Investing General Discussion
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Gurgeh
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Have you even read the OP ? And understood my reply ? What I'm suggesting can only extend the time he would keep Netflix. If he had assumed in 2009 that netflix was worth $30 USD, he would have sold it in 2010 regardless, but if he had assumed it was worth $150 it would have prevented him from selling at $150 and triggered a sale at $400. Beside it doesn't seem to me that the answer Sanrith is looking for is : you should switch your trading strategy to long term hunches.
Sanrith Descartes
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To clarify something. My entire probability bit in my post was in reference to the concept of a "hot streak" at a craps table. I in no way meant to imply investing is a random thing.
Sanrith Descartes
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Sanrith Descartes
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Not everyone is investing in growth though. And for everyNetflix, I can probably put forth 3 or 4 pets.com
Growth is great when you pick a good stock. I avoid growth personally. I understand I will miss the next Google. I also think there are many other reasons people dont achieve life changing returns. Uber was supposed to be an IPO superman. Bag holders now might be having second thoughts. There is something to be said for companies making tens of billion in real profit.
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Sanrith Descartes
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I actually do focus on long term investing. That is the bulk of my investments. I also have a sum of money that is use to trade using specific parameters. I think current valuations of the SP500 are too high to continue to purchase so I am using the cash to trade. I expect a correction or deeper in the foreseeable future and also see a lot of sideways movement until it occurs.
Blazin
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If an investor can't tell the difference between netflix and pets.com then they aren't going to get very far regardless. If you don't mind sharing what is the amount of your investment portfolio and then what amount do you swing?
Sanrith Descartes
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Blazin
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Reason I ask is two fold. Playing the market (trading) with a small amount other than for practice doesn't serve a ton of purpose since even wins are negligible compared to your ability to earn a living (with 30k you're good that is about the minimum I would tell someone, but I would prefer it be a smaller percent of the whole). Which ties into the second reason. The character of investing changes the more successful you are at it, when we start our annual salary may be four fold our investment portfolio and for this person there is almost no risk of loss compared to their ability to earn money. It's why percent returns are meaningless. If I want to risk $500 I could easily make 40% next week on a well timed at the money call option, but nobody would take that same risk with $50,000 if they were making $100k/yr.
We rarely talk about outside income as it relates to investing even though it it is one of the largest factors to our behavior. Most financial advice assumes you are still a person trying to make it and it is almost never tailored to someone who is already well on the road. I tend to do the same here, giving the canned but solid advice of "invest in a low cost index fund", but there are very few wealthy people whose net worth well exceeds their income potential who would just put all their money in the market. Most of the professional traders I interact with are worth between $10 and $50M I have never heard any of them say "I made x%". You can't pay your bills with a %. It's I made $5k trading AMD etc.
This thread will always be frequented by people who may just be flinging 10 shares on their RH to the more common, some what astute investor with a good job who has saved 100-300k. It's enough money that people gain confidence that they have it figured out but they are also the people that the market takes to the cleaners more often than not and for years the trading brokerages have made bank on them while the majority are losing. Have seen it so many times it's a cliche, confident business professional gets interested in the market, begins trading instead of investing and inevitably gets burned as they wonder into a neighborhood they are ill equipped for.
The best way to grow $100k into millions remains to work hard save as much as you can and put it into an index fund. For the few disciplined to do this long enough they will become wealthy and of course older and financial life will become more difficult to navigate. This forum skews to more successful income levels than the populace as a whole we have a lot of govt contractors and IT workers who make well more than national avgs. So we have a fair bit of people making $100-200k a yr who have saved the 100-300k by their 40s. Many of that demographic struggle to make much further headway. I have seen people some recently lose $50k in a year who fall into this bracket, my goal in participating in this thread has always been to try to help the best I can because I was one of them and I'm passionate about the topic.
It can be hard because we are on the internet and some of those RH traders would still challenge me which is exhausting. The reality is that trying to help people in this environment may be fruitless, I either have to act braggadocios and show individual trades that are double their net worth or get sucked into arguing with amateurs about my profession which is a waste of time. So all that to say I have the hard earned experience and scars to help you add a zero onto your portfolio and maybe avoid some pitfalls if that is what you are actually hoping to do, but there are always going to be people who parachute in and try to disrupt that. If this thread was about heart surgery it would happen less often but despite trading being a lot harder than heart surgery the barrier to throw your 2c in is very small and everyone is an expert.
