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Save like a pessimist, invest like an optimist

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Re: Save like a pessimist, invest like an optimist

#111

Post by xchaotic »

marvin wrote: post #73
irrational wrote: post #68

Earlier quoted context omitted.

With the world’s population projected to severely contract in the coming centuries, I wonder how that will effect the possibility of exponential growth.

General artificial intelligence, once we figure it out, will cause an increase in the annual economic growth more extreme than even the industrial revolution caused. Either that or a disaster, but hopefully the former. Anyone who thinks we will run out of things to create just lacks imagination. There's so much stuff we'd really, really like to have but haven't been able to economically create yet. Medicine, body mod…

But as things get automated and cheaper that’s actually negative gdp growth. So it won’t pay your retirement

Re: Save like a pessimist, invest like an optimist

#112

Post by yeetman21 »

darkerside wrote: post #109
el_nahual wrote: post #87

I'm a foreigner that's lived in the US since college. Half of my friends and family are american and the rest foreign. There's a huge cultural difference between both sides' approach to wealth. My american f&f (outside of silicon valley) think of wealth in terms of "saving for retirement." 401ks, tax strategies, etfs, stocks etc. It's very passive, probably "correct", and very unambitious. The foreign side is totally…

> The owner of a business with 200k in revenue is higher status than a McKinsey employee with a 500k salary. What makes you say that?

He can sell the business or still run it in retirement, McKinsey employee works 25 hours a day and is a slave to his boss

Re: Save like a pessimist, invest like an optimist

#113

Post by xchaotic »

paulpauper wrote: post #90
spekcular wrote: post #32

Earlier quoted context omitted.

The book Lifecycle Investing by Nalebuff and Ayres, both professors at Yale, argues fairly convincingly that trading on margin is optimal for young people, especially those expecting high-earning careers (e.g. software developers). The calculations in the book use much more pessimistic annual interest rates than the 1% you quote, too. I'm too risk averse to actually do this, even though I believe their arguments. How…

path dependency is the main problem with margin trading. S^P 500 fell 60% in 2007-2008. So that should give you an idea of how much of a cushion you need to give yourself for the worse case scenario.

If this is just retirement money, so what? It rebounded pretty well since.

Re: Save like a pessimist, invest like an optimist

#114

Post by xchaotic »

fairity wrote: post #9
Moodles wrote: post #6

Earlier quoted context omitted.

I actually have a somewhat controversial opinion (that shouldn’t be controversial because it’s all math, but it still is regardless) that, after you save 5-6x your emergency fund, you don’t need an emergency fund at all and you’re better off investing it all in a total market index fund. The reason being that even if there is a market crash, you’ll still be able to afford the emergency since you’ve saved multiples of…

I’ve thought about this too, and came to a different conclusion. The primary reason is just because the markets haven’t collapsed more than 85% over a months long period before, doesn’t mean it won’t in the future. And, my marginal utility for money gets so high below a certain level, that it’s not worth risking this outcome when the marginal utility of more money is relatively smaller.

I think the central banks and government will prevent any future collapse of that scale. Don’t fight the fed. They have more money than you.

Re: Save like a pessimist, invest like an optimist

#115

Post by roenxi »

sanderjd wrote: post #62

I'm totally philosophically aligned with this article and enjoyed reading it, but I'm just interested to hear whether anyone else has this problem: More and more stuff I read seems to be name-droppy like this. For instance, I've been reading "The Psychology of Money" recently, and I'm enjoying it, but its style is a lot like this article; an endless series of anecdotes about famous and semi-famous people, with insigh…

> Is this a new trend of some kind, or has it just become more obvious to me lately?

It is a classic trend. Anyone writing a book or trying to reach a wide audience has to cater for the fact that the audience has none of the skills required to assess complex claims. Most of the readers aren't going to be good at maths, are not going to have a grasp on the nuances of human behaviour and incentives, struggle with science, don't read history, etc, etc.

