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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)).
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.
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The idea of an index fund is you're invested in the market as a whole, not a selection of a small number of stocks. So a good index fund will crash when the market as a whole crashes, and recover in line with the market. The entire point is you avoid tying your performance to any selection of say 10 stocks, and typically an index fund will outperform most professional stock pickers.
I like to think that it's being long on Capitalism.
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I don't live in the US, and my understanding of how the electoral system works out there is not fantastic, but it would also seem like there's some impact from the existential dread of democrats taking majorities in your mid-term elections. A lot of the run up since the end of last year was based on Trump's new tax plans, which the left were very much against, so it makes sense that measures would be taken to roll th…
> measures would be taken to roll that back No chance of that happening until 2021 at the earliest, thanks to the presidential veto. The Democrats have zero chance of obtaining a veto-proof majority in the in the Senate.
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"everyone decided" It takes very few people to move the market. To dramatically oversimplify, if there are 1 million buyers and 1 million and 1 sellers, the market goes down until the number of buyers and sellers are equal again.
That's not really how the market is balanced. If there's a million sellers at 12.34 and 1 buyer at 12.33, nothing changes and the price didn't move.
We can argue over whose dramatic oversimplification is worse, but do you disagree with the basic point that a small number of people can dramatically move a large market?
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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."
I don't believe algorithms decide the direction of markets, but it's pretty clear that they amplify effects triggered by real-world conditions. HFT trading is just a way to make money, and things like large market swings, high trade volumes etc. provides interesting exploits to do exactly that. You could call it 'intellectual laziness', I would call it Occam's razor.
Tldr; we have no idea
Fast-growing companies which are investing aggressively today and whose profits lie far in the future, in particular, are exposed to rising interest rates, due to the higher duration of such companies' cash flows. Duration, for those here who don't know, is a measure of the sensitivity of present value to interest rates.[a] Duration rises with the amount of time an investor must wait for cash flows, and vice versa.
For example, the present value of $100,000 of cash flow to be generated in 10 years, if the 10-year rate is 2%, is equal to $100,000/(1.02^10) = $82,000; if the 10-year rate rises, say, from 2% to 3%, the present value declines to $100,000/(1.03^10) = $74,000, or a -10% decline. However, if the $100,000 in cash flow is to be generated in 30 years, and the 30-year rate rises from 2% to 3%, the present value declines from $100,000/(1.02^30) = $55,000 to $100/(1.03^30) = $41,000, or a -25% decline. In this example, an increase in duration from 10 to 30 years changes the sensitivity of present value to a 1 percentage-point rise in interest rates from a -10% decline to a -25% decline. The longer an investor has to wait for cash flows, the greater the sensitivity of present value to changes in interest rates.
The same ruthless logic applies to companies. The present value of companies whose profitability is in a distant future declines much faster when interest rates rise than the present value of companies certain to generate cash flows in the near future. Until recently, due to historically low interest rates and no prospects for inflation, the stock market has been rewarding high-investment companies that are sacrificing current profits for growth. If interest rates continue to rise (along with inflation expectations), I would expect this pleasant state of affairs to change abruptly -- in which case, strap on your seat belts!
Guys, here is my analysis (which, after reading this article, may shed more light on the matters). We have had an asset bubble due to low interest rates. Because people don't want to keep money in banks. So we have had a bubble in crypto and stocks etc. As interest rates rise - and they will, because the government will need to reload for the next QA or whatever - asset markets will keep taking hits. The question is…
Ah, is there anything about Austrian economists I'm missing?
>"The Austrian school believes any increase in money supply not supported by an increase in the production of goods and services leads to an increase in prices, but the prices of all goods do not increase simultaneously." //