I don’t need the money I’m investing today for at least 10 years, maybe 20. I’m betting that the U.S. economy will not stay depressed for 10-20 years, which seems like a pretty good bet.
I did not invest heavily during the 2008 financial crisis, and looking back, I have regrets about that. I invested more aggressively this time around on the downturn.
And my younger siblings and colleagues all seem to be taking the same long-term approach. They all read /r/personalfinance and some are trying to “FIRE”—again, on a 10-20 year plan.
The article seems to take an implied short-term view by talking about how the recovery might or might not be V-shaped. Honestly that seems like the crazy approach. I don’t know anyone, personally, who is investing today with hopes of pulling that money back out in a few months. That is what a symmetrical “V” would be at this time. Obviously that is not going to happen.
We haven’t even felt the main wave of bankruptcies and disruption yet.
Credit is locking up (try getting an unsecured loan) and people aren’t paying bills. 50% of New York tenants didn’t pay rent. Every seasonal business is dead. Life looks ok for IT people working in their underwear right now, but we are heading into a very challenging time with fundamental changes in consumer behavior.
This is a valid point, and folks who take a long-term view tend to come out ahead over the long periods, even going through worse disruptions than COVID (which, in my view is not that big when compared to wars, revolutions and such).
I am not a financial planner, but just a few thoughts. First, folks who try to invest in crashes or divest on peaks tend to do it too early. Most of such events give you more than one opportunity to buy/sell and not being first in/out can give big advantages.
Second, we did not (yet?) see a big drop. A rise of 20% would put S&P at or near all-time highs. For comparison, during the 2008 crash, S&P dropped by over 50%, so the rise back would give you ~120% return. Thus the reward for "catching the knife" today is much, much smaller than in 2008.
Finally, a lot of stocks are now indexed and held in retirement accounts. Many folks there hold more than they should in stocks because they have been going up and seem to be the only game in town beating inflation. And all advisors say "leave your retirement accounts as is, long term view, yada yada". If a significant number of people start moving retirement money out of index funds, which they might do in uncertainty, there may be a lot of pain for stocks. For example, many smaller stocks just do not have the trading volumes to withstand even a moderate sales increase driven by index funds. My 2c.
"I’m betting that the U.S. economy will not stay depressed for 10-20 years, which seems like a pretty good bet."
I'm with you on this one, but it also feels like there's no other choice. Where else can you get high liquidity, with good returns, and a government ready to spring into action if the market goes down too much? European and Japanese markets generally have lower returns. Emerging markets are iffy. Bonds don't yield as much as equities.
It's like "I'm gonna take a bet that I'm going to keep working a 9-5 job". Most people have no other real choice.
You have no choice but to invest in a mix of US equities and bonds to be able to retire in a sane timeline.
BTW I achieved "Financial Independence, Retire Early", but didn't like it - though it was tremendous fun getting there, by creating value that I and others valued - being a good, contributing member of society felt good. (And the motivation of FIRE helped.)
Plus, you don't really retire, your job is now investing. If you really love that particular job (like Buffett does), then this works out well.
But if your innate talents and interests lie elsewhere, you'd be happier doing that... and the need for money can help motivate you, during those times you don't feel like it.
It doesn't seem like extra motivation should be important, but is was for me personally. Maybe I'm lacking somehow, as I note that many independently wealthy people do keep working without that motivation. e.g. YC itself. (Though pg now does seem to have really retired, or maybe is a fulltime career parent - there is no more important job!)
The stock market is not the economy, as we can tell today.
I do think “things are different” in many ways, in the sense that it’s impossible to ignore the interventions the Fed has taken to blow up their balance sheet to $7T and will likely reach $10T by end of year. The speed and size is unprecedented.
Unfortunately I think Millennials will be the ones that have to deal with the massive debt we are in as a country and unwinding of the Fed’s massive balance sheet, which will play out 10-20 years from now.
Agree. I'm not a CFA, but I do have a masters degree in finance and have studied it fairly closely the past few years. Investing should be thought of in terms of years, at a minimum. You're thinking about it in terms of decades, which I think is even better.
However, I offer up two counter thoughts to consider:
1) You say you don't need the money, but how do you know? There could be a better investment opportunity that comes up or we could go into a prolonged depression. Leaving some money not invested gives you more flexibility to allocate your capital down the road. You'll have lower highs but higher lows, which in the long run is good.
2) I actually do know a lot of people who are investing toady in hopes that there is a V-shaped recovery. This is particularly worrying to me and I can't tell you how many times I've overheard amateur investors at work say things like "the market is at a bottom so now is a good time to invest". These are people who have never invested before and only look at the stock price as the determining factor. Like Howard Marks says, market bottoms don't occur until all hope is lost. I'm not sure we've felt that yet.