What most people are good at is copying successful people. So it is extremely common for people with large audiences to converge to a "Here is an example of a famous person, here is what they did. Here is another famous person, they did the same thing" style.

Re: Save like a pessimist, invest like an optimist

#116

Post by xchaotic »

Moodles wrote: post #102
loxs wrote: post #61

Earlier quoted context omitted.

This sounds true if you only optimize for (hedge against) one risk only - stock market crash. To me, an emergency fund is a hedge against various different risks like these (I am guilty of not being prepared for all of them): 1. A pandemic. For this I was ready even before we thought it's indeed possible - I have funds in several different banks (debit cards) that allow me to not have to visit a bank physically for s…

purple goggles?

Rose tinted glasses

Re: Save like a pessimist, invest like an optimist

#117

Post by quickthrower2 »

yojo wrote: post #39

I’m skeptical of the closing claim that exponential growth keeps happening forever. Yes, you can grow GDP 2% for 200 years, that results in an economy 50x the start size. Expand it to 1000 years and you’re talking about an economy 400 million times as large. After 2100 years you’re up to an economy a QUINTILLION times as large. At some point the exponential curve has to go S-shaped. Maybe we’re still in the happy exp…

The problem with this is how you measure it. In dollars? Inflation adjusted dollars? How to measure that inflation?

Re: Save like a pessimist, invest like an optimist

#118

Post by Def_Os »

smabie wrote: post #51
fairity wrote: post #2

One question that's been top of mind lately for me is how optimistic you should be in your investing strategy. IBK currently allows retail investors to trade on margin with an annual interest rate of only 1% (yes, really). You can borrow up to 2x your principle at this rate. If you were extremely optimistic, you would borrow 2x your principal and expect to 3x your annual return. If you were optimistic but wanted to a…

One should target volatility, not leverage. Without leverage, you can usually only take the most risky of strategies in order to get a return. If you're willing to take on leverage, you are much more likely to find a good strategy. Source: work at a small prop firm that takes on around 10x leverage. Even at this leverage ratio, we are considerably less risky than the S&P 500. Even at 10x, our volatility is somewhere…

But increased leverage doesn't mean your risk-adjusted returns are any better.

Re: Save like a pessimist, invest like an optimist

#119

Post by lovecg »

ivalm wrote: post #71
yojo wrote: post #57

Earlier quoted context omitted.

I threw out some numbers to set a baseline of “this can’t go on forever.” I don’t pretend to know when it starts to transition, or the speed of the transition. The fact that the rate of growth will someday slow means assumptions you make about your 401k may or may not hold if we happen to be at the wrong point on the curve.

But humans also don’t have infinite demand on production. If we have a sufficiently high amount of production per capita (ie we are post-scarcity) then growth becomes irrelevant (especially if overall population isn’t growing, which with current trends seems reasonable). At that point the only thing is to ensure that output distribution is sufficiently equitable. We can then have millions of years of stable happy hum…

Would the world of today seem “post-scarcity” to a medieval peasant? I don’t think humanity will ever have “enough” — it’s just not in our nature.

Re: Save like a pessimist, invest like an optimist

#120

Post by smabie »

marvin wrote: post #75
smabie wrote: post #51

Earlier quoted context omitted.

One should target volatility, not leverage. Without leverage, you can usually only take the most risky of strategies in order to get a return. If you're willing to take on leverage, you are much more likely to find a good strategy. Source: work at a small prop firm that takes on around 10x leverage. Even at this leverage ratio, we are considerably less risky than the S&P 500. Even at 10x, our volatility is somewhere…

And certainly you are well protected against black swan type events, even at 10x leverage...?

Shit happens and even the smartest people can get fucked, just look at the LTCM blow up. So of course it's possible.

It's impossible to eliminate all risk, regardless of the leverage ratio. I'm just saying that leverage isn't a reasonable proxy for risk. You have to dig deeper.

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