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catoismymotor (60.25)

The Great Recession Will Make Us Great.

Recs

29

February 15, 2010 – Comments (20) | RELATED TICKERS: CALM , LUK , SLW

I saw a television advertisement that asked the question if we are going to “remember this time as the great recession or the recession that made us great?” I normally don’t pay much attention to Madison Ave., but I believe this is a great question.  

I have decised to look upon this time, as uncertain as it is, as the recession that will make my family financially great. My wife and I are building a solid financial foundation for our family. When the time is right we will pass the lessons learned to our children. We learned the lessons the hard way and want to give our kids the benefit of our experience. What my wife and I are doing is not extraordinary. Most people can do it, they just don't want to.  

I am excited about the future. There are opportunities here and abroad for investment that are fantastic. Being able to invest in domestic and overseas markets does make the world your oyster. If you are studying to become a long term investor I think it is best to look at the next three to five years as a time to lay your investment cornerstones. The next five to fifteen years are going to be fantastic. Study your Graham, Buffet, Fisher and Lynch and invest accordingly.

Warmest Regards,

Cato

     

20 Comments – Post Your Own

#1) On February 15, 2010 at 1:39 PM, dudemonkey (54.41) wrote:

This is how I have been viewing these times ... as an opportunity.  Great blog post!

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#2) On February 15, 2010 at 1:58 PM, AvianFlu (39.70) wrote:

in normal times, in a normal recession I would say you are correct. However, we are not in normal times.

1) The intent of government, which they have clearly stated, is to confiscate a larger percentage of corporate profits. That will be less money to deliver back to shareholders as dividends, participate in buybacks, or invest in new operations.

2) The federal government has floated several trial balloons about confiscating your 401k and/or IRA savings and forcing you to invest in treasuries at 3%. In addition to taking away your freedom to structure your own investments, this would also guarantee a very tiny rate of return. I hope they vote on this before the November election. The reaction would be fun to watch.

3) The federal reserve and the federal government are performing a massive money printing project which will lead directly to inflation, probably starting this year. Yes, your stocks will adjust upwards in response to inflation, but if you look at real inflation-adjusted terms you will probably find that you have lost purchasing power in real terms. In the meantime you will probably be catapulted into a higher tax category since you are now so "rich'.

Other than that things look great.

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#3) On February 15, 2010 at 2:03 PM, ENDtheFEDnow (34.88) wrote:

Good luck with those rose-colored glasses! 

I do agree that now is a great time to exchange your paper for precious metals.

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#4) On February 15, 2010 at 2:05 PM, cdulan (88.87) wrote:

Hmm....I like your optimism.  But do you understand the concept of systemic risk?  No need to be an ostrich, but you are way more exposed to the affairs of others than you may like to be.

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#5) On February 15, 2010 at 2:33 PM, Turfscape (41.23) wrote:

AvianFlu wrote:
"The federal government has floated several trial balloons about confiscating your 401k and/or IRA savings and forcing you to invest in treasuries"

I can't help but think of Braveheart:"They may take our freedoms, our votes, our speech. They may take our civil liberties and rights...but they will never take our 401Ks!!!!!!!!"

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#6) On February 15, 2010 at 2:36 PM, dudemonkey (54.41) wrote:

Yes, this time it's totally different.  Just like people said in 1974.  And 1937.  And 1929.  And 1920. And those were just the post-fed ones.  The REALLY bad depressions were before then.

It was interesting reading Buffet's biography because his father sounded exactly like posters #2, #3, and #4 and yet somehow going into full-fledged permabearpanic mode didn't really pan out.

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#7) On February 15, 2010 at 3:14 PM, catoismymotor (60.25) wrote:

#1 - Thank you.

#2 - 1) I am invested in domestic and foreign companies. I'm not so worried about that.

       2) That would be political suicide for any one that tries it. If you think the healthcare issue was a problem for politicians you ain't seen anything if they go after your retirement plans.

       3) I agree that inflation is a concern. I am mostly in growth stocks, domestic and foreign, that hopefully will improve in years to come due to real expansion and increased revenue, not because the US economy is in the tank and inflation runs rampant.

#3 - Rose colored glasses? Where? You can either rearrange the deck chairs or get in a lifeboat and save yourself. I choose the lifeboat. 

