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

“A Mild Recession”

thereformedbroker.com

Post reply on HN
Print view View original

31–40 of 117 posts

Re: “A Mild Recession”

#31

Post by Jensson »

SketchySeaBeast wrote: post #14
Jensson wrote: post #8

Earlier quoted context omitted.

Main difference is that the past 10 years everyone and their mom parroted the mantra "buy index funds, it is the best place to put all your savings". That wasn't the case before, today index funds makes up a larger share of investors than ever before in history so we have never seen what an economic crash looks like when everyone invests in index funds. Maybe it wont be bad, but maybe this will be the biggest crash e…

Given that index funds track the most popular funds is it actually the case that money is distributed differently than before? As an index fund investor I have no illusions that the index funds are immune to dips, but I know that I'm saved from the extremes that individual stocks provide - the odds are excellent I'll never wake up ruined overnight, but by also I'll never get spontaneously rich either. Just for contex…

The passive vs active investor numbers I see tend to put them roughly equal or passive investors being more. Not sure exactly how index funds and passive investments are different, but since vanguard are selling index funds they probably define it as strictly as possible to make it look like it is a smaller part of the market.

Re: “A Mild Recession”

#32

Post by dcolkitt »

s1artibartfast wrote: post #9
throwaway5959 wrote: post #5

Earlier quoted context omitted.

Please show on the S&P 500 graph where buying to sell now hasn’t been a great opportunity in the last 100 years minus the last twelve months.

Surely you believe there is some P/E where a company is a bad investment?

Depends on discount rates. The value of a company is the net present value (NPV) of its discounted cash flow (DCF). P/E is just a kludge to simplify the much more complex DCF analysis.

And it's pretty clear that interest rates have been steadily falling for 40 years[1]. Arguably 500 years[2]. Is there temporary variation around the business cycle? Sure. But in the long-term it's extremely unlikely we return to the There's strong macro evidence that interest rates are heavily influenced by demographics[3]. And despite what happens this recession, the population isn't going to stop aging.

All of this to say that historical appeals to "normal" P/E ratios is extremely misguiding. We're probably never going back to a world where single digit P/E ratios are the long-term norm, because we're probably never going back to a world with 5% real interest rates are the norm.

[1]https://fred.stlouisfed.org/series/REAINTRATREARAT10Y [2]https://www.visualcapitalist.com/700-year-decline-of-interes... [3]https://www.frbsf.org/wp-content/uploads/sites/4/4-Thwaites-...

Re: “A Mild Recession”

#34

Post by dcolkitt »

Jensson wrote: post #8
throwaway5959 wrote: post #5

Earlier quoted context omitted.

Please show on the S&P 500 graph where buying to sell now hasn’t been a great opportunity in the last 100 years minus the last twelve months.

Main difference is that the past 10 years everyone and their mom parroted the mantra "buy index funds, it is the best place to put all your savings". That wasn't the case before, today index funds makes up a larger share of investors than ever before in history so we have never seen what an economic crash looks like when everyone invests in index funds. Maybe it wont be bad, but maybe this will be the biggest crash e…

Why would index fund investors be any more likely to cash out on falling equity values than investors in actively managed funds or single equities?

If anything it seems quite the opposite? Index fund investors know the market always goes back up on long enough time frame. Investors in actively managed funds have to continuously question whether their manager is incompetent.

Re: “A Mild Recession”

#35

Post by samsonradu »

nh23423fefe wrote: post #28
samsonradu wrote: post #6

Earlier quoted context omitted.

Too young to understand what happened in the 2008 GFC but I doubt the 'feeling prepared' part works like this. First of all, the recessions tend to last longer than most people expect/plan for. Statistically, it will turn out their 'secure' jobs will be less 'secure' than expected. Meanwhile their emergency funds will start shrinking (slowly at first, then all at once) due to loss of purchasing power & eventual job l…

But you just responded point by point with non-sequiturs. I made a comparison between 2007 and now, while you just stated ignorance of the past and made pessimistic assertions of my ability to estimate relative security. Meanwhile you hold a belief like, "the future will be good because capital will be allocated better"

I used the word ‘statistically’ to underline the fact that it will not happen to everyone, and specially not to you in particular.

