Sharemarket crash survival guide

By Bruce Jackson - Tuesday, November 22nd, 2011

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Shares are being trashed, again. The temptation is to sell everything and run for the hills. Instead, take a chill pill and consider The Motley Fool’s patented sharemarket survival guide.

Down down, shares are going down.

After weeks of worrying about European sovereign debt woes, focus has again turned back to the U.S. and its own debt crisis.

In the U.S, the S&P 500 has posted its worst losing streak in 2 months.

Over the last 3 weeks, our own S&P/ASX 200 index has fallen almost 7 per cent in the last 3 weeks. Some shares have fared even worse…

Company	% Share Price Fall Oct 28 2011 to Nov 21 2011
Australia & New Zealand Banking Group(ASX:ANZ)	(10.6)
National Australia Bank (ASX:NAB)	(10.7)
Iluka Resources Ltd. (ASX:ILU)	(11.3)
Incitec Pivot Limited (ASX:IPL)	(12.5)
Lend Lease Group (ASX:LLC)	(11.2)
Mesoblast Limited (ASX:MSB)	(14.1)
David Jones Ltd. (ASX:DJS)	(13.1)
BlueScope Steel (ASX:BSL)	(29.5)
White Energy (ASX:WEC)	(72.4)

With the exception of White Energy, these are all big companies. It has been a tough time for investors.

So what are the keys to surviving market downturns? Here are some suggestions:

1. Don’t get absorbed in despair and panic. Ignore the violent emotional swings, and instead simply maintain a degree of detachment with regard to the whole business.

2. Be a regular saver and investor. That way, a market downturn becomes nothing more than a buying opportunity.

3. Reflect that Anne Scheiber, the U.S. lawyer who invested $5,000 in 1944 and died in the mid-1990s worth over $20 million, never sold a share and invested only in common, easily understandable companies. To her, we must presume, market fluctuations were an irrelevancy.

4. Finally, stop buying the newspapers, don’t watch the TV and go away on holiday. In short, switch off the market. Life’s too short for all that hullabaloo.

(As an aside, if you are worried about the market crash, you might want to first check out our new free report, Read This Before The Market Crashes. It could save you hours of heartache, and thousands of dollars. Click here to request your report now, whilst it’s still free and available.)

As our Investment Analyst Dean Morel said just a couple of weeks ago…

“When bearish volatility, caused by emotions and a lack of reason, leads humans to herd, sharemarkets become irrational and oversold. That irrationality allows investors who are able to control their emotions and act in a calm, balanced manner, to take advantage of the many opportunities the market throws up.

There is no need to make big decisions. You don’t  need to be fully invested in, or totally out of the market. Gradually building positions in the best companies while maintaining a cash cushion will make investing easier and less stressful.”

Stock market falls are like the seasons of the year. They are a natural part of the investment landscape, they are normal and can even be very healthy.

This latest crisis, like all crises before, will pass. And those that survive will prosper.

http://www.fool.com.au/2011/11/investing/sharemarket-crash-survival-guide/

Stories of frugal females who amass their fortunes through hardwork, consistent savings and wise investing.

Wednesday, February 15, 2006

Frugal Females Found

Occasionally we hear amazing stories of frugal females who over a lifetime of living beneath their means and saving and investing have managed to amass fortunes. Generally because these women do not have immediate family they bequeath this wealth to a private university, non-profit organization, or even to our government to help pay down our national debt. Margaret Elizabeth Taylor, a widow since 1977, died at age 98 (Nov. 2005) and having no surviving siblings or children "bequeathed her $1.1 million estate to the federal government and requested that it be used to help pay down the $8.1 trillion national debt."Woman Leaves Fortune to Pay Nation's Debt Anna Patocka, who worked as a cook, died at age 95 (July 2005), and left "$1 million to local organizations". "She didn't make a million by inheriting it," friend Helen Linhart said. "She saved it." GRAFTON, N.D.: Woman leaves behind $1 million Anne Scheiber, who worked for the IRS as an auditor, died at age 101 (1995), and left $22 million to "Yeshiva University, with the stipulation that the money be used to establish a scholarship and loan fund for deserving female students at YU's sister institution of Stern College" The Butterfly Effect (Anne Scheiber) The fact that these women had so much wealth to bequeath surprised the folks who knew them. Each was a secret millionaire. The money was accumulated by hard work, consistent savings, and wise investing.  Anne Scheiber made quite the news splash when her bequest was made public in 1996. I remember the article in TIME magazine and the news stories which made much of her stagnant career at the Internal Revenue Service. She was someone who had a law degree and was obviously smart, but because of her gender she spent her entire IRS career in a junior position and never received a promotion nor much of a raise. This prompted her to vow never to enrich the IRS if she could help it. To keep that vow she never sold the stocks she purchased and each stock had the dividends reinvested. This meant her money just grew and grew since only sales would trigger a tax payment. While she was a wise investor, she was also an extremely frugal woman. She saved approximately 80% of her take home pay when working. She lived in a rent controlled apartment, almost never purchased new clothes, and for entertainment attended annual shareholder meetings of corporations she invested in and after using her auditing background to grill the executives would fill her handbag with the free food at the buffet and live off that for days. I find reading these stories inspiring. There is something about knowing that these women had control of themselves and their wealth and did with it as they saw fit. While some may say "but how deprived they must have been, wearing the same clothes and eating left-over stale food". I really don't see it that way. They obviously felt that clothes were not important. You could almost look at it as they were wearing a self-made uniform day in and day out. Nothing so wrong with that. I enjoy food too much to eat stale stuff, but who knows how much I will enjoy food when I am 90? I think that is part of the problem, these women lived so long that most of the folks who did know them and spoke of them reminisced of the 80, 90, or 100 year old woman. What were these females like in their 20's, 30's, or 40's? What personal experiences kept them on their frugal paths? I wish we found these ladies while they were still alive and could tell us their full stories... http://www.bostongalsopenwallet.com/2006/02/frugal-females-found.html

