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What to know about the stock market (2007)

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Re: What to know about the stock market (2007)

#91

Post by sokoloff »

hnbad wrote: post #66
simongray wrote: post #36

Earlier quoted context omitted.

> Meanwhile in most European countries, punitive taxation makes it extremely difficult to move up in social class, even from middle class to upper middle class. This is not true. Several of the highest taxed countries in Europe also have the best social mobility in the OECD: https://www.oecd.org/els/soc/1-5%20generations.png It might be the case that Germany is particularly rigid, but that is not transferable to most…

German has extremely liberal inheritance taxes. On the one hand this is often justified with the existence of the German "Mittelstand" (medium sized businesses typically owned by one family over generations), on the other this means the easiest way to get rich is to have rich parents. Low inheritance taxes are actually a great predictor for maintaining social inequality over generations. If you wanted to reduce socia…

That reduces social inequality, but that is not the singular goal of a society. Producing goods and services and wealth for the nation is a goal that competes with “tax away almost all the gains of these activities”, which is why there’s debate about how to balance these things.

Re: What to know about the stock market (2007)

#92

Post by dmurray »

twic wrote: post #70
fergie wrote: post #57

Earlier quoted context omitted.

Whether or not you care about the stock market is basically a question of whether you run a functioning business or not. If you run a function business then you are have cash sitting on accounts. Even for a fairly modest business, a reasonable operating cushion dictates that you always have 6-7 figure cash reserve. Ideally you want this money to be sitting somewhere where it generates good returns, yet can be accesse…

The stock market is a terrible - criminally negligent - place to keep a company's operating cash. I would be fascinated to read advice from an accountant or other financial professional that says otherwise. I once worked at a company which used a money market fund for its cash. That gave them a slightly better return than a bank account. In the end, not sufficiently better to be worth bothering with.

If the company has an excess of cash and nothing good to spend it on, I think it's fine to put it in the stock market. Maybe you wouldn't count this as "operating reserves" - I wouldn't do that with the money that's earmarked to pay suppliers but not due for another month, but I would do it with the money that's earmarked for opening a new business location at an indefinite time in the future.

You can get whatever risk profile you want from the stock market in return for less yield. If you can accept two-nines certainty that you won't lose half your money in six months, any broad index fund will do. That would be acceptable for a lot of "modest businesses" which find themselves with "6-7 figures cash reserves". If you need better, you can do fancy things with options, or put a fraction of the money in the bank and invest the rest.

(I am a financial professional, but not in this field, and this is not financial advice)

Re: What to know about the stock market (2007)

#93

Post by dgb23 »

cehrlich wrote: post #85

This is a great article that explains markets (not just the stock market really) in an easy to understand way. The one thing I believe people should know about the stock market is: There are people with more capital, time, and knowledge than you who will consistently beat you. Picking individual investments is mostly a sucker's game. Buying tech stocks and/or crypto in the last couple of years has been a consistent e…

Isn't there some qualitative difference between financially focused decision making and domain focused decision making when it comes to investing vs. gambling (as you say)?

An expert in some particular field sees different opportunities and make strong educated guesses vs a trader who will react on financial metrics.

Re: What to know about the stock market (2007)

#94

Post by cehrlich »

dgb23 wrote: post #93
cehrlich wrote: post #85

This is a great article that explains markets (not just the stock market really) in an easy to understand way. The one thing I believe people should know about the stock market is: There are people with more capital, time, and knowledge than you who will consistently beat you. Picking individual investments is mostly a sucker's game. Buying tech stocks and/or crypto in the last couple of years has been a consistent e…

Isn't there some qualitative difference between financially focused decision making and domain focused decision making when it comes to investing vs. gambling (as you say)? An expert in some particular field sees different opportunities and make strong educated guesses vs a trader who will react on financial metrics.

To a certain extent yes, but don't fall into the trap of overestimating your own domain knowledge and underestimating that of others.

Re: What to know about the stock market (2007)

#95

Post by wcoenen »

gokhan wrote: post #13
wcoenen wrote: post #4

One interesting thing about "highest bid" and "lowest ask" prices is that they can sometimes move up and down for days without a transaction ever happening. This can be observed in certain illiquid markets, e.g. for a specific bond of a company. In those cases, the "last trade price" is meaningless and it's very important to instead look at the bids and asks in the order book.

Why? Clearly, no one is actually willing to trade at those prices. Sometimes, one illogical price in illiquid markets drive the orderbook to illogical extremes. Without a transaction, all are meaningless.

The reason I said "it's important to look at the order book" is because otherwise you might enter a market order and expect to get something near the last trade price. Which you won't.

I do think the "correct price" is near the middle of the spread though. Because this sort of thing happens not just because of illiquidity, but also because everyone involved knows what the "correct" price is. (E.g. because bonds have very predictable cash flows.) There's no difference in opinion large enough to convince a trader to cross the spread.

Re: What to know about the stock market (2007)

#96

Post by pembrook »

iso1631 wrote: post #65
pembrook wrote: post #50

Earlier quoted context omitted.

