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Of course the market can remain like this for years to come. Improbable but totally possible. But imagine you are a rational individual and you look at an US c

Of course the market can remain like this for years to come. Improbable but totally possible. But imagine you are a rational individual and you look at an US centric index that tracks the total market and see that you have been in a 11 year bull market where it rose 300%. Now you look at the ratio between the total market cap and the GDP (also know as the buffet indicator) and see that it's at historical highs and last time it was at this value was just before the last recession. Sure... the craziness could go on fuelled by irrational optimism, negative interest rates and the feds printing money like crazy. It could and probably will for a while but is it irrational to be prepared for the potential crash?

jdmoreira 6y ago
PS: Warren has 140 billion sitting in cash right now. He just bought his own stocks because there weren't many opportunities left. The man has been around for 90 years and investing for 80 years. I know we live in a time where youth is glorified and "old people don't understand the world" but I'm pretty sure he learned a thing or two. “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”
- AstralStorm 6y ago
  He's also a believer in long term investing and can afford moves other investors would shirk from. How he got his initial money is not a particularly nice story of success...
  - jdmoreira 6y ago
    I think he actually has less opportunities than smaller investors. He complains about that a lot. He is managing a lot of money so he can only buy large cap companies. He frequently claims it's much easier to get a higher returns when you can buy all kinds of companies (big, med and small cap). > How he got his initial money is not a particularly nice story of success... Could you expand on this? I'm genuinely curious
    - pinky1417 6y ago
      Buffett has talked about looking for "elephant" sized acquisitions. Berkshire is so large that it becomes difficult to find good investments of a sufficient size to move the needle. As a smaller investor, I can buy portions of a few $1B market cap companies and make a difference in my portfolio. Buffett, even if he bought such companies outright at a 20% premium, would need to find about 100 of them. > How he got his initial money is not a particularly nice story of success... The actual purchase of the failing Berkshire Hathaway textile company perhaps (unless this is about Buffett doing something allegedly unethical)? The textile operation ultimately failed in the mid 1980s, but Buffett was able to, in the meantime, reallocate its cash flows to more promising ventures.
- satellite2 6y ago
  Berkshire Hathaway's market cap is 583 billions though, so it's still 76% invested.
  - jdmoreira 6y ago
    Yes but all those 76% where bought at what he believes were great / reasonable prices. So it's not like he spent 76% of the money at the peak and now has 34% waiting for the bottom. I see it more like. "here I am with all this cash and there is nothing fairly priced to buy now but soon I might be getting great companies at discount prices".
    - dannyw 6y ago
      Doesn't matter. It's equivalent to buying 76% today.
      - NhanH 6y ago
        It is only equivalent if the market has infinite liquidity. At 300B, you have execution issue to convert them to cash.
      - jdmoreira 6y ago
        No, it’s not because you will judge how well he does by his ROI and it makes a huge difference at what price he bought.
    - satellite2 6y ago
      *24%
  - MrFantastic 6y ago
    If you own the entire company it's easier to weather market downturns. BRK prefers to own the entire company so they can allocate capital to the sectors than need it.
lotsofpulp 6y ago
> It could and probably will for a while but is it irrational to be prepared for the potential crash? Depends how you are preparing for it. The governments are clearly ready to print as much money as needed to hold up asset prices. They have to, all their pension debt is riding on it, not to mention the politicians political popularity since many voters have large portions of their wealth tied up in these assets. So when you say prepare for a potential crash, I can only assume that means the dissolution of the government, to the point where the currency is going to be useless. In that scenario, your preparation would be to have a network of resourceful individuals and guns and water and food and fuel. But I don’t see how cash or treasury bills will prepare anyone.
- Robotbeat 6y ago
  It’s not merely asset prices, its employment.
- roenxi 6y ago
  > I can only assume that means the dissolution of the government If I look at historic chart of the market, it goes back to around 1970, because that is the last time that the monetary system failed and needed to be reset. While I am certainly on board with the idea that the dissolution of governments is possible; there are a wide range of possibilities if the US sacrifices the dollar. Currency collapses happens regularly in the grand scheme of things - but the same can be said about brutal wars.
  - lotsofpulp 6y ago
    > If I look at historic chart of the market, it goes back to around 1970, because that is the last time that the monetary system failed and needed to be reset. What does it mean that the historic chart of the “market” only goes back to 1970? https://www.macrotrends.net/2324/sp-500-historical-chart-data https://www.macrotrends.net/2324/sp-500-historical-chart-dat...
- benibela 6y ago
  One could buy leap otm put options. If there is a crash, they become very valuable. And if they are deep otm, they are not so expensive On the other hand, I have started doing the opposite: selling short term otm put options. It is the wrong thing to do if there is a big crash, but if it only crashes a little, my options are not affected . Not sure if I should keep doing this.
biolurker1 6y ago
The buffet indicator doesn't hold true with zero interest rates. Even he said at one interview "if thee is unlimited money printing, stocks are extremely cheap right now". People are confused because they input one or two variables in their mindset instead of the true N variables in this complicated system. More of them think "oh, market cycles every ten years and now we have 12 bull? OK so time for dip". No, apparently it doesn't work that way.