The market overreacts to bad news. So Buffett bought American Express during a scandal, which (he checked) didn't actually affect their business.
For the USA, business is affected, the question is if it's long term: Will closed businesses reopen? Will unemployed find work? Will the US lose its centrality to China? But however bad it is, the market overreacts.
> I’m betting that the U.S. economy will not stay depressed for 10-20 years, which seems like a pretty good bet.
Not to mention most americans' retirement is tied to their homes\ equity and their 401k/stocks. So it is political suicide for the government to let either drop in value for an extended period of time. Therefore, over the long term, house prices and stock prices will likely go up because politicians want to be reelected.
The only caveat is that eventually, we will reach out "limit" ( demographically, economically, etc ) and then housing/stock prices will drop and stay down for decades/maybe forever. Japan hit their limit in the early 90s and their housing prices and the nikkei today is a fraction of what it was back then.
That’s exactly how I felt reading the article. Their worse case historic scenario is 3 years? Not many people should be investing with a shorter timeline than that anyway!?
The basic idea is that you create a balanced portfolio of assets that are negatively correlated with each other so that, over a very long time horizon , your wealth retains its value even in the face of uncertainty, black swan events, and volatility. An example would be owning an equal proportion of stock, cash, bitcoin, gold, fixed income, commodities, and volatility. (Harder for the average person to get exposure to commodities and volatility - but I think bitcoin checks those boxes).
But you aren't betting on the economy, you're betting on the perceived value of current publicly traded equities. For example, if a company you invest in goes bankrupt, you don't get that money back later when the economy recovers.
The problem with that reasoning is that the stock market is NOT the economy. It’s a secondary market that is more or less necessary depending on your views. Buybacks instead of dividends definitely have set the market in the speculation territory. Sure the US economy can not stay depressed for 20 years, but drawing a causality with stock price is not automatic and is an opinion at this point.
Investors are betting that while the US government will continue to shrug off higher and higher unemployment numbers, any significant move downwards in the stock market will spur immediate action from both the administrative and legislative parts of the Federal government.
This is not a bad bet at all. The dominant ideology in Washington seems to be laissez faire when big businesses are doing well and bailouts when they aren’t. It must be nice to play with a stacked deck like that.
It makes me wonder if this is moment is going to become a lesson in future finance courses about when we inflated the dollar's value out of existence just to keep the S&P 500 chart moving in a positive direction
You would probably get a better deck too if you provided flights for millions of people or helped disburse money or manufactured vehicles to keep people going to their jobs.
Why do individuals think they should receive the same treatment as key infrastructure companies?
One thing that I don’t see addressed in these posts, but I think makes a huge difference, is that the stock price reflects global demand for ROI. It’s entirely possible for stock values to go up while SP500 expected profitability goes down if the expected profitability of other markets goes down even more, shifting money out of Europe/HK/Japan into the USA.
Aka you don’t have to outrun the bear just the other guys.
For people who think stocks are overpriced: what would be an appropriate price and how did you come up with that number? I haven't seen an answer to this yet from the "stock market is irrational" crowd.
I think in 99% of cases it's just a feeling - that the decline should have been bigger given how bad the economic impact seem.
When I say "I think stocks are overpriced" I don't necessarily have a specific number in mind. Rather, it's shorthand for "I think that the Fed and USG attempts to avoid deflation at all costs have created an economic environment that over-promotes stocks as an investment vehicle. In addition, I feel that these attempts have worsened inequality by injecting liquidity in a way that increases asset prices more than it increases the velocity of money".
You can estimate the earnings yield you get on a business based on its price. So, if you have a lemonade stand that earns $100 per year, and you buy it for $100, that’s a great price. You’ll make your money back in a year. After that it’s profit, baby! If you pay $100000, it’ll take 1000 years to earn back your original investment in nominal terms. But it still might be an OK investment, if you are very certain that you can double earnings every year for long enough.
That’s basically how you evaluate what to pay for a company. When you buy stocks, you buy fractional ownership in a company.
Edit: many think the market is overvalued, because it’s currently at historically high price relative to the estimated earnings potential. This, while risk of insolvency for many companies is much higher.
Which stock? If you want to price any individual company, traditional value-based analysis using earnings, assets, and future revenue growth expectations will get you a number. This number varies wildly between different companies. If you're talking about a broad index like the S&P, I personally look at 30 years of price history, draw a best fit line to average out growth to a normal level, then discount 7% for our current economic trough (5% output drop Q1, likely 10% or more this quarter). By this method, S&P should be somewhere around 2150.
