The Long Term Investor

Post election SHADOW, the FED, concerns over the EU economy, ridiculous China speculation, etc, etc, continue to hang over the markets. The rolling correction continues. Analysts are jumping out of their skin at the slightest news item or event. IN MY WORLD, I dont see any "regular" person selling or showing panic in the slightest. I suspect that most of the market action on a day to day short term basis is computer program trading based on QUANT ALGORITHMS. ALTHOUGH, I am out of touch with younger millenial investors.....assuming there are very many millenial investors. I doubt there are enough to drive the markets. Most are probably investing through 401K plans at work and not much else if they are following the normal path of young adults.

As an INVESTOR times like this are just times that I simply sit through. Remember the old sayings.....dont fight the tape......dont fight the Fed......dont try to catch a falling knife. So my course of action in times like this is simply to DO NOTHING. I am an INVESTOR.....NOT a trader and NOT a speculator. Since I have a LONG TERM outlook there is nothing for me to do in response to short term market conditions.

It pisses me off when I see IRRATIONAL short term market actions. And it makes me angry to lose money, even over the short term. BUT, I know there is nothing necessary for me to do in response other than sit and wait for the market, traders, and other sellers to wear themselves out. I remain fully invested for the LONG TERM as usual.

 

ONE of my holdings, NVIDIA will be reporting earnings this week. I look at this company as a LONG TERM investment. I like the chips that they are developing for gaming as well as the great potential for their Artificial Intelligence products. I also REALLY like their position in the AUTONOMOUS VEHICLE market. There is GREAT opinion right now that there will be an earnings miss. I like the article below. There is MUCH content in the article that is not quoted in this post. I would add, however, in my opinion with all the media and analyst speculation about an earnings miss this story is now baked into the expectations. So, if there is a mild earnings miss it will at this point be a non-story. Actually a very mild earnings miss might even be seen as better than expected. A good or positive earnings release will at this point cause a BIG gain in share price. Either way, I LIKE this stock for their future potential in the above areas. AI and self driving vehicles are in their INFANCY......perhaps even still NEW BORNS.

Nvidia Q3 Earnings Preview

https://seekingalpha.com/article/4221396-nvidia-q3-earnings-preview

"Summary
Nvidia’s forthcoming Q3 earnings release has been suspected to be negative due to AMD’s Q3 revenue miss and a lower Q4 guided revenue.

Like most other tech stocks, Nvidia’s shares have also suffered from the negative tariffs effect at a loss order between -10% and -15%.

If Nvidia has a revenue/earnings surprise, the stock will have at least a 5% move. If Nvidia has a guidance change, the stock will have at least a 10% move.

The bad news is that, given Western Digital, Seagate, and AMD’s disappointed ERs, Nvidia may likely miss revenue or lower Q4 guidance.

The good news is that Nvidia’s shares have baked in the bad news. So, if I am wrong, a positive ER surprise will return a large gain to Nvidia shareholders."

MY COMMENT

I will continue to hold this stock for the LONG TERM. This is probably the one stock in my portfolio that I hold, at least partially, as a calculated play on the long term future of the AI and self driving car business .(5-10 years min) So this stock is a little bit more speculative and not as established as most of the companies in my portfolio model. Not that they are some little start up company, this is a MAJOR company that has achieved much financial and product success along with very very good management.

 

The markets continue, as does the world and life in general. FOR those that are starting to be impacted by FEAR, PANIC, NEGATIVITY, and that gnawing feeling that ALL should be sold to cash........"because I am bleeding money"......or "OMG I am going to lose my life savings"......RELAX. Take a breath and step back from the cliff. Look at your holdings, has anything changed in the slightest in the FUNDAMENTALS of whatever stocks or mutual funds that you hold? I dont see any change in the FUNDAMENTALS of what I hold over the past month or two. IN REALITY, earnings were pretty good. SO......if earnings are good and FUNDAMENTALS are holding up about the same as they wrere over the past few months, what is going on? WELL, news events, MEDIA scare mongering, program trading, investor fear and unease, etc, etc. The type of event that you hold through and come out theother side. When will this happen....WHO KNOWS. Could be a few weeks, a month or two, or six months.

ONE THING is sure. Experienced investors are taking these market conditions to add to their holdings. For example:

Warren Buffett and Berkshire Hathaway Make Major Changes to Equity Holdings

https://247wallst.com/investing/201...away-make-major-changes-to-equity-holdings/2/

AND

Warren Buffett's Berkshire buys new stake in JPMorgan and ups Apple holding

https://www.marketwatch.com/story/w...-in-jpmorgan-and-ups-apple-holding-2018-11-14

Warren Buffett's Berkshire Hathaway Inc. BRK.B, -0.19% BRK.A, -0.29% bought a new stake in JPMorgan Chase & Co. JPM, +1.75% and increased its holding in Apple Inc. AAPL, +1.91% at the end of September, according to a 13F filings with the Securities and Exchange Commission released on Wednesday. Berkshire acquired 35.664 million shares of JPMorgan valued at about $4 billion as of Sept. 30, filings showed, and the firm boosted its stake in Apple, adding 522,902 shares, bringing the firm's total stake in the iPhone maker to $56.994 million, according to the filings. Apple's stock on Wednesday closed down 2.8% and is on the verge of a bear market, defined as a decline of at least 20% from a recent peak. Berkshire's purchase in JPMorgan comes as the banking sector has been on a downtrend despite the Federal Reserve's rate hikes, which hasn't benefited the group as much as bulls had anticipated. Shares of JPMorgan closed down 2.1% on Wednesday but shares are holding on to a sight gain of about 0.4% for the year, making JPMorgan among the better performers among its peers. Buffett's firm also increased its shares of Goldman Sachs Group Inc. GS, -0.13% adding 5.1 million, bringing the total value of its stake to $4.1 billion. Concerns about Goldman's involvement in a Malaysian scandal has battered the investment bank's shares. Meanwhile, Berkshire reduced its position in embattled Wells Fargo Inc. WFC, +0.38% shrinking its position by 9.6 million shares, with the investment firm's position in Wells at $23.25 billion. In technology, Berkshire bought a new stake in Oracle Corp. ORC, -0.84% 41.4 million shares worth $2.1 billion as of the end of September. Large investors must disclose long stock positions held at the end of a quarter 45 days later in a 13F filing with the SEC. Berkshire Class A and B shares are up nearly 9% so far this year, compared with a 1.5% year-to-date gain for the Dow Jones Industrial Average DJIA, -0.20% and a 1.1% gain for the S&P 500 index SPX, +0.11% thus far in 2018, according to FactSet data. The technology-laden Nasdaq Composite Index COMP, +0.53% is up 3.4%.

