Is the Economy Improving? Views from Everyday Folks
Published on - February 1st, 2010 (by J.D. Roth) On Friday night, we had some good frugal fun. Kris and I got together with a group of my old high school friends to go bowling and eat pizza. It was just like the good ol’ days — but with a bunch of grade-school children added to the mix.
Over pepperoni pizza and root beer, the conversation turned to the economy. I asked my brother Jeff how the family box factory is doing. “To be honest,” Jeff said, “we’re about to finish our best month since October 2008. And if you look at actual daily sales, this will be our best month since February 2008. It’s our best month in two years.”
“That’s great,” I said. “Maybe this means the economy has finally turned a corner.”
We’ve believed for years that sales at Custom Box Service are a fairly accurate barometer of the economy’s overall health; our sales always reflect where the country’s economy will be six months down the road. Sales at the box factory started to erode in autumn 2007, for example, before falling off a cliff in March 2008. Things bottomed out last February, with our lowest sales since the company incorporated in 1995. So, if the company’s sales are finally improving, we take that as a sign that the U.S. economy is on the road to recovery.
“How’s your business been doing?” Jeff asked our friend Ron. Ron’s family owns a wholesale nursery, and their sales have been down too.
“Rotten,” Ron said. “Last year was awful.”
“I think the economy’s been bad all over,” Kris said. “I just spent a week in eastern Oregon for work. It’s been a while since I was in Pendleton, and I was shocked at how many empty storefronts there were. A lot of places have gone out of business.”
“I keep waiting for things to turn around,” Ron said. “Just today we got a huge order, which is a relief. It’s an order we expected last fall. I’m just glad it finally came through. ”
“Yeah,” said Jeff. “I think a lot of people put off ordering because they were letting their inventories run low. But that just made things worse. Our sales were down so much last year that we couldn’t fund employee pensions and Christmas bonuses were a lot smaller than usual. At least we didn’t have to lay anyone off.”
“But January was a good month,” I said. “That’s a good sign, right?”
“Yeah,” Jeff said. “And another good sign is that some of our suppliers are raising prices. In fact, we think some of them will be going up 15%!” — Fifteen percent is a huge price increase for paper — “So maybe that means things are turning around. Or maybe it’s just a sign that there’s inflation in the future that’ll make things worse. I guess if you were optimistic, you could say these are signs of an improving economy. It’s definitely a step in the right direction, but it could just be a brief peak on the roller coaster of the Great Recession.”
I, for one, am an optimist. (Not just about the economy, but all things.) I think things have finally turned a corner. Unemployment is still lagging behind (as it always does and always will), but from my perspective, the economy seems to have hit bottom, and is finally beginning to show some signs of improvement.
When I got home from bowling Friday night, I dug out the numbers for the most recent poll from Get Rich Slowly and MoneyRates. Since mid-January, visitors to both sites have been answering the question, “Where do you think the economy sits right now?” Here are the results based on more than 1200 responses:
- 2% — Strong growth. Full Steam ahead!
- 15% — On solid ground and growing some, thank goodness.
- 43% — Stagnant. Not growing, but at least not getting worse.
- 20% — Not horrible, but looks like it’s going downhill.
- 21% — Free falling. I’m bracing for the worst.
In general, GRS and MoneyRates readers aren’t yet optimistic. Many of you think things are stagnant still, and nearly as many think conditions are getting worse. Fewer than one in five believe that the economy is actually improving.
A poll is one thing, but I’d like to hear your actual thoughts. How do you feel about the current economy? Do you think we’ve finally hit bottom? Or are things still getting worse? How has the recession affected you and your family? What do you think it’ll take for things to get better?
SEARCH FOR RECENT ARTICLES
I heard a quote from a journalist that summed up anecdotal accounts of the economy the best. It went something like
“the economy is doing okay when I have still have my job and feel secure about it”.
loading....
I like to think things are starting to make a rebound, I hear a lot less about people complaining about jobs and the economy in general. For me this recession hasn’t really taken much of a toll.
The value of my home has neither depreciated or appreciated which is both bad and good. The biggest thing affecting me has been the drastic drop in my 401k and retirement accounts. I look at it as a blessing in disguise though since I am now buying into my funds at much lower prices. I still have a long time to recover so I hope to see this work out well for me.
loading....
I work at an academic medical center.
We’ve had a total hiring freeze since Feb 2009. It was lifted (a little bit) in Jan 2010, and we can once more at least submit requests to start hiring people to fill badly needed positions–all of which have been empty for over a year.
