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We seem to have an entire generation of people who think "stonks can only go up". Similar views were expressed about houses/real estate in 2007. At 47, I'm pr
by DebtDeflation 6y ago
We seem to have an entire generation of people who think "stonks can only go up". Similar views were expressed about houses/real estate in 2007. At 47, I'm probably substantially older than the average HN poster, but having lived through the 2001 dotcom implosion and the 2008 financial crisis has given me some perspective. I'm getting some really bad vibes about the sustainability of the the economy and asset markets. Seeing all of the "SWE, BSCS, 4 YOE, $800K TC, am I underpaid?" posts on Blind certainly doesn't help my feeling that a crash is coming.
- nealdotpy 6y agoI'm definitely far younger than you; however, I agree. The problem is that there's no timing it. So positioning yourself such that you leverage other factors to make money in a market (e.g. delta-neutral positions that are long/short time/volatility) are all you can do if you want to play the game without having high directional risk.
- DebtDeflation 6y agoSo, I actually have an MS in Quant Finance despite having worked in tech my whole career. There's an old saying, "during a time of crisis all correlations go to 1". People found this out the hard way in 2008. There are all sorts of risks that you can't hedge for or that negate hedges you have in place for other risks, counterparty risk being one of the better known ones.
- o-__-o 6y agoFound this out last year after waiting patiently since 2008. Volatility ruined the prospect of large quick gains. I now have no specific strategy to trade the next crash except buy and hold the fundamentally sound stocks (same strategy as normal investing heh)
- alasdair_ 6y agoThis hit home for me during the mini-crash a year ago. I was convinced assets like bitcoin or gold or bonds would hold value when the stock market tanked but instead saw everything fall at the same time. I understand the concept of undiversifiable risk, but seeing it play out in practice was eye opening.
- reducesuffering 6y agoLong term US Govt. Bonds like VGLT did very well, increasing in value, in both 08 and Mar '20 covid crash.
- alasdair_ 6y agoThis is good to know. I think most of the modelling I looked at in the past used medium duration bonds as a proxy for the bond market as a whole. I wonder what TIPS did during the same timeframe actually. EDIT: I looked at VGLT and the mean annual return is extremely low, roughly 0.75%. I like the seemingly negative correlation with equities but I'll need to do some modelling to see if it's worth the massive hit in average expected return.
- reducesuffering 6y agoThe best estimated guess for a bond ETF’s returns going forward are it’s SEC yield, not past returns. This is because efficient market hypothesis postulates that the aggregate of bond buyers and sellers has reached equilibrium at its current interest rate. So it’s our best guess at the average of interest rate increases and decreases and their likelihood of happening. Given that, we assume the return going forward is what it’s currently yielding, and in VGLT’s case, it’s 2.15%. When cash is yielding 0.5% max, these can be a useful way of further protecting against equity downturns (assuming VGLT increases in downturns, negatively correlated to equities, true the past 30 years, mixed truth over 70 years), while still providing much better yield than cash.
- JohnJamesRambo 6y agoI don’t buy the “you can’t time it” argument. For short time periods yes, but we are at monumental levels of overextended. Longer trades like these people do time. https://www.bloomberg.com/news/articles/2021-02-12/warren-buffett-s-favorite-valuation-metric-is-ringing-an-alarm https://www.bloomberg.com/news/articles/2021-02-12/warren-bu... I keep seeing that graph when I even entertain the idea of being in the stock market right now.
- cainxinth 6y ago> We seem to have an entire generation of people who think "stonks can only go up" I'm not denying the existence of bubbles, busts, and crashes, but historically and on average, the stock market does only go up. This market is overvalued and will likely correct, but that doesn't mean it won't continue to rise on the aggregate.
- BitwiseFool 6y agoMarkets do seem to only go up, but the stocks on the market today are very different from 10, 20, 30+ years ago. I know that poorly performing stocks are eventually removed from indices and exchanges and they are replaced with new ones. Is it the case the market always going up in the long run is actually due to survivorship bias?
- GenerocUsername 6y agoProbably has more to do with the fact that society on the whole tends to build more than it destroys. More value is created over time than lost.
- Arrath 6y agoMore _economic_ value, sure. But at what cost to the environment, biodiversity, our dwindling resources, societal health, our psyches? When does this become unsustainable?
