Archives For October 2009

If I were to ask you which one performed better since 1986, would you tell me Bill Miller-managed Legg Mason Value Trust or the S&P 500 Index, which one would you pick?

If you picked Value Trust you’d be…


Much was made about the end of Bill Miller’s 15-year streak of beating the S&P 500 Index a few years ago. Fifteen years of consecutively beating the index is a pretty mean feat. But, as you can see from the graphic below, a 15-year streak can go down the drain quite quickly with a few years of underperformance:

Bill Miller vs. The S&P 500 Index

Notice that those numbers INCLUDE 2009’s performance through October 20th. In other words, even including 2009’s performance, Mr. Miller is STILL trailing the S&P 500 Index since 1986.

One other interesting thing to note is the difference between the average returns and the geometric average returns. If you’ll notice that average returns are neck-in-neck between the two. But, the geometric averages are vastly different. This is due to the fact that Value Trust is a highly volatile mutual fund. It has years of great performance and years of really bad performance. In other words, it’s a much bumpier ride on the Value Trust train than on the S&P 500 Index train.

Once again, this just proves how hard it is to beat the index on a long-term consistent basis and the risk that investors take when pursuing such performance.

I completely forgot to announce the winner of the giveaway I held two weeks ago for a copy of The Worst-Case Scenario Business Survival Guide*. Anyway, the winner is commenter #14, ladam8518.

Congrats to ladam8518. I’ll be sending you an email with instructions on how to claim your book.

There will be more giveaways to come. Stay tuned…

*Affiliate Link

From today’s Wall Street Journal:

Get this: Despite the biggest and broadest decline in financial markets in a generation, the median 401(k) retirement account at Vanguard Group on Sept. 30, 2009, was up 7% from where it was two years earlier, when the market was near its all-time high.

The Reason?…

Continued regular savings matter a lot. If you have continued contributing to your retirement account throughout the stock-market debacle—and even better, if your employer continues to match your contributions—your account probably has more in total dollars than you expected. Younger people, who have smaller balances to begin with, will see a bigger impact from their regular savings.

You can read the full article here.

In a way, continued contributions during a down market masks the losses and helps you feel better about where you are. It’s also a good strategy for making the down market work for you. You can even make it work harder for you by increasing your contributions during the down market. That’s the strategy my wife and I took during this downturn. So far it’s paying off. Our account value is about where it was at the high. Our personal rate of return for 2009 is around 30%.

In Saturday’s WSJ, there was a front page story about how six people were charged with insider trading surrouding Raj Rajaratnam and his hedge fund, Galleon Group. According to the articles, the hedge fund was allegedly paying analysts and company insiders for information so that they could trade on that information.

What should these accusations/findings tell us?

That it’s very hard to beat the market!

(Some) companies will go to any length to get information that no one else has in order to get a good return and beat the market.

Those companies that do manage to outperform the market year-in and year-out will find themselves under scrutiny.

More on this later…

Here’s this week’s short Carnival of Debt Reduction. This is usually a smaller roundup due to the fact that it is a very specific topic and posts that aren’t on-topic are not included in the roundup. That said, here are this week’s selections:

To Build Wealth You Must Spend Less Than You Earn Get Rich Slowly

How to Research Debt Collectors and Understand the Law Bargaineering

How to Get Rid of $106,000 in Debt FreeMoneyFinance

Poor Little Youngsters

October 16, 2009

Here are the opening paragraphs to an article I saw on MSN today:

A new survey conducted for the AFL-CIO suggests many American workers under 35 can’t manage the basic financial building blocks of an adult life. The union calls the past 10 years a “lost decade” for these young people, during which many fell short on getting their own places, finding stable jobs and saving money for emergencies.

About 31% of survey respondents said they made enough money to pay their bills and set some money aside, but 70% said they did not have enough money saved to cover two months’ worth of living expenses. Parents of these young workers know how far they are from making it on their own; one-third are living with their folks.

I thought this quote was kind of funny:

…Jannon says the results should not be interpreted as laziness. “Young people are really yearning to move out on their own to start their adult lives,” she says. “(But) they can’t find the type of work that supports an adult life.”

I think part of the problem is that we often look at luxuries as necessities and don’t want to make the tough choices of prioritizing our needs and wants.

Lest you think I’m full of hot air, let me give you some examples of what my wife and I did in order to get ahead.

1. We bought a house we could AFFORD! We were told by the mortgage broker that we could “afford” a lot bigger note than what we wanted. But, we knew the math and how the note would affect our finances. We also knew that the mortgage broker’s commission was based on the size of our loan. We went with what we could afford.

2. We went YEARS without fixing up our house. We did little things along the way, but for the most part, we only spent money on things that HAD to be fixed like a new roof and plumbing. It was a couple of years before we even had money to start painting and stuff like that. We could have painted but we wanted to do more than that so we held off until we could afford to do what we wanted to do. We have been in our house ten years now and still aren’t completely finished making it the house we want. We’ll get there though.

3. We went without cable for years. We did have internet service but it was years before we decided to get cable.

4. We had barebones cellphone service for years. Just within the last year or so have we upgraded our cellphone service and plan.

5. We didn’t spend a lot on furniture until we made sure we could afford it.

6. We put away the maximum amount we could afford to put into the 401(k). When my wife first became eligible for the 401(k), we put in the maximum amount. We weren’t able to keep up that pace when our family started growing but we always put in enough to at least get the full match from her employer.

7. We didn’t buy fancy cars. We did buy a new Civic, a one-year old new Ford Contour, and a new Buick Rendezvous (in 2002 and I’m still driving it today). I see young people driving around in BMWs and big trucks and think about all that money they are just throwing away.

8. We racked up some stupid debt but we made an effort to pay it off as soon as possible. We sacrificed to get our credit cards and student loans paid off. Our only debt right now is our house and a Honda Civic note that will pay off in May.

9. We didn’t spend lots of money on clothes. We bought cheap stuff or we shopped end-of-season clearances.

10. We didn’t spend a lot on trips and stuff like that.

Now we are in a pretty good spot. Our monthly cashflow is nice and we are finding ourselves able to pay cash for nearly all of our purchases unless we take advantage of a 0% offer or something like that.

I think young people need to realize that they shouldn’t expect to have it all as soon as they graduate from college. Sure, we all want things, but that doesn’t mean we deserve them or should go out and get them even though we can’t afford them.

I’m not trying to preach. I’m just stating things as I see them.

The violin intro to this song is awesome (the entire piece is good but the intro is really cool):