Do you factor in dividends when you calculate your quarter earnings ?

Cheers,

Dave: Passive investing isn’t a popular strategy. David Swensen who advocates it in his book “Unconventional Success” titled the book because it is an unconventional method of investing. Regardless of how popular indexing is, it works in all kinds of markets because of a very simple logic: investors as a group can only achieve average results. So, any strategy that does better than average has a risk of under performing it as well. The risk is higher depending on how much fees, commissions, expenses and taxes are incurred in the “market beating” strategy.

Still, I don’t think accumulating cash is necessarily a bad strategy. But moving deftly between cash and stocks (which is what I think ignorance is advocating) definitely is. There is mountains of evidence that it simply doesn’t work.

Though I don’t necessarily agree with all he is saying – I won’t discard it out of hand either. My biggest fear is that the buy-and-hold indexes for the long term (of which I am a proponent) that has become very popular over the last decade was popularized during an incredible bull era (1990 – 2006) and may not “work” over the next several decades. Isn’t it possible that there could be an incredible bear era from 2006 to 2030? My guess is that is IS possible so I refuse to not keep my mind open to others’ ideas, opinions, and strategies – regardless of how they communicate them.

That said, I am VERY impressed that CC kept Ignorance’s post up and continue to be impressed with his reviews of and respect for other people’s strategies and ideas. This is why I read his blog and think he will be a successful investor – not simply because of a certain strategy that I happen to agree with.

http://dividendgrowth.blogspot.com/2008/07/average-durations-of-previous-bear.html

Actually if we are truly going to get into the next great depression then dollar cost averaging is the way to go.

If I were you CC, I would rebalance from fixed income to stocks very slowly.

But if it were truly different this then I guess we should be buying land and water resources and learn farming in order to become self sufficient..( and learn hwo to protect ourselves as well)

At 27 I’m more than capable based on education, experience and knowledge to navigate this market with relative ease. I’m not down anywhere near the market YTD and I don’t invest like the rest of the market either.

I understand the financial markets quite well and while banks are failing left & right I’m looking towards companies with enduring value. Even if we experience a down period of 3-5 years I will relish the opportunity to continue adding to my holdings.

Sit in cash….stuff it under your mattress all you want, but you’re not creating any wealth with that strategy and in real terms you’re doing quite poorly.

I do my due diligence and invest accordingly. Just because you have a different opinion doesn’t mean you’re right.

Questioner: Great idea for a post. Thanks.

Ignorance: You said — “one of the worst and longest bear rallies in god knows how long”. Are you sure? This one isn’t even an average bear market yet. (S&P is down 27% from the peak; the loss in an average bear market is 31%). I don’t have a clue how derivatives will blow up but neither do you (nor the analysts, nor the CEOs of these companies themselves), so I’ll take the market’s guess of valuation to be correct, thank you. I’m happy to be the “dumb” money that knows its limitations.

Mat: If you take a 65-year couple retiring today, one can be expected to live to 91. That’s an expectancy of 26 years, longer than what most people would consider long-term. People don’t just sell all their stocks and go to cash when they are going to retire. When you are younger, you keep most of the portfolio in stocks and increase the bond component as you age, so that you have a fairly conservative portfolio (but still has a significant equity component).

Of course, reality often finds a way to ruin the best laid plans, which is why I’m not saying an infinite horizon. And there’s no guarantee I won’t chicken out when I’m retired… if I have enough that I could live on the interest GIC’s provide when I’m over 65, and we’re having an incredible bubble market like we just had, I might be very tempted to cash out and switch to GIC’s. But I leave that for future me to figure out (assuming I’m even still alive then).

But I’ve been a big saver for a number of years… I haven’t changed my spending habits since my salary was half of what it is, as it went up I just increased savings and/or accelerated mortgage payments, so my goal isn’t to accumulate savings and then wind them down to 0 in retirement, my goal is to accumulate enough savings that I can live off the returns and then leave all the capital to the next generation.

The whole premise of your argument, the whole reason you are saying that everything will become worthless, is because “things are different this time”. That’s the same thing the bulls said when they were telling us stocks would go up forever… what the real estate agents were saying when they said real estate would go on forever. Why should we expect your extremist view to be any more justified than theirs? And if it is… if everything in the world is going to hell in a handbasket… then what’s the point of holding on to cash, it will be worthless when society breaks down. Personally, I don’t find the losses that will come from the default swaps any different than the losses that come from bankruptcies. They happen, they ripple through the economy, and it repairs.

Even your link basically talks about circumstances relating to a great depression, but those of us that follow history know that those that invested during the down period of the great depression did very well in the long term.

But hey, I don’t want to discourage or dissuade you, ignorance… after all, if the masses didn’t vaccilate between fearful and greedy we wouldn’t have the opportunities we do, and maybe you will be right and you can say “told you so” to us 30 years from now… or maybe we’ll be right and have a decent retirement because of the steps we took today.

I do agree with you on a few things… I think the bailout will do nothing to solve the problems, and I don’t think we’re at the bottom yet, I think there are some bigger drops still to come due to fear, which I hope to take advantage of, continuing to lower my average cost. But cost is not my biggest concern, because with a 50+ year time horizon, the flow of dividends is much greater for me than the appreciation in the stock price. Finally, I agree with you that it is a gamble, I could be wrong, which is why I’m not committing 100% of my retirement savings… but by the same token, I could be right, which would lead to a significant payoff. Nothing ventured, nothing gained…