MY COMMENT:

HERE we have an 88 year old investor seting himself up to continue KICKING ASS in the future. He is BUYING and adding to his positions in THIS market. How has he done what he has done over his lifetime of investing? By buying good businesses when they are on sale. Sure, short term he might take a loss on some of these purchases, no one can time the market bottom. BUT, over the LONG TERM he will make good money. The lesson for ANY investor, NOT TRADERS, is dont sell out of emotion or panic or fear. NO ONE knows when the market will turn back up. As long as you have a long term horizan there is no pressure to turn paper losses into REAL losses. Now, I would not buy these companies, they do not fit what I do. But, Buffett has looked at the FUNDAMENTALS of what he holds and what he is buying and is not out there selling into this market downturn/correction. Actually, there is lots of flailing around in peoples minds right now but the averages, DOW and SP500, remain positive for the year. (not that that is a big deal). So........RELAX.....enjoy the rest of the year and family and friends......and TURN OFF the business news if it is driving you CRAZY.

EDIT: I remain fully invested as usual for the LONG TERM.

 

LOOKS LIKE MY POST, above, stabilized the markets and turned them around. We went from being down somewhere around 100 to 150 when I posted and now a few hours later we are at +100 as I post this. Looks like some of the BIG BOYS are starting to jump in at these bargain prices. (not that the drop is over) Of course, if we end up losing all the gains and close down.........THATS NOT MY FAULT.......NEVERMIND.

For those that have only been investing since the recovery started in 2009 and have ONLY experienced the greatest BULL MARKET in history......WELCOME to the real world of investing.

 

Hello TomB16

Well.....let us know what you are taking the opportunity to buy right now and your reasoning. Sounds like you have a good plan to pick up some bargains once in a while. Personally, I prefer to have all my stock market money fully invested all the time. BUT....that is just personal preference. THE MAIN THING is to have the fortitude to stay invested through corrections or even BEAR MARKETS.

Have you bought anything in this correction or do you have plans to buy soon? If so what?

 

For the WEEKEND, here is some "little" info on taxes that might be of interest. I assume many on these boards are educated on tax rates, etc. BUT for any that are interested here is the current situation going forward......at least for a while till the politicians cant avoid the temptation to ADJUST things as usual.

How the new 2019 tax rates could affect you

https://www.marketwatch.com/story/how-the-new-2019-tax-rates-could-affect-you-2018-11-16

"The Internal Revenue Service just changed its tax rates for 2019, but taxpayers need not panic.

The IRS’s newly released rates and figures are simply adjusted for inflation, as it does every year.

The inflation-adjusted rates also don’t take effect until Jan. 1, which means taxpayers will not use these figures for their 2018 tax returns filed in 2019. The changes will generally affect returns filed in 2020, the IRS said.

• The standard deduction for single taxpayers and married individuals filing separately is increasing $200 to $12,200, and for married individuals filing jointly, the increase is $400, up to $24,400. The standard deduction for heads of households will be $18,350, a $350 increase.

• The tax brackets have also been adjusted slightly for inflation:

• 27% for individual single taxpayers with incomes over $510,300 ($612,350 for married couples filing jointly)

• 35% for income over $204,100 ($408,200 for married couples filing jointly)

• 32% for incomes over $160,725 ($321,450 for married couples filing jointly)

• 24% for incomes over $84,200 ($168,400 for married couples filing jointly)

• 22% for incomes over $39,475 ($78,950 for married couples filing jointly)

• 12% for incomes over $9,700 ($19,400 for married couples filing jointly)

• 10% for incomes of $9,700 or less ($19,400 for married couples filing jointly)

•The Alternative Minimum Tax exemption amount is $71,700 and begins to phase out at $510,300 for single taxpayers ($111,700 for married couples filing jointly, where a phase out begins at $1,020,600).

• The Earned Income Credit amount is $6,557 for taxpayers filing jointly who have three or more qualifying children, up from $6,431 for tax year 2018.

• The monthly limit for the qualified transportation fringe benefit and qualified parking benefit is $265, up from $260. The limit for employees’ contributions to health flexible spending arrangements increased $50 to $2,700.

• The “individual mandate,” the penalty for not maintaining minimum health insurance coverage, has been eliminated under a provision of the Tax Cuts and Jobs Act.

Other changes, including those to the Lifetime Learning Credit, foreign earned income and self-only coverage in a Medical Savings account, can be found here.

The personal exemption for 2019 remains at $0 as part of the Tax Cuts and Jobs Act.

Even though these exemptions have disappeared, families with younger children haven’t been too heavily affected, said Wes Brown, a financial adviser at Rather & Kittrell Wealth Management in Knoxville, Tenn. “They’ve gained a bigger child tax credit that’s partially refundable and their marginal tax bracket is going to be lower,” he said. Losing the personal exemption will likely have an impact on older married couples with no dependent children, who won’t see a tax benefit from having a mortgage and paying investment adviser fees.

The IRS also announced it’s using a new method for making adjustments for inflation, which will follow a slower-moving measure of inflation and could affect how much Americans’ owe in taxes in the long-term. The change could cost taxpayers $133.5 billion over a decade, according to Congress’s Joint Committee on Taxation."

AND

Your simple guide to the new capital gains tax rates

https://www.marketwatch.com/story/your-simple-guide-to-the-new-capital-gains-tax-rates-2018-04-16

"Before the TCJA, you faced three federal income tax rates on LTCGs and qualified dividends: 0%, 15%, and 20%. Those rate brackets were tied to the ordinary income rate brackets:

• If the LTCGs and/or dividends fell within the 10% or 15% ordinary income brackets, your tax rate was an unbeatably low 0%.

• If they fell within the 25%, 28%, 33%, or 35% ordinary income brackets, your tax rate was 15%.

• If they fell within the maximum 39.6% ordinary income bracket, you paid the maximum 20% rate.

Of course higher-income folks were also exposed to the dreaded 3.8% net investment income tax (NIIT). So many actually paid 18.8% (15% + 3.8% for the NIIT) or 23.8% (20% + 3.8%) on LTCGs and dividends instead of the advertised 15% or 20%.

Rates and brackets for LTCGs and dividends after the TCJA

The TCJA retains the 0%, 15%, and 20% rates on LTCGs and qualified dividends. However for 2018-2025, these rates have their own brackets that are no longer tied to the ordinary income brackets. Here are the 2018 brackets for LTCGs and dividends.

Single Joint Head of household
0% tax bracket $0-38,600 $0-$77,200 $0-$51,700
beginning of 15% tax bracket $38,601 $77,201 $51,701
beginning of 20% tax bracket $425,801 $479,001 $452,401
After 2018, these brackets will be indexed for inflation.

Higher-income folks are still exposed to the 3.8% NIIT. So if you are in that category, you could still owe 18.8% (15% + 3.8% for the NIIT) or 23.8% (20% + 3.8%) to the Feds instead of the advertised 15% or 20%.

