor in this little story.


1. The fear of "losing it all" is unfounded. Your shares dropped because the whole market dropped. Your shares will not become $0 (unless it's the end of the world!).

( Another aside: This is where I really oversimplified. Maybe I should have been telling my story about your 401K instead of "some shares of stock".

If only your shares dropped, not the whole market, that's a different matter. I guess that's why the experts say to "diversify" your holdings: if one company tanks, the others that didn't tank will hold up the value of your portfolio.

It quickly gets way past my comprehension here. Deciding when and how to adjust your holdings can be complex. And when they start fooling with derivatives to spread risk, it's gone beyond the pale. In fact, that's when things get very suspicious. But no one says you must invest in that rocket science stuff. I guess a lot of people did? But even then, you can see how the broker's fees add up when you sell and buy stocks over and over, never mind the fees for those experts. )


2. Giving in to fear and selling your stock. The stock still has value. Not $0. Not that temporary $180 value.

Your stock still has the value it had when you bought it. That is, it's a share of the various companies you bought shares of: their buildings, inventory, equipment, their reputation, their innovation, their way of doing business, etc.

Call it "fake" if you wish, it's still worth the value you dreamt it has. Not till the day you sell it does it change from "dream money" into actual cash dollars. Remember the plan was to hold the stock "for years". Don't give away your dream in fear.


3. Buying the stock if you can't afford to ignore it for a long time. My hunch is lots of people fell into this mistake. Why did you buy that $1000 of stock without having a buffer of cash in savings (or your mattress) for a *really* rainy day? Maybe you should have bought only $500 of stock. Maybe you should have waited till you saved up some more. You should not have to give away your dream out of necessity.

I think lots of middle class people max out their 401Ks but also live above their means and max out every bit of credit they can scrape up... One minor upset, never mind a big upset, and the house of cards comes tumbling down.


Again, nothing personal Bob. The "you" here is only a stand-in for the hapless stock investor.


TO SUMMARIZE this horrendously long post: I don't think the investor was robbed by Joe Fat Cat. No, the value was given away in fear or necessity directly by the scared investors themselves or the agents they trusted to manage their accounts.

Who was it that received this "given away" value? Joe Fat Cat of course. He had $180 to spend while the rest of us scrimped to pay our bills.

There's no need to conflate this into a paranoid nightmare. Joe Fat Cat doesn't have to cause the market to drop. He just needs to be around with some cash to buy up the bargains.

Enough already. Oh, by the way, I have NO COMMENTS about the healthcare discussion here.





This is the investor's version of that old story about the 3 guys who stay in the hotel for $28.!

When the entire market drops that way, it is a correction of the value of the dollar itself. In that case, the $820. represents the unrealistic inflation of the value that is now 'corrected' to $180. The last person to transfer that $820. for goods or services got the full use of the inflated value.

If only that particular stock price drops, the $820. was spent by the company you invested in, assuming that their stock price plunged for reasons related (usually) to their own management of the business.

Since the dollar today is essentially an IOU on future production, it has no intrinsic value as it did in the past, so it is subject to abuse on all sides of the equation.
There are formulas for calculating value in long-term investments (which require allowing for inflation). I will be happy to send them to you if you'd like to see them.

On the subject of 'diversifying', the very best investment strategy I've ever seen is Harry Browne's 'Bulletproof Portfolio' from his book, "Fail Safe investing":
http://www.trendsaction.com/books/HarryBrowne/FailSafeInvesting/index.php?ulaCartSID=EHJUrJjVkUcawwQerfJlbqEBT1258162576
It is very simple, needs monitoring only once a year, and shows a historical increase in value of roughly 9% per year. You won't make a killing with it, but you will protect money you 'cannot afford to lose'.

I can't wait to see the responses to this twist you've introduced!

Love,

MoM
Ed Hannifin
Forum Full Member


Registered: 05/24/05
Posts: 3442
Location: , MA USA
 
Re:Brace for impact
Friday, November 13 2009 @ 07:55 PM CST

Quote by: jgurner
Quote by: Rocha Malhada
[
Now all we have to do is figure out how to get everyone involved to behave according to some standard that isn't even written, set or etched in stone.



I propose uploading a program with standards of behavior into the alien microchips that the shadow government has implanted in all of our brains.




"We have to remember...when it's surrender that's called for, it's not surrender of your brains. It's surrender of your ego. It's a different thing." --Bruce Cockburn
guitapick
Forum Full Member


Registered: 01/18/07
Posts: 2031
Location: New York City, USA
 
Re:Brace for impact
Friday, November 13 2009 @ 08:01 PM CST

Quote by: Moses
...One last problem I would like to address is regarding malpractice insurance and lawyers. Lawyers and those they represent have become increasingly trigger happy to the point that doctors have quite massive malpractice payments, which necessitates higher costs for medical services. Medicine is an imperfect practice, and unless a doctor is shown to have been clearly negligent or practicing medicine while impaired, the patient should either take full responsibility or at least share responsibility for mistakes. Patients should know ahead of time that mistakes happen, and should be thankful that due to the hard work and research of millions of people, the procedure they need is in existence!

