You Maniacs, You Blew It Up

David Van Knapp had a post at Seeking Alpha citing research that blows up the 4% rule, suggesting 2.8% might be the new 4%. The shift, if accurate, has to do with the current state of bond market yields and the threat possibility that yields may remain low for an extended period. There is a massive psychological roadblock here IMO. The person who is able to accumulate $1 million very likely did so living a lifestyle far beyond the $28,000 that 2.8% would produce. You can plug in your own numbers into the equation to try to determine how much you need to save or how much of a reduction in lifestyle (financially) you might need to endure but to repeat something we’ve said many time before, if the 2.8% conclusion is right, which is that something’s gotta give. Although I don’t think expressly stated by Van Knapp in this article, I believe his orientation would be to maintain a portfolio of dividend growth stocks and only withdraw the dividends, thus never touching the principal. For the right person this could work. A portfolio could be constructed that it does not take undue single stock risk, comprised of dividend growers that altogether yields three point something percent without having to load up on mortgage REITs and riskier MLPs. There is at least one obstacle here as well. Often I talk about the idea that for most market participants the type of portfolio they have boils down to their interest in the task and their time available to spend on the task. It is not unusual to hear from retired...

You Maniacs, You Blew It Up

David Van Knapp had a post at Seeking Alpha citing research that blows up the 4% rule, suggesting 2.8% might be the new 4%. The shift, if accurate, has to do with the current state of bond market yields and the threat possibility that yields may remain low for an extended period. There is a massive psychological roadblock here IMO. The person who is able to accumulate $1 million very likely did so living a lifestyle far beyond the $28,000 that 2.8% would produce. You can plug in your own numbers into the equation to try to determine how much you need to save or how much of a reduction in lifestyle (financially) you might need to endure but to repeat something we’ve said many time before, if the 2.8% conclusion is right, which is that something’s gotta give. Although I don’t think expressly stated by Van Knapp in this article, I believe his orientation would be to maintain a portfolio of dividend growth stocks and only withdraw the dividends, thus never touching the principal. For the right person this could work. A portfolio could be constructed that it does not take undue single stock risk, comprised of dividend growers that altogether yields three point something percent without having to load up on mortgage REITs and riskier MLPs. There is at least one obstacle here as well. Often I talk about the idea that for most market participants the type of portfolio they have boils down to their interest in the task and their time available to spend on the task. It is not unusual to hear from retired...

Tuesday Twofer

My post disclosing our recent purchase of Medical Properties Trust (MPW) made its way to Seeking Alpha over the weekend. It prompted one reader to message me privately to note his opinion that the stock was better to sell (actually the time to sell according to him was December) because of insider sales. My reply; There is always a bear case for every single stock in the market just as there is almost always a bull case. The decision to buy a stock comes down to weighing out both sides and then buying or not. Some percentage of decisions will be right and some wrong. This is no exception, it will be right or wrong simple is that. Insider sales are a good indicator except for when they are not if you take my meaning.    The sentiment of my reply is likely very familiar to long time readers. The other item is from a Jason Zweig article that ran over the weekend that looked at cognitive and behavioral issues related to investing including this; People are revising their memory of the financial crisis, as if they were looking into a rearview mirror made of rose-colored glass. Financial planners report that clients are increasingly saying 2008 and 2009 were no big deal. This is something we have touched on here as I think there has been a lot of this sentiment expressed in the comments here in the last four years. In 2008 there was genuine fear that the financial world was ending. The nature of extreme swings in prices is that they cause extreme swings in emotion and...

Tuesday Twofer

My post disclosing our recent purchase of Medical Properties Trust (MPW) made its way to Seeking Alpha over the weekend. It prompted one reader to message me privately to note his opinion that the stock was better to sell (actually the time to sell according to him was December) because of insider sales. My reply; There is always a bear case for every single stock in the market just as there is almost always a bull case. The decision to buy a stock comes down to weighing out both sides and then buying or not. Some percentage of decisions will be right and some wrong. This is no exception, it will be right or wrong simple is that. Insider sales are a good indicator except for when they are not if you take my meaning.    The sentiment of my reply is likely very familiar to long time readers. The other item is from a Jason Zweig article that ran over the weekend that looked at cognitive and behavioral issues related to investing including this; People are revising their memory of the financial crisis, as if they were looking into a rearview mirror made of rose-colored glass. Financial planners report that clients are increasingly saying 2008 and 2009 were no big deal. This is something we have touched on here as I think there has been a lot of this sentiment expressed in the comments here in the last four years. In 2008 there was genuine fear that the financial world was ending. The nature of extreme swings in prices is that they cause extreme swings in emotion and...

A Disturbing Parallel

The other day I mentioned my opinion on the extent to which the only ones that should have been bailed out were depositors into the banks, not the banks themselves or by extension bank shareholders or bank debt holders. There was a fair bit of pushback, all constructive I believe, just people drawing a different conclusion in noting a belief that things would have been much worse than they actually turned to be along with a couple of other threads. There were also one or two comments that seemed to agree in some measure including over the weekend one from long time reader SEG. I have not changed my mind but of course we will never know what would have happened had a hard line been taken. There weren’t comments stating a belief that what was done was a hard line so I think we can all agree that there was not much of a hard line taken. Last week I also disclosed going to San Diego over the weekend for a fraternity function. It was the 50th anniversary of our chapter’s founding. So a little more detail here. Our chapter lost its charter from the national fraternity a few months ago due to issues with partying and hazing in the last couple of years. Being long since graduated I have no idea what the specifics were beyond that. The weekend function was still a big deal though and there were a couple of different big wigs there from the national fraternity and they each gave speeches. One on the main themes (the two speeches were obviously coordinated) was...