Also, a COL increase in staff pay that was scheduled for April 2008 but which didn’t happen is supposed to happen (hopefully!) in April 2010.
So yes, things are looking up.
loading....
I personally feel the economy is stagnant. Husband & I are still working. My pay is the same; he got a 3% increase last year which was quickly eaten up by a 22% increase in medical insurance premiums (because of that he actually ended up making less than before the pay increase). We have been working on paying off CC debt these past few months, but rates have increased, so the principal is being paid down slower than it was a year ago.
We are very thankful we are still working and able to pay the mortgage & other bills and put food on the table (who knew teens could eat so much). I think when I see more job want ads in the paper/on-line, more houses being sold instead of sitting on the market for months on end and less foreclosure/auction listings upwards of 2+ full pages (a lot in this area), I might become a bit more hopeful that the economy is turning around and starting to grow some again.
loading....
I’m an optimist too. But I am more of a long-term optimist on this question and a short-term pessimist.
My take is rooted in a belief that the cause of the recession/depression is the relentless promotion of Buy-and-Hold Investing for over 30 years. If you look at the historical record, you see that there has never been a time when The Stock Selling Industry pushed this “idea” without causing an economic crisis. Going back to 1900, we have never seen an economic crisis that was not preceded by the widespread promotion of the idea that you don’t need to pay attention to the price of stocks when buying them.
If that’s the problem, then the solution is for us all to come to accept that the $12 trillion in funny money that we were treating as real at the top of the bubble was all just a bull market fantasy. There are millions of businesses that never would have been started if we had been giving people accurate information about the value of their portfolios. Those businesses are vastly undercapitalized (through no significant fault of their owners) and will continue to fail until the capitalist system has completed its work of :”punishing” businesses that are started with inadequate capitalization. It will probably take another five years for this process to be completed.
The good news is that I believe that the economic devastation we will experience from our belief in Buy-and-Hold is going to be so great this time that there will be little taste for continued promotion of it in the wake of the economic collapse we have caused for ourselves. Putting Buy-and-Hold behind us would be like removing a ball and chain from an economy that has been lusting for far greater levels of productivity for three decades now.
In the old days, most middle-class people did not invest in stocks and these sorts of “ideas” did only limited damage to our economic and political systems. My belief is that we are a society going through growing pains. There are now millions of middle-class people investing in stocks. If millions of middle-class people are going to invest their retirement money in stocks, we are going to need to permit them access to information about how to invest in more reasonable ways that what The Stock Selling Industry has been putting forward for the past three decades.
We will survive this. But my belief is that it is going to need to get a whole lot worse before we will be willing as a society to take the steps we need to take to get things pointed in the right direction once again.
Rob
loading....
Mr. Sam and I are both very busy at work, and have been for some time, but neither of us received bonuses or an increase in pay (I did get back some of my salary that was cut last year but I’m not counting that as a pay increase ). Both of our companies should be thinking about hiring people but neither are (as far as I know).
The real estate market, at least here in So. Fla., is moving. Houses that are priced right are selling and seeling quickly many with multiple offers. I think that is a good sign.
It is also season here in So. Fla., time when the snow birds are here, last year season was quiet. This year it seems to be more normal, lots of bad drivers going slow with their blinkers on, lots of people in the restaurants, the society balls seem to be close to normal (raising similar monies as events in 2007-2008 season, and a couple have raised more). Shops seem busy too but not sure how many people are spending big money, for So. Fla. the season (which includes the holiday season) is the time when retailers do the vast majority of their business. I’m attending a charity event in a couple of weeks at a fashion house and it will be interesting to see if people are buying (I won’t be, never do).
I’m an optimist too, and I think the economy is slowly getting better but without jobs its going to be a slow recovery.
loading....
beforewisdom is dead on. We don’t care so much about the general economy as we do about our own personal economies. When my kids ask me what the “Great Recession” was like a couple decades down the road, I’m not going to have anything interesting to say–because I kept my job, I kept my home, I didn’t really have to cut back in any measurable way. And that’s what I think makes it so hard for Congress to get public support for economic stimulus (or bailouts, depending on your take) or fixing healthcare or whatever. We all look at things through our own lens. If you’re not the one fighting with your healthcare provider, then it doesn’t seem like anything’s wrong with the system. If you have your job, then you don’t feel like trillions need to be spent to fix the economy.
loading....
