Notes starting from September 25, 2008

Updated: October 24, 2008.

Watching DVY

DVY's quarterly dividend dated 9/30/08 will be $0.590155. This is down 18.3% (to 81.7%) from its peak quarterly dividend of $0.67784 paid on 3/31/08.

This latest dividend is very close to the DVY trendline.

DVY is about 40% in financials. It has held up well. So far, it is doing better than the worst case 25% reduction in the S&P500 index after 1950.

RobCast #14

RobCast #14: Passive Investing Is the Most Emotional Investing Approach of All (Part One).

Rob Bennett recounts the amazing story of how passive investors have conducted themselves on discussion boards. While we have tried to discuss investing concepts on their merits, passive investors have not. They do not understand their position. They are defensive. They are highly emotional.

Rob Bennett has identified 35 alarm bells. This covers the first eight.

Rob Bennett’s RobCast page 2

Gummy Slices Graphs

I have posted two graphs extracted from my Gummy Slices series. They show that slices and composite portfolios both respond to Professor Shiller’s P/E10. They show that rebalancing is inferior to not rebalancing.

Gummy Slices Graphs

Attractive TIPS Interest Rates

TIPS interest rates are much more attractive than they have been for a while. Take a look.

Bloomberg Interest Rates

Rebalancing or NOT Graphs

Here are graphs of 30-Year Historical Surviving Withdrawal Rates HSWR with 50% and 80% stocks with and without rebalancing versus the percentage earnings yield 100E10/P.

Rebalancing or NOT Graphs

Here are graphs of the Rebalancing Bonus at Years 10 and 20. Most often, it costs you money.

Rebalancing Bonus at Year 10
Rebalancing Bonus at Year 20
Rebalancing Bonus at Year 30

RobCast #15

RobCast #15: Passive Investing Is the Most Emotional Investing Approach of All (Part Two).

Rob Bennett continues with the story of how passive investors have conducted themselves on discussion boards. He continues with alarm bells 9 through 14. There are 35.

Alarm bell number 9 is that the big-name experts play word games. Alarm bell number 14 is the failure of defenders of passive investors to offer reasoned arguments.

Spend another hour listening to this amazing story.

Rob Bennett’s RobCast page 2

RobCast #16

RobCast #16: Passive Investing Is the Most Emotional Investing Approach of All (Part Three).

Did you know that the strongest advocates of passive investing have high stock allocations? It makes sense. Emotions triumph.

That was just one of Rob Bennett’s alarm bells. Rob continues with alarm bells 15 through 21. There are 35.

I found the first part of this especially interesting. Rob describes the environment that surrounds investment discussions. There are many cross currents.

Rob Bennett’s RobCast page 2

Watching PFF

The October 2008 distribution of PFF is increasing to 22.0 cents per share. This is up from 19.9 cents per share in September 2008.

This is good news for those following my "Practicing for Retirement" portfolio. PFF is the high yield component of a dividend blend. DVY is the fast growth, lower yield component. DVY previously reduced its distribution back to the trendline as a result of the turmoil among financials.

Practicing for Retirement

Great Letter for Early Retirees

I just got a great letter from Michael. It is titled "Reconciling the Year 30 SWR with DVY and PFF." Michael is hoping to retire in about 5 years.

August 12, 2008 Letters to the Editor

RobCast #17

Rodcast #17: Passive Investing Is the Most Emotional Investing Approach of All (Part Four)

Rob Bennett wraps up this fascinating story, addressing alarm bells 22 through 35. I have lived through this. Rob tells it straight.

Rob Bennett’s RobCast page 3

Look at TIPS interest rates

Stocks are becoming attractive, but I prefer to let the dust settle first.

In the meantime, check TIPS interest rates. They are the best that they have been in a long, long time.

Bloomberg Interest Rates

RobCast #18

Rodcast #18: What Your Money Or Your Life Taught Me About Investing

This is classic Rob Bennett. Rob applies what he has learned about saving to investing.

This is not a “me-too” report. Rob disagrees on many points. He extracts what is useful for today’s investors.

Rob Bennett’s RobCast page 3

Wayne’s Letter

Wayne has written a great letter, “Rob's podcasts/Valuation buy levels.” Newcomers will find this especially interesting.

October 8, 2008 Letters to the Editor

Start Buying

Stock prices have fallen to reasonable levels. This is a good time to start buying. Move into stocks GRADUALLY.

Start Buying

Good article

Eugene recommended this article. He said, “You may find it interesting, talks about Graham preferring to buy stocks only at P/E 7-10...”

I did find it interesting. You may enjoy it as well.

Funds That Avoid Disaster Article

When the Market is Normal

Stock market valuations are close to normal. I investigate what this means to retirees who use Valuation Informed Indexing.

When the Market is Normal

Practical Advice for October 2008: RobCast #19 and #20

Rodcast #19: P/E10 Rocks!

Rodcast #20: Surviving the Stock Crash

This is very much up to date. It is very much needed by those caught by falling prices. Here is sound advice for real people.

Rob Bennett explains valuations (P/E10) in plain English. He tells you what you need to know in today’s dangerous market.

Rob Bennett’s RobCast page 3

A Glimpse at P/E10=8

Stock prices may bottom within the next decade. It is at least 50%-50% that P/E10 will fall below 10. But what if P/E10 falls below 8? Imagine the bargains.

A Glimpse at P/E10=8

The Extrapolation Issue

Traditional Safe Withdrawal Rate studies select the lowest surviving rate among 30-Year historical sequences. They identify this as being a SAFE withdrawal rate.

This overlooks the extrapolation issue.

The Extrapolation Issue

It is even better

Back in October 9, 2006, I suggested waiting until The Next Recession before buying stocks. I predicted S&P500 dividends of 2% to 3%. It will soon be even better. We have not yet hit bottom. Now is a good time to start EASING into stocks.

The Next Recession

Year 2000 30-Year Withdrawal Rates

Remember the SWR Translator? Here is a paragraph of interest for those who retired with a high stock allocation in the Year 2000. The October 2008 meltdown is sending an important message.

“For someone who expects a 1% real return in the 10-year timeframe, the conditional Safe Withdrawal Rates are around 2.79% to 3.63% (with 0% and 2%, respectively, and 50% stocks) and 2.14% and 3.16% (with 0% and 2%, respectively, and 80% stocks).”

We can expect the actual outcome for those invested heavily in stocks to be closer to a 2% surviving rate in Year 2030 than 3% or 4%.

Typical uses of the SWR Translator

SWR Translator Graphs

Here are SWR Translator graphs. They show 30-Year Historical Surviving Withdrawal Rates HSWR versus the portfolio’s total return at Years 6, 10 and 14.

SWR Translator Graphs

Notes Index starting from November 23, 2007