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It's Only Money By Stephen J. Butler

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Bunker Hunt of Texas lost several billion dollars when, with his brother, he tried to corner the Silver market back in the 70's. At the time, he told reporters, "a billion dollars isn't what it used to be." Some of us have seen a lot of money evaporate from our retirement plans over the past two years, but we need to remember that these losses haven't exactly been our hard-earned dollars. Collectively, we have lost over four trillion dollars, but thanks to the roaring nineties, a trillion dollars isn't what it used to be. We have trumped the Bunker.

Some of us are upset, if not mad, and this is a big mistake. In the movie "Godfather III" after the helicopter gun ships shoot up the restaurant, Al Pacino reminds Andy Garcia, "Never hate your enemies. It can affect your judgment." We have reasons to be annoyed, starting with institutionalized corporate greed and corruption, but on the whole, things are not so bad. Most of us, unless we did something really stupid, have far more money today than the after-tax cost of all contributions we have made over the years.

To improve our general outlook and feel really good, we need to first disabuse ourselves of several destructive thought patterns. First, we need to get a grip. We should have expected to have this happen sooner or later. We should also forget about the one person in 50 who just happened to cash out of the market at the end of 1999. We all know at least one of these people, as this proportionately small group tends to be good about sharing. I happen to know some people who also bailed out of the market after the 37% rise in 1995. They saw that year as the blowout year and walked away from the 22%, 33%, 28%, and 21% successive gains over the following four years.

The numbers never lie, so it pays to look at a typical case for someone who has the most to be concerned about. This would be someone with perhaps $100,000 in retirement plans as of the beginning of 1992 who has also deposited $10,000 per year every year starting in 1991. Everything in the following analysis is linear, so if your numbers amount to half or double these amounts, you can adjust accordingly.

Based on the returns of an S&P 500 index fund, the $100,000 at the beginning of 1992 has now accumulated to approximately $270,000. Its high point was about $420,000 at the end of 1999. The $10,000 per year contribution has accumulated to about $175,000. Its 1999 high point was $235,000. Today's combined total is almost $450,000, and this is after the greatest market collapse since 1929. Assuming that some of the initial $100,000 consisted of compound earnings, the cost in after-tax take-home pay for all the contributions required over the years was about $140,000 (about 2/3rds of the actual contribution amounts thanks to effective "subsidies" in tax savings from state and federal governments.) This is how much we sacrificed in consumer spending to achieve our $450,000 nest egg.

Unfortunately, many view the glass as half empty instead of half full. Some of these are younger people who have all the time in the world to wait around for the next roaring decade. In the meantime, they can be loading up on mutual fund shares at the lowest prices we have seen in years. It is reassuring to note that some of the greatest single-year market gains occurred during the middle of the great depression. Later, after the '73 decline, the market had recovered by 1976. Markets could go lower than they are today, but with prices this low, a lot of good things can happen over the next five or ten years. When they do, they will take us by surprise. Last Tuesday's 5% gain in market values is a very good example.

While we're at it, we're taking this opportunity to conduct a thorough housecleaning of corporate America. We've fired a broadside into the ranks of some of the largest corporations and investment banking houses. I love these "perp walks" with people like Andrew Fastow in handcuffs having to carefully duck his head as he gets into the back into the back of a squad car. This sends a shot across the bow of corporate America and offers a reminder of who the true owners are. The power of a democracy is truly awesome and wonderful to watch. A policeman once reminded me that most crimes are solved because criminals are basically, as he put it, "stuck on stupid." When the curtain closes on this chapter of business history, a lot of frozen assets will have been returned to us stockholders.

Meanwhile, with regard to the war in Iraq, the lesser of evils would be what I see as Colin Powell's inclination toward coercive inspections. In my mind, this means that if a single plate of food is spilled deliberately into the lap of a UN inspector (a common occurrence prior to '98,) we pound those eight Hussein palaces to rubble and continue with the inspections---a right we accomplished by the Gulf war. It bothers me that the Vice President, our employee, will not release his transcripts of energy meetings, because I would like to know for certain that our oil-oriented Administration's enthusiasm for all-out war is really about nuclear proliferation and not about control of the world's second largest supply of oil. In a worst-case scenario, this could lead to war against China, Russia, and France who already have a toehold on that supply.

As a financial columnist, I should know better than to comment on world events, but they are relevant in that the uncertainty has already been reflected in today's stock prices. The financial term for this price reflection is "discounted." Today's stock prices have already "discounted" the risk of war in the mid-east, so we can set that issue aside as we consider our investment strategy.

And so, for those who of us who are upset by the cloud over our financial affairs, there is a sunny side of the street. In fact, when there are no clouds in the sky, the market is usually overpriced. Relax. Recent events have simply overshadowed what remains as our major financial accomplishment over the years.

The securities markets are subject to the risks of fluctuating prices and the uncertainty of rates of return and yields inherent in investing and past performance is no guarantee of future results.