Friend's business sold and netted $3m

[daletournier]

Originally Posted by a64pilot

OK, it is way, way overinflated if I use the term correctly, but why is that?
My guess has been for years that it’s because almost everyone’s Retirement funds are in the Stock Market, and that the bust would come when the largest section of the population that was pumping money into the market began to withdraw instead, the Babyboomers of course.
Problem with my hypothesis is, unless mistaken, that has already happened, the boomers have retired already?
Realize I formed this Hypothesis on my own in the 80’s.

It's a much bigger question than can be answered in a post on cruisers forum.

Basically a lack of sound money, and a structurally flawed fractional banking system.

The federal reserve (and others) use words like Quantative easing (QE) it sounds better than "debasing the currency". A non backed currency (Fiat currency) will always be abused and debased until it reaches its inheritant value of zero. History proves this.

This has been a happening for many years.

Best not to take my word for on it, there's plenty of accredited people that have written about it.

[daletournier]

Should have added, asset bubbles occur when a system allows tommorows prosperity to be brought forward to today through credit, unchecked credit is a result of unsound money and our current fractional banking system. Currently currency is created through debt that creates speculation.

365 billion dollars has been wiped out of the cryptocurrencie market in the last ten days, that money didn't even exist one year ago.

[Island Time O25]

Originally Posted by daletournier

It's a much bigger question than can be answered in a post on cruisers forum.

Basically a lack of sound money, and a structurally flawed fractional banking system.

The federal reserve (and others) use words like Quantative easing (QE) it sounds better than "debasing the currency". A non backed currency (Fiat currency) will always be abused and debased until it reaches its inheritant value of zero. History proves this.

This has been a happening for many years.

Best not to take my word for on it, there's plenty of accredited people that have written about it.

That is why holding assets which have inherently no solid backing and no physicality other than as pieces of paper (cash, stocks, certs of gold, etc) is more like gambling as the potential down side is always zero - as in "lost everything at the black jack table".

On the other hand assets which have physical existence - real estate, gold bullion (not gold backed paper but brick/coin gold), art - will always have SOME intrinsic value, irrespective of their market value. You can live on your real estate or collect rent or farm it, you can enjoy your art collection or trade it for food, you can use gold to fix your teeth if the need arises or trade it for food, ammo, shelter, etc. Try that with a zero valued stock certificates or some such.

[john61ct]

Our currency USD is itself grossly overvalued.

When (not if) it is no longer the basis for settling international trade especially oil flows,

something we've gone to war under false pretences over more than once,

and we need to actually pay real interest on our debts

then there will be a huge reckoning

[daletournier]

Originally Posted by john61ct

Our currency USD is itself grossly overvalued.

When (not if) it is no longer the basis for settling international trade especially oil flows,

something we've gone to war under false pretences over more than once,

and we need to actually pay real interest on our debts

then there will be a huge reckoning

It's value comes from being the petro dollar, but you know this. Interesting what's happening in that area at the moment.

https://www.bloomberg.com/news/featu...-s-debt-secret

https://seekingalpha.com/article/413...ro-yuan-really

[ol1970]

Need to know some other facts to answer the OP's original question, but the simple answer without the facts is no. If all he has is the $3M and didn't accumulate any other assets along the way, my guess is the $3M will be gone in less than 10 years and he'll be worse off than he was before the sale of the business. But hell it will be a fun 10 years!

I'm fortunate enough to have done something similar and have been retired since I was 42, but the windfall of the business sale didn't impact my lifestyle one bit, or for that matter make it possible for me to hang it up. That financial independence from a day job probably occurred when I was 35 or so. Saving 75% or more of my after tax income since my first real job at 22, compound interest, living below my means, and delayed gratification are the reasons for me being free from a day job. The sale of the business just allowed me the freedom to break away from the day to day responsibility of making sure 110 families were well supported by the people I employed, and left in good hands.

On the investing front, I've researched this in great detail. If you invested a lump sum on any of the 10 absolute worst days in the last 150 years (a.k.a. the peak of a long bull market before the crash) at no time has a 3% withdraw rate failed. Some people could have gotten lucky and been fine with a 10% withdraw rate if they retired into a raging bull market. I'm somewhere around a 1.5% burn rate and it allows me to live a very comfortable fun filled life. There will be a huge pile that goes to charity along the way and at the end of my story.