The problem, of course, is that we've been in an unprecedented financial situation since 2009 fueled by massive debt inflation among corporations due to near-free money from the government for an entire decade. When will the party end? Who knows. The other problem is that it's hard to predict what will happen post-lockdown globally. As a result, traditional analysis is easily beat by irrational investment even on multi-year timescales these days.
> For people who think stocks are overpriced: what would be an appropriate price and how did you come up with that number? I haven't seen an answer to this yet from the "stock market is irrational" crowd.
> I think in 99% of cases it's just a feeling - that the decline should have been bigger given how bad the economic impact seem.
As you are suggesting, prices are simply what they are, whether or not someone views them as being "too high" or "too low" the only Goldilocks price is the one you agree to.
However, the markets can be distorted. The Federal Reserve, through policies such as lowering interest rates to zero, eliminating reserve requirements, and announcing purchases of corporate debt, has all but published "we will not let the stock market crash under any economic circumstance" as their official policy.
SPX at ~1600 so that CAPE matches its historical median. 1600 would be the "neutral" position on that metric.
And, if history is any guide, SPX can fall all the way to ~500 without breaking all time lows on CAPE (this would be extreme, but is not entirely impossible, and inflation is not required for this scenario - look at 1950s).
Numbers would have to be adjusted if inflation speeds up. It hasn't sped up at all yet, in fact all we see today is deflation.
A stock is worth whatever people will pay for it. However it's fair to point out that the price does not match the underlying asset or its future growth.
Full disclosure, I hold a short GOOG position right now, but I'm long on a similar company, so it's a hedge. I don't think Google's worth more today than it was on Jan 1. You're right that it's a feeling, but it seems crazy to think that with 15% unemployment, it's still worth that.
I'm also leaning towards a longer recovery in consumer discretionary right now. Someone posted a story here about how people started self locking down before government lockdowns. While I think people are over the strict versions and are ready to get out of the house, I also think they'll be slow to return to malls and movie theaters.
I have most of my stocks in FZROX which is a total market index.
It does make me wonder how many people are using total market indexes without caring about anything in them and how that could prop up the underlying assets.
This isn’t an original idea, there’s been lots of talk about index funds being a bubble, but there isn’t a great alternative.
Though I’m starting to wonder if I should pull most of the money out and split it between Apple, Amazon, Google, Microsoft, and Facebook.
The long tail of the market index funds I find more likely to have issues than these companies (particularly Amazon and Apple).
I think the underlying question is "what is the alternative?". Twice a month everyone in the US from the middle class up, has to invest a fairly substantial chunk of money. With the FIRE movement this is only growing. Where but in the stock market should that money go? We've created this firehose that will continue to pump money into the market regardless of what the economy is doing. If you take the perspective of an individual, long-term investor, this isn't even irrational. What else are you supposed to do with the money? Keep it in cash? You also don't want to start playing the market timing game. So the firehose keeps on hosing.
I do wonder and am concerned what the endgame is. Is this all gonna crumble like a Ponzi scheme? Is it just gonna smooth off as more investors start retiring and pulling money out? Maybe at that point this will all just turn into a fairly indirect redistribution from working, young people to current retirees, as we see in some national pension systems?
One thing is for sure, the stock market reflecting on people's near- to mid-term outlook of the economy is likely over.
> What else are you supposed to do with the money? Keep it in cash?
Yes. That's where my RIA has 33% of my assets now, we moved them in 2019. We will be "piecing back into" the market over the next 12 months. I'm 50 and have a 30 year investment horizon. I've been investing since I was 21. I've been through two massive drops in the market that took years to recover. Don't panic. Valuations will correct themselves and fundamentals will continue to hold until the next bubble. I think that is model we're facing at the upper limit of an exponential.
> Is this all gonna crumble like a Ponzi scheme?
It has to stay alive so that the rich can get richer. Remember the players in the Panama Papers? There's an entire society that runs the planet. And this isn't a conspiracy, it's out in the open! Look at the Carlyle Group: it is an investing firm funded by people liek MBS (The Saudi), the Clintons, the Bushes, and many other politically-culturally diametrically opposed clients. It's no mystery that rich world leaders who go to war with each other give their money to the same investors.
You know that there are investments only available to people with $5, $10, or $100 million more in holdings? There are entire class of investment devices that you and I will never see. It takes tens of millions to even play in hedge funds. The "real" markets are for the 0.1%. Those will continue to feed off the other markets, which they need to distance themselves from the pack. (Look at wealth distribution over the past 50 years.) But these top tier funds require us schlubs to hand them money while we scrape by with 5-8% yearly returns. They will keep the dials set just right so that we'll have a reasonable retirement while they own the planet (Larry Ellison owns a Hawaiian island. Techbros are buying up New Zealand [Theil]. Think about what happens when trillionaires start to buy entire countries.
