3 ms·

What led you to the conclusion that the market will not behave as it has historically over the long-term?

dnprock 7y ago
I think the dynamic of the US equity market has changed. In the old days, you can balance your portfolio between stock and bond. This is portfolio advice from Benjamin Graham's The Intelligent Investor. We can no longer do this because interest rates are heading to 0. Bond investors don't make money from interest rates. Bond traders benefit from rate drop. Bond was an investment. It's now destroyed. We end up with cash and equity. There's a lot of money pumping into the market by central banks. Markets are no longer free. Central banks manipulate their markets. With these kinds of manipulations, we get diminishing returns. Let's say the economy gets back on its feet. Where does it get the leverage to invest? We're overloaded with debt. The interest rate is probably 0 or negative at that point.
- aeternum 7y ago
  The counter-argument to this is that even with the money being pumped into the market by the central banks, we are not seeing significant inflation in consumer goods. This implies that the money is being put to work efficiently and resulting in productivity and QoL improvements for society as a whole.
  - dnprock 7y ago
    We have not seen inflation. But we're seeing slow growth and negative interest rate. These are signs of diminishing returns. The market has lost its check-and-balance. Bond and lending were supposed to carry risk and skin in the game. Right now, overall growth is delivered through the Fed pumping money. There is no check-and-balance. With this crisis, governments will likely pump more money. That'll distort the market further.
    - aeternum 7y ago
      What we've seen throughout history is that economies are typically ruined by two things: 1) Governments or central banks printing or issuing (often not physically) too much money, resulting in inflation that spirals out of control. 2) Governments, central banks, individuals, businesses hoarding money due to fear or other reasons, resulting in deflation that spirals out of control. Those two are a form of check & balance. The thesis that most central banks now use is that if we can keep inflation steady, then we will have relative economic stability. The interest/lending rates are simply tools through which inflation can be moderated.
btilly 7y ago
Over the long term. Let's go back 150 years and invest in a random stock market wherever you happened to live. If you lived in the USA or England, this was a great idea and worked out brilliantly. If you lived in countries like Italy, Germany and Russia, you lost everything when those stock markets were closed down in the first half of the 20th century. You can't say "historically over the long term" then project forward for the next 50 years based only by the results of the last 50 years in the market where things have worked out best. Over our lifetime, equities are indeed the best bet. But not a guaranteed safe one.
- AgentOrange1234 7y ago
  This is very interesting. I never heard about these other stock markets. Going to have to look into this.
- lutorm 7y ago
  If you lived in countries like Italy, Germany and Russia, you lost everything when those stock markets were closed down in the first half of the 20th century. This may be true, but then we're talking about such large changes that investment advice sort of becomes pointless. I mean no doubt that life would have sucked in those situations, but there's no investment choice that would have saved you either. Like, if we were sitting today contemplating WW3 breaking out in 1960, annihilating the civilized world, the market going down would have been the least of your problems.
  - btilly 7y ago
    I mean no doubt that life would have sucked in those situations, but there's no investment choice that would have saved you either. Guaranteed saving, no. But keeping an emergency supply of highly portable wealth in the form of gold worked surprisingly well for most of those historical examples. (The ironic exception being the USA where we confiscated people's gold under Roosevelt.)
    - int_19h 7y ago
      It didn't work particularly well in Russia, either.
bawolff 7y ago
The same thing that lead me to the conclusion that the sun will rise tomorrow. I don't really know for sure, but it seems to fit the pattern and that's the best i can hope for in absence of other data.

I think the dynamic of the US equity market has changed. In the old days, you can balance your portfolio between stock and bond. This is portfolio advice from Benjamin Graham's The Intelligent Investor. We can no longer do this because interest rates are heading to 0. Bond investors don't make money from interest rates. Bond traders benefit from rate drop. Bond was an investment. It's now destroyed. We end up with cash and equity. There's a lot of money pumping into the market by central banks. Markets are no longer free. Central banks manipulate their markets. With these kinds of manipulations, we get diminishing returns. Let's say the economy gets back on its feet. Where does it get the leverage to invest? We're overloaded with debt. The interest rate is probably 0 or negative at that point.

aeternum 7y ago
The counter-argument to this is that even with the money being pumped into the market by the central banks, we are not seeing significant inflation in consumer goods. This implies that the money is being put to work efficiently and resulting in productivity and QoL improvements for society as a whole.
- dnprock 7y ago
  We have not seen inflation. But we're seeing slow growth and negative interest rate. These are signs of diminishing returns. The market has lost its check-and-balance. Bond and lending were supposed to carry risk and skin in the game. Right now, overall growth is delivered through the Fed pumping money. There is no check-and-balance. With this crisis, governments will likely pump more money. That'll distort the market further.
  - aeternum 7y ago
    What we've seen throughout history is that economies are typically ruined by two things: 1) Governments or central banks printing or issuing (often not physically) too much money, resulting in inflation that spirals out of control. 2) Governments, central banks, individuals, businesses hoarding money due to fear or other reasons, resulting in deflation that spirals out of control. Those two are a form of check & balance. The thesis that most central banks now use is that if we can keep inflation steady, then we will have relative economic stability. The interest/lending rates are simply tools through which inflation can be moderated.

btilly 7y ago

Over the long term. Let's go back 150 years and invest in a random stock market wherever you happened to live. If you lived in the USA or England, this was a great idea and worked out brilliantly. If you lived in countries like Italy, Germany and Russia, you lost everything when those stock markets were closed down in the first half of the 20th century. You can't say "historically over the long term" then project forward for the next 50 years based only by the results of the last 50 years in the market where things have worked out best. Over our lifetime, equities are indeed the best bet. But not a guaranteed safe one.

AgentOrange1234 7y ago
This is very interesting. I never heard about these other stock markets. Going to have to look into this.
lutorm 7y ago
If you lived in countries like Italy, Germany and Russia, you lost everything when those stock markets were closed down in the first half of the 20th century. This may be true, but then we're talking about such large changes that investment advice sort of becomes pointless. I mean no doubt that life would have sucked in those situations, but there's no investment choice that would have saved you either. Like, if we were sitting today contemplating WW3 breaking out in 1960, annihilating the civilized world, the market going down would have been the least of your problems.
- btilly 7y ago
  I mean no doubt that life would have sucked in those situations, but there's no investment choice that would have saved you either. Guaranteed saving, no. But keeping an emergency supply of highly portable wealth in the form of gold worked surprisingly well for most of those historical examples. (The ironic exception being the USA where we confiscated people's gold under Roosevelt.)
  - int_19h 7y ago
    It didn't work particularly well in Russia, either.

bawolff 7y ago

The same thing that lead me to the conclusion that the sun will rise tomorrow. I don't really know for sure, but it seems to fit the pattern and that's the best i can hope for in absence of other data.