5 ms·

How does an individual (retail) investor capitalize on this? Seems like an opportunity to take advantage of some of this turbulence.

dragontamer 5y ago
Too late now. You needed to buy manufacturing roughly 8 months ago to benefit. Now that everyone's noticing that manufacturing facilities are in unprecedented levels of demand, the stock market is going through the roof. Its a good time to be a lumber mill right now... By the time its "obvious" to know what move it is to do, you're too late. Everyone else already hopped on the hot investments. You need to think about where the economy will go next year (or later than that), and correctly predict it to make the correct move today.
- hogFeast 5y ago
  Supply cannot respond that quickly. This will take a couple of years to run through the economy properly. Stuff like industrial metals are clearly at a fairly early stage (the issue wasn't the recovery but that the chattering classes convinced everyone that the economy was going to shut down for years). Speaking generally, you don't need to predict where the economy will go next year either. If the economy grows 10% but people decide they need to hold more cash, you are going to lose money. You need to move beyond the first-level (and sometimes it is perfectly legitimate to just observe...I remember people saying that shipping had run its course earlier this year...a lot of these stocks are up 100% YTD). You have to understand the fundamentals and how people interpret those fundamentals.
  - dragontamer 5y ago
    Yeah, but go to the commodities market and everything you said has already been priced in. What you need to predict is "what opinions will change over the next year". Does lumber really deserve its ~300% increase? Or is that overestimating the shortage? Maybe Lumber's proper price is ~250% above the norm, so maybe shorting lumber futures is the best move. Or maybe the lumber shortage will continue to get worse: maybe 400% above the norm is going to happen. I'm not a commodities trader, so I really can't speak the specifics (just talking general wishy-washing feelings here). But that's the rub: knowing whether to buy or sell before everyone else does it. --------- If its "obvious" that lumber will remain highly priced over the next few years: does it make sense to buy up old lumber mills across the country and start spinning them up again? How many years will these old lumber mills have to run before they churn a profit? Or will higher labor costs cut back on said profits? Its not easy to predict the future correctly.
    - hogFeast 5y ago
      It isn't priced in. Not even close. In markets with non-financial traders, by definition, everything can't be priced in (you see this in commods, forex...it is why these markets trend). Again, in most of these markets supply cannot respond quickly so you get trending price action. Predicting the future is relatively straightforward. You just look at fundamentals, and for most commodities it is fairly easy to predict how demand/supply is going to change. Predicting the future and how people will react is not.
      - gruez 5y ago
        >In markets with non-financial traders, by definition, everything can't be priced in (you see this in commods, forex...it is why these markets trend). What are you talking about? commodities and forex is crawling with HFTs and hedge funds. Also, just because there's a trend dosen't mean you can profit from it. Let's say soybean futures are cheaper in the fall (harvest time) than in the spring. Easy opportunity to make some money right? Just buy in the fall and sell 6 months later. Not so fast, soybeans aren't like stocks where you can hold on to them for $0. You have to take delivery of the soybeans in fall and find a place to store it. That probably eats up a fair chunk of your potential profits. Factor in the risk and your profits will be marginal.
        hogFeast 5y ago
        I don't know what you mean. HFTs (and some hedge funds) trade over time horizons with no information...therefore, it is unrelated to anything I am saying (they respond to liquidity, not fundamentals). You don't understand. The reason why price trends is because there is a persistent imbalance between supply and demand because of the presence of non-financial buyers who take liquidity at bad prices. Your point about soybeans make no sense, contango exists and is why commodity houses often have huge trading arms that generate lots of profit (they can put on contango trades like storing oil offshore in a tanker for six months). The reason why these trades generate profit, again, is because of a persistent imbalance between demand and supply (this is also why oil traded at negative prices...although this is slightly more complex because it involved financial buyers running ETFs who got stung by roll risk due to their own incompetence). But, either way, the point is that you can observe that demand and supply is out of balance now and buy, and make money because prices will continue to rise because supply can't be brought on quickly (a good example of this is copper: exploration has been poor for a decade plus, head grades continue to fall...there is no way to bring on supply for years).
omalleyt 5y ago
Inflation hedges, such as precious metals IMO
cosmojg 5y ago
Eh, your odds of outperforming a total-market index fund by attempting to take advantage of this opportunity are around ~50% or so. I'd stick to index funds, maybe use a little leverage if they aren't enough for me on their own.
josu 5y ago
There are a lot of ways, these are just a few: https://www.investopedia.com/articles/investing/080813/how-profit-inflation.asp https://www.investopedia.com/articles/investing/080813/how-p...

