Why in the world would you own bonds?

Post by bidirectional » Wed, Mar 17, 2021, 3:55 PM UTC

Leherenn wrote: post #304

DebtDeflation wrote: post #276

We seem to have an entire generation of people who think "stonks can only go up". Similar views were expressed about houses/real estate in 2007. At 47, I'm probably substantially older than the average HN poster, but having lived through the 2001 dotcom implosion and the 2008 financial crisis has given me some perspective. I'm getting some really bad vibes about the sustainability of the the economy and asset markets…

Not that you are necessarily wrong, but I am not sure your examples really show that. The Dow Jones is at an all time high, even adjusting for inflation, and not by a little. Yes, there are dips, but over the long term it seems to hold. As far as I can tell, the following holds true, ∀ t ∈ [1930, now], V(t) > V(t - 30) where V is the inflation-adjusted value of Dow Jones that year.

Post by andreilys » Wed, Mar 17, 2021, 3:59 PM UTC

encoderer wrote: post #356

DebtDeflation wrote: post #276

We seem to have an entire generation of people who think "stonks can only go up". Similar views were expressed about houses/real estate in 2007. At 47, I'm probably substantially older than the average HN poster, but having lived through the 2001 dotcom implosion and the 2008 financial crisis has given me some perspective. I'm getting some really bad vibes about the sustainability of the the economy and asset markets…

You were like 25 during the dotcom crash and 35 during the housing crash. It’s possible these events were timed in a way that inflicted maximum psychological damage for you. I know at 25 I had just started my first “good” job and my first child was born at 35. Quite possibly you’re being too pessimistic.

Post by thatfrenchguy » Wed, Mar 17, 2021, 4:03 PM UTC

tchvil wrote: post #352

cainxinth wrote: post #301

Earlier quoted context omitted.

> We seem to have an entire generation of people who think "stonks can only go up" I'm not denying the existence of bubbles, busts, and crashes, but historically and on average, the stock market does only go up. This market is overvalued and will likely correct, but that doesn't mean it won't continue to rise on the aggregate.

Say you confidently bought the roaring Eurostox 600 in March 2000. You saw it coming back to its value in July 2007. Then reach 1% gain in March 2015. And a 7% gain in Feb 2020. Buying S&P, or the Apple, Amazon and Tesla ones is another story. Looking at the average can be misleading.

Post by eloff » Wed, Mar 17, 2021, 4:04 PM UTC

jdhzzz wrote: post #333

DebtDeflation wrote: post #321

Earlier quoted context omitted.

>over the long term it seems to hold Certainly, but as Keynes said, "in the long term we're all dead". Less dramatically, average annual returns over long periods of time depend dramatically on when you start and stop the calculation. At some point, people want to retire and live off their savings and "wait another 10 years and you'll recover your principal loss" isn't a comforting message.

That's why one keeps 10 years of cash (or equivalent) as a cache to weather those downturns. I'd recommend 6 years, but something that you could draw from while markets recover. It seems as if the cadence of market downturns and recoveries is increasing. It's not a binary choice.

Post by skolos » Wed, Mar 17, 2021, 4:05 PM UTC

jeffreyrogers wrote: post #353

skolos wrote: post #347

For me this type of analysis is always suspicious because it doesn't consider timing. How do I know that when I buy stocks I'm not buying at a peak, or when I need to sell them I'm not going to sell at the bottom. So I ran an analysis [1] where I just used random timing and checked what distribution would be. Turns out if you are long term investor (> 10 years holding period) it is more beneficial to hold stocks than…

The problem with this is it assumes the macroeconomic conditions stay constant. But the macroeconomic conditions since 2008/2009 have been wildly different than ever before.