TCJA rates and brackets for LTCGs and dividends collected by trusts, estates, and kiddie tax victims
Just so you know, here are the 2018 rate brackets for LTCGs and qualified dividends collected by trusts and estates.

• 0% tax bracket: $0-2,600

• Beginning of 15% bracket: $2,601

• Beginning of 20% bracket: $12,701

For 2018-2025, the TCJA stipulates that these trust and estate rates and brackets are also used to calculate the dreaded Kiddie Tax when it applies to LTCGs and qualified dividends collected by dependent children and young adults. The Kiddie tax can potentially apply until the year during which a dependent young adult turns age 24 if he or she is a student. Under prior law, the Kiddie Tax was calculated using the marginal rates paid by the parents.

The bottom line
There you have it: the scoop on how LTCGs and qualified dividends are taxed under the new law.

2018 Tax rates and brackets for short-term capital gains:

As under prior law, the TCJA taxes short-term capital gains recognized by individual taxpayers at the regular ordinary income rates. For 2018, the ordinary income rates and brackets are as follows.


Single Joint Head of household
10% tax bracket $0-$9,525 $0-$19,050 $0-$13,600
beginning of 12% bracket $9,526 $19,051 $13,601
beginning of 22% bracket $38,701 $77,401 $51,801
beginning of 24% bracket $82,501 $165,001 $82,501
beginning of 32% bracket $157,501 $315,001 $157,501
beginning of 35% bracket $200,001 $400,001 $200,001
beginning of 37% bracket $500,001 $600,001 $500,001

MY COMMENT

It will be interesting to see how long it takes for government to begin to screw around with the current changes and you can bet that many or ALL changes will NOT result in lower taxes for those that ACTUALLY pay federal income taxes. HERE is what we actually know from the latest data:

Summary of the Latest Federal Income Tax Data, 2017 Update

https://taxfoundation.org/summary-federal-income-tax-data-2017/

"The Internal Revenue Service has recently released new data on individual income taxes for tax year 2015, showing the number of taxpayers, adjusted gross income, and income tax shares by income percentiles.[1]

The data demonstrate that the U.S. individual income tax continues to be very progressive, borne primarily by the highest income earners.

• In 2015, 141.2 million taxpayers reported earning $10.14 trillion in adjusted gross income and paid $1.45 trillion in individual income taxes.
• The share of reported income earned by the top 1 percent of taxpayers rose slightly to 20.7 percent in 2015. Their share of federal individual income taxes fell slightly, to 39.0 percent.
• In 2015, the top 50 percent of all taxpayers paid 97.2 percent of all individual income taxes while the bottom 50 percent paid the remaining 2.8 percent.
• The top 1 percent paid a greater share of individual income taxes (39.0 percent) than the bottom 90 percent combined (29.4 percent).
• The top 1 percent of taxpayers paid a 27.1 percent individual income tax rate, which is more than seven times higher than taxpayers in the bottom 50 percent (3.6 percent).

Reported Income and Taxes Paid Both Increased in 2015

Taxpayers reported $10.14 trillion in adjusted gross income (AGI) on 141.2 million tax returns in 2015. Total AGI grew $434 billion from 2014 levels, less than the $675 billion increase between 2013 to 2014. There were 1.6 million more tax returns filed in 2015 than in 2014, meaning that average AGI rose by $2,261 per return, or 3.3 percent.

Taxes paid rose to $1.45 trillion for all taxpayers in 2015, a 5.8 percent increase over the previous year. The average individual income tax rate for all taxpayers rose slightly, from 14.16 percent to 14.34 percent, and the average tax rate increased for all groups except the top 1 percent.

The most likely explanation behind the higher tax rates in 2015 is a phenomenon known as “real bracket creep.” [2] When incomes rises faster than inflation, more income is pushed into higher brackets and thus becomes subject to higher tax rates.

The share of income earned by the top 1 percent rose slightly to 20.65 percent of AGI, up from 20.58 percent in 2014, but the share of the income tax burden for the top 1 percent fell slightly, from 39.48 percent in 2014 to 39.04 percent in 2015. The reason for this slight decrease is that growth in itemized deductions claimed by this group of taxpayers outpaced growth in AGI for this group from 2014 to 2015. Particularly, taxpayers claimed significantly larger deductions for state and local taxes paid.[3] By claiming an increased amount of itemized deductions in 2015, the top 1 percent of taxpayers paid federal income taxes on a smaller share of their income, resulting in a slightly lower effective income tax rate than in 2014.

High-Income Americans Paid Majority of Federal Income Taxes
In 2015, the bottom 50 percent of taxpayers (those with AGI below $39,275) earned 11.28 percent of total AGI. This group of taxpayers paid approximately $41 billion in taxes, or 2.83 percent of all income taxes in 2015.

In contrast, the top 1 percent of all taxpayers (taxpayers with AGI of $480,930 and above), earned 20.65 percent of all AGI in 2015, but paid 39.04 percent of all federal income taxes.

In 2015, the top 1 percent of taxpayers accounted for more income taxes paid than the bottom 90 percent combined. The top 1 percent of taxpayers paid $568 billion, or 39.04 percent of all income taxes, while the bottom 90 percent paid $428 billion, or 29.41 percent of all income taxes.

Figure 1.



High-Income Taxpayers Paid the Highest Average Income Tax Rates

The 2015 IRS data show that taxpayers with higher incomes pay much higher average income tax rates than lower-income taxpayers.[4]

The bottom 50 percent of taxpayers (taxpayers with AGIs below $39,275) faced an average income tax rate of 3.6 percent. As household income increases, the IRS data show that average income tax rates rise. For example, taxpayers with AGIs between the 10th and 5th percentiles ($138,031 and $195,778) paid an average effective rate of 14.0 percent – nearly four times the rate paid by those in the bottom 50 percent.

The top 1 percent of taxpayers (AGI of $480,930 and above) paid the highest effective income tax rate, at 27.1 percent, 7.5 times the rate faced by the bottom 50 percent of taxpayers.

Figure 2.


Taxpayers at the very top of the income distribution, the top 0.1 percent (with AGIs over $2.22 million), paid an even higher average income tax rate of 27.4 percent.