dragontamer 5y ago

Too late now. You needed to buy manufacturing roughly 8 months ago to benefit. Now that everyone's noticing that manufacturing facilities are in unprecedented levels of demand, the stock market is going through the roof. Its a good time to be a lumber mill right now... By the time its "obvious" to know what move it is to do, you're too late. Everyone else already hopped on the hot investments. You need to think about where the economy will go next year (or later than that), and correctly predict it to make the correct move today.

hogFeast 5y ago
Supply cannot respond that quickly. This will take a couple of years to run through the economy properly. Stuff like industrial metals are clearly at a fairly early stage (the issue wasn't the recovery but that the chattering classes convinced everyone that the economy was going to shut down for years). Speaking generally, you don't need to predict where the economy will go next year either. If the economy grows 10% but people decide they need to hold more cash, you are going to lose money. You need to move beyond the first-level (and sometimes it is perfectly legitimate to just observe...I remember people saying that shipping had run its course earlier this year...a lot of these stocks are up 100% YTD). You have to understand the fundamentals and how people interpret those fundamentals.
- dragontamer 5y ago
  Yeah, but go to the commodities market and everything you said has already been priced in. What you need to predict is "what opinions will change over the next year". Does lumber really deserve its ~300% increase? Or is that overestimating the shortage? Maybe Lumber's proper price is ~250% above the norm, so maybe shorting lumber futures is the best move. Or maybe the lumber shortage will continue to get worse: maybe 400% above the norm is going to happen. I'm not a commodities trader, so I really can't speak the specifics (just talking general wishy-washing feelings here). But that's the rub: knowing whether to buy or sell before everyone else does it. --------- If its "obvious" that lumber will remain highly priced over the next few years: does it make sense to buy up old lumber mills across the country and start spinning them up again? How many years will these old lumber mills have to run before they churn a profit? Or will higher labor costs cut back on said profits? Its not easy to predict the future correctly.
  - hogFeast 5y ago
    It isn't priced in. Not even close. In markets with non-financial traders, by definition, everything can't be priced in (you see this in commods, forex...it is why these markets trend). Again, in most of these markets supply cannot respond quickly so you get trending price action. Predicting the future is relatively straightforward. You just look at fundamentals, and for most commodities it is fairly easy to predict how demand/supply is going to change. Predicting the future and how people will react is not.
    - gruez 5y ago
      >In markets with non-financial traders, by definition, everything can't be priced in (you see this in commods, forex...it is why these markets trend). What are you talking about? commodities and forex is crawling with HFTs and hedge funds. Also, just because there's a trend dosen't mean you can profit from it. Let's say soybean futures are cheaper in the fall (harvest time) than in the spring. Easy opportunity to make some money right? Just buy in the fall and sell 6 months later. Not so fast, soybeans aren't like stocks where you can hold on to them for $0. You have to take delivery of the soybeans in fall and find a place to store it. That probably eats up a fair chunk of your potential profits. Factor in the risk and your profits will be marginal.
      - hogFeast 5y ago
        I don't know what you mean. HFTs (and some hedge funds) trade over time horizons with no information...therefore, it is unrelated to anything I am saying (they respond to liquidity, not fundamentals). You don't understand. The reason why price trends is because there is a persistent imbalance between supply and demand because of the presence of non-financial buyers who take liquidity at bad prices. Your point about soybeans make no sense, contango exists and is why commodity houses often have huge trading arms that generate lots of profit (they can put on contango trades like storing oil offshore in a tanker for six months). The reason why these trades generate profit, again, is because of a persistent imbalance between demand and supply (this is also why oil traded at negative prices...although this is slightly more complex because it involved financial buyers running ETFs who got stung by roll risk due to their own incompetence). But, either way, the point is that you can observe that demand and supply is out of balance now and buy, and make money because prices will continue to rise because supply can't be brought on quickly (a good example of this is copper: exploration has been poor for a decade plus, head grades continue to fall...there is no way to bring on supply for years).

omalleyt 5y ago

Inflation hedges, such as precious metals IMO

cosmojg 5y ago

Eh, your odds of outperforming a total-market index fund by attempting to take advantage of this opportunity are around ~50% or so. I'd stick to index funds, maybe use a little leverage if they aren't enough for me on their own.

josu 5y ago

There are a lot of ways, these are just a few: https://www.investopedia.com/articles/investing/080813/how-profit-inflation.asp https://www.investopedia.com/articles/investing/080813/how-p...