Trent’s overall statement of “anyone who says they know for sure is lying” is completely true. At best you can make an educated guess, but if anyone truly really “knew” they would be billionaires already. The only person who comes to mind that really “knows” is Warren Buffet. The rest of you just try to play catch up.

I understand you did make some fine recommendations, but initially you did not, that’s what I meant. I apologize about any confusion.

As for JLP, he’s just a regular commenter just like everyone else, but he just so happens to have a popular blog, I think it’s fine.

As for he not answering your question’s and you not answering his, why not take this opportunity to use this debate to inform others. Both of you can cool off a bit and maybe make a series of posts between the two blogs to outline all the considerations needed to made such important decisions? Maybe different strategies, platforms, strategies, etc? I’m sure Buffet, Lynch, O’Neil, Cramer, and others don’t share the same thought process, but imagine if they got in a room together for a formal, but civil and informational debate? How cool would that be? It would be like a brain picking fest, I’d love it.

What’s so great is that both of you have very different points of view and many of your readers subscribe to different points of view all the time. You know, sometimes I agree with you, other times I disagree and the same things occur when I read JLP’s blog. It’s not because I like JLP or you more, it’s just that my opinions, risk tolerance, education, and other factors influence my decision and I think your readers and JLP’s are just the same.

Please take time and consider coming together with JLP (or visa-versa) to offer some sort of series of posts between the both of you … you’re both great bloggers and offer great perspectives … rather than debate numbers and indexes in the comment section of one another’s blog, lets see some great stuff in terms of bipartisan posts! That would be great!

-E

I am, however, really disappointed that JLP hijacked this thread to deal with his own issues, insults me, then refuses to even answer a very basic questions.

Thanks Bubz, it’s clear now, buddy!

The way I look at it, if you had $10K invested and the DOW hit 14,000 and you pull out when it hits 13,000 … when do you jump back in? When it’s 14,000 again? That’s a double loss in my eyes since you’ll be getting fewer stocks.

I’m Libertarian :-)

I think Trent should have outlined some considerations and not made such a bold statement such as pull out into cash or the like.

Thanks for the sarcasm clarification!

Erm… My sarcasm didn’t catch, I suppose. Here, I’ll try it again.

Trent is correct. One should never invest when one feels uncomfortable, and should only reinvest when one feels the warm fuzzies. I was never warmier nor fuzzier than when the Dow hit 14000. I’m extremely uncomfortable now. So I just pulled all my 401(k) assets out of stocks and put them into collectibles (you know, beanie babies and the like). I will only put that money back into stocks when I feel good about it again… say, when the Dow hits 14000 again.

Thanks Trent! You ratcheted up my base fears to the point where I panicked and did something rash. Thanks goodness /someone/ is looking out for us ig’nant folk.

(Hint: I think Trent’s original advice to Lila was dangerous and irresponsible. He reminds me of my middle class friends who vote Republican — I stare at them and stare and them and I just can’t see what it is that causes them to vote against their own interests).

Cheers.

I’m pretty sure this all started when talking about a 401k … what 401k invests solely in individual stocks?

If your risk tolerance is too low, put your money in a low interest baring savings account so you don’t worry, but just accept you’ll be forgoing future gains to mitigate your low risk tolerance.

Buy and hold has worked over and over again. Checkout a Peter Lynch book sometime.

JLP is on the money. Individual stocks are a different animal, hence why we’re discussing the S&P500, your pets.com comment is irrelevant to this discussion and proves nothing.

Personally, I’m 24 and I have 40+ years to retirement, despite the nervousness of some, my 401K is still up 8%+ for the year and we’re not even over yet!

My point is, if you have 40+ years until retirement, these market corrections are not something to get worked-up about in most circumstances.

I disagree with pulling out your money if you’re uncomfortable, rather you should discover why you’re uncomfortable and find books that discuss these factors so you have a better understanding and then re-evaluate your portfolio.

For beginners, check out Bogleheads guide to investing.

2%-3% : 0.93%
3%-4% : 2.79%
4%-5% : 19.44%
5%-6% : 19.44%
6%-7% : 14.81%
7%-8% : 15.74%
8%-9% : 18.52%
9%-10% : 7.41%
10%-11% : 0.93%

Pretty even distribution from 4% to 9%. 90% of 30-year periods are in that range.

