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Wednesday, February 23, 2011

Reading Between the Lines

Empire of the Summer Moon: Quanah Parker and the Rise and Fall of the Comanches, the Most Powerful Indian Tribe in American HistoryYou ever come across something you can't figure out and you just can't get it out of your brain? It just goes around and around and pops up at the weirdest times, and you find yourself thinking about it.

For example,  recently I was reading the story of James F. Parker in Empire of the Summer Moon by S.C. Gwynne.

Gwynne's book is a fascinating history of the Comanche nation and, in particular, Comanche chief Quanah Parker. It turns out that after Cynthia Ann Parker was captured as a young girl by the Comanches, her father made several trips by himself into the Comanche nation searching for his daughter. James's adventures later became the the basis for The Searchers starring John Wayne.

Anyways, at one point James Parker was on foot in the wilderness and had gone six days without food and was able to survive by finally strangling and eating a skunk. This is the part that kept playing over and over in my mind. I can't help but think it has to be humanly impossible to strangle a skunk with your hands. Out where I live skunks get run over all the time, and it's not easy riding past them in a car with the windows rolled up - if you get my drift. The only thing I can figure is that James Parker must have caught the skunk with a small trap that he was able to tighten at a distance.

In any event, in exactly the same way, it is puzzling to me how financial anecdotes are sugar coated and presented in the popular press. In reading them, I'm forced to stop and ask why the author wrote it in a particular way. And I wonder further how it is subconsciously affecting our thinking and eventually our behavior. An example will help you see what I mean.

On Yahoo! Finance today is an interesting piece contributed by the E.S. Browning of the Wall Street Journal, "Retiring Boomers Find 401k Plans Fall Short". This, of course, is the story du jour.

The very last example in the piece is about Patti and Bob Webster. In 2007 they had a "...six figure balance in their 401 (k ) accounts and building a dream house in North Carolina ...."  They planned to retire in about a year.  Then their savings fell 40%  because of the downturn in the stock market and, in total, it looks like they will have worked 4 years longer than they thought.

This little vignette is headed by "Some people were done in by the twin collapses of the housing and stock markets."  Wait a minute. Granted that the stock market got beat up badly, but being down 40% tells us something. In particular, Patti Webster is wrong when she goes on to say  "When the bottom fell out of the market, it kind of fell out of our perfect plan as well."

First, theirs was far from a perfect plan; and this isn't just hindsight talking. To be down 40% even in the debacle of 2008 and early 2009  meant they had a poor exposure to the stock market - either too much or too concentrated. My guess is it was probably both. In their 60s and within a year of retirement, they had far too great of an exposure to stocks. In other words, Patti and Bob Webster had no plan at all. They could have gone to the race track as far as that's concerned.

All of this isn't unusual. People get greedy, they get overly aggressive as markets are doing well, and then they blame the market when they have a set back. In most stories, if you read between the lines, you find that mistakes were made - it wasn't the market's fault  no more than Steve Irwin's death was the fault of the stingray.

I have to say that even the headline irks me. Don't blame the 401ks. Maybe a better headline, IMHO, would be "People Make Dumb Mistakes."


  1. I agree with you Rob, Why weren't Patti and Bob conservative at their age?

    40% is too much and their portfolio should have recovered by now unless they've been advised by a "professional" along the way...

  2. In a market downturn, people either do the wrong thing or do nothing at all. Both are injurious!

  3. @Mich You are exactly right about recovering if they had stuck it out. When people get close to retirement the whole game changes. As Bill Schultheis, the Coffee House Investor, points out retirement is being unemployed for 25 years or more!
    @MoneyCone You are right that people hurt themselves in market downturns. I just think people should stop pointing the finger and looking the other way in terms of blame. To me it fits in with the whole movement of not accepting personal responsibility.

  4. DRW said.........

    Send me that book Pops! I think even if you trapped a Skunk from afar it will still smell pretty ripe.

    And why do you find it puzzling that financial news is sugarcoated??? That is what the media does to all the news! It can't startle or upset us by God. It sugarcoats things for us so they will be easier for us to digest. A spoonful of sugar helps the medicine go down. Just in this case it is BAD medicine.

  5. @DRW You'll get the book in the next shipment.