I feel I’m probably the poorest person reading your website, with an 8 person family and an average monthly income of about 1100 dollars.
In the past 2 years.
My honey has been laid off twice. He hasn’t been able to find a job at all, despite being highly qualified for a variety of things that are usually not only in demand. But high paying demand. He finally signed up for school and is halfway to getting a degree in welding and being a journeyman.
Both of the parents I was babysitting for cannot afford a babysitter anymore. One, a single mother, lost her job and is living with her mother. The other, her husband lost his job and is staying at home with their son.
My house depreciated almost 40 thousand dollars.
My electric bill went up 8% in spite of a multitude of energy saving measures. It comes out that the power company raised their rates.
The local water company tried the same thing. There were protests in the streets practically when the whole town’s bill went up an average of 20 dollars.
There are 2 houses on my street for sale, both of them fairly decent and in a good neighborhood. Both have been empty for at least a year.
Robberies and home invasions are up, unemployment is up. Gun sales are up.
It’s not a very good time to be living in some places. If you have a steady job, with say, tenure. Awesome. Otherwise, those blue collar guys are having a very hard time of it. My family included. It’s a good thing I’ve got some serious hippy/homesteader leanings and can do things like sew and cook from scratch (not to mention budget within an inch of my life) or we’d have lost our house long since.
loading....
IT is picking up. I keep a good list of contacts, both for headhunters and “known-good” tech workers, and this is the first time I can recall being completely tapped out of good tech workers. I keep in contact with several IT recruiters, and I have 3 very nice positions for both junior and senior level Linux admins, as well as some DBA and dev slots, and I can’t put forth any names.
From about February of last year until September, I received maybe 2 recruiter calls. After September, I started getting more, and now I’m fielding about two a week.
Sounds like recovery, to me.
loading....
We get mixed signals about the economy here in Canada. The government would have us believe everything is getting better and that we’re much better off than the U.S., but our economy is so closely linked to the U.S. I don’t think we’re going to pick up a lot until our neighbour-to-the-South does as well. However, our housing market is booming in some places enough to worry economists that people can’t afford to buy, or that we’ll create a bubble.
To me, the economy looks stagnate because my industry is still hurting, hiring and wages have been frozen for over a year and a half, and the costs of everything seem to be going up (like my rent!) It’s starting to feel like the economy is an excuse to raise prices and exploit employees.
loading....
I think that things are getting better everyday, we may not see the economy comletely rolling, but yes it is improving. Specially January 2010 brought many jobs and the job scene is actually looking to be “recuperating”. For me, I paid off my car loan, stil have a stable full time job, sufficient emergency funds .. I am waiting for the banks to shoot their interest rates but I know it’s gonna take some time.
loading....
I would love to think that the economy is getting better and more people will be able to prosper. But I suspect that if there is a little upturn, it is only the prelude to another dip. There hasn’t been any event or change that would actually account for a better economy — the stimulus money hasn’t done much stimulating, and there hasn’t been any solution to things like the rising cost of health care and other serious drags on the economy. Maybe the new plans Obama mentioned in the State of the Union address, like the tax benefits to small businesses that hire new employees, will have an effect — but those won’t happen unless the Congress agrees and acts…
loading....
Short term, probably. Long term, it’s kind of one big structural problem.
loading....
@ #5 Rob Bennett: The selling of the idea of “Buy and Hold” is the cause of the recession? What’s your definition of “buy and hold?” I believe you may be confusing causation with correlation.
I believe proper “buy and hold” strategies incorporate value investing, which is price conscious, dollar-cost-averaging, which buys more shares at lower prices, and diversification. Following these time-tested practices would have netted a return during the so-called “lost decade” of more than 4%, which is not exciting but certainly not negative and it outpaces inflation.
@JD: My anecdotal evidence is that my investment advisory firm just had the best quarter in revenue since opening for business in 2006; 80% of the unfinished or long-time unsold homes on my street have sold in the past two months (although for low prices); and a neighbor out of work for 18 months (he’s a research PhD professor) just had 2 promising interviews and says grant money is flowing again.
It’s quite a relative statement to say that the “worst is over.” The “worst” is likely over; however, the “worst” was horrific. I would characterize the current environment as challenging and cautionary, much like a mild recession. I believe we are now moving out of recession but will still feel recessionary pressures for up to two years.
Of course, perception is everything. I’m an optimist like you. My net worth is lower today than it was three years ago but I am happier, and therefore “richer,” than I’ve ever been.