BACK to.....MY COMMENT:

UNFORTUNATELY the insatiable appetite for money on the part of government NEVER ends. We are now and obviously have been for a long time now, a country where the Federal Income Tax burden is carried by 50% of the population with the other half of the population paying virtually nothing. WITHOUT getting into politics, I continue to see, as I have over most of my adult life, the country ever faster heading toward a SCIENCE FICTION scenario where we will have the ELITES living in their compounds and "special" areas, served by their workers and bureaucrats, with the rest of the country scuffling to survive. A HUNGER GAMES, BLADE RUNNER situation. AND, the ELITES will transcend our current definitions of party politics. I HOPE I am wrong, AND fortunately I will not be around to see what has happened in 50 to 100 years. AND nature (plague, world wide disaster, asteroid strike, super volcano, etc) and events (revolution, war, famine, etc,) have a way of turning these sorts of predictions and observations on their head. One thing is sure, nothing is ever STATIC. Every generation or two or three those in the majority define and create their own reality and culture. We BABY BOOMERS did it and now the MILLENNIAL generation has taken over as the BIG population BULGE. CULTURE and HERITAGE and HISTORY do not stand still and are not stagnant. The world as it exists right now will probably NOT exist in 100 to 150 years. FORTUNATELY as humans we do not live long enough to experience this disruption of what is "normal" for us. (at least yet, medicine and technology may at some point expand the human life span or at least the life span of individual consciousness. I imagine at some point over the next 300 years we will be able to download individual consciousness, thinking, and intelligence in some permanent form)

WOW.....imagine "investing" at that point. Makes my head hurt.

 

Hi TomB16

I LIKE your investment thinking. You have a reasonable plan and you stick with it. There is logic and common sense to your plan. We may not do things exactly the same, but we are similar in many ways. As to the details of what you do I always say.......ALL investing is personal......STICK WITH what works for you.

There is no ONE WAY to invest, but most LONG TERM INVESTORS will be somewhat similar in what they do. I personally, as you know, do not build cash, I stay fully invested. I also automatically reinvest all dividends and capital gains in the stock or mutual fund that produces it. I do not re-balance and I let each holding run its course. I use the SP500 as my benchmark, although I often look at and talk about the DOW. I try to hold a stock for at least a couple of years before giving up on it. IDEALLY I will hold a stock for 5-20 years. It is too easy for a stock to be down for a couple of quarters, even though it is a good LONG TERM INVESTMENT. Although, at times there have been holdings that I have sold within as short of a time as a couple of weeks due to some change or company news or market event that I believe is a KILLER for that holding.

YES, it is a real luxury to not have to spend down or use my stock account money for retirement. That was my goal when I was in my younger years. Although at that time I did not know if I would achieve that goal or not. It certainly makes it more complicated in retirement if you DO have to use your assets to live on. MOST people are going to find it a LOT more difficult to manage their money in retirement than they imagine. I think people in general overestimate their risk tolerance especially when they get to retirement. I also think that most people do NOT appreciate the impact of a couple of bad years combined with withdrawal from retirement funds. Money can VERY QUICKLY disappear.

FOR EXAMPLE:

If someone retired at the end of 2007 and had $1.5 Mil. Lets say they cashed in 5% for living in 2008. AND, we know that the SP500 was down basically 38% by the end of 2008. So at the end of 2008 they have used a total of $60,000 plus a loss of value of $547,000. Than they follow the same path to start 2009 and cash in $60,000. SUDDENLY in the span of one year they have gone from $1.5 Mil to having $832,800 left. ONE YEAR into retirement which might last 15, 20, 25, 30 years.

Now if you were really unlucky with your timing and 2009 ended down another 10% (it did not in reality) and you take out another $60,000 at the start of 2010. AFTER TWO YEARS you are at about $700,000 after JUST TWO YEARS of retirement. This situation is not likely to happen often but could be a situation we see every 5 to 10 years. SO, YES, managing money in retirement can be scary. The unfortunate thing is that most people dont have very good ability to project their thinking many years into the future and this sort of disaster can very quickly SNEAK UP on them. With the advent of the 401K and IRA and other self directed retirement vehicles, along with the ELIMINATION of the traditional pension, (except for government workers), the BABY BOOMER generation is going to be at the center of a very BIG social experiment in SELF FUNDED retirement.

If you ever feel comfortable, post your portfolio. Same to anyone else. I will NOT be critical. It is not up to me to browbeat anyone else over their investment OPINIONS. AND.....anyone here already knows this, but,........ANYONE is welcome to post any sort of investing talk in this thread.

 

CHANGING my view of the year end. At this point I see NO sign of a year end rally. THOSE that drive the markets are caught in a NEGATIVE FEEDBACK LOOP and nothing is going to change for a while. I continue to be FULLY INVESTED as usual for the LONG TERM. We are now still positive for the year but not by much:

DOW year to date +2%
SP500 year to date +1.61%

HERE are the events and stories that are the EXCUSE OF THE DAY for the market conditions today:

Wall Street pulled lower by Apple, trade worries
https://www.reuters.com/article/us-...ed-lower-by-apple-trade-worries-idUSKCN1NO1KN

U.S. home builder sentiment posts biggest drop in 4-1/2 years
https://www.reuters.com/article/us-...sts-biggest-drop-in-4-1-2-years-idUSKCN1NO1UR

Refiners get taste of post-IMO world with gasoline/diesel imbalance
https://www.reuters.com/article/us-...-with-gasoline-diesel-imbalance-idUSKCN1NO1R4

APEC fails to live up to its name amid U.S., China acrimony
https://www.reuters.com/article/us-...ts-name-amid-u-s-china-acrimony-idUSKCN1NO0FI

ADD IN Brexit, the EU economy, and everything else happening around the world and you have the current environment. For me it is a sit and wait environment.....BORING. I see two paths forward. ONE, the markets will wear themselves out with all the negativity, fundamentals will win out, and we will move forward. TWO, the negativity will spread to "regular" people and the fear and panic will seep in bit by bit and we will experience a NASTY 6-12 month correction as people pull back on investing and move money out of stocks and mutual funds as the pain increases and they see their money being slowly eroded drip, by drip, by drip..........the old WALL STREET drip torture. So my DECISIVE prediction......the short term will either be good, bad, or inbetween.

 

A COUPLE of relevant articles. One deals with people in retirement or nearing retirement and investing. I discussed a little bit about this issue above. The other deals with something we have NOT seen since the early 1980's....INFLATION. It is likely that the FED chasing this ghost will tank the economy at some point since that is the historical norm. In fact, they may be in the process of tanking it right now with their rate increases, time will tell.

Volatile stock market spooking some older workers, retirees

https://www.apnews.com/c96eb2f4b5c54449b13c95e841f89dab

AND

Why investors shouldn't lose sleep over inflation

https://www.cnn.com/2018/11/19/investing/markets-now-inflation/index.html

 

My PERSONAL PREFERENCE is to own GOOGL. I WILL NOT own any shares in ANY company that do not have voting rights. If I am going to be one of the owners of a company I want the right to vote on decisions that are shareholder decisions. Current price per share.....GOOG $1020.....GOOGL $1027.42. Not that voting my little share balance makes a difference. BUT, there is no way I am going to invest thousands or tens of thousands of dollars in a business and have absolutely no say in the business as a shareholder. I prefer to be a SHAREHOLDER not a financial EUNICH. (now there is a word you dont see much in business discussion)

To me the BIG question is....how are you going to know that it has bottomed? I do believe that many stocks at the moment have room to continue to drop BUT they are attractive at the current price if you are willing to take the pain of the potential to have a loss in your share purchase price for a while going forward of 5-10%. Let us know what you do and why. I am sure readers will be interested in your decision and reasoning.