Yeah, the market will survive and make sure the upper middle class continues to invest, otherwise there won't be a wealth generating machine for the 0.1-0.01%. As for people who can't afford to even put money in a 401k? Well, we know what one political party things about those people.
>I think the underlying question is "what is the alternative?". Twice a month everyone in the US from the middle class up, has to invest a fairly substantial chunk of money. With the FIRE movement this is only growing. Where but in the stock market should that money go?
At a certain point, we should just admit that we're taking money from the middle class and using it to play-act private investment while actually socializing investment. We should then go the full distance and actually socialize most of the economy, so that twice a month people are compensated not with abstract, speculative 401(k) prospectuses, but with an equal vote and a dividend in their own workplace.
I'm keeping my money there since it's backed by the US economy. Yes, the value of the economy is lower than 6 months ago, and while likely be lower in a year.
What else should it be backed with? Dollars are subject to (hyper)inflation. Real estate is nice, but I need more liquidity.
Seems like owning a chunk of the economy is where the action is.
Honest question about FIRE: you hear stories about people retiring and dying a few years later in part because they lost their purpose in life, or people nearing 65 asking themselves "what am I going to do with my time." Purpose in life is strongly tied to emotional well being. What's FIRE's answer to that? Retirement is not an end unto itself.
A few years before I started working, I read Average is Over. Made a good case that labor power's decline would ramp up ever further. People like to poo-poo AI, but I have been following AI since the dark times before 2012. Winograd schemas, style transfer, GTP-2, image recognition - it is hard for people now to understand how impossible these tasks seemed at the time. The rate of progress is insane and it is foolish to bet against it.
Perhaps we are approaching a time where capital can be converted directly into labor in a way that scales. If this is the case the market is ridiculously undervalued, almost comically so.
I have maintained high savings rates and acquired capital ever since I read that book, regardless of valuations. I consider my portfolio insurance against this scenario.
If you analyze specific sectors or stocks, it really isn’t as irrational as it seems. Hotel, airline and restaurant stocks are more than 50% down YTD while tech/saas stocks are flat to positive. That said, there are some stocks that seem mispriced like Chipotle, which is still up YTD.
And investors probably are too optimistic about some tech companies since the recession will surely impact enterprise spending.
But it’s not as irrational as you may think once you look at the individual companies doing good and bad now.
I'm going to hell for this but could a virus that removes people past the retirement age be actually beneficial to an economy? I can think of a few mechanisms: 1. Reduced draw from social security and pensions. 2. Less long term medical costs. 3. Increases housing supply.
I am not advocating for removing old people from the economy. I am just thinking of some economic consequences of this terrible pandemic.
I'm reminded of the anecdote / legend that Joseph Kennedy (or JP Morgan) decided to sell his stock portfolio as the market crash of 1929 approached, because he started getting stock tips from a shoeshine boy.
What's the average P/E ratio these days? 20-ish? That implies a direct return of 5% (what's the English word for this?), assuming no future growth or reduction in earnings.
That's a low risk premium if you measure it against historical interest rates, but it doesn't seem completely unreasonable when interest rates are expected to be ~0% for the forseeable future, and the inflationary pressure on the dollar could be on the order of 40%.
It's certainly very high in historical terms, but you can't consider the history in isolation.
Some of the classic recession indicators (Sahm, Chauvet) are just starting to peak [1]. Both have led multi-year declines in stock prices. Is this time different from last time and the time before that?
The stock market is nothing more than a casino of supply and demand. It is not rational and is based on nothing more than greed and fear. It has absolutely nothing to do with the “economy”.
The number of people here convinced there is no alternative to stocks and that they are a good bet makes me wonder whether we’re at a temporary peak.
After the previous bottom sUch threads here, on reddit and on the financial times were convinced markets had nowhere to go but down and couldn’t possibly go up.
I think the problem a lot of people have when looking at the stock market is they assume everything is modeled against current time.
The price of any asset in the market is best viewed as a predictive time portal into the sum of all potential future value that can be generated by that asset. So, when you see TSLA at $800, that does NOT mean that investors, the market, et. al. are perceiving Tesla as worth that much today or even this decade. The market is continually modeling and adjusting how much that asset could be worth in 5+ years considering everything everyone knows at current time.
It is easy to fall into the trap of believing that the market is operating in first-order terms. Obviously, stocks react immediately to bad or good news on a quarterly or better basis, and this can send hilariously-conflicting signals regarding the longer-term modeling that is implicit with every asset price. This is where day-traders and other near-term speculators always get stuck. They make a few observations and then believe they have identified a regime in which the stock market does indeed operate in first-order terms. And then out of nowhere, their assets are wiped to zero or worse because of some sell-side risk model that was just run at Goldman Sachs indicating that no one wants electric cars in 2025. Obviously, this example is totally bullshit, but it's conceptually how you get burned when you play the short game.