Stock Selling Strategies: The Buy and Hold Strategy

Stock Selling Strategies
The Buy and Hold Strategy

The selling strategy of what is commonly called the buy and hold approach to investing can be expressed in one word - don't! And the arguments in its favour are strong ones. For one, it has a solid record of success. Such famous names as Warren Buffett and John Templeton made their fortunes with it.

Or consider the remarkable case of Anne Scheiber. She represents, not only the superb returns that can be enjoyed from a skillful buy and hold strategy, but also the pluck to jump back in the game after losing everything.

In 1933 and 1934, at the height of the depression, 38 year old Anne invested most of her life savings in the stock market. She let her broker brother make the picks and they were good ones. Unfortunately, his company went bankrupt and she lost everything. But Anne did not give up.

On her modest salary as an auditor for the Internal Revenue Service (just over $3000 a year), she managed to save another $5000 over the next ten years. In 1944 she invested in the stock market again. When she died in January 1995 at the age of 101, that modest investment had grown to $20 million. That's not a misprint. $20 million! That represents an annual compounded rate of return of 17.5%, ranking her among the top investors of all time.

Her secret? Miss Scheiber invested in stocks of companies that she knew and understood. Companies whose products she used. She loved the movies. So she invested in Loew's, Columbia, Paramount and Capital Cities Broadcasting. She drank Coke and Pepsi and bought shares in both. She invested in the companies that made medications she took - Schering Plough and Bristol Myers Squibb. And so on. And she hung on to them through thick and thin for over forty years. Through the bear market of 1973-1974. Through the crash of 1987.

Miss Scheiber left virtually the entire fortune to New York's Yeshiva University. By the time the estate was settled in December of 1995, it had grown to $22 million. You'll find links to her story and to investing tips based on her approach after this article.

The Buy and Hold approach to investing focuses on the buying, not the selling. The aim is to buy stock in companies that are solid and growing with long term potential. It focuses on the underlying value of the stock.

The approach is often considered synonymous with value investing. It ignores the stock market, the general economic climate, and prevailing sentiment.

Warren Buffett, considered by many to be the greatest investor of all time, has said that he pays no attention to the stock market, and in fact, would not mind if the market shut down for a few years. He buys stock in a company as if he was buying the entire company. It's the value of the company that interests him, not the value assigned to it by the market. He wants companies that generate consistently growing profits.

Value investors tend to focus on buying undervalued stocks. And value investing is not completely averse to selling a stock, though the preference is to hold. As the Templeton Fund puts at their website, "Templeton buys stocks with the intent to hold them until they reach their "fair" value-- typically five years."

Buy and hold investors do sell when the fundamentals of a company change or when a stock becomes so grossly over-valued by the market that it would be foolish not to take profits. But in general, short term market fluctuations are ignored.

Downside to Buy and Hold

Of course, while buy and hold investing has definite advantages, there is a downside.

There have been major bear markets in the past and such markets tend to drag down all stocks, even those of good companies. If such risks can be minimized, wouldn't it be worth it?

The question is, can it? In the June 19, 2000 issue of the Hulbert Financial Digest, Mark Hulbert points out that there are newsletters who have been able to minimize investor losses during severe market corrections. Five in particular stand out. These five market timers were able to keep their readers' losses to one or two percent during each of the last five major market corrections since August 1987 (while the Wilshire 5000 averaged a 15% loss and the NASDAQ Composite lost 20%).

But...and here's the rub - those five newsletters failed to capture the tremendous gains made during the up cycles. Their average returns for the entire period from August 31, 1987 to May 31, 2000 ranged from 2.3% to 7.2% while the Wilshire averaged 14.3% and the NASDAQ 17.1%. Safety comes at a serious price!

In fact, Buy and Holders disparage the notion of market timing. It is folly, they say. And a pamphlet from the Templeton Fund in 1997 demonstrates that better than anything. Follow the link below for a summary.

