Bear Markets: A Necessary Evil (from Larry Swedroe)

This is a piece from Larry Swedroe that I thought was worth sharing with you. It’s a long piece and if you don’t want to read it all, here’s what I want you to take from it:

The bottom line for investors is this: If you don’t have a plan, immediately sit down and develop one. Make sure the plan anticipates bear markets and outlines what actions you will take when they occur (doing so when you are not under the stress that bear markets create). Put the plan in writing in the form of an investment policy statement and an asset allocation table and sign it. That will increase the odds of your adhering to it when you are tested by the emotions caused by both bull and bear markets. And then be sure to stay the course, altering your plan only if your assumptions about your ability, willingness or need to take risk have changed.

This is very good advice! I can’t tell you how important it is to have an investment plan.

Now, if you want to read the entire article from Larry, here it is: Continue reading Bear Markets: A Necessary Evil (from Larry Swedroe)

One Advantage to Home Foreclosures: Lower Home Prices

From today’s Wall Street Journal:

A glut of foreclosed homes of historic proportions is starting to drive down U.S. home prices faster as lenders put more properties on the market and buyers show signs of interest.

The ability of America’s lenders to manage this fire sale will be crucial to determining how long the housing market stays in the dumps — and how quickly blighted neighborhoods can heal. The oversupply is severe: In some major markets, including Las Vegas and San Diego, foreclosure-related sales have accounted for more than 40% of all sales in recent months.

On Monday, new data suggested that pressures like these are starting to drive prices low enough to attract some buyers back into the market. Sales of previously occupied homes jumped 2.9% in February from the month before, the National Association of Realtors said, the first increase since July.

Source: Wave of Foreclosures Drives Prices Lower, Lures Buyers ($)

Believe it or not, this is actually a good thing! In my opinion it’s much better that trying to keep people in housing that they can’t afford.

Sure, home foreclosures are bad for those who are losing their homes. However, one positive is that those who were previously priced out of homes due to high prices might now be able to buy. In other words, this housing situation is only temporary. If housing prices come down enough, THERE WILL BE BUYERS! Think of it as a reward for prudence!

One other interesting finding in the WSJ article:

Prospects for the housing market also depend heavily on the job market. As measured by the S&P/Case-Shiller national index, home prices jumped 74% in the six years through 2006. During the same period, U.S. median household income rose just 15%. (Neither figure is adjusted for inflation.) That discrepancy made housing unaffordable for many Americans.

The home-price index already has come down about 10% from its peak in mid-2006. But prices might need to fall much further, some analysts say. A recent Credit Suisse report projects that average home prices have another 40% to fall in the Miami metropolitan area, 36% in Phoenix, 26% in Los Angeles and 20% in Las Vegas if they are to become more in line with income levels.

Wow! Housing prices increase 74% while income only increased 15%. That’s a bubble if I ever saw one.

I say let prices fall. Eventually they’ll get to the point where people can afford them.

An Interesting Piece on Target

I just read a pretty interesting Fortune piece, Target’s Inner Circle, which is about retailer, Target. According to the article, Target is shy when it comes to press attention, which explains why I don’t remember ever reading an article about the company until tonight. Some interesting stuff from the article:

Over the past decade, revenues have increased at an annual rate of 12%, to $63 billion. Since 1994, when Ulrich became CEO of what was then the parent company, Dayton Hudson, Target stores’ operating margins have jumped from 5.4% to 8.6%, while Wal-Mart stores’ have flattened, from 8.1% to 7.3%. The stock has returned 795%, compared with 284% for the S&P retail index and 354% for Wal-Mart.

I don’t think there’s any doubt that Target is “hipper” than Wally World. I HATE Wal-Mart but don’t mind Target so much, while my wife (and 3-year old daughter) LOVES Target. Their stores are always clean and neat, while Wal-Mart always seems a bit bland.

Regarding Target’s prices vs. Wa-Mart’s, I found this quite interesting:

In February, Citigroup managing director and analyst Deborah Weinswig polled shoppers and found that though Target consistently underprices supermarkets on groceries by about 10% to 15%, shoppers perceived the opposite: that Target’s prices were a full 20% higher. Moreover, though prices at Target average out to within 1% to 3% of those of Wal-Mart, 87% of respondents said they shopped at Wal-Mart because it was the cheapest. “The problem could be that some of these stores are so clean that you just assume you’re paying more,” says Weinswig.

I’m afraid I would have been one of those people who thought Wal-Mart was cheaper than Target.

