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Ignore the Millionaires

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February 09, 2007 – Comments (3)

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It's been said that the rich are different from you and me. You, I don't know about, but they're definitely different from me.

For starters, they're rich. I'm not. (If I had their dough, I guarantee you I wouldn't be hunting-and-pecking my way into carpal tunnel syndrome. I'd be too busy enjoying my millions. Shall I set up a collection cup for those who'd like to force me into early retirement?)

For secondsies, U.S. millionaires believe that U.S. stocks will return roughly 6% this year on average. That's according to this article, which had its moment of Warhol-esque notoriety earlier this week. Perhaps more amazing that that prediction of tepid returns is this little tidbit: Only 6% of those surveyed think the "market," whatever that is, would decline in 2007.

A few questions come to mind: Should we even care? Does being rich make anyone an expert? I expect a look at the sentiment of the equity-bubble wealthy from 1929, 1987, and the dot-com blowout might provide us with a few guffaws.

Which brings us to another point: How many of these millionaires made their money by investing in stocks? Do these people owe their wealth to working for Hershey (NYSE: HSY), McDonald's (NYSE: MCD), Citigroup (NYSE: C), or Rite-Aid (NYSE: RAD), or to buying those stocks? Or is it something else entirely? (That's what I'd wager.)

One thing is clear. From their average asset allocation -- about 43% in equities -- we can see that they're not putting all their eggs in the 6% growth basket.

Non-millionaires out there might also wish to note that, unlike you, the folks lighting Cuban cigars with $100 bills can afford to pay a heavy toll for their optimism, should it be misplaced. It's not surprising that families with net worth of more than $10 million say they've got a higher tolerance for risk. If they lose $5 million, they won't be reduced to eating chipped beef on toast, though trusty old Jeeves might find himself shining shoes in a grittier milieu.

It should be clear by now that I don't trust the millionaires. Especially since, by another measure, they seem to be getting less bullish.

But if you believe in the wisdom of their dollars, let me leave you with one last heretical thought. If you think the markets will return 6%, why on Earth would you take on the risk, especially when you can get 5% from bank deposits?

Comments? Bring them here.

3 Comments – Post Your Own

#1) On February 10, 2007 at 7:53 AM, gardenel (62.86) wrote:

If the market is only going to return 6%, why on earth would I take the risk?

1) prove it (the 6% figure): no "expert" knows for sure.

2) my dividend-payers will keep churning out cash payments to me, thank you.

3) long term buy-and-hold commitment to equities

4) earnings keep growing but the stock prices aren't appreciating? Sounds like a buying opportunity! A "sale," woo-hoo!

5) if I didn't buy now, I wouldn't be in "the market" when/ever the rally occurs.... That's a bigger risk, to me.

6) I want to max out my Roth EVERY YEAR, not just in the good years, when stock prices are higher.

7) dollar-cost averaging.

8) there are still bargains out there; we must continue to locate them and take advantage of such opportunities (value investing)

9) who says I'm only buying shares of domestic companies? What are the % gains predicted for "global" equities and markets?

10) I'll take that 1% premium over Money Market cash, and pocket my dividends to boot.

I haven't lost a minute's sleep yet, worrying about either what the markets are doing, or what the talking heads are saying about it.

'Nuff said?

Regards,

Nell

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#2) On February 10, 2007 at 10:39 AM, TMFBent (99.80) wrote:

hardly.

if you believe (which was the qualifier) that the market will return 6%, you'd be insane to stay in stocks. That was the point.

1) true, and this is also one of my points

2) "returns" in the usual sense, includes dividends, but yield chasers are the first ones out of the water when risk-free rates go up, as many think they now will

3) why? point of pride? because we all think they're the best?

4) earnings and margins move in cycles. there's no such thing as up forever

5) you buy now, you're buying the tail end of one of the biggest rallies ever. You make money in bear markets, on your buys. All the masters admit this.

6) your roth will pay you 5% sweeps if you have a decent broker

7) ?

8) agreed. most people are ill-equipped to find them. Most fund managers, even. what makes us think we're so smart?

9) agreed -- where else are you putting your money? are you willing to stomach volatility in China? India?

10) you just said that figure might not be right, so you can't count on a 1% premium. That's the risk you take when you invest.

So, the thesis is still:

If you believe (big if) that the market would return 6%, why would you take on the risk that it might do far worse when you can get more than 5% risk free?

Sj

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#3) On February 10, 2007 at 12:00 PM, TMFBent (99.80) wrote:

Oh, and thanks for the comments. My entire point was to get people talking, and thinking.

I still believe it's smart not to assume we're right, even though we believe we are. And I'm one of those heretic who thinks buying and holding forever is something of a fairy tale.

Sj

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