HERE is some info on the two classes of shares:

Which Stock Share Class Should You Buy?

https://www.morningstar.com/articles/820137/which-stock-share-class-should-you-buy.html

 

THIS YEAR.....the way it is going right now......might be a good year for those that get their 401K MATCHING MONEY once per year at the end of the year. Investing those funds at year end will, in all probability, be a chance to get some bargain pricing in the Mutual and Index funds many use for their 401K investing. OTHERS that get their "match" money on a regular basis through the year (and those doing dividend and capital gains reinvesting) are also benefiting by dollar cost averaging into this market drop each month it continues. Over the LONG TERM the money being invested right now will compound nicely going forward WHEN the market recovers.

NASTY open today although not unexpected. NOTHING is going to satisfy the markets for a while right now. HATE that algorithm program trading. ALSO, hate these short holiday weeks and the impact on volatility. NOT that market direction is anything but DOWN right now.

DOW year to date (-.40%)
SP500 year to date (-.72%)

I continue to be fully invested for the LONG TERM as usual. ENJOY Thanksgiving week.......HAPPY THANKSGIVING TO ALL.

 

HERE are a couple of very relevant articles. The first one deals with companies doing share buy-backs. In my opinion buy-backs are a TOTAL WASTE of money. Using corporate funds in the tens of millions of dollars to buy back your own stock is totally unproductive. They are simply banking stock to GIVE to executives as compensation and/or propping up their stock price artificially. The BLATHER about this creating shareholder value is just that.....BLATHER. If you want to create value for shareholders simply give them the funds as dividend. BETTER YET, do what this article says and use that money to GROW the actual business.

Articles have been edited by ME to reflect what I consider to be important content and eliminate what I consider to be irrelevant content.

"The Secret of Amazon’s Success
It isn’t just size. Unlike many big American companies, Amazon is not squandering its profits on stock buybacks"

https://www.nytimes.com/2018/11/19/opinion/amazon-bezos-hq2.html?rref=collection/sectioncollection/opinion&action=click&contentCollection=opinion&region=rank&module=package&version=highlights&contentPlacement=8&pgtype=sectionfront

"What is it that makes Amazon different from other large companies?

.....there is another difference that is much less appreciated yet has been more significant in shaping its path: Amazon’s resource-allocation strategy — in particular, how it chooses to use the profits that it earns. It is one of very few large American corporations that is choosing to retain its profits and reinvest them rather than cutting payrolls and distributing corporate cash to shareholders as dividends and buybacks.

The high-tech division, which has made Amazon the world leader in cloud computing, accounted for less than 10 percent of Amazon’s revenues in 2017 but generated $4.3 billion in operating income. By comparison, North American web sales, which accounted for 60 percent of revenue, generated only $2.8 billion in profit.

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The web services division has transformed Amazon into an enormously profitable company. Amazon incurred an annual loss of $241 million as recently as 2014, but in the first nine months of 2018, it had net income of $7 billion — more than double its $3 billion in profits for all of 2017.

But unlike so many big, successful American public companies, Amazon does not use those profits to make distributions to shareholders. (Jeff Bezos, the founder and chief executive, is the largest.) The company has not paid a dividend since going public in 1997, nor has it done any buybacks of its shares since 2012.

That makes it an outlier among big American companies. From 2013 to 2017, companies that were in the S.&.P. 500 index during that period gave away 98 percent of their profits to shareholders, with 56 percent as buybacks.

Instead of squandering its profits on buybacks, Amazon has been reinvesting them in its business and its employees. That strategy is reflected in spending on research and development, where Amazon is far and away the world leader.

The investment shows up in its work force. From 2014 to 2016, Amazon increased its United States employment of high-paid “professionals,” mainly software engineers, to 30,433 from 18,266. And it will be adding many more of those among the 50,000 people it will eventually employ at its new outposts in New York City and in Northern Virginia.

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With all those retained profits, Amazon can easily afford to increase the wages of its low-paid workers, too. Starting this month, the company is paying its more than 350,000 employees in the United States a minimum of $15 per hour, although there was criticism that some hourly employees would actually make less under the new payment scheme.

AND......for those starting to PANIC and FEAR the future (not that saying any of this will help)

As stocks skid, worries mount for 401(k) investors who can't 'stand the pain'

https://www.usatoday.com/story/mone...ket-401-k-investors-worries-mount/2010624002/


"In a span of two phone calls, Daniel Milan found out last week just how nervous some of his Detroit-area investors were about the stock market’s recent rough ride.

“Two clients called and said they wanted to get out of the market completely,” says Milan, a managing partner and investment adviser at Cornerstone Financial Services in Birmingham, Michigan.

Both investors said they couldn't “stand the pain” of seeing the Dow Jones industrial average fall more than 500 points in a single day and watching their account balances shrink. They told him they would rather “cut their losses.”

The get-me-out instinct from these individuals captures the rising nervousness on Main Street as stock prices start sinking on a regular basis following the blue-chip average's record high on Oct. 3.

"It gets them a little wary," says JJ Kinahan, chief market strategist at discount brokerage TD Ameritrade. Still, despite lots of selling, there's been "very little panic," he notes.

The stock market’s latest drop, which has knocked Apple – the most valuable stock in the U.S. – down more than 20 percent from its recent high and pushed the Dow down nearly 7 percent below its peak – is causing investors to question the staying power of a bull market that turns 10 years old in March. At its peak, the broad market's bull gain totaled 333 percent.

Risks pile up
Weighing on the mood of investors is a list of challenges and negative headlines that seem to mount on a daily basis. There are fears about the global economy slowing over the U.S.-China trade fight and concerns about the steep price drop in Apple and other popular technology stocks. Rising borrowing costs are also a sticking point, as they make financing purchases of big-ticket items such as homes and SUVs pricier. Adding to the angst are concerns that the momentum for deregulation under President Donald Trump could slow now that Democrats hold the majority in the House of Representatives.

“There are plenty of challenges that could disrupt the market and shake confidence,” says Chris Larkin, senior vice president of trading at discount brokerage ETrade.

The Dow's nearly 400-point drop Monday did little to boost confidence.

Signs of anxiety on rise
Signs of investors nervousness are beginning to emerge.

* Shrinking number of bulls: In one sign of rising cautiousness, the number of individual investors that say they are bulls, or think stocks will be up in the next six months, fell from 41.3 to 35.1 percent (below the long-term average of 38.5 percent) in the week ending Nov. 14, according to a survey from the American Association of Individual Investors. And bears swelled to an above-average 36 percent, which means bears now outnumber bulls.



