Halls of Shrewd'm / US Policy❤
No. of Recommendations: 4
“The Booming Stock Market Is Helping Many Retire Early”
Interesting. Jives with what I’ve seen with a lot of colleagues.(sorry, had trouble getting a link)
Excerpt from Barron’s:
“…But it seems that strong gains in asset prices have lifted the wealth of many older workers sufficiently to allow them to attain their goal of retirement. With the value of their securities portfolios and homes having been levitated by the effects of strongly stimulative monetary and fiscal policies to fight the effects of the Covid-19 pandemic, the labor-force participation rate of those over 65 has fallen, and doesn’t look likely to get up again. Meanwhile, labor-force participation among those in the so-called “prime” working years has recovered and exceeded prepandemic rates.
That’s the finding of economists Miguel Faria-e-Castro and Samuel Jordan-Wood, writing in the current issue of the Federal Reserve Bank of St. Louis Review. There were 3.27 million “excess retirees” as of December 2022, accounting for much of the 3.73 million “missing workers” over age 16 relative to the prepandemic peak of February 2020.
While many folks find they have to retire sooner than planned and feel a financial pinch, Faria-e-Castro and Jordan-Wood find that “booming asset returns in 2020-21 help explain” a significant number of dropouts from the workforce, especially for those near retirement. The S&P 500
SPX index returned over 35% from December 2019 to December 2021 in real terms (adjusted for inflation) while housing’s real return was close to 20% in the period…”
No. of Recommendations: 6
"The Booming Stock Market Is Helping Many Retire Early"
Been takin' it easy myself, though that might change if something interesting falls in my lap. Not looking.
We know that stock market wealth can be something of an illusion. My wife likes to remind me of 2008/2009. We were riding high in early '08, and I thought I might slow down a bit, maybe even semi-retire...oops! Net worth down 55% at one point, not that I looked very often, and took five years to recover.
I expect most of these nouveau early retirees couldn't take a 50% drawdown with a 5-year recovery.
No. of Recommendations: 6
“I expect most of these nouveau early retirees couldn't take a 50% drawdown with a 5-year recovery.”
Yes, I shared a similar anxiety & plunge in assets on paper during ‘01-02 and the GFC. Your scenario above was my big “what if” test & having enough of a residual nest egg that our standard of living would not change AND feeling like our temperament and patience is appropriate to ride out the storm (unlike years past).
WEB & CTM reminded us BRK price has been cut in half 4 times. That being said let’s hope it never happens in our remaining time on Earth!
"If you're not willing to react with equanimity to a market price decline of 50% two or three times a century, you're not fit to be a common shareholder and you deserve the mediocre result you're going to get.”- Munger
No. of Recommendations: 23
I expect most of these nouveau early retirees couldn't take a 50% drawdown with a 5-year recovery.
Indeed.
I figure the secret is owning stuff that's resilient.
Not resilient in price: any stock portfolio will drop by half from time to time. It doesn't matter what's in it, that will happen.
But some stuff will come all the way back, and some won't. If the value doesn't go away, and it's not temporarily overpriced, it's just something to wait out.
Berkshire's drawdown in the credit crunch was pretty epic, with a five year stretch without fresh highs, but that's mainly because of the price spike just before the crash.
The average price in 2008 of $119,656 (the then highest average calendar year price) was exceeded by the start of March 2010.
Despite being very cheap, the average price in 2010 was $117,757, about the same as the pre-crunch highest year.
Separately, value growth continued apace, so the value and price also went right back to the old trend. The price was not resilient in the crunch, but the investment was.
Jim
No. of Recommendations: 7
WEB & CTM reminded us BRK price has been cut in half 4 times. That being said let’s hope it never happens in our remaining time on Earth!
I'm hoping I live long enough to see at least a couple more!
No. of Recommendations: 7
“The price (BRK) was not resilient in the crunch, but the investment was.“
That is true. I am currently very concerned for people outside of the value mindset. This is a very dangerous market to be all in on US equities at 30 times earnings. If profit margins mean revert that multiple is even higher.
No doubt, the euphoric market can continue for some time. If it cracks, Berkshire’s price will take a hit but not as much. That is not completely irrelevant, as it depends when one is going to start spending the money. And what we do not know, in the next crash, is how many years will pass before new highs are reached. Certainly Berkshire is a good place to be for at least two reasons. Last man standing and what must now be a huge cash pile that could be deployed. Plus the happy thought, that if Berkshire fell 50% it would be deeply below intrinsic value even in a recession. That can’t be said for some other high flyers to the same extent.
I don’t plan to ever retire and find the whole idea of it increasingly bizarre. However, I recognise that some day my customers, or employer won’t want me. For that reason I have a decent cash allocation. In an inflationary world, that might well hurt my purchasing power, versus equities but this market looks bubbly to me.
No. of Recommendations: 5
“For that reason I have a decent cash allocation. In an inflationary world, that might well hurt my purchasing power, versus equities but this market looks bubbly to me.”
Appreciate and respect all perspectives and how we each have our own macro read and thoughts of what makes sense given current conditions. Realize forecasting is for the birds, but I’m still 95% equities, but 70% is BRK and 5% cash/MM. Markets & Big tech feel a bit overbought, but nothing like the .com bubble and burst imo. WEB has net trimmed our marketable securities over the last couple years, but nothing too crazy & is still around 15% cash/cash eq., I believe.
The growth, cash, FCF and the networking effects of really Big techs (AAPL, MSFT, GOOG, AMZN) is pretty impressive despite the elevated multiples vs. historical multiples imo so I’ve not trimmed them yet. Even with the .com buildup & froth, it was over 3 years between Greenspan’s “irrational exuberance” comments in 12/96 and the bubble burst of speculative & profitless tech.
Who knows when the next correction/ recession will interrupt this pleasant setting, but, for now, I’m still enjoying the hors d’oeuvres, punch and music as it relates to BRK & Big tech.
“Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade.”
—A.Greenspan(12-5-96)