The Folly of Market Timing

Summary of Advantages and Disadvantages
of the Buy and Hold Strategy

Advantages	Disadvantages
Don't have to worry about the market.	Doesn't protect against bear markets and corrections.
Don't have to worry about the economy.	Stocks should be extensively researched and carefully chosen.
Don't have to pay attention to short term fluctuations.	Long term strategy.
Easy to manage portfolio.	No quick short term profits.
Ideally, don't have to sell at all.
Notable success stories and history.

http://breakoutreport.com/investingcanada/library/weekly/2000a/aa062900.htm

The Othmers' Story

The Othmers' Story

James K. Glassman | July 14, 1998

The Washington Post, Tuesday, July 14, 1998; Page A15

Donald Othmer, a professor of chemical engineering in Brooklyn, died three years ago. His wife Mildred, a former teacher and a buyer for her mother's dress store, died in April. Both were in their nineties. They lived quiet, unpretentious lives -- which is why it came as a shock to their friends to learn that their combined estates were worth $800 million and that they had given nearly everything to charity.

How did the Othmers get so rich? Like many other Americans, they simply put their money into sound stock market investments and left it there for a long time.

This they had in common with a woman named Anne Scheiber, who worked as a government drone, never making more than $4,000 a year. In 1944, she put a total of $5,000 into stocks such as Coca-Cola and Merck, and when she died in 1995, she left her estate to Yeshiva University. It was worth $22 million.

As for the Othmers: In the early 1960s, they turned $25,000 each over to Warren Buffett, an old family friend from their hometown of Omaha. "They just rode along," Buffett told the New York Times. The investment "never changed their lives."

In 1970, when the Othmers received stock in Buffett's new company, Berkshire Hathaway Inc. (which invests in other companies such as Gillette and American Express), it was trading at $42 a share. Last week, it was $77,000 a share. Mildred Othmer's 7,500 shares alone are worth $578 million. Donald's, which were sold on his death when the price was lower, were worth $210 million.

The Othmers were smart -- or lucky -- to pick Buffett to manage their money, but that's not the lesson of this story. After all, even if they had simply put their funds into the broad market, they still would have ended up with a fortune of between $50 million and $100 million.

No, the lesson is to live modestly, invest sensibly, don't touch the money and grow rich. This lesson is at the heart of the current debate over transforming Social Security.

Today, it is a government-run plan by which Americans retiring over the next few decades will get minuscule (or even negative) returns on a lifetime of payroll contributions. But reformers, including New York Democratic Sen. Daniel Patrick Moynihan, want instead to create a system of private accounts by which retirees can get the returns that the stock market has been generating for the past century.

Why shouldn't every worker be able to get the returns -- and build the nest eggs -- that Anne Scheiber and the Othmers built? They can -- but only if they have money to save. Currently, 10 percent of every worker's pay is going to taxes to fund Social Security retirement benefits. No wonder Americans are strapped.

William Beach of the Heritage Foundation has calculated that the average single black woman born in 1960 will receive lifetime benefits from Social Security totaling $173,000. But, Beach found, if the woman invests the same money that now goes to Social Security taxes in a mixed portfolio of stocks and bonds instead, she will accumulate $414,000.

Blacks, in particular, are victimized by the Social Security retirement system, since they don't live as long as whites -- and thus don't collect benefits for as long. Under a private retirement plan, they could pass assets on to their heirs.

There are other lessons in the Othmers' story:

(1) Frugality pays. Donald Othmer was a smart scientist who contributed to more than 40 patents at Eastman Kodak. But his wealth came from following the simple virtues. The Times wrote that as a boy "he developed a lifelong frugality as he earned money picking dandelions from neighbors' lawns [and] delivering newspapers." He and his wife "lived comfortably but not ostentatiously and rarely talked about their money."

Thomas Stanley and William Danko, authors of the surprise bestseller "The Millionaire Next Door," came to similar conclusions about the rich people they studied for their book. They wrote that "frugal" is the best adjective to describe millionaires. More own Fords than any other car, and only 25 percent of the men studied paid more than $600 for a suit in their lives.

(2) Saving pays. This is a notion that should be drummed into the head of every young person. Put away money early, and don't touch it. If you can leave it undisturbed in a decent investment for a long time, it will grow to immense proportions through the miracle of compounding.

Savings can also be eroded by capital gains taxes, but both Scheiber and the Othmers managed to avoid them by not selling their stocks, then passing them on to their heirs. Still, the cut in capital gains from 20 percent to 15 percent that Congress just passed is a move in the right direction that will boost savings.

(3) Philanthropy will boom. The Othmers' estates will provide $190 million to Brooklyn Polytechnic University, where Donald taught, $160 million to Long Island College Hospital, $75 million to Planned Parenthood and so on.

Rich people, more and more, are giving back what they've earned in an effort to make society better. They would rather make these choices themselves than leave them to Uncle Sam, so they are preserving their estates against taxes.

Eliminating the estate tax entirely could touch off a philanthropic flood. But, even without that change, generous Americans like Scheiber and the Othmers are turning frugality into wealth into good deeds. They deserve attention and praise.

http://reason.com/archives/1998/07/14/the-othmers-story/singlepag
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