From my armchair, the market situation looks very simple. When the economy hits the ceiling, people at the top create a crisis, collect the remaining value and let the newly poor labor work hard to earn a better life and create value for the owners. Then the cycle repeats. It's somewhat similar to how the combustion engine works.
The stock market is growing because the owners want to start the new growth cycle. They think that's enough value have been collected, they have no intent to destroy the engine, and want to start the new cycle. They achieve it by letting Fed print trillions and buy the stocks. This dilutes the share of everybody not invested in the stocks, but it works for the US because dollar is the internatiinal common stock and the US has the right to issue new shares. Whoever complains gets a friendly visit by aircraft carriers and experiences sudden difficulties in participating in the international economy.
It's possible that the owners have messed up this time, as they are often just lazy greedy types, and the engine will stall, but in that situation it won't matter whether you hold dollars or sp500.
"If you invest five thousand dollars in Apple or Tesla, the five or ten dollars you saved in fees won’t have much effect on the ultimate outcome."
The author is way out of touch if he thinks this. Many of my friends playing around in the stock market have a portfolio of less than $1000. When I started learning it my portfolio wasn't much bigger. At that level, if you trade even semi-actively, you get eaten alive by fees
Nothing changed recently, the situation is bad in some sense since people started treating stocks like toys and not as pieces of companies. Investing used to be building companies and shares were the ways to raise the required capital, now people play with it and more money are extracted from playing with the stock than the actual output of the company the stocks are speculated.
If you think of stocks as a form of currency, given that the dollar and euro are being so heavily inflated, perhaps it makes sense to stay in the markets than convert to cash at a definite loss?
[+] [-] snowwrestler|5 years ago|reply
I did not invest heavily during the 2008 financial crisis, and looking back, I have regrets about that. I invested more aggressively this time around on the downturn.
And my younger siblings and colleagues all seem to be taking the same long-term approach. They all read /r/personalfinance and some are trying to “FIRE”—again, on a 10-20 year plan.
The article seems to take an implied short-term view by talking about how the recovery might or might not be V-shaped. Honestly that seems like the crazy approach. I don’t know anyone, personally, who is investing today with hopes of pulling that money back out in a few months. That is what a symmetrical “V” would be at this time. Obviously that is not going to happen.
[+] [-] Spooky23|5 years ago|reply
We haven’t even felt the main wave of bankruptcies and disruption yet.
Credit is locking up (try getting an unsecured loan) and people aren’t paying bills. 50% of New York tenants didn’t pay rent. Every seasonal business is dead. Life looks ok for IT people working in their underwear right now, but we are heading into a very challenging time with fundamental changes in consumer behavior.
The next big thing will be underwater mortgages.
[+] [-] ptero|5 years ago|reply
I am not a financial planner, but just a few thoughts. First, folks who try to invest in crashes or divest on peaks tend to do it too early. Most of such events give you more than one opportunity to buy/sell and not being first in/out can give big advantages.
Second, we did not (yet?) see a big drop. A rise of 20% would put S&P at or near all-time highs. For comparison, during the 2008 crash, S&P dropped by over 50%, so the rise back would give you ~120% return. Thus the reward for "catching the knife" today is much, much smaller than in 2008.
Finally, a lot of stocks are now indexed and held in retirement accounts. Many folks there hold more than they should in stocks because they have been going up and seem to be the only game in town beating inflation. And all advisors say "leave your retirement accounts as is, long term view, yada yada". If a significant number of people start moving retirement money out of index funds, which they might do in uncertainty, there may be a lot of pain for stocks. For example, many smaller stocks just do not have the trading volumes to withstand even a moderate sales increase driven by index funds. My 2c.
[+] [-] pradn|5 years ago|reply
I'm with you on this one, but it also feels like there's no other choice. Where else can you get high liquidity, with good returns, and a government ready to spring into action if the market goes down too much? European and Japanese markets generally have lower returns. Emerging markets are iffy. Bonds don't yield as much as equities.
It's like "I'm gonna take a bet that I'm going to keep working a 9-5 job". Most people have no other real choice.
You have no choice but to invest in a mix of US equities and bonds to be able to retire in a sane timeline.
[+] [-] hyperpallium|5 years ago|reply
Plus, you don't really retire, your job is now investing. If you really love that particular job (like Buffett does), then this works out well.