#4 -  I understand. All I can do is invest in companies I know, in markets I see as most promising and hope for the best. It all boils down to DD and some prayers.

 

I appreciate the contributions of everyone.

 

The lessons learned, that I eluded to in the original post above cover more than just investing.  What is boils down to is careful management of finances, living within your budget, saving X amount of your take home pay, investing Y amount of take home pay, using cash for all but a few things, not keeping up with the Joneses...boring stuff, but critical to learn early. We did not benefit from such direct advise from our parents. As a result we got ourselves into some trouble that took a few years to sort out. Save the mortgage and student loans we are debt free. I want to start our kids on the right path as early as we can.

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#8) On February 15, 2010 at 6:15 PM, buildgreen (< 20) wrote:

amen brother. Your attitude is why we will continue to be a great country. You will reap the seeds you sew. If you choose to simply focus on the sky is falling.. then that is what will happen to you. The lessons you mention have actually improved my outlook vs a few years back where I could not understand the way those around me were operating. I even came to think my understanding of the economy was wrong.. Ive been greatly effected by this recession.. but I am glad for it.. I am glad for the lessons learned and the rewards that will be justly distributed to those that adjust. Again... those that look for lessons.. learn lessons.. adjust and will always be winners no matter what the situation.

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#9) On February 15, 2010 at 11:04 PM, dwot (99.54) wrote:

The sky is falling...

Imho, if you have debt the most important thing to be doing is to pay off debt.

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#10) On February 15, 2010 at 11:43 PM, russiangambit (29.98) wrote:

Can't help but comment on the individualstic nature of the approach in terms of preparing. To think that one single family can hold on though a major crisis if one shall come is very naive. Look at the countries that recently went through major crisis, even look at Jews who where prosecuted through centuries, these people band together. It is the only way to survive. Until americans understand that it is not an individual problem, that is not us vs them, not reps vs dems, that we are all in it together , there will be no solution. But eventually people will learn. People tend to forget and become arrogant but the course of history always finds a way to reminds us about how vulnerable we really are.

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#11) On February 16, 2010 at 12:07 AM, directd (69.18) wrote:

"Yes, this time it's totally different.  Just like people said in 1974.  And 1937.  And 1929.  And 1920. And those were just the post-fed ones.  The REALLY bad depressions were before then.

It was interesting reading Buffet's biography because his father sounded exactly like posters #2, #3, and #4 and yet somehow going into full-fledged permabearpanic mode didn't really pan out."

 Great post - Couldn't agree more!

I guess because I'm a huge history buff I can't help but look back on history and ask, "Hmm, every severe recession, every depression even of the last 100-150 years, if you lived through one of them what would have been more profitable? To hide under the bunker with a sign posted outside the door saying "But it's DIFFERENT this time!" or as a tremendous buying opportunity?

Well we all know the answer to that one.  As to previous comments like "well it's not a NORMAL recession, normally I would agree but what about taxes and such!?!?"

Again I ask where is your history? What was the tax rate back in the 1930/40s with FDR? At the highest tax rate, it was over 90% yet capitalism endured, profits endured and the stock market was still a great place to invest.

Look I'm not it's going to be all smooth sailing, I expect a lot of volality and turbelence ahead of us. But even a cursury examination of the history of capitalist economics and the US stock market and I would say it has surprised just about everyone how dynamic and robust the system really is and how many blows it can endure and then bounce back even stronger.

Point is, the more you read up on your history and see what this stock market has been through...and survived leaves you greater confidence in its ability to regain its footing. You can choose to live in the moment and pretend "its never ever been this bad!!" or you can get some composure, get some history of the market and take advantage of some opportunities.

I know what the great investors have done during times like these and I'll be joining them. As always, the choice is yours.

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#12) On February 16, 2010 at 12:16 AM, russiangambit (29.98) wrote:

#11 -  this time is different because we can't afford another WW2 at this point. Not to mention the nukes make it pretty much impossible. I mean really, you look at 50 years of prosperity and you expect them to continue into unforeseeable future? I don't expect a collapse , but the prosperity is gone. Instead of fighting the inevitable and bankrupting the country in the process we should insted start adjusting to less expensive life style and see how we can make the best of it. And we should start by making the government at least 30% smaller and concluding all the military campaigns.