Thanks for the insight and “street views.”
Kent @ The Financial Philosopher
loading....
I’m optimistic that we’ve seen the bottom and we’re in the midst of recovery. But I do think it will be a couple years before we (everyday people) start to really see and feel the impact which won’t be until companies are hiring and home values are rising again.
loading....
I think it’s picking up.
An old associate came to me asking if I could do a part-time programming gig for him. I’ve gotten gigs here and there over the last 18 months, but this is the first time in at least that long that someone has come looking for me with a project.
Also, at work everyone got a 2% raise this year, there was no raise last year.
loading....
I think that short term it’s headed down a little after what feels like a brief respite, but that over the next 6-8 months it will improve. Of course I have no basis whatsoever for thinking that — it’s just a feeling. I would like to see less craziness overall once things do improve though.
loading....
I am optimistic. The recession has not hugely affected my family. That is a blessing. But we have been tightening up on spending across my entire family! Excess is truly out and I think that is how it will be for years to come. Saving is very important so we can continue to enjoy our current lifestyle. Family vacations are still in, just saving up to pay for vacation before going.
loading....
JD, just to let you know, when I tried to visit your link to the Custom Box Service website, my virus scanner blocked it and indicated that the website attempted to upload a virus to my browser. You might want to have your brother’s IT guys double-check their web server.
loading....
Hi JD, I am optimistic. In many ways 2009 was the best year I’ve had. I spent way less than I ever have in my life, but I paid off a good chunk of debt in the process. I think that the economy has hit bottom and we’ll inch along in the “L” shape Suze Orman described last year. There is no quick fix — no “V” shape on the horizon and I appreciate that because I hope that we learn something from this downturn. I hope we learn it and it sticks this time — Get. Rich. Slowly!
loading....
I’m an optimist. However, I the reality is based more on a state by state basis. For instance, I live in California: A state known for it’s bubble economies. I think we are usually the first to go into a recession and the last to come out of one.
However with that said, my husband and I have been lucky, we have been able to maintain our life style on a slightly reduced salary, and even pay off a bunch of credit card debt. I’m hopeful for a good year this year, but I’ll be okay (financially) if the recovery doesn’t affect CA until next.
loading....
Kent,
The idea that dollar-cost averaging is buying more shares at “lower prices” is one of the most ridiculous financial myths perpetuated by the financial services industry. You’re buying shares (essentially) regardless of price. If you had $1,200 to invest in Company X, why would it ever make sense to put in $100/mo for 12 months if you feel that, right now, the company is undervalued (which is the basis for investing, right?). I’ll tell you why — so your broker earns a nice commission on 12 trades. Dollar cost averaging is a joke.
To Rob’s point, “Buy and Hold” certainly lifts the price of some shares. If everyone invested in a Vanguard Entire Market Index Fund, that’s going to boost the prices of all stocks, regardless of value. Now think about when the recession came — everyone dumped their stocks, but more importantly, their MUTUAL FUNDS/INDEX FUNDS. The index sells of everything, regardless of whether it’s priced fairly or not. Thus, you get into a situation like March 2009, where everything had been dumped, regardless of long-term value, and it made for a great buying opportunity on dozens of solid, valuable companies (AAPL, MSFT, etc).
loading....
@Rob Bennet:
“My take is rooted in a belief that the cause of the recession/depression is the relentless promotion of Buy-and-Hold Investing for over 30 years.”
Ooooo, I’m sorry Rob, the correct answer we were looking for was “cheap credit.” We also would have accepted “misguided affordable housing initiatives.” Thanks for playing, we have some lovely parting gifts for you.
loading....
On a personal level, we’re getting mixed signals. The brother-in-law finally got a new job after almost a year unemployed. Father-in-law’s company can’t keep up with orders and has rehired a bunch of layoffs. The cousin’s wife got laid off from her waitressing job because many of the restaurants and bars in town went out of business.
Private industry seems to be picking up. State and local are making further cuts. There is a big chance I won’t be getting a raise next year, despite having escaped those cuts last year and the year before. They’re doing more furloughs and talking about cutting kindergarten to half-days. Federal government is doing ok, but state and local are lagging behind. Hopefully things will turn around.
As of the January meetings, economists thought we were on the path to recovery, though they were more focused on talking about health care than the economy. I hope that the government doesn’t go all Herbert Hoover and keeps channeling Keynes, because their spending does have real impacts.
loading....