Advice to the OP's friend, have no more than 5% of your net worth tied up in depreciating assets if you want to live a comfortable life, $3M is more than enough to live your remaining days like a king no matter what your age if you are smart about it.

[john61ct]

Originally Posted by daletournier

It's value comes from being the petro dollar, but you know this.

Also being perceived as a stable system worth investing in from all those less stable places, the government / Fed "not allowing" it to collapse, Lender of Last Resort etc.

When (not if) that perception no longer holds. . .

[alansmith]

Gentlemen, i have really enjoyed listening about your thoughts. I don't agree with the occasional poster who says your advice is worthless. I can't count the 10's of thousands of dollars i've lost from professional advice like Brokers and CPA....'use guys' take your lumps.

A few thoughts...Cryptocurrencies...like Bitcoin and others....highly speculative..understood. But i learned some things about them when reading about Blockchain Technology. I recommend you read up on it and what it is all about. There are other technology associated with Cryptocurrencies that are essential to large scale financial services that help encrypt and track movement of monies. There are ever increasing situations where companies are starting to employ it's technology. Times are a changing (Dylan).

Fed policy...with countries like China and Russia buying and selling petroleum products outside of OPEC agreements to use USD as the recognized currency...it is a shot across the bow of the American Enterprise. With the Chinese gov't reluctance to continue buying Treasury assets at the rate they have over the last decade or more...it doesn't take a genius to understand that the Fed Rate has to rise. If it doesn't rise then how does the american govt finance the debt service that is mind boggling ...crippled...screwed....F'd up? My wife is Chinese and we talk about this occasionally. In China...they are pretty fed up with American propensity to turn on the funny money machine. China has it's own set of internal problems with population, pollution, corruption, and political wars. But they are much more long term strategists than western society.

So, if the Fed rate moves up...and i can't imagine any scenario that it won't over the next year or two...what do you think will happen to real estate and stock market prices? Gulp.

Hold on to yer hats fella's ...it's gonna be a bumpy ride....which is a bad interpretation of the famous line from Bette Davis , "Fasten your seat belts. It's going to be a bumpy night." Great movies back then..."All About Eve" I digress.

[surf_sail]

Originally Posted by Island Time O25

On the other hand assets which have physical existence - real estate, gold bullion (not gold backed paper but brick/coin gold), art - will always have SOME intrinsic value, irrespective of their market value. You can live on your real estate or collect rent or farm it, you can enjoy your art collection or trade it for food, you can use gold to fix your teeth if the need arises or trade it for food, ammo, shelter, etc. Try that with a zero valued stock certificates or some such.

Sorry I got a bit of a chuckle out of this.

I agree with real estate - it's a productive asset (I.e. can earn rent) and if you believe we have a somewhat functioning judicial system it doesn't matter so much wether you own it in the form of a "paper" REIT (or some other investment vehicle) or in the form of a piece of paper called a "title". (Ignoring important things like diversification and economies of scale in property management)

But the more interesting question is what is the "intrinsic value" of gold and art? I could (and likely would) say zero. These are not productive assets, they don't earn interest and are pure speculation that you'll find some "greater fool" to pay more for it than you. Warren Buffet likes to point out that if Martians looked at what we did with gold: spend a lot of resources to dig it out of the ground, then move it across the world only to bury it beneath the ground again in a vault, they would think we are kind of crazy. Yes Gold has some historic value, but zero intrinsic or fundamental value because it's a non-productive asset (similar to bitcoin actually).

Same thing with art. The only interest it pays is what you pay to store it. Unless of course you think you can earn a buck by renting it out to galleries - good luck with that.

People **** on "paper" assets like equities, bonds, etc. because they don't really understand what they are buying. But love gold and owning their own property because they understand what they own better....

I'll second what lots have already said - be wary of advice on here. But I also agree that so called "professional" advice is also highly problematic (asset managers that do what is really your interest usually will end up fired because they don't follow the latest fad). As with many things in life, your best bet against getting fleeced (or your boat sinking) is education and taking responsibility for your own future.

