Sunday, September 18, 2005

So What Is the Desert of the Real?

The Author chose the phrase "Desert of the Real-Real Investment Returns in a Dry Season" for three reasons. First, the current stock market is a desert for most investors, even some of the more experienced and ostensibly sophisticated equity investors. All you need to do is look at your most recent statement. Subtract your contributions and you are probably about even with the money you had in March of 2000. Maybe you are up a percent or two.

Second, real returns, the type you can spend or capitalize, are what we want. It is small solace if your mutual fund only lost 2% while the S & P 500 is down 4%. To grow capital, it needs to grow, not "beat the betting spread".

Finally, readers who have seen the “The Matrix”, the first movie in the Matrix Trilogy, will recognize this statement as the revelation that Morpheus shares with Neo early in the movie. [1] But don’t worry, this newsletter doesn’t require that you watch Sci-fi movies. It is for anyone who wants better investment results.

The Author is Here to Help
It seems like only a few years ago that stocks and stock mutual funds were cranking out 25-30% returns per year. Until March 2003. What happened then, and what can you do know?
If you were like most investors during the early 2000’s, your broker or financial planner probably told you to “hang on” and things will come back. “Buy and Hold” stocks for the long term was and still is the mantra. Bad advice.

Say it Was Supposed to be So…

Why aren’t your mutual funds and stocks cranking out returns of 20-30% per year like they did in the 1990s? Many MNSBC talking heads and the tech-mutual fund managers were telling us back then that “things have changed” and the stock market is in a new paradigm of double-digit returns through infinity.

It does not bear repeating that these pundits and analysts were wrong. Very Wrong. Here is the place that you can find out why they were wrong.
The Big, Bad Secular Bear Market
Currently, the best evidence demonstrates that we are in a Secular Bear Market equity environment that began in 2000 and may continue until 2010, perhaps through 2015.

So what does this mean for the stock market investor who hopes to retire in the next 10 to 20 years?

Generally flat returns on stocks. The compound return (the money you actually lose or gain) for the S & P 500 from 2000 to 2003 was –3%.
If you take the now-discredited advice to “Buy and Hold” stocks, it is likely that your future returns will also be flat.

You may be retiring in “name only” in a few years. Think of it as a “working retirement

But do not deapair. In the next few days the Author will post some material from past newsletters that will provide a strategy to get those Real Returns in a Dry Season

Welcome to the Desert of the Real!

1] The world in the Matrix is a Simulacrum, a computer–generated illusion. It only “looks” like the late 20th century. Instead, human beings are enslaved in tanks of fluid, wired to the Matrix. Human brain activity powers the machines that control the Matrix. If you haven’t seen The Matrix, the first of the Matrix Trilogy, rent it. Sequels two and three are okay, but the first is the best. It is a monumental and profound film. Many of the techno-geeks who operate our digital networks can quote lines from the Matrix verbatim. Also, readers steeped in post-structuralist philosophy may recognize the title from a quote in Jean Baudrilliard’s 1981 book, “Simulacra and Simulacrum”.


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