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Please don't take offence, but you've misunderstood the mechanics of how wealth is accumulated. The wealthiest people in the world are wealthy by virtue of the

Please don't take offence, but you've misunderstood the mechanics of how wealth is accumulated. The wealthiest people in the world are wealthy by virtue of the gains made on the assets they already have. So, in a bull market, their assets grow while someone without assets is left behind. The inverse is true, too - they'll proportionally lose to the same degree in a crash - as while a poor person may have no investments, the wealthy person's investments will crash in line with the market. There won't be a financial cushion, at least not a significant one. Books have been written around timing markets and it's generally accepted that it cannot be done reliably. To get out before a crash then buy cheap would require you to predict three different moments accurately: when to get in, when to get out, and then when to buy on the "cheap". Timing even one reliably requires luck or clairvoyance. "Rich people have the financial cushion to not be impacted in the slightest way by such crashes". This is clearly false - wealthy people don't keep mountains of cash lying around as they would miss out on the growth in bull markets, and as a result their wealth would decrease relative to their peers. Investors generally just become relatively poorer during a crash then make it back and more during the next bull market, at least that's how it's worked until now. There's an old quote I can't find the source of right now that sums it up fairly aptly: "Stocks go down faster than they go up... but they go up further than they go down".

dsacco 9y ago
I agree with the thrust of your comment, but to nitpick: > Books have been written around timing markets and it's generally accepted that it cannot be done reliably. To get out before a crash then buy cheap would require you to predict three different moments accurately: when to get in, when to get out, and then when to buy on the "cheap". Timing even one reliably requires luck or clairvoyance. This doesn’t strike me as true, unless you’re describing the subset of academic economists who agree with EMH in some form. In particular, the first sentence on its own appears to be evidently untrue; it’s clear that there are many parties, including economists and financiers, who attempt to time the market and generally forecast macroeconomic shifts.
- headmelted 9y ago
  I completely agree that it's the role of many parties to attempt to forecast the market, but I'm skeptical of how many (even those whose job it is to do so day-to-day) really believe that it can be done reliably. CNBC is probably a good example of this. When you don't predict anything specific, you can never be wrong. (Clairvoyance was not meant seriously, I should have made that clear!)
  - executive 9y ago
    https://www.youtube.com/watch?v=V9EbPxTm5_s https://www.youtube.com/watch?v=V9EbPxTm5_s
- toyg 9y ago
  I think parent and you just disagree on the amount of reliability these attempts actually have. Of course everyone tries to time the market, but the amount of evidence for anyone being able to do it reliably over and over is not that great. Professionals can guarantee a certain level of educated guessing, but a lot of the most skilled moneymakers on the planet still lost their shirt in 2008.
- dhimes 9y ago
  Attempting and succeeding are two different things. Right before the last real-estate crash I attended a seminar with an economist who spoke at length why there would not be a crash and in the coming spring there was going to be a real estate boom. Quoted lots of economic stuff to back it up (indicators and such- I don't remember but he was definitely convinced). The field of economics seems to have a ways to go before it can be used reliably to predict things.
  - pault 9y ago
    It occurs to me that economics today is roughly at the same level of development medicine was circa 1500CE.
    - meebs 9y ago
pg314 9y ago
> This is clearly false - wealthy people don't keep mountains of cash lying around as they would miss out on the growth in bull markets, and as a result their wealth would decrease relative to their peers. Some wealthy people do. E.g. Warren Buffett's Berkshire Hathaway was sitting on 100 billion dollar in cash last summer [1]. If he doesn't find anything that is fairly priced, he prefers to sit on his cash and wait. [1] http://fortune.com/2017/08/07/warren-buffett-berkshire-hathaway-cash/ http://fortune.com/2017/08/07/warren-buffett-berkshire-hatha...
- nine_k 9y ago
  See also: Apple (~256B in cash), Google (~86B in cash). This cash is mostly securities, though; their "pure" cash positions would be "mere" ~15B and ~13B, respectively.
  - csomar 9y ago
    I think they mean low risk/volatility securities like T-Bonds. You can't hold 250B in a single bank. Or maybe you'll need to create your own bank. Plus they are going to demand interest and risk clarification on that.
- babaganoosh89 9y ago
  I think Mark Cuban also said he keeps a lot of his money as cash for buying opportunies.
rsync 9y ago
"the wealthy person's investments will crash in line with the market. There won't be a financial cushion, at least not a significant one." ... "This is clearly false - wealthy people don't keep mountains of cash lying around as they would miss out on the growth in bull markets, and as a result their wealth would decrease relative to their peers." I read with great interest the two volumes that Niall Ferguson wrote of the history of the Rothschild family.[1] It's a fascinating work that serves well to bridge the gap of European history between Napolean and World War One. I bring it up here because the Rothschild family did indeed do exactly what the parent comment suggested that "rich people" do. They quietly did their simple banking business year after year, piling up profits and assets that were repeatedly poured into down markets when they viewed that assets had become cheap. This was not market timing - this was simply patience. The down market always comes and their simple, boring factoring and discounting was always reliable. [1] _The House of Rothschild_ ("The World Banker")

