Money for nuthin' and chicks for free

[SLB8SNK]

I have been telling all my friends this for weeks, now the man himself states the same, interesting read below!

Buffett bashes cash, cheers stocks
Posted Oct 17 2008, 12:36 PM by Kim Peterson Rating: Filed under: investing, Warren Buffett, Kim Peterson
Warren Buffett pulls out the pom-poms in a New York Times editorial today urging people to follow his lead and buy American stocks. I want to know which stocks he's buying. And, is holding cash really that bad?


Buffett says he's been buying stocks in his own personal account, in which he previously owned nothing but government bonds. If prices stay attractive, he says, soon all of his personal holdings will be 100% U.S. equities.

"A simple rule dictates my buying," Buffett writes. "Be fearful when others are greedy, and be greedy when others are fearful." And fear is widespread now, he adds.


Buffett goes on to bash cash. At least, the idea of holding on to cash equivalents when you could be buying stock. Cash is "a terrible long term asset," he writes, "one that pays virtually nothing and is certain to depreciate in value."

If inflation takes hold, cash will suffer additional declines as well, he writes. Don't hold on to cash now while you wait for good news, he adds. Equities will "almost certainly" outperform cash over the next decade.

A rare piece of advice from a guy who doesn't say much in public about the state of the stock market. And stocks are better for it today, swinging between gains and losses even with a report out saying that construction of single-family homes fell to its lowest level in 25 years.

Buffett believes in the American economy and its future. And his exhortations may bring some much-needed stability to schizophrenic markets.

But he didn't need to go so far in delegitimizing cash. For some people right now, holding cash is a reasonable and reassuring strategy. It's the best bet if you're going to put kids through college soon, for example. Most people with short-term liquidity needs know this, but Buffett could have toned down the cash trashing a little bit.

Update: The guessing game has begun about what stocks Buffett might be buying. The 24/7 Wall St. blog thinks Buffett bought GE, Goldman and Wells Fargo, based on his previous comments about those stocks. Others he might have added to his portfolio could include Coca-Cola, Kraft, Nike and Burlington Northern Santa Fe.

[SLB8SNK]

Originally Posted by Alloy Dave

I missed the one about signing the back of your credit card. I don't sign mine. Instead I write "Photo ID only" on back, which then makes them ask for my picture. I like my answer better.

having spent about 13 years in banking (VP of MIS) years ago, I NEVER sign the back of any of my cards and always held to that, even today. However I just recently read that it only works if YOU are using the card. If you loose it, they are right, it can be signed, but I still think it would be hard to sign over "CID" in caps on all my cards..... and will continue to do so!

[Joe G]

Originally Posted by SLB8SNK

I got 12 for 12, number 12 almost threw me, and 11 USED to be true!!!

Crap! 11/12. 12 screwed me up. I read the question wrong.

Oh well, at least I don't have a red car!


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[Boston Mike]

Originally Posted by Alloy Dave

Just found out that in 2009 they are raising the FICA payment cap from $102,000 to $106,800.

What is the FICA cap you ask?

Both you and your employer are taxed on your pay for two related pieces, FICA and Medicare.

FICA = Federal Insurance Contributions Act - aka Social Security. This is 6.2% of your pay, and your employer also pays 6.2%, resulting in a total of 12.4%. This money is not for you, it goes to pay current retirees. A classic case of a ponzi scheme for which you and I would be arrested, but our government gets away with it (ok, that last sentence was my opinion, you can see where I stand on this).

Medicare is used to pay for the medical care you get starting at age 65. This is 1.45% of your pay, and again your employer matches this.

On the Medicare piece, there is no longer a limit (there used to be). If you make $5M a year, you pay $5M x 1.45%.

On the FICA piece there is a cap. That cap is adjusted annually for inflation. Once you hit the cap, you no longer pay for that year. Why? Because there is a limit on benefits. Let's take an example:

Assume we have two people, Joe G and VaporDude. Joe G starts working at age 21, and makes $102,000/year in 2008, and then makes that same amount every year, except it's adjusted for inflation. In other words, he makes exactly what the cap is.

