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Dow plunges 1000 points

cnbc.com

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Re: Dow plunges 1000 points

#141

Post by hsitz »

svachalek wrote: post #119
yodsanklai wrote: post #97

Earlier quoted context omitted.

> on average, stock value over the long term (20+ years) is very likely to be in range of, say, 5%/year, plus or minus (actual number is not that important for our purpose here), after adjusting for inflation. Why should it be that way?

The classic explanation is that the economy is growing and thus the overall "pie" being shared is growing even if individual pieces are not as predictable. But I think broader and broader participation in the market via government policies like 401(k) has to be part of the story, and also I worry how much we try to extrapolate from modern financial history which is barely more than a single human lifetime.

William Bernstein has argued pretty well that the growth of economies over the long term has held pretty stable over (surprisingly) the last several hundred years. See his book, "The Birth of Plenty": https://www.amazon.com/Birth-Plenty-Prosperity-Modern-Create...

The keys to economic growth he identifies are (1) property rights, (2) scientific rationalism, (3) capital markets, and (4) adequate transportation/communication. All of these appeared in sufficient form for prosperous growth several hundred years ago.

There is of course no guarantee of continued growth at same rate as last several hundred years. But given the conditions that have prevailed it has settled at a fairly stable rate as sort of a natural law.

Re: Dow plunges 1000 points

#142

Post by mcintyre1994 »

outside1234 wrote: post #132
jedberg wrote: post #127

Let's say you're a smart investor, and you think a big crash is coming. Right now everything you have is in stocks. What do you move it to to hedge your risk?\\ Edit: To clarify, I don't have everything in stocks. I'm just looking for good advice on how to further diversify. I'm aware that timing the market is a fool's errand. :)

A smart investor will always have a set of numbers in mind - say 60% stocks and 40% bonds - and every 6 months will rebalance the portfolio to that. Over decades this will return better returns at dramatically less stress than any other approach.

I'm sure there's some dimensions it's not optimal on, but Vanguard LifeStrategy is a single low fee fund that does this for you. IIRC they have 20/40/60/80/100% equity options.

Re: Dow plunges 1000 points

#143

Post by dictum »

jedberg wrote: post #127

Let's say you're a smart investor, and you think a big crash is coming. Right now everything you have is in stocks. What do you move it to to hedge your risk?\\ Edit: To clarify, I don't have everything in stocks. I'm just looking for good advice on how to further diversify. I'm aware that timing the market is a fool's errand. :)

Depends on what the hypothetical smart investor thinks will trigger the big crash, and how long they predict it to last.

I'd go for farmland near clean water.

Re: Dow plunges 1000 points

#144

Post by jarsin »

jedberg wrote: post #127

Let's say you're a smart investor, and you think a big crash is coming. Right now everything you have is in stocks. What do you move it to to hedge your risk?\\ Edit: To clarify, I don't have everything in stocks. I'm just looking for good advice on how to further diversify. I'm aware that timing the market is a fool's errand. :)

I heard about this ICO that involves the blood of young models and smart contracts.

Cant go wrong there. Sad but true.

Re: Dow plunges 1000 points

#145

Post by woolvalley »

cgb223 wrote: post #133
adventured wrote: post #110

Earlier quoted context omitted.

The wage growth would be nice, except actual wage growth isn't anywhere near 3%. That's the nominal figure. For production and non-managerial positions, which is nearly the entire economy, inflation adjusted annual wage growth is under 1%. We'll need to see 4% or 5% nominal wage growth, with inflation holding at 2% or lower, to generate meaningful wage gains at the median.

I haven't heard this side of the argument, do you have a source on that data?

Would this be it? https://fred.stlouisfed.org/series/AHETPI

Disclaimer: I don't know much about the arguments, to me it just looks like a typical linear graph.

Re: Dow plunges 1000 points

#147

Post by DoreenMichele »

jedberg wrote: post #127

Let's say you're a smart investor, and you think a big crash is coming. Right now everything you have is in stocks. What do you move it to to hedge your risk?\\ Edit: To clarify, I don't have everything in stocks. I'm just looking for good advice on how to further diversify. I'm aware that timing the market is a fool's errand. :)

Non coastal real estate. You know, stuff that will still be land after the seas rise.

Plus some company or other in the Netherlands exporting polder technology.

Re: Dow plunges 1000 points

#148

Post by nobbis »

dawhizkid wrote: post #59

Surprised no one has made the cryptocurrency equivalent of VIX that moves in the opposite direction of a basket of cryptocurrencies.

VIX is a variance swap, so a "CryptoVIX" would move in line with the expected short-term realized volatility of a basket of cryptocurrencies, not their price.

It'd certainly be possible to price such an index (replicating strategy of portfolio of strips of calls/puts of various cryptocurrencies) but it'd be impossible to hedge because transactions costs are too high. You could hedge with crypto-options, but AFAIK they don't exist yet.

Re: Dow plunges 1000 points

#149

Post by hsitz »

yodsanklai wrote: post #97
hsitz wrote: post #33

Earlier quoted context omitted.

Another way of thinking about it is: on average, stock value over the long term (20+ years) is very likely to be in range of, say, 5%/year, plus or minus (actual number is not that important for our purpose here), after adjusting for inflation. If stocks have been on a recent runup, gaining, say, 50% or 100% over a period of a few years, then they are very likely to grow more slowly than average (i.e., revert to the…

> on average, stock value over the long term (20+ years) is very likely to be in range of, say, 5%/year, plus or minus (actual number is not that important for our purpose here), after adjusting for inflation. Why should it be that way?

In one sense your question is similar to many others: Why should the sky be blue? Why should gravity at the surface of the earth accelerate objects downward at 9.8 m/s2? Of course, the answer to question of economic growth is more changeable, dependent on societal arrangements that are more likely to change than physical conditions governed by natural laws for the other two questions. But given the economic society we have, 4% or so is the observed stable growth, worldwide.

Re: Dow plunges 1000 points

#150

Post by twblalock »

jedberg wrote: post #127

Let's say you're a smart investor, and you think a big crash is coming. Right now everything you have is in stocks. What do you move it to to hedge your risk?\\ Edit: To clarify, I don't have everything in stocks. I'm just looking for good advice on how to further diversify. I'm aware that timing the market is a fool's errand. :)

Smart investors should have an asset allocation that reflects their risk tolerance.

If your allocation is based on your tolerance for risk, you won't need to change it when the market crashes or booms -- such an allocation is based on the risk characteristics of the assets over the long term, not their current performance.

The time to change such an allocation is when your risk tolerance changes, e.g. as you get closer to retirement you will probably start to prioritize preservation of wealth over growth.

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