* Buyers turn more defensive: Investors are no longer blindly buying on the dip, Wall Street speak for buying stocks when they are cheaper after a big market drop. Instead, TD Ameritrade says it has started to see retail investors become "more selective" about their trading.

Apple investors, for example, have gone on a buyers' strike of sorts.

"They have backed off," Kinahan says. "Buying has slowed down. What it tells me is investors are seeing the opportunity is lower for the market than before."

Investors, Kinahan adds, have also been reading more of the firm's educational materials on its website. They're also showing more interest lately in so-called defensive stocks, such as companies that sell everyday goods to consumers, including names such as Coca-Cola and Procter & Gamble.

"In times of uncertainty, investors want to own established stocks that pay them a dividend that they can stay in for awhile until things settle down," he says.

* Investors express angst: Investors are making their fears known to pollsters. When asked by E-Trade after the midterm elections how long they thought the current bull market would last, 22 percent said "the end is near," and another 34 percent said the end would be within two years.

Similarly, a quick post-election survey by Charles Schwab of 150 of its clients found that while 63 percent "feel bullish" about the market, 37 percent "feel bearish" and think the market is due for a significant decline.

A poll of more than 100 financial advisers by fund company Ariel Investments also captured the more negative mindset of investors. Fifteen percent of advisers' clients said they "want to reduce exposure to stocks," and another 5 percent said they "want to cut their exposure to equities altogether." More than half (55 percent) of financial advisers said their clients today are "less willing to take on risk and more concerned with avoiding loss."

* Money starts to move out of stocks: While investors haven't exited the stock market in a stampede, more money has come out of U.S. stock mutual funds and exchange traded funds than has flowed in, Investment Company Institute data show.

In the three weeks ending Oct. 17, for example, a period that saw the market flirt with a 10 percent drop, or correction, outflows of more than $22 billion hit funds and ETFs that invest in domestic stocks. But after two weeks of calm, when money flowed back into U.S. stock funds and ETFs, outflows resumed again, with nearly $4 billion exiting, ICI data show.

Money also returned to bond funds, seen as a safer play for investors. In the latest week of data, there were net inflows of $777 million into fixed-income funds. That followed four weeks of massive outflows totaling nearly $38 billion, an exodus that was due to people losing money on their bond funds when prices fell and the yield on the 10-year Treasury hit a multiyear high.

What's an investor to do?
There are always risks facing the stock market, and investors need to keep their fears in perspective, Milan says. He has been reminding his jittery clients that the Dow is still up more than 1 percent for the year and that business conditions, such as economic growth and corporate earnings, remain solid.

He's also been stressing that the lower stock prices have created a good opportunity to buy with any cash sitting on the sidelines.

What Milan is not recommending is for clients to flee the market completely.

"What we try not to let happen is let them run scared and move all their cash to a money market account," Milan says."

MY COMMENT:

BOLD above is MINE. This is certainly GUT CHECK time for investors, especially those that have NEVER invested in a normal market where corrections take more than a week or two. As ALWAYS happens, there are many UNSUITED investors in stocks and funds right now as result of the nine year BULL MARKET since 2009. It is a HEALTHY THING to shake those people out of the markets. UNFORTUNATELY the current market is EXACTLY the sort of event that causes the stock market returns of the average investor to SUBSTANTIALLY LAG the un-managed indexes over the LONG TERM.

 

HAPPY THANKSGIVING ALL.

HERE is a TRIO of articles. The first is an important topic and touches on a topic that is discussed in a post or two above. That is, the preservation of funds in retirement while getting stock market growth going forward into old age. When I retired at age 49, I knew that I would have to live off my personal assets and accounts till at least age 65-70 before being able convert myself to a lifetime self funded "PENSION" created through the use of lifetime income annuities based on my life and the life of my spouse. In order to protect myself from severe stock market swings and potential BEAR MARKETS ad the hit that those sorts of events would have on my invested funds, I used a strategy of KEEPING FIVE YEARS of living money in cash or cash equivalent. At times it was a shame that I was not getting stock market returns BUT I could see that this was a NECESSARY step, especially as I got older and older, further removed from working. At times I would get down to as little as THREE YEARS of living funds, but I always tried to keep my cash at three years to five years minimum. I appreciated and understood how quickly money could disappear in a short term BAD SITUATION. The suggestions in the article below have merit, although for some the plan might be a little complex.. For me simply keeping at 3-5 years of cash funds worked well. At the same time I was keeping 3-5 years in cash the rest of my stock market funds were FULLY INVESTED all the time.

The Next Recession Is Coming: Here's How To Protect Your Portfolio

https://www.forbes.com/sites/invest...s-how-to-protect-your-portfolio/#7ed725481682

Everyone wants to know how to create the elusive “recession-proof” portfolio. In 2008, I was asked to write a column on the topic, and since millions of us were still reeling from losing everything, the title I suggested was, On Monday I was Ready to Retire, Now It’s Tuesday.

Catchy, yes, but when people woke up to find $10.2 trillion in wealth had been wiped out from the American economy, they wanted answers. More importantly, they wanted to take back some semblance of control over their financial lives and find a way to protect themselves from “next time,” which had quickly become their new worst fear.

In particular, folks nearing retirement age—with less time to earn and recover—were asking where they could invest their money so it wouldn’t disappear again in a few years. And honestly you’d think that by now, after having had 47 recessions in our country (yes, that’s the real number), that Wall Street would be capable of answering that question. From the Great Depression to the Great Recession, economic disasters have become embedded in our cultural subconscious like a recurring nightmare… But must we always live with the threat of waking up in a cold sweat?

As if market volatility weren’t enough of a boogeyman, we’re also fighting against human nature. Biologically it seems we’re programmed to make absolutely terrible choices when it comes to money and investments. Not only do we spend too much money on frivolous, instant-gratification purchases that prevent us from saving for retirement, but apparently we also have no idea how to play the market.

Even though “buy low, sell high” should be programmed into all our psyches by now, many investors seem to do the exact opposite. The average investor has earned total returns of just 2.5% over the past 20 years, while the S&P 500 has returned an average of 9.5%. If that’s not enough evidence, just look at how many people jumped on the cryptocurrency band wagon last year, only to see 90% of their profits and principal wiped out 12 months later. Just last week, the market cap of the entire cryptocurrency market plummeted by $15 billion in just 24 hours, and bitcoin hit its lowest level of the year, according to CoinDesk. Needless to say, these days no one is asking me about investing in bitcoin. (Finally, progress.)

Don’t get me wrong, we all make financial mistakes. I’ve made plenty in my day, and I’m a firm believer that it’s one of the best ways we learn. As we age, our financial decision-making capabilities tend to evolve along with our priorities. We begin to realize that we’re investing for our life, not for some arbitrary Wall Street target, like beating the S&P 500. Honestly, who cares? Do you really want to sit around bragging about your market prowess while the rest of your friends are out enjoying their golden years?