But if your innate talents and interests lie elsewhere, you'd be happier doing that... and the need for money can help motivate you, during those times you don't feel like it.
It doesn't seem like extra motivation should be important, but is was for me personally. Maybe I'm lacking somehow, as I note that many independently wealthy people do keep working without that motivation. e.g. YC itself. (Though pg now does seem to have really retired, or maybe is a fulltime career parent - there is no more important job!)
Thoughts on motivation?
[+] [-] xoxoy|5 years ago|reply
I do think “things are different” in many ways, in the sense that it’s impossible to ignore the interventions the Fed has taken to blow up their balance sheet to $7T and will likely reach $10T by end of year. The speed and size is unprecedented.
Unfortunately I think Millennials will be the ones that have to deal with the massive debt we are in as a country and unwinding of the Fed’s massive balance sheet, which will play out 10-20 years from now.
[+] [-] trikonasana|5 years ago|reply
However, I offer up two counter thoughts to consider:
1) You say you don't need the money, but how do you know? There could be a better investment opportunity that comes up or we could go into a prolonged depression. Leaving some money not invested gives you more flexibility to allocate your capital down the road. You'll have lower highs but higher lows, which in the long run is good.
2) I actually do know a lot of people who are investing toady in hopes that there is a V-shaped recovery. This is particularly worrying to me and I can't tell you how many times I've overheard amateur investors at work say things like "the market is at a bottom so now is a good time to invest". These are people who have never invested before and only look at the stock price as the determining factor. Like Howard Marks says, market bottoms don't occur until all hope is lost. I'm not sure we've felt that yet.
[+] [-] hyperpallium|5 years ago|reply
For the USA, business is affected, the question is if it's long term: Will closed businesses reopen? Will unemployed find work? Will the US lose its centrality to China? But however bad it is, the market overreacts.
[+] [-] dntbnmpls|5 years ago|reply
Not to mention most americans' retirement is tied to their homes\ equity and their 401k/stocks. So it is political suicide for the government to let either drop in value for an extended period of time. Therefore, over the long term, house prices and stock prices will likely go up because politicians want to be reelected.
The only caveat is that eventually, we will reach out "limit" ( demographically, economically, etc ) and then housing/stock prices will drop and stay down for decades/maybe forever. Japan hit their limit in the early 90s and their housing prices and the nikkei today is a fraction of what it was back then.
https://tradingeconomics.com/japan/stock-market
If the check the 50Y chart, you'll see that the nikkei was at 37000 in the early 90s and is now at 20000. 30 years in and still nearly 50% down.
[+] [-] GeoAtreides|5 years ago|reply
Everyone forgets about Climate Change...
[+] [-] LatteLazy|5 years ago|reply
[+] [-] deevolution|5 years ago|reply
https://taylorpearson.me/thedragon/
The basic idea is that you create a balanced portfolio of assets that are negatively correlated with each other so that, over a very long time horizon , your wealth retains its value even in the face of uncertainty, black swan events, and volatility. An example would be owning an equal proportion of stock, cash, bitcoin, gold, fixed income, commodities, and volatility. (Harder for the average person to get exposure to commodities and volatility - but I think bitcoin checks those boxes).
Edit: include original paper that describes the portfolio by Christopher Cole: https://docsend.com/view/taygkbn
[+] [-] kolbe|5 years ago|reply
[+] [-] tarsinge|5 years ago|reply
[+] [-] bradleyjg|5 years ago|reply
This is not a bad bet at all. The dominant ideology in Washington seems to be laissez faire when big businesses are doing well and bailouts when they aren’t. It must be nice to play with a stacked deck like that.
[+] [-] skohan|5 years ago|reply
[+] [-] bo1024|5 years ago|reply
[+] [-] aantix|5 years ago|reply
Why do individuals think they should receive the same treatment as key infrastructure companies?
[+] [-] bitcurious|5 years ago|reply
Aka you don’t have to outrun the bear just the other guys.
[+] [-] RivieraKid|5 years ago|reply
I think in 99% of cases it's just a feeling - that the decline should have been bigger given how bad the economic impact seem.
[+] [-] lazulicurio|5 years ago|reply
When I say "I think stocks are overpriced" I don't necessarily have a specific number in mind. Rather, it's shorthand for "I think that the Fed and USG attempts to avoid deflation at all costs have created an economic environment that over-promotes stocks as an investment vehicle. In addition, I feel that these attempts have worsened inequality by injecting liquidity in a way that increases asset prices more than it increases the velocity of money".
[+] [-] christophilus|5 years ago|reply
That’s basically how you evaluate what to pay for a company. When you buy stocks, you buy fractional ownership in a company.
