6 ms·

Is it just me or do you get the feeling it's possible her bosses may have been doing inside trades and she just got lucky by a) not knowing what was going on an

by verelo 8y ago

Is it just me or do you get the feeling it's possible her bosses may have been doing inside trades and she just got lucky by a) not knowing what was going on and b) copying the trades? I love the story either way, it just jumped out to me that she obviously 'beat the market' which typically means you knew something others in the market didn't.

MoBattah 8y ago
It certainly would have been beneficial if she had written down her financial planning and published it upon her death via her will.
chubot 8y ago
Why do you say she "obviously beat the market"? Estimate that the stock market has returned 7% a year for last 67 years (counting inflation, counting dividends). Then if she saved $6,300 per year for 67 years, she would have ended up with over $8.2M if she used an indexing strategy (no insider trading necessary). rate = 1.07 num_years = 67 yearly_savings = 6300 # dollars net_worth = 0 for _ in xrange(num_years): net_worth *= rate net_worth += yearly_savings print '{:,.2f}'.format(net_worth) 8,284,436.90 If you change it to 6% return, she would have have to save $10,200 a year. I'm sure 90% of the people reading this can save $6,000 - $10,000 a year. All you need is a regular job. Yes there are some things wrong with this analysis, but the point is: compound interest !!! (Feel free to post a better analysis, using real data instead of the annualized return. The results shouldn't be substantially different. The returns are adjusted for inflation but the amount of savings per year amount probably should be too. $6K is easy to save today, probably wasn't in 1955. Also probably take into account that fees were higher in 1955 and index funds have gotten better.)
- woolvalley 8y ago
  The lady also worked until her 90s and died soon after her retirement. Working an extra 25 years past typical retirement age and barely drawing on principal helps also.
  - chubot 8y ago
    Absolutely, I would call it an extra 30+ years, since she retired at 96 and many people retire at 65 or 62 these days. In other words, the length of time has more to do with the remarkable sum than the investment strategy.
- sologoub 8y ago
  That math really doesn’t work - $6,300 67 years ago (1951) in today’s money would be $61,478.82 (https://www.bls.gov/data/inflation_calculator.htm https://www.bls.gov/data/inflation_calculator.htm). She would definitely have to do well in the market, but I wonder what her earnings looked like as well over time - Cleary Gottlieb is a VERY successful law firm. If there was any kind of profit sharing or other incentives, it could have been fairly lucrative. Stock would have been better, but still.
  - nostrademons 8y ago
    If the 7% number he's quoting is real returns rather than nominal returns (which historically it is), inflation is already factored in. Total nominal returns (including dividends) have been 11% over 1950-2009, with inflation running at 3.8% over the time period: http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm http://www.simplestockinvesting.com/SP500-historical-real-to...
  - chubot 8y ago
    Yeah, that's the point I mentioned in "6K is easy to save today but wasn't in 1955". I'm interested to see an analysis that takes that into account. But I don't think it changes the overall conclusion. I think that starting in 1951, on a secretary's salary, you could have used an indexing strategy to end up with $8.2M. Should be pretty easy to prove or disprove. One thing I don't know is how much secretaries made back then. Presumably her wages increased a non-neglible amount over time.
    - verelo 8y ago
      In 1955 $6k was very much likely over 50% of her yearly income. Agreed, unlikely.
- ryandrake 8y ago
  Two big issues with these simplifying assumptions: 1. The stock market is not a constant return, and 2. People don't invest a constant amount per year. When times are good (and the market tends to be up during these times), you can usually save. When times are not good (and the market is usually down), you're either not saving or even digging into your savings. If you're betting on the stock market, this means you're buying when times are good (buying high) and not when times are bad (not buying low). Sounds like a recipe for investment disaster. I know there were only a few times in my life when I've made enough to invest a substantial amount, and they were all at market high points. Whoops!