Now take VaporDude. Same age as Joe, but his first job he makes $10M a year, and gets a huge raise every year, so that when he reaches retirement he's making , say, $40M.

Guess what, both Joe G and VaporDude get exactly the same amount of Social Security. After all, they both paid exactly the same amount into the system due to the cap.

If you believe this is not fair, because VD can afford to live without Social Security, then you have a lot of company (although I'm not in that company).

IMO however, not paying VD simply because he doesn't need it is essentially a socialist policy...taking from the wealthy and giving to the poor. In addition, if you set that policy, IMO you will disincentivize work.

Some people talk about removing the FICA wage cap I mentioned above as a way to shore up Social Security. This will only work if you raise the cap and somehow cap the benefits formula. After all, if you leave the benefit formula the same and remove the earnings cap, Vapordude will get one helluva Social Security check, that would go over like a lead balloon, and you'd not have helped the system one bit.

So for those of you making more than $102,000 per year in 2008, you can use the extra money at the end of the year to buy mods for the Mustang.

Dave

I for one have never paid for VD. It's always been an unfortunate side effect.






Now I'm sure I'm not the first with that joke, but I didn't scroll down first just in case.

[Johnny Dangerously]

I thought this thread was going to be about chicks with big knockers

[Alloy Dave]

Ok, in the interest of keeping this fresh, let's try some math.

I use lots of financial modeling formulas. Let's start with an easy one.

FV = PV x (1 + i)^n

FV = Future Value
PV = Present Value
i = interest rate/period
n = # of periods

So let's say you have $100,000 in the stock market today and you wonder how much it will be worth in 15 years if the market averages 8%.

FV = 100,000 x (1 + .08)^15 = 100,000 x 3.172 = $317,200

This assumes you add no more money to the account. Typically this is not what most of us do, but I wanted to start with an easy formula first.

And you know the funny part? It makes no difference at all if you have good years at the beginning and bad years at the end, or vice versa....so long as it averages 8% you'll have exactly the same amount. Now there is a caveat...sometimes you'll hear financial advisors say that having a bad stock market year early in retirement will devastate your portfolio. That's true, because in that case you are taking money out each year...so you'll have less to grow in the later years when the market comes back strong. My example above assumes you do not take the money out.

Dave

[SLB8SNK]

Here is a pretty cool test, take it! I scored 92... not to bad I guess for a quick run...

Financial IQ test - MSN Money

[HSURB]

I thought this thread was to be about chicks?

HSURB

[BADGIRL500]

[SLB8SNK]

Originally Posted by BADGIRL500

FOUL... or is that FOWL?

[Alloy Dave]

Just to educate those of you who are not as smart as I am about these things. Here are business terms defined:

CEO --Chief Embezzlement Officer

CFO -- Corporate Fraud Officer.

BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius.

BEAR MARKET -- A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.

VALUE INVESTING -- The art of buying low and selling lower.

P/E RATIO -- The percentage of investors wetting their pantsAs the market keeps crashing. BROKER -- What my broker has made me.

STANDARD & POOR -- Your life in a nutshell.

STOCK ANALYST -- Idiot who just downgraded your stock.

FINANCIAL PLANNER -- A guy whose phone has been disconnected.

MARKET CORRECTION -- The day after you buy stocks.

CASH FLOW -- The movement your money makes as it disappears down the toilet.

YAHOO -- What you yell after selling it to some poor suckerFor $240 per share.

WINDOWS -- What you jump out of when you're the sucker who bought Yahoo @ $240 per share.

INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse. PROFIT -- An archaic word no longer in use.

[Alloy Dave]

Often people wonder what would happen to their defined benefit pension plan if their company goes bankrupt.