I’m through with you. I have wasted too much time with you and your silly ideas. You say you want to debate but that is far from the truth. Rather than debate, you want to nitpick my statements to find small inaccuracies and focus on that instead of the big picture.

I think you should stick to blogging about crockpots, bananas, and other less-challenging topics because your investing advice stinks.

Goodbye!

What assertation in this post are you wanting me to admit wrongness on?

That $10K of stock I purchased in Pets.com back in 2000 is worthless now. Therefore, Trent is right and buy&hold is stupid. QED.

The point of this post is that nothing is set in stone, and JLP is basically proving my point for me. Thank you.

What’s the point? You can find data to support pretty much any perspective you want, so to flat-out say someone else’s investment philosophy is wrong because it doesn’t mesh with your pet data sets is pretty insulting.

Yes, you are correct. My data only went to 1926. I got my data out of the SBBI 2007 Yearbook.

So,…

My statement that the “market” never had a 20-year down period is only true for 1926 – 2006. I didn’t state it that way although my chart clearly shows it is from 1926 – 2006.

To anyone like Tyler who “lost respect for JLP with that post”: Seriously, he disagreed and called Trent out on what he (and I) thought were errors. And he was pretty respectful about it. Not a big deal. I, for one, have actually learned something through all that.

Take care of the basics, frugal, practical living first. While establishing this lifestyle learn everything you can about investing. You will never be able to stop learning, because if you do the market will give you some hard lessons. And finally Just Do Something. That beats Doing Nothing over any time period you can think of.

Also, failing to incorporate dividend earnings dramatically under-represents true market performance.

JLPs graph and mine use the same source data — SP composite index. The big difference is his rolling 20 year starts in 1926 while I have data starting in 1871. The one negative point I have (1901-1920) is before the starting point of JLPs graph. So from JLP’s perspective, he just didn’t have that data point when he made the “no 20-year real loss” statement.

Whether using SP90+SP500 data is flawed or not — remember that could go either way. An index that tracks a smaller number of larger stocks end up under-reporting the total market performance as small cap stocks historically have performed better due to higher risk premium. You *could* argue that the numbers before 1963 deserve a bump due to the size factor but it would be a random guess what it was.

This problem also applies to the data you cite Trent. The DJIA only tracks 30 stocks and when it launched in 1896, it only tracked 12 stocks. So the links you posted to DJIA graphs would be considered far more flawed than SP90+SP500 data. Consider that the period of 1901-1920 where my data shows a slight loss and compare to the DJIA graph. Notice how there’s a big spike in 1916 and then it levels off again? Well what happened there was the DJIA increased the number of stocks from 12 to 20 and just did some kooky math to shoehorn it in — the stock market did NOT jump up 85% that year. People only cite the DJIA due to cultural reasons since the general public knows Dow Jones and has ideas of what the numbers mean but nobody in the financial industry actually uses this index.

So you might say everybody’s wrong but at different degrees. The DJIA price only chart shows an investment made in 1929 would have taken until 1955 before an inflation-adjusted breakeven hit. With reinvested dividends, it actually made it back to breakeven by 1935 and started creeping up again. Until World War 2 caused another collapse pushing out the permanent breakeven to 1943. That’s a difference of 26 years (w/o dividends) versus 15.

You are correct that nobody can ever say for sure something will happen. But that doesn’t mean we shouldn’t look at what’s likely to happen and put our money on the best option. If I divide up all 20 year periods since 1871, I get the following real return summary:

-1% to 0% : 0.85%
0% to 1% : 9.32%
1% to 2% : 7.63%
2% to 3% : 5.08%
3% to 4% : 5.93%
4% to 5% : 6.78%
5% to 6% : 18.64%
6% to 7% : 14.41%
7% to 8% : 11.02%
8% to 9% : 6.78%
9% to 10% : 5.08%
10% to 11% : 4.24%
11% to 12% : 3.39%
12% to 13% : 0.85%

The chance of losing a tiny bit of money is the same as the chance of increasing your money 10X. When you consider the alternatives (ie, do nothing and guarantee loss due to inflation), it’s not a bad bet to make.

But I definitely agree with spend less than you make. You can’t invest if you have nothing left over.