> Meanwhile you hold a belief like, "the future will be good because capital will be allocated better"

Yes

Re: “A Mild Recession”

#36

Post by Shikadi »

samsonradu wrote: post #6
nh23423fefe wrote: post #3

I actually feel really prepared for this one. 2007 made me nervous, but not this one. I feel secure in my employment and I finally have a real emergency fund even if I lose my job. I'm not optimistic about long term though. The infinite growth delusion seems like it will break in my lifetime, retirement is scary

Too young to understand what happened in the 2008 GFC but I doubt the 'feeling prepared' part works like this. First of all, the recessions tend to last longer than most people expect/plan for. Statistically, it will turn out their 'secure' jobs will be less 'secure' than expected. Meanwhile their emergency funds will start shrinking (slowly at first, then all at once) due to loss of purchasing power & eventual job l…

Unfortunately, recessions tend to shift wealth up even more these days, partially because of government bailouts, but also because of stock puts and shorting

Re: “A Mild Recession”

#37

Post by est31 »

Jensson wrote: post #13
SketchySeaBeast wrote: post #11

Earlier quoted context omitted.

Given no reliable alternatives, I don't see an option other than to bet my long term goals on long running trends.

You cherry picked the companies though. Take the index for the top companies in some other country than USA and that investment no longer looks as secure. USA did great the past 100 years, many other countries didn't.

Usually those indexes are not as diversified as the US index is. Take German DAX for example. It's mostly made up by chemical, car and industrial companies. The post-war German economy did really great as well, but many leading German companies are private. Furthermore, the USA is one of the biggest economies in the world, way bigger than most single countries on their own.

Re: “A Mild Recession”

#38

Post by Jensson »

dcolkitt wrote: post #34
Jensson wrote: post #8

Earlier quoted context omitted.

Main difference is that the past 10 years everyone and their mom parroted the mantra "buy index funds, it is the best place to put all your savings". That wasn't the case before, today index funds makes up a larger share of investors than ever before in history so we have never seen what an economic crash looks like when everyone invests in index funds. Maybe it wont be bad, but maybe this will be the biggest crash e…

Why would index fund investors be any more likely to cash out on falling equity values than investors in actively managed funds or single equities? If anything it seems quite the opposite? Index fund investors know the market always goes back up on long enough time frame. Investors in actively managed funds have to continuously question whether their manager is incompetent.

Index funds invests in the whole economy, so when they are overhyped people will over invest in the whole economy, that is the main danger. But yes, the invest/cash out cycle is probably longer than other kinds of investments, so wee see a longer bull run than normal but likely we will also see a longer/deeper recession than normal for the same reason.

Re: “A Mild Recession”

#39

Post by Shikadi »

kiba wrote: post #19
nh23423fefe wrote: post #3

I actually feel really prepared for this one. 2007 made me nervous, but not this one. I feel secure in my employment and I finally have a real emergency fund even if I lose my job. I'm not optimistic about long term though. The infinite growth delusion seems like it will break in my lifetime, retirement is scary

Infinite growth forever is a truism that isn't very useful. Growth can continue indefinitely, but we will hit limiting factors relating to how we structured our economy.

Why do people believe this? The earth has limited resources

Re: “A Mild Recession”

#40

Post by SketchySeaBeast »

Jensson wrote: post #31
SketchySeaBeast wrote: post #14

Earlier quoted context omitted.

Given that index funds track the most popular funds is it actually the case that money is distributed differently than before? As an index fund investor I have no illusions that the index funds are immune to dips, but I know that I'm saved from the extremes that individual stocks provide - the odds are excellent I'll never wake up ruined overnight, but by also I'll never get spontaneously rich either. Just for contex…

The passive vs active investor numbers I see tend to put them roughly equal or passive investors being more. Not sure exactly how index funds and passive investments are different, but since vanguard are selling index funds they probably define it as strictly as possible to make it look like it is a smaller part of the market.

That may be the case, doing a bit of research here I see some numbers where if you slice only the America market passive investors are near parity of even a minor majority - but the question still remains, has that fundamentally changed the market composition?

I wonder if it'll make it more stable because the passive investors aren't as inclined to randomly shift money around or pull it out. Even if they are inclined to pull it out, does the behaviour of the money being pulled out look much different when looking at the market in aggregate? It stands to reason even active investors would be heavily invested in those exact same companies and would be deliberately pulling money out as well? It seems to me that all the investors investing in the average just means the market will continue to be average.

Post reply on HN