Well, it depends, but typically the pension is held by the company, so it would seem there is trouble. Let's look at worst case.

Say you work for Carnut's Grass Growing company, and they are a large, publicly traded company. However, the company made a strategic blunder by locating in Phoenix, so they went kaput. You had worked for the company 30 years, and were ready to collect a check of $4,000/month for the rest of your life. Uh oh!

Don't worry, the PBGC (Pension Benefit Guarantee Corporation), a GSE (Government Sponsored Agency) will step in. Most companies have to pay into a fund for the PBGC. The PBGC also establishes rules for retirement plans. These rules help protect you, but in the unlikely event they don't (perhaps there was fraud at the company and an executive secretly spent the pension funds), the PBGC will pay for your pension.

The way they pay is a bit complex, but the short answer is that so long as you don't make a high salary, you would get your full pension. For 2008 the max they will pay at 100% is $4,312.50/month, which is about $52k/year for a 65 year old.

The formula is age-based also, a 75 year old would get up to $157k/year, but a 45 year old would get only $13k. If you had chosen a beneficiary, that impacts this as well.

What if you make more? Well, if MadMax were the CEO of CGG Inc., and he made $2M/year, then his payout would be capped at the numbers above...so highly compensated employees would lose out.

Here is a link showing the sliding scale.

Maximum monthly guarantee tables (PBGC.gov)

As usual, there are exceptions.

Dave

[black vert ss]

I think Carnut smoked all the profits

[SLB8SNK]

Originally Posted by Alloy Dave

Just to educate those of you who are not as smart as I am about these things. Here are business terms defined:

CEO --Chief Embezzlement Officer

CFO -- Corporate Fraud Officer.

BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius.

BEAR MARKET -- A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.

VALUE INVESTING -- The art of buying low and selling lower.

P/E RATIO -- The percentage of investors wetting their pantsAs the market keeps crashing. BROKER -- What my broker has made me.

STANDARD & POOR -- Your life in a nutshell.

STOCK ANALYST -- Idiot who just downgraded your stock.

FINANCIAL PLANNER -- A guy whose phone has been disconnected.

MARKET CORRECTION -- The day after you buy stocks.

CASH FLOW -- The movement your money makes as it disappears down the toilet.

YAHOO -- What you yell after selling it to some poor suckerFor $240 per share.

WINDOWS -- What you jump out of when you're the sucker who bought Yahoo @ $240 per share.

INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse. PROFIT -- An archaic word no longer in use.

Loved it, thanks for the laugh!!!

[Alloy Dave]

Ok, here's another interesting tidbit.

You know the commercials for freecreditreport.com?

You CANNOT get a free credit report there. You must buy their credit monitoring service for $xx/month, then they'll give you a credit report.

If you really want a free credit report, go to www.annualcreditreport.com.

Be advised that getting your free credit report takes a bit of patience, they ask you a bunch of detailed questions like how much your car payment is so that they can verify your identity.

Once inside the site, you will have access to reports from 3 credit bureaus. I recommend looking at one every 4 months so that you get to see them all during a year, and you don't have long gaps between viewing.

Also I should note that your credit report does NOT contain your credit score, commonly called a FICO score (because it was invented by Fair Isaacs Co.). However, through annualcreditreport.com, you can get your credit score for a very modest fee of about $8. Each bureau will have a score for you, but they should all be very close...so just buy from one of the bureaus.

Dave

[Johnny Dangerously]

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[SLB8SNK]

Originally Posted by Alloy Dave

Ok, here's another interesting tidbit.

You know the commercials for freecreditreport.com?

You CANNOT get a free credit report there. You must buy their credit monitoring service for $xx/month, then they'll give you a credit report.

If you really want a free credit report, go to www.annualcreditreport.com.

Be advised that getting your free credit report takes a bit of patience, they ask you a bunch of detailed questions like how much your car payment is so that they can verify your identity.

