Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Interpreting a market plunge

economist.com

Post reply on HN
Print view View original

71–80 of 157 posts

Re: Interpreting a market plunge

#71

Post by kmfrk »

Apocryphon wrote: post #42

Here's a question - people often refer to the 2008 recession as a once in a lifetime event. On what basis do they make that statement- because mortgages can't possibly pop as massively twice? What's to prevent another industry (in recent years often rumored to be student loans) from doing the same? Who's to say not another sector is as rotten as real estate was?

It's usually referred to as an "x sigma event". A paper I really like on this is "How Unlucky is 25-Sigma?" https://arxiv.org/abs/1103.5672.

Re: Interpreting a market plunge

#72

Post by tyingq »

TekMol wrote: post #62

I hold 50% of my assets in shares and 50% in money. I cannot decide if I should hope for the stock market to go up or down. What do the wise people of HN think?

Guessing the bottom is hard. Spreading risk, like you have done, is a better idea. Maybe be more granular than "money market" and "stocks" though. There's bonds, annuities, real estate, foreign derivitives, and other vehicles too.

Re: Interpreting a market plunge

#73

Post by tome »

tonyedgecombe wrote: post #68
tome wrote: post #55

Earlier quoted context omitted.

They key figure is debt to market cap ratio. So what's that figure?

So what's that figure? Go and look it up yourself if you are so excited about it, that has nothing to do with the vagueness of the original statement which was what I was highlighting.

Your response was equally vague.

Re: Interpreting a market plunge

#74

Post by lr4444lr »

EGreg wrote: post #11
oculusthrift wrote: post #9

Earlier quoted context omitted.

because inflation will start and we need to fight it with high interest rates

Why do we need to fight inflation? Prices rise because people can afford to buy things at higher prices. So what's the problem?

That's not what happened in Zimbabwe.

Re: Interpreting a market plunge

#75

Post by FabHK »

fwdpropaganda wrote: post #24
imron wrote: post #22

Earlier quoted context omitted.

> The things you describe explain why people keep their finger hovering over the "sell" button, they don't explain why precisely today they decided to press it. How much was fingers on buttons, and how much was just automated trading algorithms?

Why is it that everything these days gets blamed on algorithms? Seems like intelectual laziness to me. "Algorithms did it, there's no sense to it, lets not think too hard."

"these days"?

Algorithms were definitely a contributing factor to the 1987 Black Monday crash (in that case, "portfolio insurance", basically implementing a simple stop loss policy by going short (through direct sales, or purchases of puts)).

Re: Interpreting a market plunge

#76

Post by TekMol »

dustinmoris wrote: post #66
TekMol wrote: post #60

Earlier quoted context omitted.

stock markets are dominated by greed Greed is "an inordinate or insatiable longing for unneeded excess". I doubt one can show that this is what drives the stock market. What we probably can agree on is that the stock market is driven by the actions of many actors who try to maximise the utility value of the assets under their control. an increasing over valuation of assets We cannot show that assets are overvalued at…

I never said that we can show that an asset is overvalued, I simply described what actually has happened in the past multiple times and what seems to be happening again. The truth is that investors will always pump as much money into a stock as long as there is still a logical explanation for a positive ROI. However at some point the stock becomes so hot that the general public will also start pumping money into it (…

    I never said that we can show that an asset
    is overvalued, I simply described what actually
    has happened in the past
We cannot even say in hindsight what was overvalued. We don't know if an asset was overvalued in the past. Because the value of an asset lies in the probability function of the future returns. Which can never be found out.

Re: Interpreting a market plunge

#77

Post by TekMol »

tyingq wrote: post #72
TekMol wrote: post #62

I hold 50% of my assets in shares and 50% in money. I cannot decide if I should hope for the stock market to go up or down. What do the wise people of HN think?

Guessing the bottom is hard. Spreading risk, like you have done, is a better idea. Maybe be more granular than "money market" and "stocks" though. There's bonds, annuities, real estate, foreign derivitives, and other vehicles too.

You seem to imply that I am looking for investment advice or that my approach of asset allocation might change. Neither is the case. I will simply continue to hold 50% in shares and 50% in money.

My question is what is better for me. If stocks go up or if stocks go down.

Re: Interpreting a market plunge

#78

Post by jnsaff2 »

"But because everyone worries and saves a little more, and invests and spends a little less, the economy gets stuck in a downturn. Recessions are an outbreak of collective madness."

Or maybe "Recessions are an outbreak of collective sanity."

Re: Interpreting a market plunge

#79

Post by tyingq »

TekMol wrote: post #77
tyingq wrote: post #72

Earlier quoted context omitted.

Guessing the bottom is hard. Spreading risk, like you have done, is a better idea. Maybe be more granular than "money market" and "stocks" though. There's bonds, annuities, real estate, foreign derivitives, and other vehicles too.

You seem to imply that I am looking for investment advice or that my approach of asset allocation might change. Neither is the case. I will simply continue to hold 50% in shares and 50% in money. My question is what is better for me. If stocks go up or if stocks go down.

Ok. Great stock earnings far exceed great money market years. And vice versa for losses...you're geared for the good times. But you don't want advice, so I'm a little confused at the redirect.

If this was 2007, you would be screwed for the short term. Like 5-10 years screwed if you are retirement aged. If not, you're brilliant.

I don't get why the advice to not go 50% stock, 50% money market because it's too coarse is bad though. It's like betting half/half on black/red in roulette, depending on the specific timeframe. They usually have opposite (or close to that) outcomes, except that the stock losses/gains are far more wild than the money market losses/gains. You're hedging a wild swing with a mild swing.

Re: Interpreting a market plunge

#80

Post by fro0116 »

fwdpropaganda wrote: post #12
thisisit wrote: post #8

The bigger concern is on the interest rate hikes. Low rates were expected to help kickstart the economy and prices and wages to increase. What has happened instead is that all the cheap money has caused asset inflation. US companies now have record amount of debt. Too fast increase in interest rates will cause their debt obligations to balloon and lower profitability. Though this will take couple of quarters to fully…

You see, the problem that I have with these kind of "explanations", is that those facts have been around for a long time. Why is it that precisely today (well, yesterday) was the day that everyone decided "right guys, we're selling equities"? The things you describe explain why people keep their finger hovering over the "sell" button, they don't explain why precisely today they decided to press it.

Indeed. All I see from this and similar threads here and articles all over the internet on topics like these is:

"blah blah hindsight bias blah blah rationalization blah blah"

At the end of the day, the only useful theories for the stock market are the ones that have predictive power. I'd be interested in reading articles by people who are consistently willing to put their money where their mouths are and consistently make money on their theories' predictions, but anyone who can do that of course tend to know better and tend to keep their mouths shut.

Post reply on HN