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Strange Things in the Precious Metals
Issue #531, July 17, 2018

Buying Years of Retirement
Issue #530, July 09, 2018

Rent-A-Kid for Retirement
Issue #529, July 02, 2018

The Dark Side of Student Loans
Issue #528, June 25, 2018

The Cost of Out-sourcing Convenience
Issue #527, June 18, 2018

Social Security: 66 or 70?
Issue #526, June 11, 2018

Student Loans: There’s (Unfortunately) a Lot More!
Issue #525, June 04, 2018

Co-signing a Note
Issue #524A, May 31, 2018

The Knight Frank Luxury Index and Collectables
Issue #524, May 28, 2018

The Importance of Diversification: The Myth of Diversification
Issue #523, May 21, 2018

How to Save Thousands on Your Food Bill
Issue #522, May 14, 2018

MoviePass and Other Things
Issue #521A, May 10, 2018

Degree Inflation, Long Training Periods, and “Certification”  Part III
Issue #521, May 07, 2018

Degree Inflation, Long Training Periods, and Certification” Part II of III
Issue #520, April 30, 2018

Follow-up on Several Things
Issue #519A, April 25, 2018

Degree Inflation, Long Training Periods, and “Certification”: Part I of II
Issue #519, April 23, 2018

The Kids Birthday Party Hustle
Issue #518A, April 18, 2018

A Pension Question: Part II of II
Issue #518, April 16, 2018

A Physician is an Executive
Issue #517A, April 11, 2018

A Pension Question: Part I of II
Issue #517, April 09, 2018

Is the Correction Over?
Issue #516A, April 05, 2018

Used Car Dealers, Student Loans, the Chinese, and Uncle George’s Rule
Issue #516, April 02, 2018

Starter Homes
Issue #515, March 26, 2018

Redecorating: Beware!
Issue #514, March 19, 2018

NASDAQ Closes at Record High
Issue #513, March 12, 2018

A 40% Chance
Issue #512, March 05, 2018

Several Things
Issue #511, February 27, 2018

Human Capital, Education and Wealth
Issue #510, February 19, 2018

Another Stock Market Update
Issue #509A, February 18, 2018

Some Thoughts on Savings
Issue #509, February 12, 2018

A Stock Market Upfate
Issue #508S, February 10, 2018

Who Can You Trust? Part II of II
Issue #508, February 05, 2018

The Christmas Decoration Pre-worn Jeans Hustle
Issue #Interim Bulletin #507A, February 03, 2018

2018 Outlook for Financial Markets
Issue #507, January 29, 2018

Who Can You Trust? Part I of II
Issue #506, January 22, 2018

Life Insurance Settlements
Issue #505, January 15, 2018

Commodities and Buying the Breakout
Issue #504, January 08, 2018

Buffett Wins His Bet
Issue #503A, January 04, 2018

Practice Real Estate and Free Agency
Issue #503, January 01, 2018

Outlook for 2018: Part III: Stocks and Bonds
Issue #502, December 25, 2017

My Outlook for 2018: Part Ii: Precious Metals
Issue #501A, December 21, 2017

Outlook for 2018: Hard Assets: Part I of III
Issue #501, December 18, 2017

More Thoughts on Bitcoin
Issue #500A, December 14, 2017

Fees and Good Relations with Bankers
Issue #500, December 11, 2017

Salvator Mundi
Issue #499A, December 07, 2017

Should You Rent or Own a Home?
Issue #499, December 04, 2017

A Gift Subscription
Issue #Interim Bulletin #498A, December 02, 2017

Stocks vs Real Estate: Asset Allocation: Part II of II
Issue #498, November 27, 2017

When Good Enough is Fine
Issue #497A, November 22, 2017

Stocks vs Real Estate: Asset Allocation. Part I of II
Issue #497, November 20, 2017

The Saudi Arrests and the Perils of Foreign Investing
Issue #496, November 13, 2017

Gambling and Las Vegas
Issue #495, November 06, 2017

Some Tips on Auto Insurance
Issue #494, October 31, 2017

Bitcoin and the Digital (Crypto) Currencies
Issue #493, October 23, 2017

The Coming Bear Market: Part II How to Prepare
Issue #492, October 16, 2017

Some Observations on Cemeteries
Issue #Interim Bulletin #491A, October 12, 2017

The Coming Bear Market: Part I: The Myth of Buy and Hold Forever
Issue #491, October 09, 2017

