The Point Behind Point Figure

After receiving the e-mail I sent out last week, a client called
and asked “what is the point of all of these charts that you
refer to?”
I told her that “point and figure charts, and the strategy that
I use with those charts, is designed to prevent you from being
involved in a disaster”
I asked her to humor me for a moment and let me tell her about a
gentleman I recently met
In 1998, he decided that he’d retire in mid-2000, when he turned
65
Back then, his 401k plan was worth $1,214,000
He expected to withdraw $80,000 per year from the plan (or about
6 to 7% of the balance), when he figured this out in 1998
He went on to tell me that he expected this would be a
reasonable amount, because the market had returned an average of
15% per year for the previous 15 years
Even if the market didn’t make 15%, he said, he read somewhere
that “over the long haul, the market returned a little over 10%
per year, going back to the 1920’s”
So, since he planned to only take out 6 or 7% per year, and it’s
growing at least by 10% or more, he estimated he would never run
out of money
So he made big plans!
He planned to renovate his house, put in a pool Also do a
little traveling, something he never had time to do while he was
raising a family and working His wife also made plans to stop
working as well
His retirement date was Friday, April 14, 2000; his 401K had a
value of $1,277,00000
One year later, in April, 2001, his 401K plan had a value of
$979,000
By December 2002, his 401k account was worth $764,000
He had not even made a withdrawal yet, but his solar-powered
calculator told him bad news: he’d be scrounging for money by
the time he was 76 The $80,00000 per year he planned to take
out would now drain this account entirely in about nine years
The distribution was scaled back, from $80,000 to $24,00000 a
year
Going from $80,000 to $24,000 a year was a lifestyle change for
him He felt burned Dreams of traveling went out the window
Buy a new car? No chance
His wife has taken a job in the library He’s now back at work,
as a consultant, hustling for jobs And now he’s just learned
that his former company is changing their healthcare plan for
their retirees
What if this were you in this situation?
Right now, he wants to forget about asset allocation, pie charts
and “pie in the sky” stories of long-term returns and growth
rates He told me that pretty soon, he won’t be worrying about
“pie in the sky,” he’ll be wondering how to get pie on the
table!
Moral of the story: when the point and figure charts go on
defense, we should heed the warning!
Please don’t get “sucked in” to the concept that the market
returns an “average of % per year” and “over the long haul”
things will work out OK
Just know that going on defense doesn’t mean the market will go
immediately straight down
What we DO know is that the risk of losing money in our accounts
is much higher when the indicators are flashing defense This
has been the case since the bullish percent charts were created
over 50 years ago
If you want me to show you how these charts can guide you, just
call me and I will GLADLY show you in less than 10 minutes
This is where stock selection is key
There has never been a more crucial time for you to be working
with someone who watches the market on a daily basis If you
have any questions whatsoever regarding our game plan, you need
to call me immediately at the office The number is 732-223-9000
Since the summer of 1998, there have been four times where the
SP 500 has returned 20% or more And there have been four times
where the SP 500 has LOST 20% or more In just seven years!
But if you just sat there and “held on,” no real progress was
made You can look it up; you’re right where you stood in 1998
Pretty soon it will be a decade where the “buy and hold”
investor will have made no money

Tags | 401k, account, dreams, gentleman, news, plan, point, pool, result, years