Europeans can have the luxury of not worrying about investing since many European countries offer livable pensions (for now…the demographic future for this isn’t looking so good). However, this isn’t as great as it sounds. While the European model for healthcare and education is better, their pension schemes are arguably a much worse deal than what Americans can have. In Europe, you’re basically paying the government…

In the UK you can stick whatever you want into stocks and shares isas, if you can afford it. The problem is that housing costs rise to suck every spare penny of income from pretty much everyone so very few people have spare money to put into those isas.

I believe this is also a side-effect of these poor pension schemes.

European governments see the demographic timebomb coming, so they massively incentivize their citizens to invest in a primary residence, treating it as forced savings. This inflates local real estate values to ridiculous levels, especially while interest rates are low.

However, incentivizing your citizens to take leveraged bets (big mortgages) on a single piece of real estate is...not great.

This means the investment portfolio of the average European citizen is ONE specific apartment (zero diversification), and negative yielding sovereign bonds (via government pension funds).

Since most European mortgages are not fixed rate, it will be interesting to see what happens as interest rates start rising in Europe.

While the bonds will start paying better interest, that mortgage exposure might start to wreak havoc on the average citizens finances...

Re: What to know about the stock market (2007)

#97

Post by 0xcoffee »

pembrook wrote: post #96
iso1631 wrote: post #65

Earlier quoted context omitted.

In the UK you can stick whatever you want into stocks and shares isas, if you can afford it. The problem is that housing costs rise to suck every spare penny of income from pretty much everyone so very few people have spare money to put into those isas.

I believe this is also a side-effect of these poor pension schemes. European governments see the demographic timebomb coming, so they massively incentivize their citizens to invest in a primary residence, treating it as forced savings. This inflates local real estate values to ridiculous levels, especially while interest rates are low. However, incentivizing your citizens to take leveraged bets (big mortgages) on a s…

Is that so? Here in The Netherlands fixed rate is pretty common.

Re: What to know about the stock market (2007)

#98

Post by pasabagi »

sokoloff wrote: post #88
pasabagi wrote: post #74

Earlier quoted context omitted.

I mean the rights of tenants are such that if you want to live in decent conditions / a stable domicile, you have to buy a house, thus becoming a property investor.

I think the act of buying a house to live in should be considered more an act of consumption than of investment . It’s not 100% consumption, but it’s almost surely we’ll over 50% consumption and yet people get confused by the fact that a slice of it is forced savings and a sliver of it is an investment and they focus on these latter two more than is appropriate and in so doing are prone to less rational decisions tha…

I wish it was just consumption! If houses always depreciated in value, then they would cost about as much as it costs to build them.

Unfortunately, because a bunch of political factors, they endlessly balloon in price.

Re: What to know about the stock market (2007)

#99

Post by 3pt14159 »

cehrlich wrote: post #85

This is a great article that explains markets (not just the stock market really) in an easy to understand way. The one thing I believe people should know about the stock market is: There are people with more capital, time, and knowledge than you who will consistently beat you. Picking individual investments is mostly a sucker's game. Buying tech stocks and/or crypto in the last couple of years has been a consistent e…

People keep telling me this, but I keep beating the market. It's been 20 years or so of applying very basic reasoning and getting ahead.

1. Commodities are bad long term bets because technology gets better. I remember people talking my ear off about peak oil and then the US turned into a net-exporter. Short term inelasticity, yes can sky rocket prices; but long term prices go down.

2. Physics based thinking. I knew electric cars were going to work because the math checked out.

3. Economics of scale works. Find companies that understand this and focus on it. When I saw Telsa focussing on a single car for a year I knew they would be a winner.

4. Software scales. People like to make money. Combine the two and its a real winner.

5. Sell when forward price to earnings after cash starts to look wonky. Which was 2007 and I think 2019. Covid and the direct stimulus kinda messed up the timing, but the market is still completely screwed. Either way, sell early and buy the crash.

Telsa, Apple, Shopify, Amazon, Google. Only really lost on Etsy (I can't believe how much they missed the opportunity to become a real platform).

Why bother investing in GM through a broad index fund if I know for sure Tesla will eat their lunch?

This isn't really get-rich-quick. This is looking at companies rationally and projecting where they will be in a year or two. And rationally speaking this market is out of wack and I wouldn't advise investing in even my favourite tech companies right now. I don't think this is Japanese Tech level of readjustment. I think there will be a -%50 S&P500 crash, maybe more, and then in 10 years Apple will be worth more than double what it is worth today. They have fundamentally better technology. Their software competency is below average, but their hardware, fit and finish, design, and cultural cache is world class and it is hard for me to imagine any scenario where they lose other than a US war with China.

Re: What to know about the stock market (2007)

#100

Post by baobabKoodaa »

jliptzin wrote: post #75
andruby wrote: post #72

Earlier quoted context omitted.

But they _are_ willing to trade at those prices. The person who posted the highest bid is willing to buy at that price and the person who posted the lowest ask is willing to sell at that price. Both regardless of the last trade price. The lack of "crossing" between those two doesn't mean no one is willing to trade.

Not always; they could just be quote stuffing

It doesn't work like that. You can't cancel a bid/ask after someone in the market takes you up on it.
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