- Leherenn 6y agoNot that you are necessarily wrong, but I am not sure your examples really show that. The Dow Jones is at an all time high, even adjusting for inflation, and not by a little. Yes, there are dips, but over the long term it seems to hold. As far as I can tell, the following holds true, ∀ t ∈ [1930, now], V(t) > V(t - 30) where V is the inflation-adjusted value of Dow Jones that year.
- DebtDeflation 6y ago>over the long term it seems to hold Certainly, but as Keynes said, "in the long term we're all dead". Less dramatically, average annual returns over long periods of time depend dramatically on when you start and stop the calculation. At some point, people want to retire and live off their savings and "wait another 10 years and you'll recover your principal loss" isn't a comforting message.
- jdhzzz 6y agoThat's why one keeps 10 years of cash (or equivalent) as a cache to weather those downturns. I'd recommend 6 years, but something that you could draw from while markets recover. It seems as if the cadence of market downturns and recoveries is increasing. It's not a binary choice.
- shanusmagnus 6y agoI would love to know who really keeps 10 years of expenses in cash on-hand. I bet you could write the list of non-billionaires on a napkin.
- mikestew 6y agoYou could likely write the list, billionaire or not, on a Post-It(tm). I mean maybe billionaires keep 10 years of billionaire lifestyle in cold hard, but that would seem to be a poor use of such a huge chunk of cash.
- reader_mode 6y agoCrash or inflation ?
- DebtDeflation 6y agoNot mutually exclusive. Inflation could tick up to 5-6% per annum, forcing the Fed to get back to positive real rates, and in the process bring about an economic crash. I actually think that's the most likely sequence of events.
- jgilias 6y agoThe way I view it is this. Given inflationary currency, if the overall world market is actually going downwards for a prolonged period of time, say a few decades, the events having lead to this are of such magnitude that the return of my investments is very likely the least of my concerns.
- phkahler 6y agoThe 401k concept has created a demand/supply imbalance and will continue to do so until as many people start cashing out as putting in. Massive government spending and, low interest rates, and other incentives have also dumped a lot of money in the market. Once these demand-increasing trends end, it will be all over. I'm amazed at how long the fiction has been sustained.
- fumar 6y agoYou are saying the market will go south when 401Ks as a trend stop?
- bluetwo 6y agoSince the beginning of 401ks, the yearly amount being locked away exceeded the amount being cashed out. Thanks to baby boomers retiring, a couple of years ago that reversed, and will stay reversed for the rest of our lives. The first condition creates a natural headwind to increase stock values. The current condition will reverse that.
- partiallypro 6y agoBut generational wealth is increasing, as boomers die their kids get the money...which they then reinvest. The money doesn't just disappear.
- hattmall 6y agoNot as the cost of aging increases and government fees expand. Most boomers still aren't technically retired and they aren't in advanced ages, they are just now a few years into being senior citizens with most still generating income. A few years (or months) in a nursing home will evaporate almost all wealth for 90% of boomers.
- bluetwo 6y agoThat's why they invented cocaine.
- skolos 6y agoYour point is anecdotal. I actually ran the analysis and found that if you are long term investor - stocks beat bonds hands down. See it here: https://www.investingrus.com/blog/safest-bet/ https://www.investingrus.com/blog/safest-bet/ "Even if you had to sell your stocks at the bottom of the Great Depression, but held them for more than 20 years before that, you would not suffer a loss in value of your portfolio"
- dominotw 6y ago> Similar views were expressed about houses/real estate in 2007. Don't they always go up on average though? Even the much hyped 'housing crash' of 2008 only last for all of 3 yrs till 2011 after which they went zooming past the previous highs.
- cogman10 6y agoOn average they always go up. However, with their upswing comes the occasional big downswings. This is why having a good asset mix is important. You shouldn't have no stocks, because they have really good returns on average. But on the flip side, having only stocks is somewhat risky because it's impossible to tell if you are buying on the topside or bottom side of a bubble.
- jeffreyrogers 6y agoThat was with a large injection of money though. Maybe they will do the same thing next time, maybe not. Maybe it will have the same effect, maybe not. No one really knows.