No matter how old and wise we become, the reality is that we’re never able to control the markets or the economy. Thankfully, though, we can exert control over our emotions, which I’d argue have much more to do with our returns than the markets themselves. (Folks who got scared and pulled out in 2008, I’m talking to you.)

To keep my clients sane and their money protected before, during and after a recession, I sit down with them for something I like to call the “income generation conversation.” We touch on a lot of different topics, but one of the most important is the emergency fund. You’ve likely heard many times that it’s good to have between three and six months’ worth of living expenses set aside in the event of a job loss, health crisis, or other unforeseen circumstance. What you likely haven’t heard is that those numbers only make sense when you’re actively employed. Once you’re retired, you need to have a full five years’ worth of living expenses in cash, or at least out of the market.

Before you start complaining about how much money that is, stop and think about what it would feel like to have to draw down on your accounts while the market is at a low point. Chipping away at your savings before they’ve had a chance to recover means a double whammy for your wallet.

Perhaps you did the math and know that you have enough saved to last until you’re 100. Good for you. But what happens if you’re forced to take withdrawals after the market loses another $6.9 trillion in shareholder wealth, like it did in 2008?

Once you’re retired, you can't afford to wait for the markets to recover in order to enjoy your golden years. Those grandkids are only going to be young for so long. Which is why the most important thing you can do is to set your retirement accounts up so that you can weather any storm. Here’s a rundown on five separate portfolios I would recommend setting aside to ensure just that.

• Portfolio A: Determine how much money you need to support your lifestyle for five years, and take those funds out of the market. Put them in a layered CD or bond portfolio, or even fixed annuity to make sure that you always have your near-term cash flow secured.
• Portfolio B: This portfolio will be the next one you tap if a recession comes and you spend through Portfolio A. Since it will have at least five years to grow to replace portfolio A, it can take on some risk, but to be safe we should only assume a 3% rate of return during that time frame. (For context, 100% equity portfolios in large company stocks have been shown to recover all losses over a five-year period. But portfolio B should be no more than 40% equities.)
• Portfolio C: If you’re following along, you’ll know that this portfolio will have ten years to grow before one might need it to support their lifestyle. Here you can assume a bit more risk, since time is on your side. You can invest more in equities, and in good years when you exceed 4% growth, you can use your excess to make up for possible inflationary increases in your lifestyle.
• Portfolio D: This portfolio has—you guessed it—15 years to grow. Here, one can feel good about completely leaving emotion out of the equation and knowing that you’ll see the markets recover before you need this money.
• Portfolio E: Here you’ll leave excess money that you want to grow, and annually you can move the money over to cash. Remember that cash is a non-taxable liquid asset, and it is your friend. You can use it to move into a retirement facility, or give it away to family.

Whether you follow the above religiously or come up with a variation on your own plan, remember that your life cannot be put on hold if the market tanks. While it’s true that these portfolios may not be wholly “recession-proof,” they are largely “emotion-proof.” Anytime your strategy involves removing the temptation to have a fire sale with your assets, or draw down on your accounts during a downturn, it is a very good strategy indeed.

AND

"Dispelling the Myth That Wages Have Been Stagnant for Decades
Many of these “statistics” put forth by the political circus are produced via questionable methods of analysis."

https://fee.org/articles/dispelling-the-myth-that-wages-have-been-stagnant-for-decades/?utm_campaign=FEE Daily&utm_source=hs_email&utm_medium=email&utm_content=67662370&_hsenc=p2ANqtz-_xf4NGyxUjH1XmyJH3Wh5lr4eSBVbugj1MD2mxbSq26tD26d8YthgsWdTRGZMcHo

"Critics of economic progress in the media pundit political circus frequently assert that incomes for American workers have stagnated over the past few decades. Examples of such hysteria abound. For example, a New York Times article declared that GDP growth has failed to consistently increase workers’ wages since the early 1980s. In their most recent debate at Politicon, political pundits Cenk Uygur and Tucker Carlson repeatedly claimed that wages have remained stagnant or outright declined in the past thirty years, attributing such a slump to their pet political issues.

Such popular claims are not without their professional proponents, either; economist Paul Krugman has claimed that “wages for ordinary workers have in fact been stagnant since the 1970s.” And, of course, the affable Senator Elizabeth Warren from Massachusetts has parroted these claims, claiming that insidious “trickle-down” economic policies are to blame for income stagnation since 1980. But does the evidence really support this crude “income-stagnation” hypothesis? As we shall see, these claims are little more than emotional assertions.

Contrasting Evidence
What is profoundly mystifying about this argument is that real consumption per capita increased during these very same decades of supposed income stagnation. As economist Alan Reynolds pointed out in his book Income and Wealth, real consumption per person increased by 74 percent from 1980 to 2004:

Average real wages and benefits have risen by nearly 40 percent since 1973, after adjusting for inflation. Sensational claims that 80-90 percent of Americans have experienced low and stagnant real incomes since 1973 are also shown to be incorrect . . . real consumption per person increased 74 percent from 1980 to 2004—a rate of improvement that far exceeded the trend from 1950 to 1979.

In fact, as public policy writer Peter Ferrara argued in an article for Forbes, per capita consumption in real terms nearly doubled between 1973 and 2004: “From 1973 to 2004, about 30 years, such real per capita consumption in America nearly doubled. Over 75 years, 1929 to 2004, real per capita consumption by American workers increased by 5 times, and even faster since 1961 than before.”

Further, as economist Thomas Sowell argues in his Economic Facts and Fallacies, many of the statistics offered by the proponents of the stagnation argument do not take into account the value of job benefits offered by employers:

In the case of statistics claiming that workers’ incomes have not risen significantly – or at all – over the years, these data exclude the value of job benefits such as health insurance, retirement benefits and the like, which have been a growing share of employee compensation over the years.

Thus, a larger portion of employees’ pay (which critics leave out of their analyses) is comprised of employment benefits—about 19 percent of a worker’s total compensation in 2014 as compared to 10 percent a few decades ago.

Finally, we may point to studies indicating increased mobility for individuals within lower income quintiles during this era of alleged stagnation. In their book Myths of Rich and Poor, economists Michael Cox and Richard Alm cite a study from the University of Michigan that tracked the income of over 50,000 Americans for three decades to study economic mobility. They unearth some truly remarkable data, including the following:

• Less than 1 percent of the sample population remained in the bottom 20 percent during the 1975-1991 period.
• More than half of the families surveyed in the bottom quintile in 1975 rose to a higher bracket within four years.
• Individuals and families starting in the bottom quintile in 1975 had a gain (adjusted for inflation) of roughly $27,000 by 1991.

How could it be that incomes have stagnated over the past thirty years when available data indicates that rates of real per capita consumption and income mobility were on the increase? The answer to this question depends on how the data is collected and measured. Many of these “statistics” put forth by the political circus are produced via questionable methods of analysis.

