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By now, having watched your house fall in value, your 401(k) plan slide toward nothingness, your job security disappear, your benefits fade, the complete failure of business management, the disastrous failure of regulatory control, the finger-pointing of the political parties, the shameful desire of a state governor to sell a Senate seat and the revelation of an epic $50 billion fraud, none of us could be blamed if we wanted to move to Montana and shun the company of human beings.
Having written a newspaper column for more than 30 years, I thought I was pretty tough-minded. But today, watching our dysfunctional institutions, I feel something like the shock and horror a parent must feel when he discovers that a beloved son or daughter is actually a serial killer.
Media accounts immediately labeled the disappearance of $50 billion, masterminded by Bernard Madoff, as "the largest fraud in history." It is a greater wealth loss than having a household name company -- such as Walt Disney, Anheuser-Busch or Boeing -- vanish without a trace.
The loss is mind-boggling. But the figure does nothing to convey the damage this man has done.
One way to measure the extent of the damage is to compare the $50 billion to measures of loss in the FBI's Uniform Crime Reports. In 2007 there were 9.8 million crimes against property in the United States. This included about 2.2 million burglaries, 6.6 million larceny-thefts and 1.1 million car thefts.
One of the best lessons I’ve learned was not in a classroom. It was from a crusty machinist in Rochester, New York. I haven’t seen him in 25 years, but the lesson has stayed with me. It seems particularly important now.
His name was Jerry Pfrengle, so I call it the Pfrengle Principle. It’s all about the income. To have value, you need income. Never forget that income precedes value.
Here’s the story. In the early ‘80s I was on the board of directors of a small, multidivisional manufacturing company with about $50 million in annual revenue. I was also chairman of the audit committee. The company manufactured and supplied rubber, plastic and metal parts to companies like Xerox, Kodak, IBM and Ford.
Your retirement may not be as badly damaged as you think.
Yes, I know that’s hard to believe. Whether you are 50 or 65, losing a third or more of your retirement savings puts a really dark cloud over your future. That’s what we’re being told, day in and day out, by the talking heads on TV.
Well, some historical evidence says they’re wrong.
They’re wrong because they aren’t considering the biggest factor that affects the amount of money you can safely withdraw from your retirement portfolio--- market valuation levels. Retire when market valuation levels, as measured by the price-to-earnings ratio for a stock, are high and you’ll be taking a big risk if you take more than 4 percent a year.