- divbzero 6y agoThough real estate has gone up on average for the last several decades, this has not always been true as you can see from historical data. [1] [2] [3] [1]: https://www.forbes.com/sites/johnwake/2019/03/30/new-study-of-old-real-estate-bubbles-1582-1810-finds-two-surprising-similarities-with-modern-booms/ https://www.forbes.com/sites/johnwake/2019/03/30/new-study-o... "Old Real Estate Bubbles (1582-1810)" [2]: https://globalfinancialdata.com/seven-centuries-of-real-estate-prices https://globalfinancialdata.com/seven-centuries-of-real-esta... "Seven Centuries of Real Estate Prices" [3]: https://observationsandnotes.blogspot.com/2011/07/housing-prices-inflation-since-1900.html https://observationsandnotes.blogspot.com/2011/07/housing-pr... "100 Years of Inflation-Adjusted Housing Price History" ([3] is inflation-adjusted. For [2] see the second chart for inflation-adjusted prices. [1] is not inflation-adjusted but there wasn’t much inflation in Amsterdam back then.)
- hundreddaysoff 6y agoAll markets stop eventually. There's no natural law saying they need to go up forever. Maybe you think they should keep going up, for whatever reason, and you might be right. But that's different than the fact that they increased on average in the past.
- encoderer 6y agoYou were like 25 during the dotcom crash and 35 during the housing crash. It’s possible these events were timed in a way that inflicted maximum psychological damage for you. I know at 25 I had just started my first “good” job and my first child was born at 35. Quite possibly you’re being too pessimistic.
- hourislate 6y agoI too have lived through many crashes (87-08). In those days it seemed like we took our medicine no matter how bad it tasted and lived with the outcome. Today it seems different, there is no limit to what the Gov and the FED will do to keep the wheels on the wagon. Although it seems like a clown world economy, it is nothing compared to what is happening in Canada/Toronto. I just got off the phone with family in Toronto and they were telling me their house is going up $3000 - $4000 a week in value (on the low end). They bought it in 2005 for $440k and now can expect at least 2.2 -2.5 million without any improvements. What I find interesting is the experts talk like this is all normal and the market is fine. What do I know.....
- playingchanges 6y agoReplace ‘stocks only go up’ with ‘fiat only goes down’.
- tim333 6y agoEven older and studied investment a bit. I'd say most people don't think "stonks can only go up" but do think the markets are a random walk with an expected return of 7% or so pretty much regardless of when you buy. But that's not true - markets swing between expensive (say 25 PE) and cheap (say 7 PE) and they mean revert. As a result if you buy expensive your expected 10 year return is not much (say 0%) and if you buy cheap it's a lot (say 12%). Jeremy Grantham / GMO are good on that stuff.
- zeku 6y agoIsn't this exactly why your investment portfolio needs to change with age? STONKS can only go up if you're 30 and don't plan to touch the money for 35 years, this is basically a fact(I'm just a SWE not a financial advisor). If you're 55 and looking to retire in the next decade you normally shift a larger portion of your assets into more stable investments.
- partiallypro 6y agoWe still live in a generation where people think "real estate only goes up." I have so many people bragging about how they've nearly doubled the equity in their home around here in Nashville. 2007 didn't change anything, it was just a blip. People are still flipping houses and leveraging their existing homes to buy new ones. In the long run though, the saying hasn't really been proven false, asset prices tend to always increase.
- wavefunction 6y agoIn a world where WeWork can be valued at 47B USD by professional capitalists, there's something to be said for acknowledging that the stock market and stock valuations can be untethered to reality. I think the sentiment you mentioned is a combination of that and a bit of a humorous/nihilistic attitude towards the same.
- partiallypro 6y agoValuations simply don't matter right now, Tesla is bigger than every car company combined and makes less than virtually all of them. I don't get it, but that's how it is. There is no end in sight, if there were a moment to burst any bubble it would have been last March...and it didn't.
- azinman2 6y agoThat’s because it’s about future earning potential for “growth stocks”, not current reality. The other car makers have reached a kind of equilibrium, while Tesla keeps putting out new products in a class they essentially invented. That said, I also don’t own Tesla because I think it’s crazy overvalued.
- partiallypro 6y agoThat's why F/PE exists, even on that basis the current market doesn't make sense and valuation doesn't matter. Frankly, I think when/if SpaceX goes public, Tesla will start going down and people will plow into SpaceX (which IMO has more of a strong future and also what people investing in Tesla now are kind of thinking they have a part of)
- fullshark 6y agoWhen the crash comes though what do you want to own? Other than real estate and equities I can't think of anything else.
- HackyGeeky 6y agoI guess Crypto.. https://twitter.com/SellFiat/status/1347958257642569730/photo/1 https://twitter.com/SellFiat/status/1347958257642569730/phot... Above graph is only about Bitcoin, people have made a shit ton more on Alt..