Edit: many think the market is overvalued, because it’s currently at historically high price relative to the estimated earnings potential. This, while risk of insolvency for many companies is much higher.
[+] [-] mdorazio|5 years ago|reply
The problem, of course, is that we've been in an unprecedented financial situation since 2009 fueled by massive debt inflation among corporations due to near-free money from the government for an entire decade. When will the party end? Who knows. The other problem is that it's hard to predict what will happen post-lockdown globally. As a result, traditional analysis is easily beat by irrational investment even on multi-year timescales these days.
[+] [-] generalpass|5 years ago|reply
> I think in 99% of cases it's just a feeling - that the decline should have been bigger given how bad the economic impact seem.
As you are suggesting, prices are simply what they are, whether or not someone views them as being "too high" or "too low" the only Goldilocks price is the one you agree to.
However, the markets can be distorted. The Federal Reserve, through policies such as lowering interest rates to zero, eliminating reserve requirements, and announcing purchases of corporate debt, has all but published "we will not let the stock market crash under any economic circumstance" as their official policy.
[+] [-] cwhiz|5 years ago|reply
[+] [-] H8crilA|5 years ago|reply
And, if history is any guide, SPX can fall all the way to ~500 without breaking all time lows on CAPE (this would be extreme, but is not entirely impossible, and inflation is not required for this scenario - look at 1950s).
Numbers would have to be adjusted if inflation speeds up. It hasn't sped up at all yet, in fact all we see today is deflation.
[+] [-] nicbou|5 years ago|reply
[+] [-] montalbano|5 years ago|reply
[+] [-] dehrmann|5 years ago|reply
I'm also leaning towards a longer recovery in consumer discretionary right now. Someone posted a story here about how people started self locking down before government lockdowns. While I think people are over the strict versions and are ready to get out of the house, I also think they'll be slow to return to malls and movie theaters.
[+] [-] gonehome|5 years ago|reply
It does make me wonder how many people are using total market indexes without caring about anything in them and how that could prop up the underlying assets.
This isn’t an original idea, there’s been lots of talk about index funds being a bubble, but there isn’t a great alternative.
Though I’m starting to wonder if I should pull most of the money out and split it between Apple, Amazon, Google, Microsoft, and Facebook.
The long tail of the market index funds I find more likely to have issues than these companies (particularly Amazon and Apple).
[+] [-] ajmurmann|5 years ago|reply
I do wonder and am concerned what the endgame is. Is this all gonna crumble like a Ponzi scheme? Is it just gonna smooth off as more investors start retiring and pulling money out? Maybe at that point this will all just turn into a fairly indirect redistribution from working, young people to current retirees, as we see in some national pension systems?
One thing is for sure, the stock market reflecting on people's near- to mid-term outlook of the economy is likely over.
[+] [-] freefriedrice|5 years ago|reply
Yes. That's where my RIA has 33% of my assets now, we moved them in 2019. We will be "piecing back into" the market over the next 12 months. I'm 50 and have a 30 year investment horizon. I've been investing since I was 21. I've been through two massive drops in the market that took years to recover. Don't panic. Valuations will correct themselves and fundamentals will continue to hold until the next bubble. I think that is model we're facing at the upper limit of an exponential.
> Is this all gonna crumble like a Ponzi scheme?
It has to stay alive so that the rich can get richer. Remember the players in the Panama Papers? There's an entire society that runs the planet. And this isn't a conspiracy, it's out in the open! Look at the Carlyle Group: it is an investing firm funded by people liek MBS (The Saudi), the Clintons, the Bushes, and many other politically-culturally diametrically opposed clients. It's no mystery that rich world leaders who go to war with each other give their money to the same investors.
You know that there are investments only available to people with $5, $10, or $100 million more in holdings? There are entire class of investment devices that you and I will never see. It takes tens of millions to even play in hedge funds. The "real" markets are for the 0.1%. Those will continue to feed off the other markets, which they need to distance themselves from the pack. (Look at wealth distribution over the past 50 years.) But these top tier funds require us schlubs to hand them money while we scrape by with 5-8% yearly returns. They will keep the dials set just right so that we'll have a reasonable retirement while they own the planet (Larry Ellison owns a Hawaiian island. Techbros are buying up New Zealand [Theil]. Think about what happens when trillionaires start to buy entire countries.
Yeah, the market will survive and make sure the upper middle class continues to invest, otherwise there won't be a wealth generating machine for the 0.1-0.01%. As for people who can't afford to even put money in a 401k? Well, we know what one political party things about those people.
