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What to Worry About in This Surreal Bull Market

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Re: What to Worry About in This Surreal Bull Market

#171

Post by zbentley »

mjburgess wrote: post #51
benevol wrote: post #44

Earlier quoted context omitted.

> "growth" (i.e. inflation) before the inevitable crash What you need to know is this: Financial crashes are an eternal cycle, they will never go away. Unless there is fundamental societal change. Here's why: Financial crashes are business to a couple of extremely powerful/rich people. After every crash, assets are undervalued. Rich people have the financial cushion to not be impacted in the slightest way by such cra…

Ah yes, the Flimflam-Fo Equation with its key parameters, "rich person a" and "rich person b". Conspiracy theories might well be defined just by the application of the fallacy, "if someone benefits, then they intended it". And here we see this fallacy being applied. Sound like a textbook conspiracy to me. The extremely weathly are not interested in increasing their net wealth, only in specific purchases to further th…

> the fallacy, "if someone benefits, then they intended it".

Slightly tangential, but neat: that fallacy has a name! It's the "Post hoc ergo propter hoc" fallacy: https://en.wikipedia.org/wiki/Post_hoc_ergo_propter_hoc

There might be a more specific named fallacy for when post-hoc happens with regard to individuals' intentions and benefits rather than causes and effects in general though.

Re: What to Worry About in This Surreal Bull Market

#172

Post by pnathan »

ronnypostsstuff wrote: post #32

What is the best thing to do with my savings? I am thinking about investing, and read up on it. One thing I don't understand is where to put money to minimize the impact of a recession. Government bonds? But then Graham says, I think, bonds prices also rise in a bull market, and fall afterwards.

Diversify yo' assets. I recommend starting with ETFs, ensuring you aren't locked into specific companies. And ETFs don't have the specific conditions of mutual funds.

Several stock ETFs; I suggest one tuned for growth and one tuned for dividends. If you aren't sure, the Vanguard VOO ETF is a solid starting point.

At least one bond ETF: I'm inexperienced there, but they tend to move in inverse correlation to stocks.

Some cash: 6 months of income, if you can swing it.

You'll want to set up a plan to invest regularly, and a regular rebalanceing of the portfolio to ensure one asset class doesn't dominate the others and expose you to too much risk.

If you want to allocate 10% to things like gold ETFs, futures, Bitcoin, etc, that's not unreasonable, but you should do so with the understanding that such a play is a high risk one and likely to result in monetary loss without quite a bit of care.

edit: you have two kinds of risk: downside risk and counterparty risk.

Downside with investing is your money might go away. Barring radical economic collapse, it'll come back, eventually (> 5-10 year span), if you've diversified enough.

Counterparty risk is what if the event you're worried about doesn't happen. Suppose you're worried about a recession. What if it doesn't happen? People were seriously worried about Total Economic Meltdown in 2008. Lot of people got out of the market or didn't get in, and they wound up with a lot less money than if they'd held on. On the other side, guns, ammo, and food supply companies went gangbusters. And, looking back on it, pointlessly.

It's reasonable to assume the bull market will end. It's running a bit long as it stands now. Fine. Do you care if your stock money all drops by half, so long as it's back and more within a decade?

Make a plan designed to optimize for your goals and rigidly stick to it in the face of irrationality.

Re: What to Worry About in This Surreal Bull Market

#173

Post by logfromblammo »

Boothroid wrote: post #87
TheAdamAndChe wrote: post #31

Earlier quoted context omitted.

I've always liked Warren Buffett's explanation on why investing in gold is pretty silly[1]. Basically, owning gold as an investment is purely speculation, because earning a return requires greater demand in the future. It doesn't have the potential to provide dividends or grow exponentially like ownership in a business does. Gold earns nothing for you over time. Instead of investing in gold, why not invest in a forei…

Part of the value of gold comes from the many industrial applications of the stuff.

Such as the Indian dowry jewelry industry.

All other industrial uses are completely swamped by the creation of human ornamentation. But the thing about jewelry is that the gold in it is usually very easily recycled. So it is not as strongly consumed as the gold used in electronics, which requires a greater effort to recover, if it isn't simply landfilled a milligram at a time.

That jewelry use creates a soft reserve, such that it is usually not available to the market, but if the gold price rises high enough, it can start to liquidate, likely starting with the ugliest necklaces.

So it would seem that the majority of the value of gold comes from the human desire to possess a tangible, portable symbol of one's wealth. It cannot be taken from you, unless someone finds you and pries it out of your fingers. Paper assets are more amenable to remote interference. Your ownership of a company via stocks may be diluted. Your fiat accounts may be devalued via monetary inflation or seized with the cooperation of your bank. Your bonds may suffer default. The title to your land may be transferred against your will. But that gold necklace is yours, as long as you're the only one that knows where it is.