[BandB]

Originally Posted by alansmith

Gentlemen, i have really enjoyed listening about your thoughts. I don't agree with the occasional poster who says your advice is worthless. I can't count the 10's of thousands of dollars i've lost from professional advice like Brokers and CPA....'use guys' take your lumps.

Rule #1 for investment advisors, "Know Your Customer." We know nothing about this friend, his family, their lifestyle, their other investments, their assets, their debt, or their risk tolerance. Therefore, we can't give good advice. I could sit down with him for 30 minutes, asking questions, interacting and then have some solid ideas.

[Steel sails]

Jeez, if you can’t go with 3 mill in the bank or wherever, no one can go!

[john61ct]

4% of US households have a net worth over $3 mill, so 5+ million people?

Maybe half that would have that much liquid to invest.
*

[daletournier]

You guys that keep carrying on about don't take advice from this forum, chill it's not about advice, it's a discussion, and voicing having a chuckle (twice) at someone else's opinion is just rude. All sorts of people have made their money all sorts of ways, your way is one way.

I for one are not in the stock market, although I do agree with the comments regarding index funds like Vanguard (for most) BUT with so many indicators clearly pointing to markets being horribly overvalued currently, would you invest your 3 million right now?I come from no money yet have retired young (retired for nearly 10 years, I'm currently 49) , live on a nice boat and sail the world, I'm doing quite well despite not following the normal path. This is not be arrogant, it's to say people do it different ways and are successful.

Cryptos, another big subject. I think people fail to differentiate between the blockchain technology and the coins. ie, Ripple blockchain technology doesn't need their Xrp coin to function, in fact the vast majority of financial institutions that have adopted ripple don't use Xrp!. This is just one example.

I see the value in blockchain and equivalent technology like Hashgraph but fail to see where the cryptos get their value from, other than speculation, their utility is a very limited. They use blockchain, blockchain dosent need them. I'm sure blockchain will be in our future as well as cryptos, BUT which one. Most cryptos are open source, anyone can create a crypto, including governments that will. If you want to see the irrationality of this, Google Dogecoin. Once again it could go to a million but the reasoning used to determine value is very faulty, this is speculative trading at its best currently. I'm very familiar with the philosophy behind Bitcoin and decentralised ledgers and have tried hard to find the underlying value in the coins, I can't find any.

Gold, always controversial. Yes gold produces no yield, has storing costs thus costs money, my rules (normally) would class it as a liability as it takes money out of my pocket. I break my own rules when it comes to gold (currently) . Many wealthy people hold a percentage of their wealth in Gold as a hedge, many will advise 10-20%. This is because gold has a very long history of performing well in an environment of financial uncertainty. Its been around in the financial system for 5000+ years, it's not going away. In our current environment of open currency debasement and other monetary shenanigans the case for Gold can be argued quite strongly. A number of metrics based on historic data suggest Gold is a very undervalued asset class right now. Do you own insurance? I view gold in a similar way.

In regards to "you can't apply lodgic or reasoning to a irrational market, just pile in" hmmm.... not for me. Lodgic and reasoning are why I know longer swing from trees.

How successful are most professional financial advisers? Reason suggests to me the good ones are retired.

[surf_sail]

Originally Posted by daletournier

I for one are not in the stock market, although I do agree with the comments regarding index funds like Vanguard (for most) BUT with so many indicators clearly pointing to markets being horribly overvalued currently, would you invest your 3 million right now?I come from no money yet have retired young (retired for nearly 10 years, I'm currently 49) , live on a nice boat and sail the world, I'm doing quite well despite not following the normal path. This is not be arrogant, it's to say people do it different ways and are successful.
.

While I generally agree with you that the market is overvalued, In the interest of discussion I think it's important understand the other view too.

There is a case to be made that the market is not so overvalued:

Yes CAPE is really high, but it still includes earning from 2008-2009 that were depressed take them out and it looks quite different. The tax cut boosts earnings by 10-20%, this will certainly bring down CAPE.

Simple PE ratios are not obviously high

Equity yields versus fixed income yields are still attractive

Yes the expansion is long in the tooth, but we've never had 8 years of 2% growth, maybe it's actually different this time and with slow growth it takes much longer for imbalances to develop.

