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The advice assumes you're investing in an index fund or something equivalent; the market as a whole, amortized, goes up. Individual companies may be a different

by _bxg1 7y ago

The advice assumes you're investing in an index fund or something equivalent; the market as a whole, amortized, goes up. Individual companies may be a different story.

quotemstr 7y ago
Index funds strike me as a very bad idea. They reward unprofitable ventures just for being in some index. Buying into an index fund, therefore, is buying into a class of systemically overpriced assets. Yes, backtested, index fund investment does well---but that's because you're backtesting into an era before everyone was bleating "buy index ETFs!". Between weird investment strategies, the length of the current boom, and the very low interest rates at the peak of the boom, this coming bust is going to be a massacre. I'm honestly not even sure whether the system as a whole will survive it.
- Bjartr 7y ago
  > I'm honestly not even sure whether the system as a whole will survive it. The question then remains the same while changing. Do I invest in the market, or in canned goods?
  - lotsofpulp 7y ago
    Both.
- human20190310 7y ago
  Index funds basically delegate "price discovery" to the activity of other investors, and just assume that the market price is the right one. This works as long as there are enough non-index investors trying to outsmart the market by actively trading.
  - loeg 7y ago
    And there will always be active traders setting prices, because it is profitable to do so.
- robocat 7y ago
  I suspect incredible funds are overinvested (as occurred to many popular labelled investment strategies from the past). But although you might get better returns picking the next strategy, you probably would do fine with index funds. And timing the market has always been a loser strategy (except for a few lucky or skilled outliers).
nostrademons 7y ago
That itself assumes that the index measures the full universe of all economic activity. Innovation and startups are themselves evidence that over long (decades) time scales, this isn't true. When a company in the index falls on hard times and folds, where did its revenues go? Frequently, it's to some startup that was privately held until a couple years ago. By the time it IPOs and gets included in the index, much of the wealth has already been generated, and its inclusion in the index is a transfer of wealth from passive investors to the founders, angels, and VCs who funded it when it was far from a sure bet. A similar situation would occur if a younger generation decides that stocks in general are a scam and that they're going to put all their money into cryptocurrencies. I've met 20-somethings who actually say that; if enough of them believe it, it becomes a self-fulfilling prophecy, and all the old folks whose retirements are in indexed 401(k)s end up holding the bag as those investments become worthless and a younger generation ends up inventing a whole new financial system.
- _bxg1 7y ago
  > all the old folks whose retirements are in indexed 401(k)s end up holding the bag as those investments become worthless and a younger generation ends up inventing a whole new financial system If the world's investments cease to be made in actual companies, in favor of a meaningless commodity, we'll have much bigger problems.
  - quotemstr 7y ago
    All currency is a meaningless commodity. What matters is how it modulates the flow of real goods and services. A wad of cash is meaningless except as a claim to a share of someone's future productivity, after all.
    - fwip 7y ago
      "Investing" in bitcoin is like collecting stamps. It doesn't create any value for anyone. Investing in Joe's Can Factory allows Joe to make more cans.
lixtra 7y ago
Did you ever look at Japan? Still not back to the all time high decades ago.
- loeg 7y ago
  Don't invest exclusively in Japanese stocks.

by _bxg1 7y ago

The advice assumes you're investing in an index fund or something equivalent; the market as a whole, amortized, goes up. Individual companies may be a different story.

quotemstr 7y ago

Index funds strike me as a very bad idea. They reward unprofitable ventures just for being in some index. Buying into an index fund, therefore, is buying into a class of systemically overpriced assets. Yes, backtested, index fund investment does well---but that's because you're backtesting into an era before everyone was bleating "buy index ETFs!". Between weird investment strategies, the length of the current boom, and the very low interest rates at the peak of the boom, this coming bust is going to be a massacre. I'm honestly not even sure whether the system as a whole will survive it.

Bjartr 7y ago
> I'm honestly not even sure whether the system as a whole will survive it. The question then remains the same while changing. Do I invest in the market, or in canned goods?
- lotsofpulp 7y ago
  Both.
human20190310 7y ago
Index funds basically delegate "price discovery" to the activity of other investors, and just assume that the market price is the right one. This works as long as there are enough non-index investors trying to outsmart the market by actively trading.
- loeg 7y ago
  And there will always be active traders setting prices, because it is profitable to do so.
robocat 7y ago
I suspect incredible funds are overinvested (as occurred to many popular labelled investment strategies from the past). But although you might get better returns picking the next strategy, you probably would do fine with index funds. And timing the market has always been a loser strategy (except for a few lucky or skilled outliers).

nostrademons 7y ago

That itself assumes that the index measures the full universe of all economic activity. Innovation and startups are themselves evidence that over long (decades) time scales, this isn't true. When a company in the index falls on hard times and folds, where did its revenues go? Frequently, it's to some startup that was privately held until a couple years ago. By the time it IPOs and gets included in the index, much of the wealth has already been generated, and its inclusion in the index is a transfer of wealth from passive investors to the founders, angels, and VCs who funded it when it was far from a sure bet. A similar situation would occur if a younger generation decides that stocks in general are a scam and that they're going to put all their money into cryptocurrencies. I've met 20-somethings who actually say that; if enough of them believe it, it becomes a self-fulfilling prophecy, and all the old folks whose retirements are in indexed 401(k)s end up holding the bag as those investments become worthless and a younger generation ends up inventing a whole new financial system.

_bxg1 7y ago
> all the old folks whose retirements are in indexed 401(k)s end up holding the bag as those investments become worthless and a younger generation ends up inventing a whole new financial system If the world's investments cease to be made in actual companies, in favor of a meaningless commodity, we'll have much bigger problems.
- quotemstr 7y ago
  All currency is a meaningless commodity. What matters is how it modulates the flow of real goods and services. A wad of cash is meaningless except as a claim to a share of someone's future productivity, after all.
  - fwip 7y ago
    "Investing" in bitcoin is like collecting stamps. It doesn't create any value for anyone. Investing in Joe's Can Factory allows Joe to make more cans.

lixtra 7y ago

Did you ever look at Japan? Still not back to the all time high decades ago.

loeg 7y ago
Don't invest exclusively in Japanese stocks.