On real trading groups we vet those people out by a showing of cocks as they are not helpful and may lead to harmful advice, but I don't think there would be much will for that here.
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Sanrith Descartes
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For most of my time on this board and previous iterations I just lurked. I first started posting in Movies and TV. I eventually focused on The Euro and MidEast politics threads because that is an interest and one of my degrees is there. I found this thread and really only added my advice if I felt I knew the correct answer to a question.
That being said, my savings got gutted after a divorce (the only thing that creates more portfolio loss than a market crash). I have undergrad in Econ and a grad in PoliSci with a focus on the MidEast. I went back to school this semester for a 2nd bachelors in Finance. I generally agree will Ellis and Bogle that the philosophy should be long term investing focused on the lowest possible fees and owning the entire market (such as the SP500 or Total Market). Play the long term growth percentage. That is where my investments are.
I also agree with Shiller's assessment that right now valuations are out of whack and my own assessment that this current bull is on its last legs and is being propped up by central banks and share buybacks. I dont believe in timing the market as a rule, but I also feel I can make more holding the cash position I have until the market corrects again (ala Dec 2018) than I will lose in terms of gains missed from now until when it happens.
I dont let my cash sit as cash. When I see an opportunity I trade with it. I trade based on short term shocks to the stock price of high quality dividend paying stocks. Depending on the shock, algos and human fear will oversell it. Not all shocks are the same. Some companies deserve that 15 or 20% price drop. I focus on what I feel were human over-reactions or algos reacting to other algos. If, however, it doesnt take the short term bounce I am anticipating, I am comfortable being long in that high quality stock that is paying me a solid dividend while I wait for it to pop. Examples of what xompanies I am talking about are the likes of ABBV, T, XOM, M etc. I have dabbled in options but know that there is still more I need to learn. By this I mean I understand the basics and mechanics but am currently teaching myself the various spread strategies and how to properly hedge with them. I dont trade on margin nor do I short. Where I currently sit I am too risk averse for it. I can use put options for that if I felt the desire.
That is pretty much me. I mostly focus on my IRA so tax considerations arent an issue and my brokerage account isnt that large (yay divorce). I focus on maxing out my tax deferred money first each year in terms of contributions. When this market bull finally dies and I see a bottom, my cash will move in to the long term investment pile.
Gurgeh
Silver Baronet of the Realm
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I had a similar feeling regarding housing market (in Paris) :
I could have started buying an appartment in the mid 00's, but the price seemed bullish to me back then, with extremely low returns compared to the second half of the 20th century. I finaly bought one in 2017... and I'm in the process of buying a second one. The problem is that we're in uncharted territories, negative interest rate and they keep going down. There's no telling when this madness will stop, it could very well go on for a decade or more... On that second appartment I'm buying, the IRR would be around 3% if I was buying it without leverage. But since interest rate are at 1% over 25 years, and that I can borrow about 90% of the investment, the IRR I'm actually computing is between 12% and 25%...
I did some due diligence with large companies a few years ago, and one had stopped computing their IRR based on cashflows but did it on their EBITDA because they could finance their shit 100% with under 1% interest rate, so most of their projects would have an infinite IRR...
That is the world we are living in, and it's really difficult to say when that shit is going to crash, but people have been saying it's going to crash soon for up to two decades now, but it could very well last another two, look at Japan. Assets values are really out of whack compared to post WW2 average, but we really live in a strange world.
I agree with you though, I've been also playing defensively, favoring companies that are currently making large profits rather than those growing only thanks to the free money, if a crash happen, these are going to crash a lot harder.
Sanrith Descartes
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I'll be perfectly honest. The entire negative interest rate boggles my mind. It's like everything I learned is telling me "no, that isnt right".
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Gurgeh
Silver Baronet of the Realm
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Yeah... But currently, that's the game we have to play.
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Sanrith Descartes
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So how does it actually work? Say you get a mortgage or a business loan and there are negative rates.
Gurgeh
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Danish bank launches world’s first negative interest rate mortgage
Jyske Bank will effectively pay borrowers 0.5% a year to take out a loan
www.theguardian.com
Pants on the head.
Sanrith Descartes
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Does no one there question where that paid interest comes from? Is it just the ECB printing euro to pay it? Mind boggling..Danish bank launches world’s first negative interest rate mortgage
Jyske Bank will effectively pay borrowers 0.5% a year to take out a loan
Pants on the head.