@5 Rob
My opinion on the recession is actually opposite of yours. To me, buy-and-hold is what keeps prices stable.
The housing market and the stock market are kept in check when the house/company’s interests and the owner/stockholders interests are aligned.
Fast forward to the last two decades where a jump in technology enabled access and communication into a group of investors. All of a sudden, you’ve got exponential growth in the amount of speculators that only cause chaos to the system, driven by their own greed and desires only for profit.
Before computers, you needed capital to speculate. You could take a $100k loan with no money down or trade on margin. People in the stock market or real estate wasn’t in it as a get-rich-quick scheme, but rather as a long term investor because the process took that much time.
In the 90′s, all you needed was a computer and internet access to trade on the stock market. Trades were executed within minutes, whereas a traditional broker took a hefty commission and possibly days to fulfill it.
Today, real estate can be bought and sold in days. There are plenty of speculator out there that “flip” houses: buy run-down houses, repair half-ass and put on a new paint job, and sell it at a profit. I think Detroit was auctioning cheap housing in an attempt to lure people back to the city. What happened? Only speculators looking to make a profit were able to purchase ready to live-in homes, driving away real families that would live in those homes because they don’t have the capital to compete.
Today, you can have a server, and a fiber optic connection to the stock market, and initiate trades at the micro-second to take advantage (and screw up the system in the process) of the fluctuations in the stock prices.
Like I said, this is just my opinion, and correlation does not always imply causation. This is my 2 cents on the cause of this recession.
loading....
As many noted before me, I see this as a very personal question.
By most people’s standards, my wife and I have been lucky to avoid most of the troubled economy. However, we entered the downtown with a house and lifestyle we could support with 1 of our jobs, money in the bank, retirement planning in place, etc…
But, with that being said we, too, have lost out. Our house is worth slightly less than it was 2 years ago, we have not seen any pay increases, our company’s no longer match our 401k contributions, interest rates on liquid cash are below inflation, and we both face serious concerns about our job security.
It feels like we are still weathering the storm…
Wayne
loading....
All I can say is that the hubby and I have educated ourselves over the last year and that everyone should look up the FEDERAL RESERVE. Who exactly are they? Do you know how much fiat money they are printing? I’d like to think I’m an optimist, but once you start learning certain things about how our monetary system works it can scare the heck out of you.
We’ve been incredibly lucky or blessed in that it seems that we have taken all the right steps financially so far, we’re young and will our mortgage paid off within a year after only 6 years.
Whatever you do, get of debt and start saving in something with true value…
loading....
Well, just today my husband began his first full-time job since getting his master’s degree in May, so things are looking up, at least personally! He’s a landscape architect, which I think is a bit more connnected to how the country is doing economicaly. The work of landscape architects isn’t always a need but often times a want.
loading....
I don’t think things are necessarily getting better or worse….they are CHANGING.
I lost my job of 14 years on Friday. I knew it was coming. Fortunately, this turns out to be more of an opportunity for me than a set back. I have been working part time on a home based business, and after three years, I have had the best January sales ever. I now have time to focus solely on growing my business, and I am taking the stance that I am not unemployed, I am now self employed!
People are changing the way they do business, they are changing their spending habits, they are more choosy about where and who their money goes to (which is part of why I believe my sales are up), they are changing the way they save and invest, they are much more cautious about credit and they are learning new life and survival skills.
The best thing is that people are finally realizing what is most important and necessary and are returning to their communities and families for support and are paying more attention to local business.
loading....
It appears the economy is improving quite a bit. This year my husband and I are both receiving generous bonuses at work. Our bonus structures are unusual as his is paid in February, and mine in March.
Our behavoir has changed though due to the way the economy has been the last two years. Instead of us each going out and purchasing new automobiles, boats or other toys with those bonuses, we will put the funds into savings instead.
loading....
DH and I have weathered things very well at our jobs. Our raises last year were about 0.75%, but our company didn’t lay anyone off (unless you count contractors that were allowed to expire). For the most part we haven’t been participating in the recession.
But we have taken some hits on our rental. The real estate sales market around here is pretty soft, but the rental market is worse. You can find renters, but the rent doesn’t cover costs. We have just held on and put money into it as needed. It is what it is and as long as we can tighten our belts and make the payments, that’s what we do.
We have gotten some great deals as we have seen this as an opportunity to buy stagnant inventory. We got new furniture and tools at great prices. It’s been hard to save with so many good deals on things we really want especially since our jobs are stable and our savings are doing well.