As such, failing to invest in gold is ignoring the risk of a major crash in the modern centrally-banked, fractional-reserved, and fiat-moneyed economy, which is subject to boom-bust cycles. Gold is the asset of choice for those that think that government bonds from too-big-to-fail countries are not actually the default lowest-risk investment. But even then, the gold bugs are undercut by the people who buy condos in underground shelters that anticipate the complete collapse of human civilization, along with barrels filled with small arms ammunition. Buffett's #3, #5, and #6--gold is going long on fear--is definitely true.

But I don't think the other quotes are 100% accurate. They have the odor of the Labor Theory of Value about them. Things don't have value because they do stuff, but because people want them. Gold has value because some people want gold, not because it delivers billions of bottles of Coke, or ferries passengers across continents, or summons a driver for you on command. People want gold for different reasons, and some reasons are more predictable than others, but none of those reasons are required to be rational or useful. And that's why the Buffett analysis of gold fails, in my opinion.

Re: What to Worry About in This Surreal Bull Market

#175

Post by jreynojustin »

junkscience2017 wrote: post #99
jreynojustin wrote: post #94

Earlier quoted context omitted.

Completely agree with this mindset. All the non-cash assets and investments I hold onto I intend to keep for over 20 years. Short term corrections in the market even as bad as 2008/9 don't concern me. As long as you're not speculating debt against market performance and have emergency cash on hand you can hold and buy the assets at a lower valuation.

but frankly even trying to time a bottom as a buying opportunity can be dangerous, because it can prevent you from making common sense investments at decent prices.

I buy assets on a consistent scheduled basis and am not waiting for some big crash to happen. But if I do notice the market is pretty bearish then I may decide to purchase more beyond that regular investment schedule.

Re: What to Worry About in This Surreal Bull Market

#176

Post by jreynojustin »

e40 wrote: post #150
jreynojustin wrote: post #94

Earlier quoted context omitted.

Completely agree with this mindset. All the non-cash assets and investments I hold onto I intend to keep for over 20 years. Short term corrections in the market even as bad as 2008/9 don't concern me. As long as you're not speculating debt against market performance and have emergency cash on hand you can hold and buy the assets at a lower valuation.

Yep. This is a problem for people like my parents, who are 80+ and living off investments. A big downward correction is very scary for people in that situation, but not at all worrying for me.

Yeah agreed I know some folks in that situation back in 08/09. I'm still in my 20's so not sure how I'm going to deal with investing as I get into my retirement years. It can be scary to have over half your retirement wipe out with no time for correction. Probably a more cash heavy asset allocation would be the solution. Not sure though.

Re: What to Worry About in This Surreal Bull Market

#177

Post by mac01021 »

sharemywin wrote: post #72
sharemywin wrote: post #70

Earlier quoted context omitted.

The problem is a lot of people are momentum investing, hold and forget. kind of a variations on greater fool theory. eventually if I wait long enough someone will come along and buy this for what I paid or maybe more.

I worry what if the entire market is made of fools that will buy their next slightly smaller share of the market at ever increasing prices. It used to be that traders set pricing enough that if things got out of hand then traders would come in to sell/short. But what if most people just used buy and hold?

> But what if most people just used buy and hold?

I'm having trouble imagining that. Every time someone buys, some one else is selling, after all.

Re: What to Worry About in This Surreal Bull Market

#178

Post by Chickenality »

qznc wrote: post #156
the_gastropod wrote: post #116

Earlier quoted context omitted.

This is not necessarily true. To avoid volatility, invest across asset classes with low correlation [1]. E.g., bonds will probably not tank when U.S. equities do. [1] https://www.investopedia.com/terms/c/coefficientofvariation....

Bitcoin does not correlate with anything. Should people diversify into it?

Sure it does. During a recession, people will lose their jobs, the value of their assets will go down, etc. Do you think they won't cash out any of their BTC in order to cover expenses?

Re: What to Worry About in This Surreal Bull Market

#179

Post by peatmoss »

Liron wrote: post #149
peatmoss wrote: post #119

Earlier quoted context omitted.

Economy is tied to real consumption of finite resources. As we mine, fish, over harvest, burn, etc. our way out of some resources, we tend to find substitutes or other efficiencies to begin again. But... there is the question of whether our economic growth brings us closer to the absolute carrying capacity of spaceship Earth. So yeah, economic growth can’t continue forever without hitting some bio-physical constraint…

Ok but no previous recession would be explained by this answer.

We've never had ceaseless steady state growth as per the grandparent's question before either :-)

Re: What to Worry About in This Surreal Bull Market

#180

Post by 31reasons »

e40 wrote: post #150
jreynojustin wrote: post #94

Earlier quoted context omitted.

Completely agree with this mindset. All the non-cash assets and investments I hold onto I intend to keep for over 20 years. Short term corrections in the market even as bad as 2008/9 don't concern me. As long as you're not speculating debt against market performance and have emergency cash on hand you can hold and buy the assets at a lower valuation.

Yep. This is a problem for people like my parents, who are 80+ and living off investments. A big downward correction is very scary for people in that situation, but not at all worrying for me.

Shouldn't their investments already been moved to Bonds/Money markets? At 85, if you have to worry about stock market, you are doing it wrong.
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