jdmoreira 6y ago

PS: Warren has 140 billion sitting in cash right now. He just bought his own stocks because there weren't many opportunities left. The man has been around for 90 years and investing for 80 years. I know we live in a time where youth is glorified and "old people don't understand the world" but I'm pretty sure he learned a thing or two. “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”

AstralStorm 6y ago
He's also a believer in long term investing and can afford moves other investors would shirk from. How he got his initial money is not a particularly nice story of success...
- jdmoreira 6y ago
  I think he actually has less opportunities than smaller investors. He complains about that a lot. He is managing a lot of money so he can only buy large cap companies. He frequently claims it's much easier to get a higher returns when you can buy all kinds of companies (big, med and small cap). > How he got his initial money is not a particularly nice story of success... Could you expand on this? I'm genuinely curious
  - pinky1417 6y ago
    Buffett has talked about looking for "elephant" sized acquisitions. Berkshire is so large that it becomes difficult to find good investments of a sufficient size to move the needle. As a smaller investor, I can buy portions of a few $1B market cap companies and make a difference in my portfolio. Buffett, even if he bought such companies outright at a 20% premium, would need to find about 100 of them. > How he got his initial money is not a particularly nice story of success... The actual purchase of the failing Berkshire Hathaway textile company perhaps (unless this is about Buffett doing something allegedly unethical)? The textile operation ultimately failed in the mid 1980s, but Buffett was able to, in the meantime, reallocate its cash flows to more promising ventures.
satellite2 6y ago
Berkshire Hathaway's market cap is 583 billions though, so it's still 76% invested.
- jdmoreira 6y ago
  Yes but all those 76% where bought at what he believes were great / reasonable prices. So it's not like he spent 76% of the money at the peak and now has 34% waiting for the bottom. I see it more like. "here I am with all this cash and there is nothing fairly priced to buy now but soon I might be getting great companies at discount prices".
  - dannyw 6y ago
    Doesn't matter. It's equivalent to buying 76% today.
    - NhanH 6y ago
      It is only equivalent if the market has infinite liquidity. At 300B, you have execution issue to convert them to cash.
    - jdmoreira 6y ago
      No, it’s not because you will judge how well he does by his ROI and it makes a huge difference at what price he bought.
  - satellite2 6y ago
    *24%
- MrFantastic 6y ago
  If you own the entire company it's easier to weather market downturns. BRK prefers to own the entire company so they can allocate capital to the sectors than need it.

lotsofpulp 6y ago

> It could and probably will for a while but is it irrational to be prepared for the potential crash? Depends how you are preparing for it. The governments are clearly ready to print as much money as needed to hold up asset prices. They have to, all their pension debt is riding on it, not to mention the politicians political popularity since many voters have large portions of their wealth tied up in these assets. So when you say prepare for a potential crash, I can only assume that means the dissolution of the government, to the point where the currency is going to be useless. In that scenario, your preparation would be to have a network of resourceful individuals and guns and water and food and fuel. But I don’t see how cash or treasury bills will prepare anyone.

Robotbeat 6y ago
It’s not merely asset prices, its employment.
roenxi 6y ago
> I can only assume that means the dissolution of the government If I look at historic chart of the market, it goes back to around 1970, because that is the last time that the monetary system failed and needed to be reset. While I am certainly on board with the idea that the dissolution of governments is possible; there are a wide range of possibilities if the US sacrifices the dollar. Currency collapses happens regularly in the grand scheme of things - but the same can be said about brutal wars.
- lotsofpulp 6y ago
  > If I look at historic chart of the market, it goes back to around 1970, because that is the last time that the monetary system failed and needed to be reset. What does it mean that the historic chart of the “market” only goes back to 1970? https://www.macrotrends.net/2324/sp-500-historical-chart-data https://www.macrotrends.net/2324/sp-500-historical-chart-dat...
benibela 6y ago
One could buy leap otm put options. If there is a crash, they become very valuable. And if they are deep otm, they are not so expensive On the other hand, I have started doing the opposite: selling short term otm put options. It is the wrong thing to do if there is a big crash, but if it only crashes a little, my options are not affected . Not sure if I should keep doing this.

biolurker1 6y ago

The buffet indicator doesn't hold true with zero interest rates. Even he said at one interview "if thee is unlimited money printing, stocks are extremely cheap right now". People are confused because they input one or two variables in their mindset instead of the true N variables in this complicated system. More of them think "oh, market cycles every ten years and now we have 12 bull? OK so time for dip". No, apparently it doesn't work that way.