Once inside the site, you will have access to reports from 3 credit bureaus. I recommend looking at one every 4 months so that you get to see them all during a year, and you don't have long gaps between viewing.

Also I should note that your credit report does NOT contain your credit score, commonly called a FICO score (because it was invented by Fair Isaacs Co.). However, through annualcreditreport.com, you can get your credit score for a very modest fee of about $8. Each bureau will have a score for you, but they should all be very close...so just buy from one of the bureaus.

Dave

Personally I think the credit score (FICO system) will be a mute point real soon. What good are they, or will they be, during or after the current crisis? I think it will come down to income statement or credit to debt ratio at current time of purchase (homes, cars). Something will need to be done for the hundreds of thousands, if not millions or people effected by these times, so they can get back on track without the negative effects. Just my thoughts!

[Alloy Dave]

Originally Posted by SLB8SNK

Personally I think the credit score (FICO system) will be a mute point real soon. What good are they, or will they be, during or after the current crisis? I think it will come down to income statement or credit to debt ratio at current time of purchase (homes, cars). Something will need to be done for the hundreds of thousands, if not millions or people effected by these times, so they can get back on track without the negative effects. Just my thoughts!

A revised scoring system is being developed...they started before the crisis. But I think scoring will remain. They'll just raise the bar...if your FICO is below 720 you'll have issues getting good rates.

One thing I've never been able to find is a percentile rating of credit scores...in other words what percentage are above 650? 700? etc.

Regarding debt ratios...those are already in use. For most banks, they will not approve anyone with a housing debt ratio over 28% (PITI) or a total debt ratio (includes cars, credit cards, etc.) of 36%. The problem is there are too many ways to game the system....like go get your house first, THEN pile on the car loans and credit card debt.

[Alloy Dave]

Ok, I know most of us on the forum are pretty intelligent...so excuse me if this post insults your intelligence....but many Americans don't get this concept. Let me start by asking a question....

Let's say the stock market drops 40% as it has. Then let's say over the course of the next 3 months it goes up 40%. We're back to even right?

















Wrong. Math doesn't work that way.

Assume you have $100 in a stock and it drops 40%. You'd then have $60.

Now let's say that $60 increases 40%, that's 60 x 1.4 = $84. You are still down 16% from your original $100.

To get back to your original $100, your $60 investment would have to rise by 67% as shown by 60 x 1.67 = 100.

Obviously I'm alluding to the recent market drop. The one good thing? Many people (me included) are still buying stocks....at today's lower prices. If the market does recover by increasing 67%, then those people will be better off than if the market had never dropped.



So be careful when reading statistics....

[Johnny Dangerously]

Originally Posted by Alloy Dave

Ok, I know most of us on the forum are pretty intelligent...so excuse me if this post insults your intelligence....but many Americans don't get this concept. Let me start by asking a question....

Let's say the stock market drops 40% as it has. Then let's say over the course of the next 3 months it goes up 40%. We're back to even right?

Wrong. Math doesn't work that way.

Assume you have $100 in a stock and it drops 40%. You'd then have $60.

Now let's say that $60 increases 40%, that's 60 x 1.4 = $84. You are still down 16% from your original $100.

To get back to your original $100, your $60 investment would have to rise by 67% as shown by 60 x 1.67 = 100.

Obviously I'm alluding to the recent market drop. The one good thing? Many people (me included) are still buying stocks....at today's lower prices. If the market does recover by increasing 67%, then those people will be better off than if the market had never dropped.



So be careful when reading statistics....

I'm just glad that I've got 20+ years until retirement since my 401k may be actually worth something then. But, this all may be a moot point since apparently the Mayan calendar says that the world is going to end on Dec 21, 2012. If it does, fine, it's been a fun ride, but what I'm interested to see is the amount of bozos that whole heartedly believe this, go on a spending spree & rack up an incredible amount of debt thinking that they won't have to pay it off. Then when their first payment comes due, they'll go try & sue somebody for their own stupidity.


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