Misrepresentative Statistics
One example of these questionable statistical methods is to aimlessly lump together part-time work and full-time work. Doing so undoubtedly drags down the statistical average of workers’ incomes as a whole despite adding to the total production of real goods and services, which, as Sowell further notes, has been the case:

. . . the weekly earnings of part-time workers drag down the statistical average of workers as a group, even though part-timer’s work adds to both national outputs and to their own families’ incomes. It is not that full-time workers are paid less than before, but that more part-time worker’s earnings are being averaged in with theirs statistically.

Thus, an era of growing economic prosperity can be completely misrepresented as a period of economic decline with poorly analyzed data. By grossly lumping together part-time and full-time weekly earnings while leaving out job benefits such as health insurance (among other things), such “data” is often produced and cited to support the stagnation argument frequently made by Krugman and company. The critics of capitalism have been caught in their shortcomings.

Another fantastical trick is to measure the erosion of real income via the Consumer Price Index (CPI for short). Yet the CPI has a tendency to overstate the annual rate of inflation as a function of how it gathers data. By counting the price of a collection of goods and services over time while these very products are themselves changing over time, CPI data often miscounts ordinary price increases as inflationary. This conversely means the CPI understates gains in real income.

If, however, we use different measures of inflation, we uncover a totally different story from that depicted by the CPI. According to Don Boudreaux, an economist at George Mason University, measuring the rate of inflation between the 1970s and 2006 with the Gross Domestic Product Deflator indicates real wage increases of roughly 18 percent. Once again, the validity of the evidence supporting the naïve stagnation hypothesis is found to be deficient after scrutinizing its methodology.

The evidence is clear: despite the snide aspersions cast by critics, the free enterprise system creates a rising tide that lifts all boats. There are a number of flawed methods political sophists might use to paint a depressing depiction of reality. Once scrutinized, however, the weakness of their claims become apparent."

AND

"The myth of stagnant incomes"

https://www.washingtonpost.com/opin...469f1166f9d_story.html?utm_term=.629923c7a59b

We aren’t stagnating, after all.

Unless you’ve been hibernating in the Himalayas, you must know of the recent surge in economic inequality. It’s not just that the rich are getting richer. The rest of us — say politicians, pundits and scholars — are stagnating. The top 1 percent have grabbed most income gains, while average Americans are stuck in the mud.

Well, it’s not so. That’s the message — perhaps unintended — from the Congressional Budget Office, which reports periodically on the distribution and growth of the nation’s income. It recently found that most Americans had experienced clear-cut income gains since the early 1980s.

This conclusion is exceptionally important, because the CBO study is arguably the most comprehensive tabulation of Americans’ incomes.

Most studies of incomes have glaring omissions. Some examine only before-tax income; others, after-tax. Many don’t include some government benefits — for example, food stamps, Medicare or Medicaid (health programs for the elderly and the poor). Others exclude employer-paid health insurance, which is a big item. The CBO study covers all of these areas.

It confirms that the rich have catapulted ahead of most Americans, including many with six-figure incomes. The richest 1 percent of U.S. households had average pretax incomes of $1.855 million in 2015. The growth has been astonishing. From 1979 to 2015, pretax incomes of the top 1 percent jumped 233 percent. That’s more than a tripling. (All figures are corrected for inflation.)

But it’s not true that no one else had gains. If the bottom 99 percent experienced stagnation, their 2015 incomes would be close to those of 1979, the study’s first year. This is what most people apparently believe.

The study found otherwise. The poorest fifth of Americans (a fifth is known as a “quintile”) enjoyed a roughly 80 percent post-tax income increase since 1979. The richest quintile — those just below the top 1 percent — had a similar gain of nearly 80 percent. The middle three quintiles achieved less, about a 50 percent rise in post-tax incomes.

These seem small, but over four decades, they’re meaningful. It’s doubtful that most Americans would prefer to revert to the world as it was in 1979 — a world without smartphones, the Internet, most cable television or laparoscopic surgery.

Why then the belief in stagnation?

One plausible theory is that the gains in any one year are so small that most people don’t recognize them. Instead, they feel they’re marching in place. The demands on their income — for housing, food, college tuition, vacations and much else — swamp tiny gains.

Certainly, what’s occurring today is less impressive than the great gains of the 1950s and 1960s, when there was a flood tide of new technologies and products: television, modern appliances (washers, dryers), jet travel, air conditioners and antibiotics, to name a few.

Some economists legitimize the stagnation thesis by selective studies and their use of language. For example, former treasury secretary Lawrence H. Summers has used the term “secular stagnation” — which was coined in the late 1930s — to describe today’s economy.

Glance at the table below. It shows that modest income gains were widespread.

For the period 2000 to 2015, it gives the average gain in after-tax and after-transfers (government benefits) income for each quintile, from poorest to richest. The year 2000 was chosen as the base to dispel any notion that income gains occurred in the 1980s or ’90s. Interestingly, the relative gain for the poorest quintile was about twice the increase of other quintiles (again: a quintile represents a fifth of the population).


Although higher incomes could — in theory — reflect generous tax cuts, that doesn’t appear to be the case. In 2015, the richest 1 percent paid an average federal tax rate of 33 percent, close to the 1979 rate of 35 percent.

With income inequality rising, it’s not surprising that richer groups have actually provided an increasing share of federal tax revenue. In 2015, the richest quintile of Americans paid 69.5 percent of revenues, up from 55.1 percent in 1979. The share of the top 1 percent (included in the richest quintile) went from 14.1 percent in 1979 to 26.2 percent in 2015.

All the numbers seem complex and confusing. Piercing the statistical fog is essential to anchor our debates in reality and not in journalistic or political mythology. It may seem that, except for the fortunate few, hardly anyone is getting ahead. That’s convenient rhetoric, but it just ain’t so.

MY COMMENT:

Being an INVESTOR means that you need to live in the world of ECONOMIC REALITY. TOO MANY investors live in a fantasy world. The data on wage growth is clear. The economics of wage growth over the years is clear. When investing I try to be EXTREMELY CLINICAL and NOT let my world views and political bias get in the way. The rising wages since the 1970's transcends politics. It has occurred during times that both DEMS and REPS have been in power. You dont need a study or article to tell you that this is true. If you are old enough to have been alive and working in the 1970's you KNOW this is true. As a college grad my wife was paid $300 per month in the mid 1970's in her first job. A typical starting pay for a college grad at that time was about $600 to $800 per month. Friends that I knew starting as attorneys were at about $1000 per month. Of course, if you were not alive back than or not in the working world, it is easy to FALL FOR BALONEY like the fake economics that is political rhetoric on both sides of the aisle. The lesson is to use your own COMMON SENSE and live in the WORLD of ECONOMIC REALITY when it comes to investing and the thinking that drives your investing. A very DIFFICULT thing for humans to do when investing.