dsacco 9y ago

I agree with the thrust of your comment, but to nitpick: > Books have been written around timing markets and it's generally accepted that it cannot be done reliably. To get out before a crash then buy cheap would require you to predict three different moments accurately: when to get in, when to get out, and then when to buy on the "cheap". Timing even one reliably requires luck or clairvoyance. This doesn’t strike me as true, unless you’re describing the subset of academic economists who agree with EMH in some form. In particular, the first sentence on its own appears to be evidently untrue; it’s clear that there are many parties, including economists and financiers, who attempt to time the market and generally forecast macroeconomic shifts.

headmelted 9y ago
I completely agree that it's the role of many parties to attempt to forecast the market, but I'm skeptical of how many (even those whose job it is to do so day-to-day) really believe that it can be done reliably. CNBC is probably a good example of this. When you don't predict anything specific, you can never be wrong. (Clairvoyance was not meant seriously, I should have made that clear!)
- executive 9y ago
  https://www.youtube.com/watch?v=V9EbPxTm5_s https://www.youtube.com/watch?v=V9EbPxTm5_s
toyg 9y ago
I think parent and you just disagree on the amount of reliability these attempts actually have. Of course everyone tries to time the market, but the amount of evidence for anyone being able to do it reliably over and over is not that great. Professionals can guarantee a certain level of educated guessing, but a lot of the most skilled moneymakers on the planet still lost their shirt in 2008.
dhimes 9y ago
Attempting and succeeding are two different things. Right before the last real-estate crash I attended a seminar with an economist who spoke at length why there would not be a crash and in the coming spring there was going to be a real estate boom. Quoted lots of economic stuff to back it up (indicators and such- I don't remember but he was definitely convinced). The field of economics seems to have a ways to go before it can be used reliably to predict things.
- pault 9y ago
  It occurs to me that economics today is roughly at the same level of development medicine was circa 1500CE.
  - meebs 9y ago

pg314 9y ago

> This is clearly false - wealthy people don't keep mountains of cash lying around as they would miss out on the growth in bull markets, and as a result their wealth would decrease relative to their peers. Some wealthy people do. E.g. Warren Buffett's Berkshire Hathaway was sitting on 100 billion dollar in cash last summer [1]. If he doesn't find anything that is fairly priced, he prefers to sit on his cash and wait. [1] http://fortune.com/2017/08/07/warren-buffett-berkshire-hathaway-cash/ http://fortune.com/2017/08/07/warren-buffett-berkshire-hatha...

nine_k 9y ago
See also: Apple (~256B in cash), Google (~86B in cash). This cash is mostly securities, though; their "pure" cash positions would be "mere" ~15B and ~13B, respectively.
- csomar 9y ago
  I think they mean low risk/volatility securities like T-Bonds. You can't hold 250B in a single bank. Or maybe you'll need to create your own bank. Plus they are going to demand interest and risk clarification on that.
babaganoosh89 9y ago
I think Mark Cuban also said he keeps a lot of his money as cash for buying opportunies.

rsync 9y ago

"the wealthy person's investments will crash in line with the market. There won't be a financial cushion, at least not a significant one." ... "This is clearly false - wealthy people don't keep mountains of cash lying around as they would miss out on the growth in bull markets, and as a result their wealth would decrease relative to their peers." I read with great interest the two volumes that Niall Ferguson wrote of the history of the Rothschild family.[1] It's a fascinating work that serves well to bridge the gap of European history between Napolean and World War One. I bring it up here because the Rothschild family did indeed do exactly what the parent comment suggested that "rich people" do. They quietly did their simple banking business year after year, piling up profits and assets that were repeatedly poured into down markets when they viewed that assets had become cheap. This was not market timing - this was simply patience. The down market always comes and their simple, boring factoring and discounting was always reliable. [1] _The House of Rothschild_ ("The World Banker")