Maybe interest rates are now permanently low. Many think inflation will come back, but to me this is still the biggest mystery. Look at Japan, they have done QE on steroids debased the Yen and still there is no inflation. One can argue that accelerating technological development is fundamentally deflationary and developed market inflation is now in the dust pan of history. Also it's possible that the demographic situation of mature economies (falling birth rates) is driving deflation. (Japan being the leading example of this).

Corporate profits as a % of GDP has been rising (at the expense of labor). Maybe increasing automation and specifically AI will shift the balance even more to corporate profits and current prices reflect future earnings growth. (One can certainly also argue for mean reversion)

It's a difficult time to be a value investor, which I think is a style many on here are naturally inclined to follow. But the long term equity premium over other asset classes also makes it hard to stay out of the market. Most of the arguments that the market is artificially elevated could also have been made in 2011.

Anyways, it's a bit off topic, but it's so easy to fall into the doom and gloom trap. Lots of financial media also falls under the category of "yellow journalism" and always pushes the bearish narrative. I guess the only lesson is that market timing is fraught with danger...

[daletournier]

First up I enjoy these conversations. It's good to think and have a opinions challenged.

You cant cherry pick data to make things look better, if you do where do you stop? If we are going to leave 2008-2009 out then leave company stock buy backs out as well. Over 2.4 trillion dollars was spent by companies over the last 8 years buying their stocks back effectively manipulating their earnings per share price. Creative engineering that makes companies look better and rewards Ceo's .

The results from tax cuts are yet to be seen, this does not figure into now or the past and this is the data used to provide a snap shot of where we are, not where we maybe, could be, might be and if..... Results from tax cuts are pure speculation currently because they effect more than just businesses.

Of course equity yields are attractive when fixed income is extremely low or negative, this is one of the main problems. It massively distorts markets. Equities should be driven by fundamentally sound profit making companies not because there's no where else to put your money! The desperation by the likes of large pension funds chasing yield is one of the unintended consequences of crazy never before seen monetary policy. It what universe does someone buy a bond guaranteeing you a loss? I met a guy that recently put a heap of money into 10 year German bunds, I haven't looked lately, but by memory this guarantees him that he'll get 98.5% of his money back not taking inflation into account! What crazy would do you invest money guaranting a loss and think that's an investment? So yes equities are getting partially (big part) driven by this crazy historically low interest rate environment which only lends to my argument that the stock market is dishonest regarding fundamentals.


Maybe it's actually different this time? It's always different right up until it's not. If this time it's different it will be the first time. What is different this time is money has never been debased more by so many countries at the same time in history! 2% growth despite massive stimulus to a degree that we have never seen before regardless what metric is used to measure. The world has reached a point of massive deflation, deflation is an extremely bad thing in a world that is drowning in debt, the debt gets relatively bigger, this can't be allowed to happen thus the massively loose monetary policies of the last 10 years that have only kept the economy(s) slightly inflationary. Massive deflation will force more debasement to try to counter it effectively reducing our currencies purchasing power, no way around it. High inflation is a big possibility as central banks try to print us out of deflation, but who's knows which force is greater, one thing for sure is excessive currency creation destroys the currency, proven over and over. Our banking system relies on inflation and dies with deflation, excessive credit can not be repaided in a deflationary environment.

Market inflation can not be in the dustpan unless we have a complete upheaval and reset of our monetary system. Fractional banking fails completely in a deflationary world it just can't function that way. To large to explain in a Cf post.

And yes demographics are a big part of the deflationary problem now and more so in the future.

Yes, difficult time to be a value investor. Anything other than investing in value is speculating IMHO, every time you go to the shop whether for food or to buy a car you assess value and make a purchase based on perceived value proposition, why would you not apply the same reasoning to larger cash allocations like investing. The ones that really hurt if you get them wrong?
Mass speculation has driven value out of most markets currently.

Regarding negative news. We are currently in a world that labels any news that dosent agree with the popular narrative as negative, regardless of whether its fact based or not. My position is to attempt to not label it positive or negative, rather try to assess its factual basis.

Obviously alot more could be said, the topic is much bigger than can be conveyed here. The future is unknown. My personal strategy is to be financially in good shape regardless of which direction the economy goes. My number one financial rule is not to lose money.
If the downside potential is greater than or equal to the upside potential then I'm not in.