I know others will disagree, but I think part of the reason people are starting to be more optimistic is because Washington hasn’t gotten much done lately. No matter what the policies, businesses have a tendency to sit back and wait when things are in a state of flux until they know what the rules will be. Whether you agree or disagree with the healthcare bill it would have been a big game changer, so planning for the future with it passing was one thing, not passing was another, so you just sit back and wait.
I worry the most about inflation, specifically about my mom as her pension is only modest and not set to increase with inflation. If things take off I’m young enough that I have time for my income and home value to stabilize. But others in my family are in the opposite position.
loading....
I agree with Pop (#7) – 20 years from now I’ll have nothing exciting to say about the “Great Recession” personally other than I was unemployed for 12 weeks after grad school and we lived on one income for a while.
In the past 14 months, I’ve increased my salary from a grad school stipend to a full-time job with benefits and over 2.5x pay. DH negotiated an 11% raise. We consolidated my remaining student loan balance at 1.75%. We saved in 401Ks, Roth IRAs, an account for our next house, and a CD ladder.
The only thing for us that went the way of the economy as a whole is the fact that our house is still 8% less than our mortgage (and down about 17% from the purchase price). Personal economy is the key.
loading....
It seems to me that I hear people talking about the economy improving and leaving out some really important emphasis. My concern is that I mostly hear that unemployment is always a lagging indicator which in an academic sense is true; however, it seems that every week more than 475,00 people lose their jobs and/or appply for unemployment benefits.
I just cannot utter the words “economic improvement” when almost half a million more people are jobless every week. Also let us not forget all the under-employed people out there and the chronically unemployed people that stop being counted. My guess is that real unemployment number is somewhere between 15-18% and that is just horrible.
Unless you work for Goldman Sachs or another financial institution that is giving its employees lavish bonuses, I do not see how anybody can say with any amount of credibilty that the economy is improving.
Signed,
Hopeful, but Realistic
loading....
My company is still doing very poorly, but since we are highly dependent on government spending and construction in Cali, well… it is what it is. But they recently brought back our health insurance and are hiring someone to take the place of 3 people that quit, so that’s good.
Of course, I’ll be quitting my job in June to move to new york. We’ll see how things are out there.
loading....
Husband was let go over 13 months ago. Self-employed now and struggling to “start up. I’ve survived 2 major layoffs, reduced hours (32) and a 17% pay cut that affected everyone across the board.
Both hubby and I feel the economy is sluggish at best. There is an unspoken “fear factor” out there. Almost like a puppy that has had his nose smacked once too often. You want to believe that things are improving but just when you do, something comes along to trip you up again.
I feel inflation is just a breath away (food, energy)and while our standard of living is managable…the days of “easy money” are over.
loading....
As a state employee in education, I feel that things are actually getting worse. The Governor has proposed additional furlough days to all state employees on top of what we’ve already had. No cost of living increase in over 2 years, employee contributions to benefits has increased about 15%, complete freeze on new or replacement hires, and major cuts to programs. Very few job opportunities out there even if I wanted to move.
My brother was laid off two months ago and reports that in his area (marketing) there are very few positions to apply for; my father has been laid off for 3 years (from HR work) and working a temp contract job under constant threat that he could be dropped; my mother has her own therapy practice and has had such a client reduction that she is barely paying office rent.
Strangely, my husband (an artist) is doing the same as last year. You’d think that would be a luxury expenditure and get cut from people’s budgets, but he seems to be doing alright.
From my perspective, I’m not seeing improvements yet.
loading....
What’s your definition of “buy and hold?”?….I believe proper “buy and hold” strategies incorporate value investing, which is price conscious, dollar-cost-averaging, which buys more shares at lower prices
Thanks for your helpful feedback, Kent.
We are in 100 percent agreement that a Buy-and-Hold approach that incorporate a value investing element would be the best possible approach for investing in stocks. Where we differ is on the question of whether dollar-cost-averaging fits the bill.
I say that it does not. Stocks were insanely overpriced for the entire time-period from January 1996 through September 2008. Those who practiced Dollar-Cost-Averaging were buying some shares when stocks were selling at two times fair value and other shares when they were selling at three times fair value. The proper thing to do if you were seeking good long-term results was to avoid stocks altogether until prices returned to levels where the long-term value proposition for stocks was equal to or greater than the long-term value proposition for far safer asset classes (TIPS were paying 4 percent real at the top of the bubble; that’s a return five full percentage points above the likely long-term return for stocks at the prices that applied at that time).