Finally, this last little tidbit ticks me off (long-time readers of this blog will understand why):

…some have noticed that both Target’s and Wal-Mart’s average pay in Minnesota, for example, falls below the $12.24-per-hour that advocacy group Jobs Now calls a living wage. “We feel they are worse than Wal-Mart because they are masquerading as this benign employer,” says Bernie Hesse, director of special projects for Local 789 of the United Food and Commercial Workers Union in St. Paul, which has unsuccessfully tried to unionize local Target employees (no Target employees are unionized). “They have gotten this pass because they have set up this foundation and have this chic look, and that’s more cruel than Wal-Mart. Wal-Mart doesn’t pretend.”

I don’t think most people understand the retail environment. Most of the jobs in retail are pretty much menial jobs that LOTS of people can do. Those kinds of jobs should pay minimum wage. Since a retail store has lots of part-time, low-wage employees, with smaller numbers of managers, it shouldn’t be a big surprise that their average pay is on the low end of the scale.

Anyway, I thought it was an interesting piece. I wonder how many Target employees have read it?

An Interesting Investment Metric

I was flipping through the March 31, 2008 issue of Fortune when I came across this tidbit on page 14 in the “My Metric” section at the bottom of the page:

Hal Varian, chief economist, Google:

“I always like to look at the number and obscurity of footnotes in a company’s 10-K filing. The larger the number and the more obscure the footnotes, the more likely ther is bad news coming in the next quarter.”

LOL! He’s probably right!

ANNOUNCEMENT: Smart Money Needs Your Help on Bank Fees

I received the following email this afternoon from Lisa Scherzer at Smart Money:


I’m a writer at You helped me over a year ago with a story and I’m hoping you might help again. I’m working on a story this week about the rise in bank fees. Have you had any personal experience with these fees (higher stop-payment, ATM or overdraft fees, etc.) in the past year or so? Or maybe you can help me by posting a note on your site asking for input from readers about the fees. I’d really like to get some first-person account of consumers getting hit with fees at banks they weren’t aware of.

Any help is appreciated. Thanks.



The only experience I have had with bank fees came earlier this year when I called about getting my savings account linked to my checking account for overdraft protection. I don’t ever plan on needing the protection but you never know. Anyway, the lady at Wells Fargo told me that she could help me and then she told me that if I do a transaction that causes the bank to move money for me that Wells Fargo will charge me$17! She then went on to tell me that that was a great deal because they charge something like $30 for an overdraft. She told me that if I move the money myself there’s no fee (well, that’s good news!).

If you can help Lisa out, leave a comment and I’ll forward your information to her. You might just get your name in Smart Money!

My Boys Are Becoming Men

My boys are becoming men.

Last weekend I bought a new self-propelled Honda lawnmower with the intent of teaching my oldest son how to mow. He was quite excited about getting to mow for the first time. It took him a couple of laps to get used to the mower. The first couple of rows it looked like the mower was dragging him around the yard becuase he didn’t know how to control the self-propelled throttle. While mowing he asked me, “Is this the kind of fun that wears off?” LOL!

Anyway, he did such a good job that I decided to let his younger brother give it a try. He did a great job too so now I have two lawn dudes! I have to say it was quite nice being able to edge and trim while one of the boys mows. I could definitely get used to this!

All of this leads me to a question for AFM readers:

Should I pay my boys extra for cutting the grass?

I’m thinking no for the following reasons:

1. They each get a pretty generous allowance of $10 per week.

2. They don’t have a lot of chores in the first place.

3. I don’t want them to grow up thinking that they should get paid for helping out around the house.

That said, I’m still a bit torn. If I do end up paying them for mowing the yard, I may cut back on their allowance but pay them extra for mowing.

I’d like to know your thoughts on the topic.

Craigslist Hoax

I just saw this story on Drudge Report:

JACKSONVILLE, Ore. — A pair of hoax ads on Craigslist cost an Oregon man much of what he owned.

The ads popped up Saturday afternoon, saying the owner of a Jacksonville home was forced to leave the area suddenly and his belongings, including a horse, were free for the taking, said Jackson County sheriff’s Detective Sgt. Colin Fagan.

But Robert Salisbury had no plans to leave. The independent contractor was at Emigrant Lake when he got a call from a woman who had stopped by his house to claim his horse.

On his way home he stopped a truck loaded down with his work ladders, lawn mower and weed eater.

“I informed them I was the owner, but they refused to give the stuff back,” Salisbury said. “They showed me the Craigslist printout and told me they had the right to do what they did.”

Included in the article was a poll asking readers if the people who took Salisbury’s stuff should be prosecuted by the law. You have to register in order to take part in the poll. That said, I do think that those people who took Salisbury’s stuff SHOULD be prosecuted. It’s unbelievable that people can be so stupid to believe in such a story. I also think the person responsible for the listing should be prosecuted.

It’s amazing what some people find humorous.