[+] [-] eli_gottlieb|5 years ago|reply
At a certain point, we should just admit that we're taking money from the middle class and using it to play-act private investment while actually socializing investment. We should then go the full distance and actually socialize most of the economy, so that twice a month people are compensated not with abstract, speculative 401(k) prospectuses, but with an equal vote and a dividend in their own workplace.
https://www.jacobinmag.com/2017/08/sweden-social-democracy-m...
https://journals.sagepub.com/doi/full/10.1177/08969205134853...
[+] [-] wegs|5 years ago|reply
What else should it be backed with? Dollars are subject to (hyper)inflation. Real estate is nice, but I need more liquidity.
Seems like owning a chunk of the economy is where the action is.
[+] [-] dehrmann|5 years ago|reply
Honest question about FIRE: you hear stories about people retiring and dying a few years later in part because they lost their purpose in life, or people nearing 65 asking themselves "what am I going to do with my time." Purpose in life is strongly tied to emotional well being. What's FIRE's answer to that? Retirement is not an end unto itself.
[+] [-] ZhuanXia|5 years ago|reply
Perhaps we are approaching a time where capital can be converted directly into labor in a way that scales. If this is the case the market is ridiculously undervalued, almost comically so.
I have maintained high savings rates and acquired capital ever since I read that book, regardless of valuations. I consider my portfolio insurance against this scenario.
[+] [-] AznHisoka|5 years ago|reply
And investors probably are too optimistic about some tech companies since the recession will surely impact enterprise spending.
But it’s not as irrational as you may think once you look at the individual companies doing good and bad now.
[+] [-] fasteddie31003|5 years ago|reply
I am not advocating for removing old people from the economy. I am just thinking of some economic consequences of this terrible pandemic.
[+] [-] microtherion|5 years ago|reply
https://seekingalpha.com/article/2788885-how-old-was-that-sh...
[+] [-] marvin|5 years ago|reply
That's a low risk premium if you measure it against historical interest rates, but it doesn't seem completely unreasonable when interest rates are expected to be ~0% for the forseeable future, and the inflationary pressure on the dollar could be on the order of 40%.
It's certainly very high in historical terms, but you can't consider the history in isolation.
[+] [-] maliker|5 years ago|reply
[1] https://fred.stlouisfed.org/graph/?g=qYNJ
[+] [-] oxymoran|5 years ago|reply
[+] [-] graeme|5 years ago|reply
After the previous bottom sUch threads here, on reddit and on the financial times were convinced markets had nowhere to go but down and couldn’t possibly go up.
[+] [-] bob1029|5 years ago|reply
The price of any asset in the market is best viewed as a predictive time portal into the sum of all potential future value that can be generated by that asset. So, when you see TSLA at $800, that does NOT mean that investors, the market, et. al. are perceiving Tesla as worth that much today or even this decade. The market is continually modeling and adjusting how much that asset could be worth in 5+ years considering everything everyone knows at current time.
It is easy to fall into the trap of believing that the market is operating in first-order terms. Obviously, stocks react immediately to bad or good news on a quarterly or better basis, and this can send hilariously-conflicting signals regarding the longer-term modeling that is implicit with every asset price. This is where day-traders and other near-term speculators always get stuck. They make a few observations and then believe they have identified a regime in which the stock market does indeed operate in first-order terms. And then out of nowhere, their assets are wiped to zero or worse because of some sell-side risk model that was just run at Goldman Sachs indicating that no one wants electric cars in 2025. Obviously, this example is totally bullshit, but it's conceptually how you get burned when you play the short game.
[+] [-] zby|5 years ago|reply
Update: I think I need to add that I have no economic education - I wrote this after reading recent Ray Dalio posts to see what others think about it.
[+] [-] trfhuhg|5 years ago|reply
The stock market is growing because the owners want to start the new growth cycle. They think that's enough value have been collected, they have no intent to destroy the engine, and want to start the new cycle. They achieve it by letting Fed print trillions and buy the stocks. This dilutes the share of everybody not invested in the stocks, but it works for the US because dollar is the internatiinal common stock and the US has the right to issue new shares. Whoever complains gets a friendly visit by aircraft carriers and experiences sudden difficulties in participating in the international economy.
It's possible that the owners have messed up this time, as they are often just lazy greedy types, and the engine will stall, but in that situation it won't matter whether you hold dollars or sp500.
[+] [-] tomc1985|5 years ago|reply
The author is way out of touch if he thinks this. Many of my friends playing around in the stock market have a portfolio of less than $1000. When I started learning it my portfolio wasn't much bigger. At that level, if you trade even semi-actively, you get eaten alive by fees
[+] [-] bigdict|5 years ago|reply
The stocks are not worth more inherently, you just need more (depreciating) dollar units to describe the price.
[+] [-] AdrianB1|5 years ago|reply
[+] [-] dr_dshiv|5 years ago|reply