  - chubot 8y ago
    OK, those can be factored into the simulation. Care to add it? As mentioned in the last paragraph, I don't think it will substantially change the results. Maybe you need to save $11K, or $15K. Personally as a software engineer, I've saved $15K+ every year for over a decade, and I live smack in the middle of San Francisco, one of the highest cost-of-living cities in the US. Point is: you absolutely don't need to be insider trading to amass $8.2M over 67 years, working a normal job. (Or at least you didn't in the last 67 years, not saying anything about the next 67).
- verelo 8y ago
  > Why do you say she "obviously beat the market"? > Feel free to post a better analysis, using real data instead of the annualized return. Honestly, I get what you're saying, but compound interest doesn't add up here unless she was seriously killing in terms of both her income and the amount of it she was saving. $6300 is probably not enough in terms of saving in her later years, but in her early years it's probably way too high. The early years contribute massively to her investment returns, so i think if you were to pick an error to be on, you're on the side that gives her a little too much credit. To illustrate this, I created a model that gives one scenario I feel is very generous to her but corrects for the arbitrary $6300 number. The issue with any model here will likely come down to a debate around a) what she earned and b) How much of that she saved. Neither of us have that info, so I'm going to just say that I do feel its obvious you need to beat the market to save ~$9m on the income of someone of her employment class given what I see here, but I'd love to learn more to improve it. Link: https://docs.google.com/spreadsheets/d/1_Q_HopM3vEHE0qBtfCeQ71ZqEPaTGMhpFMYedLogzkI https://docs.google.com/spreadsheets/d/1_Q_HopM3vEHE0qBtfCeQ... Outcome is that she would have saved $4,469,208.39. If she wanted $9m she had to beat the market, and likely do so in her earlier years of investing. Assumptions I made: 1. She was at the top of her earning class in 1969 (1), making $200 / week (and having no tax responsibilities). 2. She managed to save 25% of her income, every pay cheque (i think this is unlikely, but generous while not being totally impossible). 3. She managed to get a 4% raise every single year until she retired. 4. Prior to 1969, her income was at least what it was in 1969 (again generous i suspect) If we switch this to suggest she likely earned less in her early years the model produces much worse outcomes. I.e. If we lower her salary to more realistic levels for 1950-1969 (i picked 1969 as a starting point as it was a healthy year for the economy and in prior years she would have earned less), she had to either get much higher returns, or save a much higher % in order to get close to even the number I've suggested was possible. Overall I've tried to be generous at every turn, and still struggle to get above $5m. I think it's pretty obvious she beat the market in order to get where she landed. (1) https://fraser.stlouisfed.org/scribd/?item_id=498533&filepath=/files/docs/publications/bls/bls_1625-88_1969.pdf https://fraser.stlouisfed.org/scribd/?item_id=498533&filepat... [TL;DR; Women Secretaries in NY, NY made approx $120-180 / week depending on industry in 1969, again making $200 / week a generous number to work with]
  - 8y ago
- IncRnd 8y ago
  That's too clever by half. In 1950 the average income was $3,210. How would a secretary get $6,300 to invest?
  - TheCoelacanth 8y ago
    The 7% rate quoted is after inflation. The actual historical rate of return was more like 11% over that time period if you ignore inflation.
  - chubot 8y ago
    See my response here: https://news.ycombinator.com/item?id=17011298 https://news.ycombinator.com/item?id=17011298
MarkMc 8y ago
> which typically means you knew something others in the market didn't In a market with no insider trading 50% of people will beat the market. Now in reality there is some level of insider trading, but is it high enough to disregard our 50% base rate?