If these issues are addressed, I believe we will see a drastically cheaper, as well as more efficient, health care system necessitated by the substantial increase in competition. As a result of increased competition, health care providers and insurance companies will be forced to lower prices and provide better services in order to stay profitable and survive. If people are able to spend less on health costs and more people are covered as a result of lower prices, individuals will have more money available for non profit donations, and perhaps we can consider public entitlements for the few who are still uninsured. Although, without the massive costs and legal risks for doctors currently, pro bono services will be offered much more. Many doctors want to help those who cannot pay for their services, but the legal risk, the career-ending risk, is simply not worth it. Anyway I'm done, interested to hear responses!


Very good points...thanks

I live between the notes

CDBaby "Above the Surface" iTunes Store

SmokeyVW
Forum Full Member


Registered: 06/13/06
Posts: 7043
Location: N/A
 
Re:Brace for impact
Friday, November 13 2009 @ 08:14 PM CST

Quote by: MotherofMeursault
...When the entire market drops that way, it is a correction of the value of the dollar itself. In that case, the $820. represents the unrealistic inflation of the value that is now 'corrected' to $180. ...

I guess I don't understand that. There are plenty of dollars circulating that are not in the stock market. Those thin out the effect of dollars in the stock market. I guess? I dunno.

As a counter example, consider the two to one ratio when the Dow was around 14000 in fall of 2007, and then when it was around 7000 in spring of 2009. Now consider the price of a loaf of bread (or anything else) in fall of 2007 compared to spring of 2009 - I don't remember any prices doubling. Shouldn't prices have changed dramatically if the value of the dollar corrected?

Quote by: MotherofMeursault
... On the subject of 'diversifying', the very best investment strategy I've ever seen is Harry Browne's 'Bulletproof Portfolio' from his book, "Fail Safe investing":
http://www.trendsaction.com/books/HarryBrowne/FailSafeInvesting/index.php?ulaCartSID=EHJUrJjVkUcawwQerfJlbqEBT1258162576
It is very simple, needs monitoring only once a year, and shows a historical increase in value of roughly 9% per year. You won't make a killing with it, but you will protect money you 'cannot afford to lose'. ...

Thanks for the info!


I fear I'm derailing the thread to another subject. Unless this is actually a debate club thread. Smile
Dadai.2
Forum Full Member


Registered: 09/09/08
Posts: 1732
Location: Frisco, Texas 😎 USA
 
Re:Brace for impact
Friday, November 13 2009 @ 08:25 PM CST

Quote by: SmokeyVW
Quote by: MotherofMeursault
...When the entire market drops that way, it is a correction of the value of the dollar itself. In that case, the $820. represents the unrealistic inflation of the value that is now 'corrected' to $180. ...

I guess I don't understand that. There are plenty of dollars circulating that are not in the stock market. Those thin out the effect of dollars in the stock market. I guess? I dunno.

As a counter example, consider the two to one ratio when the Dow was around 14000 in fall of 2007, and then when it was around 7000 in spring of 2009. Now consider the price of a loaf of bread (or anything else) in fall of 2007 compared to spring of 2009 - I don't remember any prices doubling. Shouldn't prices have changed dramatically if the value of the dollar corrected?

Quote by: MotherofMeursault
... On the subject of 'diversifying', the very best investment strategy I've ever seen is Harry Browne's 'Bulletproof Portfolio' from his book, "Fail Safe investing":
http://www.trendsaction.com/books/HarryBrowne/FailSafeInvesting/index.php?ulaCartSID=EHJUrJjVkUcawwQerfJlbqEBT1258162576
It is very simple, needs monitoring only once a year, and shows a historical increase in value of roughly 9% per year. You won't make a killing with it, but you will protect money you 'cannot afford to lose'. ...

Thanks for the info!


I fear I'm derailing the thread to another subject. Unless this is actually a debate club thread. Smile



No, not at all. Easy money (credit from below market interest rates from the Fed) goes to the hot markets, pushing up price of stocks, where quick money can be made. Bread isn't such a market. But the power of greed causes people to ply their money into a stock that is rising in hopes of riches... until the bubble bursts. Then everyone rushes for the exit. Only those who know the game get out in time to take their profits with them. It is called "the greater fool theory."