This is why I say that Buy-and-Hold was the primary cause of the economic crisis. Stocks were overvalued by $12 trillion at the top of the bubble. That’s #12 trillion that has been taken out of the retirement portfolios of middle-class investors over the past 10 years. You cannot take $12 trillion from the middle-class and not expect an economic crisis. We live in a consumer society. When people’s retirement accounts are demolished, they become afraid to spend. It is going to take years or possibly decades to recover from a problem that would have been avoided had the “experts” been telling us all along that we need to take price into consideration when setting our stock allocations.
We had a good discussion of these questions at the Get Rich Slowly forum last week, Kent. You might want to check out that thread to learn more about the various arguments both pro and con re what I am saying here:
http://www.getrichslowly.org/forum/viewtopic.php?f=2&t=4882&sid=1118c8b61444d3cf91b22b04f205e7aa
Rob
loading....
Still struggling here. Company is barely hanging on and clients just aren’t ready to pull the trigger on any spending or new contracts. We are trying everything in our power to hang on in hopes that 1 of the 20 deals on the table will come through.
I’m an optimist by nature, but feel less optimistic about 2010 than I did a month ago. Seems like it’s going to be a year of ups and downs.
loading....
I thought it was getting better until I heard about a paper factory closing & 150 people loosing their jobs.
I’ve been lucky – I work for local govt so my job is stable. But health insurance went up a lot this year- office copays are so high now I try to consolidate doctor trips (and I do not want govt health care). We didn’t get pay increases and our MANDATORY retirement contribution went up because of the stock market (any ideas on how to get out of mandatory retirement withdrawals – has to be un-constitutional especially if they are investing it in the stock market). So I’m actually bringing home less then I was 2 years ago while my utilities have all gone up – I’ve cut corners by eating less but that’ll only go so far.
But I know 3 people who can’t find work at all so I know I’m lucky despite my grumbles.
There’s rumors the local packing plant is going to lay people off & I worry for those people & how it will affect the rest of us.
If it’s picking up for a box company that’s a good sign though. It means something has been ordered, needs to be boxed up & shipped. So maybe things are starting to move.
loading....
We always have lived modestly so although we had a 12 percent decrease in pay last year we never had trouble paying our bills. However, there was no “fun extra money”. I have become very discouraged by people wanting to just walk away from so much and DO OVER when many of us cut back and acted responsible. I now ponder ads I see for “Just sign and drive away” or “buy with no payment until 2014″. Makes me wonder if people really learned anything. I think I am bitter.
loading....
My opinion on the recession is actually opposite of yours. To me, buy-and-hold is what keeps prices stable.
Thanks, Steven, It makes me feel good when someone presents the opposite of the view that I hold because I feel that that takes some pressure off of my shoulders. If people get to hear both sides, I feel that the chance that they can figure out the realities is then much greater. My views are obviously minority views. I see your comments as providing a helpful balance.
If there are others with questions or comments about my view that the promotion of Buy-and-Hold was the primary cause of the economic crisis, I will do my best to offer brief responses where I think I can be helpful. However, I don’t want a discussion of my views on this question to come to dominant this thread, which has a somewhat different focus.
If there are community members here who would like a more in-depth discussion of the question of whether Buy-and-Hold caused the crisis or not, I hope you will consider asking J.D. to entertain a Guest Blog Entry from me on this topic. I would be thrilled to write one and to be able to participate in a full discussion of the question in which all points of view could be fairly and fully explained.
Rob
loading....
@ Adam #22: I’m not sure I understand how one can say that “dollar-cost averaging (DCA)” does not allow for buying shares at lower prices. I’m quite open minded to look at evidence you might share against this common principle.
Perhaps I should have said, in my comment #14, that dollar-cost averaging allows for buying of shares at a range of prices, both high and low, over long periods of time, when prices are fluctuating, as compared to buying shares in a lump sum and holding them for a long period of time.
Furthermore, in a decade with so much volatility, which include long periods of falling prices, certainly DCA beats a lump-sum investment of say $12,000 purchased on 1/1/2000 compared to $100 invested every month for 10 years.
The problem with abstract concepts, such as “buy & hold” or “dollar-cost averaging,” is that anyone can cite evidence (and do it intelligently) either for or against it.
My primary point here is that people should define what they mean by terms when making an argument.