by verelo 8y ago

MoBattah 8y ago

It certainly would have been beneficial if she had written down her financial planning and published it upon her death via her will.

chubot 8y ago

Why do you say she "obviously beat the market"? Estimate that the stock market has returned 7% a year for last 67 years (counting inflation, counting dividends). Then if she saved $6,300 per year for 67 years, she would have ended up with over $8.2M if she used an indexing strategy (no insider trading necessary). rate = 1.07 num_years = 67 yearly_savings = 6300 # dollars net_worth = 0 for _ in xrange(num_years): net_worth *= rate net_worth += yearly_savings print '{:,.2f}'.format(net_worth) 8,284,436.90 If you change it to 6% return, she would have have to save $10,200 a year. I'm sure 90% of the people reading this can save $6,000 - $10,000 a year. All you need is a regular job. Yes there are some things wrong with this analysis, but the point is: compound interest !!! (Feel free to post a better analysis, using real data instead of the annualized return. The results shouldn't be substantially different. The returns are adjusted for inflation but the amount of savings per year amount probably should be too. $6K is easy to save today, probably wasn't in 1955. Also probably take into account that fees were higher in 1955 and index funds have gotten better.)

woolvalley 8y ago
The lady also worked until her 90s and died soon after her retirement. Working an extra 25 years past typical retirement age and barely drawing on principal helps also.
- chubot 8y ago
  Absolutely, I would call it an extra 30+ years, since she retired at 96 and many people retire at 65 or 62 these days. In other words, the length of time has more to do with the remarkable sum than the investment strategy.
sologoub 8y ago
That math really doesn’t work - $6,300 67 years ago (1951) in today’s money would be $61,478.82 (https://www.bls.gov/data/inflation_calculator.htm https://www.bls.gov/data/inflation_calculator.htm). She would definitely have to do well in the market, but I wonder what her earnings looked like as well over time - Cleary Gottlieb is a VERY successful law firm. If there was any kind of profit sharing or other incentives, it could have been fairly lucrative. Stock would have been better, but still.
- nostrademons 8y ago
  If the 7% number he's quoting is real returns rather than nominal returns (which historically it is), inflation is already factored in. Total nominal returns (including dividends) have been 11% over 1950-2009, with inflation running at 3.8% over the time period: http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm http://www.simplestockinvesting.com/SP500-historical-real-to...
- chubot 8y ago
  Yeah, that's the point I mentioned in "6K is easy to save today but wasn't in 1955". I'm interested to see an analysis that takes that into account. But I don't think it changes the overall conclusion. I think that starting in 1951, on a secretary's salary, you could have used an indexing strategy to end up with $8.2M. Should be pretty easy to prove or disprove. One thing I don't know is how much secretaries made back then. Presumably her wages increased a non-neglible amount over time.
  - verelo 8y ago
    In 1955 $6k was very much likely over 50% of her yearly income. Agreed, unlikely.
ryandrake 8y ago
Two big issues with these simplifying assumptions: 1. The stock market is not a constant return, and 2. People don't invest a constant amount per year. When times are good (and the market tends to be up during these times), you can usually save. When times are not good (and the market is usually down), you're either not saving or even digging into your savings. If you're betting on the stock market, this means you're buying when times are good (buying high) and not when times are bad (not buying low). Sounds like a recipe for investment disaster. I know there were only a few times in my life when I've made enough to invest a substantial amount, and they were all at market high points. Whoops!
- chubot 8y ago
  OK, those can be factored into the simulation. Care to add it? As mentioned in the last paragraph, I don't think it will substantially change the results. Maybe you need to save $11K, or $15K. Personally as a software engineer, I've saved $15K+ every year for over a decade, and I live smack in the middle of San Francisco, one of the highest cost-of-living cities in the US. Point is: you absolutely don't need to be insider trading to amass $8.2M over 67 years, working a normal job. (Or at least you didn't in the last 67 years, not saying anything about the next 67).
verelo 8y ago
> Why do you say she "obviously beat the market"? > Feel free to post a better analysis, using real data instead of the annualized return. Honestly, I get what you're saying, but compound interest doesn't add up here unless she was seriously killing in terms of both her income and the amount of it she was saving. $6300 is probably not enough in terms of saving in her later years, but in her early years it's probably way too high. The early years contribute massively to her investment returns, so i think if you were to pick an error to be on, you're on the side that gives her a little too much credit. To illustrate this, I created a model that gives one scenario I feel is very generous to her but corrects for the arbitrary $6300 number. The issue with any model here will likely come down to a debate around a) what she earned and b) How much of that she saved. Neither of us have that info, so I'm going to just say that I do feel its obvious you need to beat the market to save ~$9m on the income of someone of her employment class given what I see here, but I'd love to learn more to improve it. Link: https://docs.google.com/spreadsheets/d/1_Q_HopM3vEHE0qBtfCeQ71ZqEPaTGMhpFMYedLogzkI https://docs.google.com/spreadsheets/d/1_Q_HopM3vEHE0qBtfCeQ... Outcome is that she would have saved $4,469,208.39. If she wanted $9m she had to beat the market, and likely do so in her earlier years of investing. Assumptions I made: 1. She was at the top of her earning class in 1969 (1), making $200 / week (and having no tax responsibilities). 2. She managed to save 25% of her income, every pay cheque (i think this is unlikely, but generous while not being totally impossible). 3. She managed to get a 4% raise every single year until she retired. 4. Prior to 1969, her income was at least what it was in 1969 (again generous i suspect) If we switch this to suggest she likely earned less in her early years the model produces much worse outcomes. I.e. If we lower her salary to more realistic levels for 1950-1969 (i picked 1969 as a starting point as it was a healthy year for the economy and in prior years she would have earned less), she had to either get much higher returns, or save a much higher % in order to get close to even the number I've suggested was possible. Overall I've tried to be generous at every turn, and still struggle to get above $5m. I think it's pretty obvious she beat the market in order to get where she landed. (1) https://fraser.stlouisfed.org/scribd/?item_id=498533&filepath=/files/docs/publications/bls/bls_1625-88_1969.pdf https://fraser.stlouisfed.org/scribd/?item_id=498533&filepat... [TL;DR; Women Secretaries in NY, NY made approx $120-180 / week depending on industry in 1969, again making $200 / week a generous number to work with]
- 8y ago
IncRnd 8y ago
That's too clever by half. In 1950 the average income was $3,210. How would a secretary get $6,300 to invest?
- TheCoelacanth 8y ago
  The 7% rate quoted is after inflation. The actual historical rate of return was more like 11% over that time period if you ignore inflation.
- chubot 8y ago
  See my response here: https://news.ycombinator.com/item?id=17011298 https://news.ycombinator.com/item?id=17011298

MarkMc 8y ago

> which typically means you knew something others in the market didn't In a market with no insider trading 50% of people will beat the market. Now in reality there is some level of insider trading, but is it high enough to disregard our 50% base rate?