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#13) On February 16, 2010 at 8:54 AM, catoismymotor (60.25) wrote:

How did this thread collapse into the "Jews and our individualism is at fault for the financial crisis" from "I want to teach my kids to avoid debt, save for the future and invest wisely."

 

 

 

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#14) On February 16, 2010 at 8:57 AM, USNHR (35.20) wrote:

Save the mortgage and student loans we are debt free.

______________________________________________

Same boat here, and making extra payments on those every month. More or less Dave Ramsey's plan.

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#15) On February 16, 2010 at 9:15 AM, russiangambit (29.98) wrote:

#14 -  cato, sorry for brining up the Jews, it turns out to be a sensitive subject even in the US. Anyway, the point was that in addition to everything you already teaching your kids you should also teach them to stick together. One person no matter how smart or wise can easily be steamrolled by the majority.

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#16) On February 16, 2010 at 9:41 AM, NEMnyWtch (< 20) wrote:

Love Lynch - "Never invest in anything you can't draw with a crayon!"

Don't let the bears growl down your optimism Cato.  Good for you!  I also agree that teaching your children about saving and investing is a wise choice.

I have taught my daughter the same. She gets paid for some chores, if performed, otherwise not.  She has been taught to save 1/2 of what she earns, and has learned the fluctuating market value of the video games she loves, so she will wait on a new release and pay on average a good 25% less  for them by doing so.  She's the only 10 year old I know with about $100 in her piggy bank and no urgency to spend it.  Her bank savings is almost up to an investable level.  My hope is that through wise choices she will always keep a good safety net and not be laden with debt.

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#17) On February 16, 2010 at 10:27 AM, Turfscape (41.23) wrote:

cato wrote:
"How did this thread collapse into the "Jews and our individualism is at fault for the financial crisis""

Godwin has an explanation for that...

I'm with you on this topic, though. I think these are the tough times that define character. I think there will be very good times ahead, again, but I will be smarter and stronger when they arrive. I have an advantage, as I wasn't overextended before our current collapse started. So, for me and my family, there is indeed a lot of opportunity before us. And I will be able to say to my children that we persevered and prevailed in the face of adversity...and because of that, you now have opportunity in front of you.

That is my goal.
(Well, that and getting to retirement so I can spend all of my days panfishing).

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#18) On February 16, 2010 at 11:05 AM, catoismymotor (60.25) wrote:

TS,

I had forgotten about Godwin's Law. It would be more funny if it did not prove itself true so often. Good for you being in a  postion to take full advantage of the recovery. It is important to teach our children how to recognize opportunities and to be able to capitalize on them. Luck is when chance meets a prepared mind.

NEM,

I like how you are teaching you daughter about the value of money and how you are requiring her to save for long and short term. If she stays on this path she might be able to buy her first home right out of college.

Cato

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#19) On February 16, 2010 at 1:10 PM, EBStroke (< 20) wrote:

From Wikipedia, the free encyclopedia

Godwin's Law (also known as Godwin's Rule of Nazi Analogies or Godwin's Law of Nazi Analogies)[1][2] is a humorous observation made by Mike Godwin in 1990 which has become an Internet adage. It states: "As an online discussion grows longer, the probability of a comparison involving Nazis or Hitler approaches 1."[3][2]

Godwin's Law is often cited in online discussions as a deterrent against the use of arguments in the widespread reductio ad Hitlerum form. The rule does not make any statement about whether any particular reference or comparison to Adolf Hitler or the Nazis might be appropriate, but only asserts that the likelihood of such a reference or comparison arising increases as the discussion progresses. It is precisely because such a comparison or reference may sometimes be appropriate, Godwin has argued that overuse of Nazi and Hitler comparisons should be avoided, because it robs the valid comparisons of their impact."

I needed to look this up.  Good Point!

to Cato (regarding hope, faith, optimism, history & 'living within your means):

I have 3 grown kids (29, 25, 21) raised in the same manner.  You will never regret your choices or your path.

Mike 

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#20) On February 17, 2010 at 5:26 PM, rosemanjhk (29.50) wrote:

Sometimes I feel like a "war profiteer", as I started investing just prior to the market bottom and have been making silly profits off this market.  As I sell them off, I move into high dividend stocks from the "bottom feeding" I did last year.  As someone mentioned, it is about opportunity.  Everything is not going to be rosy, but I agree with the original post - pay off your debts, live within your means, and invest what you can, when you can.  Diversify!

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