The Market makes New Highs
Issue #490, October 02, 2017

The Importance of a New High
Issue #489, September 25, 2017

A Little Insurance: Wealth, War and Wisdom
Issue #488, September 18, 2017

Some Observations
Issue #487, September 11, 2017

How to be Successful in Your Career
Issue #486A, September 07, 2017

How NOT to Buy a Home
Issue #486, September 04, 2017

This Week in the Market
Issue #485, August 28, 2017

Is the “Trump Bump” Running Out of Gas?
Issue #484, August 21, 2017

Gold is on the Move
Issue #483, August 14, 2017

The Importance of Estimation
Issue #482, August 07, 2017

Buying Art and Collecting: Part II of II
Issue #481, July 31, 2017

Buying Art and Collecting in General, Part I of II
Issue #480, July 24, 2017

Physicians need to be More Forceful: Follow-up
Issue #479, July 17, 2017

Physicians need to be More Forceful
Issue #478, July 10, 2017

Your First “Real” Investment
Issue #477, July 03, 2017

Leasing a Watch: Don’t
Issue #476, June 26, 2017

The Importance of Your Children having a Job
Issue #475, June 16, 2017

The Problem with Medical Student Debt is—the Med Schools
Issue #474, June 12, 2017

Critters and Varmints in your Home and Yard
Issue #473A, June 07, 2017

Leveraged ETFs
Issue #472, May 29, 2017

Leasing a Vehicle: Don’t!
Issue #471, May 22, 2017

Issue #470, May 15, 2017

More on Buying Jewelry
Issue #469, May 08, 2017

Buying Jewelry: Gold, Diamonds and Pearls
Issue #468, April 30, 2017

Thomas Sowell: Part III of III
Issue #467, April 24, 2017

Thomas Sowell: Pat II of III
Issue #466, April 17, 2017

Live Close to Where You Work
Issue #465, April 10, 2017

Medtronic in Hospital Management
Issue #Interim Bulletin #464A, April 07, 2017

Thomas Sowell: Part I of II
Issue #464, April 03, 2017

A Political Contribution a an Investment: Part II of II
Issue #463, March 27, 2017

A Political Contribution as an Investment: Part I of II
Issue #462, March 20, 2017

Buffett Selling Vacation Home
Issue #461, March 13, 2017

Advanced Placement (AP) ourses
Issue #460, March 06, 2017

The Importance of a Credit History
Issue #459A, March 02, 2017

A Credit Card Scam
Issue #459, February 27, 2017

The Electronic Health Reord
Issue #458, February 20, 2017

Issue #457, February 13, 2017

Platinum and Palladium
Issue #456, February 06, 2017

Economic Outlook for 2017: Part II of II
Issue #455A, February 02, 2017

Economic Outlook for 2017: Part I of II
Issue #455, January 30, 2017

A Story From Vegas
Issue #454A, January 25, 2017

Land Donation Deals and the IRS
Issue #454, January 23, 2017

The Theory of Gambler’s Ruin
Issue #453, January 16, 2017


By Robert M. Doroghazi, M.D., F.A.C.C.

