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Save like a pessimist, invest like an optimist

collaborativefund.com

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Re: Save like a pessimist, invest like an optimist

#81

Post by paulpauper »

idoh wrote: post #74
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…

It’s not a new trend, it is common in non fiction writing. Everything Malcolm Gladwell writes is in this style, and the same for many non fiction business / self help type books.

It is annoying though when it get voted to the front page. You are expecting something that is interesting or insightful and it is just generic, repackaged investment insights/aphorisms/advice that is used as an indirect sales pitch to promote a likely equally mediocre investing service.

Re: Save like a pessimist, invest like an optimist

#82

Post by Moodles »

imtringued wrote: post #35
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…

You have $100k. Put 80% of it in the stock market. The stock market drops by 40%, your investment is worth $48k and you withdraw nothing but spend your entire emergency fund. The market recovers and now your portfolio is worth $80k. You have $100k. Put all of it in the stock market. The stock market drops by 40%, your investment is worth $60k and you withdraw $20k. The market goes back to 100% and now you have $67k i…

You've just given a cherry picked example to show that yes, withdrawing during market downturns is bad. I don't disagree with this? I'm merely saying that, on average, over the long-term, it makes more mathematical sense to ditch the EF if you're a high net worth individual. For example, you have literally just picked the worst case scenario and used that to justify why the strategy is bad. What about all the times your emergency doesn't coincide with a total market crash? My all stock "emergency fund" will actually grow larger than yours, on average. You probably have several emergencies over the course of your life.

Honestly your example is about as useful as me saying investing in stocks in general is bad, because sometimes, they go down. So what? We're talking about broad long-term averages here, nothing more.

It's fine to argue about personal psychological preferences, but as I say, this purely a mathematical statement I am making here. It should not be controversial, but it always is.

Re: Save like a pessimist, invest like an optimist

#83

Post by jnsie »

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…

Honestly it’s every business/investing/self-improvement/etc book. Clever anecdotes and analogies turning what should be a few paragraphs into a couple hundred pages. I can’t remember the last time I read a good book in one of the aforementioned categories!

Re: Save like a pessimist, invest like an optimist

#84

Post by ptsneves »

smabie wrote: post #54
fairity wrote: post #45

Earlier quoted context omitted.

To be honest, what you just said went right over my head, but I really want to learn more. Can you recommend where to start given that the strategy I'm evaluating is akin to levering up 1x and investing in index funds?

I have a blog post I wrote awhile ago that might be of interest: Diversification, Risk and Leverage https://cryptm.org/posts/2019/11/28/div.html If I was rewriting the post today, I would make some changes, but by and large, I stand by the post.

@smabie: Thanks a lot for the post. I am for the first time understanding concepts that in words were very hard to process. The math connection you make really helps, as basic calculus as statistics are part of an engineering background.

Re: Save like a pessimist, invest like an optimist

#85

Post by kd5bjo »

smabie wrote: post #67
kd5bjo wrote: post #60

Earlier quoted context omitted.

Those numbers sound too good to be true. I’d stay as far away as possible, smelling a con. I certainly wouldn’t invest money I can’t afford to lose.

They're not too good to be true. it's just the people making those kinds of returns aren't taking retail investment. For example in crypto, market makers are commonly making 100% return. You haven't heard of these firms and they aren't interested in your money. Market makers usually do quite well for themselves, but are capacity constrained: they can earn stellar returns on tens of millions of capital, but maybe not…

It sounds like people who invest the time to properly learn finance can make a pretty good living at it. If that’s you, I wish you the best of luck.

But I’m a retail investor, and will almost certainly remain one— Not only do I not have the training to come up with these strategies, I don’t have the knowledge to judge the veracity of anyone claiming to sell them to me either. I’m content with my suboptimal portfolio that I don’t have to think about more than once a year, and have more important things to spend my time on.

Re: Save like a pessimist, invest like an optimist

#86

Post by paulpauper »

lixtra wrote: post #11

> You could tell three things about Bill Gates pretty quickly. He was really smart. He was really competitive; he wanted to show you how smart he was. And he was really, really persistent. Of course he was also a lier (vapor ware). And a cut throat business man. You might like nowadays Bill Gates philanthropist, but there is a reason people hated him for decades. I don’t understand why retrospectives on him ignore th…

The vast majority of famous people also have a lot of haters

Re: Save like a pessimist, invest like an optimist

#87

Post by el_nahual »

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 different. They have very little interest in saving for retirement--they think in terms of investing in businesses. They don't buy etfs or stocks. They buy (small, then larger) businesses. It's very active and after age 40 or so takes up most of their time. The goal is to never retire, but rather to build a series of cash producing entities for ever.

Part of this is certainly cultural. In lots of the world, being a boss is higher status that being an *employee", regardless of the actual income each activity generates. The owner of a business with 200k in revenue is higher status than a McKinsey employee with a 500k salary.

This cultural difference is reflected in a desire to escape "wages" as soon as possible, not necessarily "save for retirement".

Re: Save like a pessimist, invest like an optimist

#88

Post by paulpauper »

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...?

it really depends on the underlying asset. short dates bond trading involves large leverage because short-term bonds tend to not move much

Re: Save like a pessimist, invest like an optimist

#89

Post by Moodles »

hanoz wrote: post #48
imtringued wrote: post #35

Earlier quoted context omitted.

You have $100k. Put 80% of it in the stock market. The stock market drops by 40%, your investment is worth $48k and you withdraw nothing but spend your entire emergency fund. The market recovers and now your portfolio is worth $80k. You have $100k. Put all of it in the stock market. The stock market drops by 40%, your investment is worth $60k and you withdraw $20k. The market goes back to 100% and now you have $67k i…

That's all for an emergency on day one! If the stock market goes up 70% before your emergency, you'd have been better off with the all in strategy.

I know. I get the exact same push back every time I mention this. I don't know why? I'm literally saying, on average, over the long-term, it's mathematically better to ditch the EF. This is a mathematical statement, but always someone says ""but what about 2008!?" as if I havn't considered it. It's quite bizarre. I suppose an EF is an emotional issue for a lot of people maybe.

Re: Save like a pessimist, invest like an optimist

#90

Post by paulpauper »

spekcular wrote: post #32
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…

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.
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