- meowfly 6y agoI mean it isn't that people actually think "stocks only go up", it's that the donor class own stocks and that then means political landscape is designed to always bail them out. I'm closer to your age and experienced those recessions but my take away isn't that stocks go down, it's that the government will pull every tool it has to keep the wealthy wealthy.
- nostrademons 6y agoThis. I don't doubt that there's going to be a crisis and a reckoning, but I changed my mind in 2020 on what that crisis will look like. The Fed & government's actions (both during the pandemic and, in retrospect, in 2018) show that they're not going to let a financial crisis happen. Instead, we're going to get a currency crisis, since whenever asset values go down the Fed prints to restore them. The fact that a currency crisis and hyperinflation seems unthinkable to many people pours fuel on this. A number of people are pushing the idea that we can and should print as much money as we can to get back to full employment (and even beyond that - "living wage" is the bar now), and they're being taken seriously in government. This has somewhat predictable results - other governments have believed it throughout history, and (like with many things market-related) the point at which people believe it is the point at which it's no longer true.
- omegaworks 6y ago>"living wage" is the bar now Heaven forbid we demand an economic system built upon the notion that everyone who works should have the ability to live a decent life with secure food and housing. It's telling that many see spending and regulating toward this goal as "printing money" unscrupulously, yet when similar orders of magnitude spends are casually allocated toward the Department of Defense on an annual basis not a word is uttered about their utility.
- nostrademons 6y agoYou can "demand" it all you want. If supply doesn't meet that demand, you get inflation. Ultimately living conditions are set by real goods & services, not by the amount of money flowing into a sector. If more money flows in and the supply of real goods remains fixed, it just makes everything cost more. I'd agree that most military spending is a waste of money - why does an F-22 cost $334M? But directing that spending into housing, education, and health care without addressing the supply bottlenecks in those industries will just make housing, health care, and college cost more. We should be building more housing (and particularly, streamlining zoning/permitting requirements so that more developers can enter the market), breaking up big health insurers so that there's more competition in the market and you don't need to put up with Anthem's bullshit, and developing lower-cost alternatives to a 4-year college degree. On a societal level "more money" is never the answer - "more goods and services" is. You fix shortages by fixing shortages, not by letting everybody pay more for the same musical chairs.
- ravi-delia 6y agoThe thing is, in general stocks do go up. If you are young, your money should be in stocks, letting the risk average out over time. However, unless you really enjoy investing for its own sake, your time is better spent elsewhere while some sort of index or autotrading fund manages it for you. As time goes on you should switch more and more over into lower and lower risk investments.
- 1_player 6y ago> SWE, BSCS, 4 YOE, $800K TC What is this supposed to mean to mere mortals?
- mikeevans 6y agoSoftware Engineer, Bachelor of Science in Computer Science, 4 Years of Experience, $800,000 Total Compensation.
- michaelcampbell 6y agoGuessing: Bachelor of Science (degree) in Computer Science, 4 years of experience... The other 2, no idea. As a counterpoint, I have a BSCS, and closer to 35 YOE, and I have never, nor will ever in my lifetime see $800K/year. To date, not even a quarter that.
- DebtDeflation 6y agoDownload the Blind app and read some of the posts, you'll get a kick out of it. I'm honestly not sure what to make of all the 25 year olds claiming >$500K TC. Near as I can tell 1) it's largely a FAANG/SV echo chamber 2) 80% of the TC claimed consists of an initial grant of RSUs divided over a 4 year vesting period with an assumption that "refreshers" are coming and 3) people include price appreciation in unvested stock as part of the TC. Either that or I'm seriously underpaid with 25 YOE despite being well within the top decile of US income earners.
- pedrosorio 6y ago> I'm honestly not sure what to make of all the 25 year olds claiming >$500K TC I have browsed the app and don't recall many 25 year olds claiming >$500K TC (except those who were part of particularly lucky IPOs). 30+ year olds, definitely.
- lumost 6y agoWith Quantitative Easing to numb the pain of a downturn stocks, real estate, and other assets can literally only go up. The Fed will directly purchase other asset classes to ensure that this remains true. Now every stock market jitter leads to the Fed announcing an asset purchase program.
- downrightmike 6y agoThe roaring 20's are typically left out of evaluations because it was ten years of boom to bust cycles. look it up, it'll look familiar. The market can remain irrational and that was before all the stimulus and QE and now what ever interest rate shenanigans we're about to model off of Japan.