The Coming Bear Market: Part I: The Myth of Buy and Hold Forever

Issue #491, October 09, 2017

    This newsletter is not about market timing; trading in and out daily, weekly or monthly. A few can beat the averages, but that’s nor investing. Rather, this is about being mostly in stocks when they are going up, and mostly out when the inevitable bear does arrive. It is possible. Issue #60 (3/16/09) was “How to Identify the Buying Opportunity of the Generation”. I nailed the market bottom of March 9, 2009. 
    Currently, the market remains strong. I believe, as does Lowry’s and Barron’s, that we’re probably OK through at least the end of the year (see below). But this bull market is the second longest ever. It will end eventually. In this newsletter I’ll discuss why buy and hold, to be able to ride the bull, is the best way to make big money, but why buy and hold forever is a myth. In the next issue, I’ll discuss some of the things you might consider to prepare for the next bear market. This is especially important if you are retired (with no income stream to fall back on) or within 5 to even 10 years of retirement.
    In the 20th century, stocks in the US returned an average of 10% per year. After factoring out the 3% inflation, the return was 7%. In the bubble of the late 90s, capital gains were everything, dividends weren’t important. Well, 62% of this “real” return was dividends—dividends are important. The remainder of the gain represented essentially the increase in corporate profits over this period.
    But, of course, this was not a constant 10% annual return (RMD comment: grindingly constant returns are a red flag for a scam. Think Bernie Madoff. See Issue #102A (4/28/10), a review of Harry Markopolos’ book No One Would Listen). There are long periods of superior returns followed by long periods of little to no returns. Ex: The market briefly touched 1,000 in 1966, backed off, and peaked above 1,000 in January, 1973. It then suffered a brutal bear market, bottoming in the last week of 1974, before finally breaking above 1,000 for good in late 1982. However, after adjusting for the terrible inflation of the late 70s, the market didn’t return to the 1966 peak until 1991: a period of 25 years.
    From 1982-2000, the market returned an average of 15% per year. From 2000-2009, including dividends, but subtracting inflation (and taxes), you were down. A decade of dead money. From March, 2009 – today, the market is up about 16% per year.
    Warren Buffett says his favorite holding period is forever. This may be his favorite, but it is not his only holding period. In 1969, Buffett thought the market was so over-priced that he liquidated his investment partnerships. As noted above, the market finally peaked in 1973. Buffett sold “too early”. In the week before the October, 1987 crash, Buffett quietly liquidated Berkshire’s profit-sharing plans. After the 2000 crash, Buffett said there were positions he should have sold (such as Coca Cola (KO) but didn’t for many reasons, including his prominent position and the tax consequences (see below).
    The point of this discussion is that the way to make the really big money in any bull market: stocks, gold, real estate, commodities, is to buy and hold while the bull is in control. Unfortunately, bear markets always follow, and they can wipe out many years of hard-earned gains. Sometimes they never return to the previous level. There are periods, which can last up to a decade or longer, that are dead money, or even represent a loss. These must—and can—be avoided. Buy and hold for a long time is good. Buy and hold forever is a myth: think 1929, 1973 and 1999.
    If investors didn’t have to think, we’d all be rich.
    In the next newsletter, I’ll discuss some of the things you might consider to protect yourself from being mauled by the next bear. 
    This bull market may go on longer than many people think. It was created by central bank stimulus (Quantitative Easing), and they will do their best to keep things rocking. Jim Grant of Grant’s Interest Rate Observer notes that although the Fed has announced they will very slowly unwind their positions, the Central Banks of China, Japan, the UK and the European Union are still injecting $114B per month into the world’s monetary system. With globalization, money created anywhere can go anywhere. And almost all of it is staying in the financial system to support asset prices.
    Warren Buffett was interviewed last week on CNBC. He said he is watching the proposed tax reform closely, especially if it passes before the end of the year. Ex: the current corporate rate is 35%. He has been unhappy with the performance of some of his position, such as KO, but almost all of it is taxable gains. He said some time ago he would like to sell, but it would be hard to make up a 35% loss. If the corporate tax rate dropped to 20%, he (and many others) might be inclined to sell. He thought stock sales could be in the hundreds of billions.
    The precious metals have gone straight down since peaking in the first week of September. With the announcement of the jobs report on Friday, interest rates popped, the US Dollar popped, and gold dropped further. GCZ17 is the Comex gold futures contract for December. On Friday morning it traded as low as $1,262. Then as the day went along, everything reversed. Interest rates dropped back, the Dollar Index weakened from an important resistance level around 94, and gold closed at $1,278.
    RMD comment: The open interest in the December contract was about 409K. The volume on Friday was more than 350K: almost the entire open interest traded, which is huge volume. This might be a capitulation sell, and suggests the possibility of a reversal in the trend for the precious metals.   
    Goldmoney allows you to buy gold and silver and store it outside the US in their vaults around the world. Several weeks ago they announced they would accept Bitcoin, Ethereum and several other digital currencies in payment. Last week The Wall Street Journal reported that Goldman Sachs (GS) is considering opening an operation that trades in Bitcoin and other digital currencies.
    RMD comment: This lends some real legitimacy to the digital currencies, and I will make it the topic of a newsletter after finishing the current discussion.
    From the early 70s until just recently, platinum was higher than gold for 95+% of the time. When gold was higher, people would use the regression to the mean trade: short gold and go long platinum. Over the last few years, gold has remained consistently higher than platinum. Now in the last 2 weeks, palladium, which not that long ago was $600/oz. or even lower, is higher than platinum.
    RMD comment: Regression to the mean is a standard principle. It is often an easy way to make money—until it doesn’t work. I mention it for your interest. I don’t use it because 1) things can stay out of whack much longer than you think, and 2) sometimes there is a basic change, and there will never be a regression. 
    This is from a very long-time, loyal subscriber, a man a little older than me, in solo private cardiology practice on the Eastern seaboard. “I hope private practice is surviving in the Midwest. Here it is shrinking and being enveloped by hospitals and their doctor employees. This is bad for patients and bad for doctors. Doctors have lost all meaningful control over the course of events in Medicine. I remain a rare breed, an independent sole practitioner. I don’t have a 30 year old MBA in my office telling me what to do”.
    RMD comment: 1) As I have written, I believe “corporatization” is a negative secular trend, making it less likely the smartest kids in the class will choose a career in Medicine. 2) Does becoming a hospital employee compromise a physician’s objectivity? The more people I talk to, the more I think it might, but I haven’t yet organized my thoughts sufficiently to write about it. I would appreciate your opinion.   
    I highly recommend Churchill, Roosevelt & Company: Studies in Character and Statecraft (Lehrman, Stackpole Books). Stalin consistently out-maneuvered Roosevelt. The author attributes this to Roosevelt’s arrogance. He thought he could charm everyone, but “Uncle Joe” was immune.
    British General Hastings Ismay said of George Marshall “He was a big man in every sense of the word, and utterly selfless. It was impossible to imagine his doing anything petty or mean, or shrinking from any duty, however distasteful”.
    RMD comment: Marshall is my personal hero. I believe he was the greatest American of the 20th century.                                                                 

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