D

Take a listen >>> Texas Tango
Dadai.2
Forum Full Member


Registered: 09/09/08
Posts: 1732
Location: Frisco, Texas 😎 USA
 
Re:Brace for impact
Friday, November 13 2009 @ 08:55 PM CST


Back to the topic at hand... an interesting trend over the last two years from Gallup...
More "HERE"



hmmm.... seems minds are changing as to what Government should be doing. I don't see this as an expression of Americans becoming selfish, but rather a concern that whenever Government gets too involved in the private lives of citizens less freedom is the result.
Just a thought.

MoM?

Take a listen >>> Texas Tango
SmokeyVW
Forum Full Member


Registered: 06/13/06
Posts: 7043
Location: N/A
 
Re:Brace for impact
Friday, November 13 2009 @ 09:33 PM CST

Quote by: Dadai.2

Back to the topic at hand... an interesting trend over the last two years from Gallup...
More "HERE"

...

hmmm.... seems minds are changing as to what Government should be doing. I don't see this as an expression of Americans becoming selfish, but rather a concern that whenever Government gets too involved in the private lives of citizens less freedom is the result.
Just a thought.

MoM?

careful: sampling error is 3%

definitely check out that link - lots more graphs there
chronologic
Forum Full Member


Registered: 09/26/08
Posts: 338
Location: , United States
 
Re:Brace for impact
Friday, November 13 2009 @ 09:46 PM CST

Quote by: Rocha Malhada


Walmart employs over 1 million in the United States
Net Income $13.59 billion (2009)

USPS employs 656,000 workers, the second-largest employer in the U.S.
Net income (-$2.806 billion) USD (2008)



I have not read the whole thread yet so I apologise if I am out of turn here, but I feel obliged...here goes.

Walmart? Man don't piss me off (and I mean that with sincere and utmost respect Harold).

Ok, so don't give most of your people insurance of any kind, abuse the poorer people of the world both in the US and abroad, give very little back, offer shitty products priced low enough to put every mom and pop with a soul in this country out of business, maybe you can come clean with 13B in a bad economy. OH yeah that makes me just ELATED. Look, granted, the USPS can definitely do better, but holding up something like that as a shining example isn't my idea of a good argument. Efficiency is one thing but highway robbery is another. What ever happened to "honest profit" you got me on that one.

Clearly somewhere in the land of milk and honey there is a balanced medium, but that ain't it. Gracias.

Totally independent new music: http://www.pollyputthekettleon.com
Dadai.2
Forum Full Member


Registered: 09/09/08
Posts: 1732
Location: Frisco, Texas 😎 USA
 
Re:Brace for impact
Friday, November 13 2009 @ 09:56 PM CST

Quote by: SmokeyVW
Quote by: Dadai.2

Back to the topic at hand... an interesting trend over the last two years from Gallup...
More "HERE"

...

hmmm.... seems minds are changing as to what Government should be doing. I don't see this as an expression of Americans becoming selfish, but rather a concern that whenever Government gets too involved in the private lives of citizens less freedom is the result.
Just a thought.

MoM?

careful: sampling error is 3%

definitely check out that link - lots more graphs there



Trends... trends... not snapshots.

Gallup's conclusion at the end:

Bottom Line

The wording of the healthcare bill the House passed last Saturday explicitly states that one of the bill's purposes is to provide "affordable, quality healthcare for all Americans."

The current poll results indicate that, with the renewed healthcare debate since Obama took office, Americans have become less convinced that it is an appropriate goal for the federal government to take on the responsibility of ensuring that all Americans have healthcare coverage. It is possible that the current debate has increased the average American's awareness as to the nuances of the various roles the government could play in the healthcare system, helping make the generic "make sure all Americans have healthcare coverage" sound less appealing. Plus, the current debate may have produced more skepticism among Americans that the government's role in healthcare could or should be this broad.

Most polling shows that Americans tend to favor a "public option" in which the government would provide a healthcare plan that would not be mandatory but one of several options for those seeking healthcare insurance. Americans apparently do not equate this with government's guaranteeing that all Americans have healthcare coverage.

Finally, the current data confirm the basic premise that all in all, Americans do not support the idea of a government-run system as a full replacement for the current system based on private insurance.

Take a listen >>> Texas Tango
 
Dadai.2
Forum Full Member


Registered: 09/09/08
Posts: 1732
Location: Frisco, Texas 😎 USA
 
Re:Brace for impact
Friday, November 13 2009 @ 10:10 PM CST

Last one for tonight dear friends...

From Financial Sense Online, entitled- Dear Prudence, Won't You Come Out To Play?

Several graphs (one below) and much info. Take away... something different is going on this time...



"... won't you open up your eyes? Look around, round, round..."


Take a listen >>> Texas Tango