For anyone looking for a true cause of any recession, it’s not investment strategies, wall street, or politicians — it’s human behavior.
For any “evidence” one needs, simply read what philosophers have been saying about human behavior for more than 2500 years.
The environment changes but human behavior never does…
“There is no calamity greater than lavish desires. There is no greater guilt than discontent. And there is no greater disaster than greed.” Lau-tzu (604BC – 531BC)
loading....
i work in the construction industry, and it is still really bad. there is work out there, but most people are bidding at or below their break even level. it is great for the tax payers, but not for the people i work with.
loading....
I actually got a new job in September 08, as the markets were collapsing. It is safe for the next few years anyway.
What I find difficult is that my retirement savings have taken a big hit and though I will recover to some extent, I don’t think I will ever make that money up to the point that I will ever get to where I would have been. Unless there is little or no inflation (which doesn’t seem likely) I just won’t be able to afford as nice a retirement as I was planning. So for me, I feel like I am worse off.
loading....
@ Kent #42:
http://www.moneychimp.com/features/dollar_cost.htm
I understand the logic of DCA, but I personally feel it hoses people out of well-earned money by taking a huge cut in broker fees. Even if you are on a low-cost broker like Scottrade, if you are investing $100/mo and paying $7 in commission, that’s a 7% loss off the bat that you keep repeating every month.
It also encourages less sophisticated “investors” to blindly pump money into the same stocks/mutual funds/index funds without regard to cost. Maybe a rational investor would do it differently, but DCA is oversimplified “investing.”
loading....
After reading these stories I feel very blessed. If it wasn’t for the news reports and blogs such as this, I wouldn’t have even noticed the recession. The news reports have scared us a bit and we’ve cut back on spending unless we can get a good deal. We bought a vacation home because the price was cut in half due to a short sale. We also are having our current home completely remodeled because the labor and materials are cheap.
loading....
I am an optimist because I have to be. I am completely disabled by doom and gloom; if I had a negative outlook on life I would never get out of bed. (This is why I don’t watch the news or discuss politics.)
Our personal economy is hanging in there or looking up a bit. At work our customers have finally burned through the inventory they’ve been living off of for the last year or so, and are starting to buy again. Everyone in the trenches got raises and bonuses although the company hacked costs to the bone last year. The bosses have been fairly realistic; they told us last year that ’09 would be a turkey, and they’re telling us now that ’10 looks better, though we’ll have to stay lean and mean.
Hubby’s work has done nothing but grow all the last 2 years, even though it’s a luxury industry. I guess wine is a pretty safe business; people drink whether things are good or bad.
loading....
I’m not sure if it’s really getting better out there. My cousin has been looking for IT work down south for the past year and they want you to have all these certifications and pay you $10/hr.
I work at an academic medical center performing IT work and we are constantly growing. Every week I come in there’s some new project that comes along. In the end, all of the projects will help attract more clients to the medical center.
In the past two years, I only seen management take the axe. This was due to the overabundance of directors and vice presidents. People being paid six-figures to manage a few people.
There are many open positions throughout the hospital and we still received a cost-of-living increase in the past year.
loading....
I’ve always heard that box sales and the stock market lead economic recoveries (or rather are leading indicators of an economic recovery). The stock market has recovered. It isn’t back to wear it was, but where it was was overinflated anyway. I think its fair to say with the recent correction most stocks are evenly valued.
However I think we have a false sense of recovery. Things will not be like they were for a long time. We were on a huge bubble, not just a housing bubble, but a credit bubble. A lot of luxury businesses and excess businesses (like extra restaurants and stores that the population really couldn’t support) have closed. Companies have reduced costs. In other words everything is more streamlined. When you don’t have access to unlimited, undocumented credit then you have excess. So our economy will be working under control (read steady or slightly improved growth) for a number of years. That sounds good, but it isn’t for those who don’t have jobs and those who may have been caught in the housing crunch. Things aren’t going to improve for a number of American and World citizens. But I think the tourniquet has been applied and the bleeding has stopped.
loading....
My personal economy is stagnant due to being on disability (it could be much worse). I am in a pessimistic mood these days because unemployment is still very high in Oregon and I will need to have something going by the summer for me to survive when I get off disability. My business is slowing picking up, but not anywhere close to where it needs be for me to live on that alone.
Yes, I hear different stories for different people,. It seems those who’ve always done well wasn’t affected very much by the recession.
loading....