The Market - How do the Sheep Expect to Retire?

Discussion in 'Trading' started by TGregg, Aug 25, 2003.

  1. TGregg


    I've got a cousin who's gonna be married in a couple months. Let us say for the sake of argument that he is 23, and has 50k to put in his retirement account (of whatever nature), and will never have another dime to put into it. He's a young guy, looking to retire at 65, so he'll be invested for 42 years.

    And, let us suppose that he thinks he'll get just a tad over 10% annual rate of return (a bit lower than many folks expect). Using the rule of 72, his money doubles about every 7 years. After 42 years, he'll have (assuming just a bit over 10%/year) 64 times his original investment, or about 3.2 million. Pretty nice.

    Now, where the #$@! did $3,150,000.00 (98.4375% of his account) come from?

    Here's a post I made some time ago:

    I've always thought of the stock market as a giant Ponzi Operation. AFAIK, here are the three ways money gets in the market:

    1. Companies pay dividends
    2. Somebody buys stock
    3. Companies buy back their own stock, or another's.

    Now, #1 is so small it's not worth talking about. And, #2 happens only if that somebody thinks #2 will happen again (bigger fool theory), or #3 will happen.

    But, #3 doesn't happen very much, does it? If it does, that's great, and I'd be very happy to see that the market actually might be a good place to invest long term. But if it doesn't, then it's a big Ponzi con, and you need more and more investors and more and more money to continue to build it up. Which might explain the government's interest to bring some Social Security money into the market.

    Especially when you factor in all the money drainage, like commissions, information, all the money the big trading companies make, etc. If there is anything I know about money, it's that you don't get it from nothing.

    It seems to me that the average long term investor is really being taken for a ride.

    Hmmm, mebbe I shoulda entitled this thread "How do the Pigs Expect to Retire?"
  2. TGregg


    As I see it, there are basically three answers to this concern. The first is that stock prices decline (hugely) until dividends are decent. The second is that earnings rise (hugely) until dividends and company stock purchases are high. The third is that both happen.
  3. Tgregg,

    I admit that I can be very slow at times, but what EXACTLY is the point you are trying get across with this thread???

    PEACE and good-trading,
  4. TGregg


    My exact point would be a question, "Aren't the people who depend on the market to fund their retirement eventually going to lose out?"

    EDIT: Just got a strange sense of Déjà vu, but I could not find a thread that started like this.
  5. In 42years you expect the markets to be lower than they are today???

    PEACE and good-trading,
  6. TGregg


    Long term, yes. And we're talking years and years, not by Friday. Unless there is some flaw in the reasoning in the initial post.

    I imagine that since this idea is not widespread (and it's not all that deep, IMO), there must be reasons that this is not well accepted. On the other hand, I just got done reading about the Mississippi Scheme, so maybe there are no good reasons.

  7. No, not necessarily. Although traders generally love poking fun at "the fundamentals", they do actually count. So the answer to your question does very much depend on how business performs over the next 42 years. It's a tough call for much further beyond that time frame, but I think being bullish on American business for the next fourty years isn't too bad of a bet.
  8. Tgregg I took it you meant years and years not Firday when you replied to my 42 years question with a yes...

    If I had any idea what it was you were trying to say in the initial post I would try and throw you a counter-argument to chew on but you lost me bro...

    PEACE and good-trading,

    PS; Are you shorting the markets in your retirement account with a time horizon of 42years? If so, good luck!
  9. no need to worry. harry dent says the dow will be 30000 by 2010.
  10. It is no secret that Stock Market FUNDAMENTALLY follows demography on long term. And more and more you will hear the bankers communication change and tell you PARTLY the truth - that any knowledgeable man should know at least if he has received a high level education at school (although I doubt that economy is too scarce in engineering school) : they will begin to tell you that stock market depends on demography but will pretend that people should put their money in stock market to "save" the market which is a lie: this is how money will evaporate even more quickly for one must be naïve to believe that the big financials know that stock market will decline because of liquidity that doesn't enter the market any more will not try to profit from the last bullish trend and short the market after.

    #10     Aug 26, 2003