Gurgeh
Silver Baronet of the Realm
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Banks have been borrowing to the ECB at a negative interest rate for a while, so it's not "shocking", as it took a couple years to get to the point that "regular" customer can get those. But banks also fund themselves through bonds, with negative interest rate. I'm not sure whether those are also bought entirelyby the ECB (the ECB is at least buying a part of them afaik) or if there are actual private actors buying them.
fris
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of the myriad of forums i frequent on a daily basis, this is one of the few that I hope to see a response to. over the past few years, this topic has become a growing passion. so like previous passions, i try to immerse myself w/ input, and try to get a range of said input. i've settled on the 'index it and forget it' methodology, with a bit of 'fun money games'. that fun money is a few stocks that i'm passionate about, and other things i want to learn more about. say 5% of my total retirement is in what I call fun money. thanks to everyone that participates. i think I have enough knowledge to ignore 'advice' from those that should be, but welcome the conversation they bring. like politics, it's important to have your positions challenged on a regular basis.
why is this the case? this is me to a T.
why is this the case? this is me to a T.
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Blazin
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I don't pick sides in a market, nor do I make forecasts. My assessment of the data currently in hand vehemently disagrees with your assessment. I think the secular bull market is just getting started. Following Shiller is about the worst possible thing you can do I mean absolutley horrible. Valuations matter certainly but they are a horrendous forecasting model.
For example:
Here is a chart of the S&P in early 1995. Now you would be there saying "this bull market is on it's last legs and is over valued"
Here is what happened next five years:
You would have missed the vast majority of that just like many did because of the exact thinking you are displaying now. When the last secular bull market began the median shiller PE from 1881-1982 was 14.83. During the bull run it would go on to expand 198% beyond it's median range. This is why making money is difficult, as often our education and logic tells us the exact wrong thing. Shiller PE expanding is oft a bull sign not a bear it means that investors are increasingly willing to pay more for earnings. There are currently over 1000 stocks yielding over the 10yr treasury yield. Historic returns in that situation have been bountiful going forward.
Your view of the market right now is the majority view there is a ridiculous amount of people sitting on cash, that is not how a secular bull market dies. We are still well below the level of investment seen at previous tops, and sentiment is near lows not highs. This is why Bogle is right because unless you seriously up your game on your homework, the more involved you are the more your fear will drive down your long term gains.
Data pointing towards more to run:
AAII bullish sentiment has consistently stayed below long term averages let alone in euphoria levels
Treasuries yields are very low and highly over bought
Institutional investors are heavily under invested and sitting on cash
The public level of market investment is just above 2009 lows
Demographics point to more to run, in 2009 the largest avg age cohort was 55 today it's 25. Millennials in their mid 30s are just entering the period of higher consumption (this is what drives large secular trends)
Global DOW is testing and appears to be holding a break out from very long term box
Unemployment is at historic lows
High Yield spreads are in the 4s
Consolidation has occurred above moving average cluster
200 day ma is climbing
You don't need to link me bearish data, no investor needs to look for it. Media is wall to wall bearish prognosticators non stop, singing the same tune they always sing as the market passes them by. I have a degree in Economics I spend hours upon hours every week studying economic reports, you must look at the weight of the evidence. Leave your biases at the door. I'm not married to this view, I take it day by day and if things change I'll adapt but you must have an incredible filter for noise to succeed and stay the course. Don't make forecasts then trade on them. Read what is, we are making higher highs, the market has been consolidating a 30%+ run off the election lows it can be a period of frustration and challenge. Harder markets are often followed by easier markets.
Fear is our default setting, it's easy to be fearful. Just about every ounce of normal human tendencies will lead to bad choices in investing.
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Gravel
Mr. Poopybutthole
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Whole post was good. But this really nails it. If you're someone "working to make a living," it's almost always a bad idea to actively trade. The reason is that your regular income should always dwarf the amount you could make trading, as long as you're not being overly risky.
You could be overly risky, and beat that, but chances are you'd need to expend more resources (time) at the expense of your regular income in order to make smart decisions. Meaning, you get a much better return on your time in the career field you've chosen.
And
fris
, my guess is that because most people save a small percentage of their income (5-20% generally), it means they see a lot of market cycles. And since most people are super risk averse, they make bad decisions. So when you get a major bear or downturn, they liquidate, lock in their losses, and start over with 30% less than they started with. By the time they rebuild it with their 5-20% investments, another market cycle comes and wipes it out again.You can beat that by investing significantly more, or by bucking human nature and not selling (market timing).
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