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5 Important Things to Do Before the Market Bubble Bursts

124 points by gmishuris 5y ago

dannyeei 5y ago
Definitely an interesting read but I'm surprised he doesn't even approach the notion of asset price inflation being the primary form of inflation from all this money printing that's been going on.
- alejohausner 5y ago
  Oddly enough, gold is one asset whose price is flat to down over the past few years. This ain't the usual kind of inflation, where people start to buy gold because too much money is being printed. These days gold prices seem to be driven by fear: gold tends to spike up on market crashes, as a flight to quality. I think people aren't afraid enough yet; they're still feeling greedy.
  - Guest42 5y ago
    I think crypto took a lot of money that would've gone to commodities, along with the speculative money.
    - zivkovicp 5y ago
      I'm inclined to agree with this.
  - Grimburger 5y ago
    The problem with investing in gold is that there's actually a lot of it to dig up, it's just expensive to do so, there's always a lot of natural ceiling pressure on the market, if the price goes up enough we'll be extracting trace amounts from seawater.
- boppo1 5y ago
  I don't think most people do. For the howver many years of QE I remember that critics were met with finger-pointing to flat PCI and CPE. Few outside of finance seem to recognize summary P/E growth as inflation.
  - dragonwriter 5y ago
    > Few outside of finance seem to recognize summary P/E growth as inflation. Because it's not “inflation” as that term is used without modifiers, which is increase in the nominal price of final consumer goods and services. Asset inflation is a different thing than general inflation and it makes no sense to conflate them.
    - hedora 5y ago
      Agreed, but, in fairness, the inflation numbers that are currently being used by the press explicitly exclude the real cost of housing, which is an asset that has definitely increased in nominal price. Instead, they’re using “non market rent” or some such nonsense to estimate housing costs. Measured as it was then, our current inflation rates are significantly higher than they were at the end of the seventies, even though they’re reported as being lower. Inflation has been redefined to exclude asset prices, and that directly broke its traditional relationship with the actual cost of living. Given that, I’d argue it’s fair game to point at asset prices as evidence of out of control inflation. This situation is textbook Orwellian Doublespeak: Rational conversations about inflation are now nearly impossible to have, since all the useful vocabulary has been sabotaged. Instead of talking about inflation, we get tripped up on vocabulary and semantics.
      - dragonwriter 5y ago
        > housing, which is an asset No, it's not. Residential real estate is an asset, housing is service. Imputed rent (the cost of rent forgone as a result of choosing to reside in the property you own rather than renting it out) is the cost (the money given up in exchange for) that service, for homeowners choosing to reside in the home they own. > Inflation has been redefined to exclude asset prices, Inflation has generally excluded asset prices for the entire 102 years for which the US has measured it, as the fundamental concept has always been measuring final consumer goods and services prices, not assets. The exception, for a 30 year period in the middle (starting in 1953 and abandoned in 1983) was homeownership costs, which was a clumsy way of dealing with the fact that only counting direct rent, as had been done from 1919, was completely of ignoring housing costs for the growing group of homeowners. The switch to the owners equivalent rent method in 1983 returned the measure of inflation to it's core purpose, while not excluding homeowners actual costs of housing.
- smat 5y ago
  I think he does though. He mentions that many assets are priced on a level that is only realistic if interest rates remain on the current level for decades.
LaserHodl 5y ago
One word: Bitcoin
- Joeboy 5y ago
  That is indeed one word. However it's a compound of two words, one of which is itself a contraction of two other words.
- drcode 5y ago
  I'm still hopeful my gamble in plastics will pay off
  - boppo1 5y ago
    Is this a comment on Bitcoin's environmental impact?
    - Joeboy 5y ago
      https://www.youtube.com/watch?v=eaCHH5D74Fs&t=25s https://www.youtube.com/watch?v=eaCHH5D74Fs&t=25s
      - boppo1 5y ago
        What a relief.
    - rufus_foreman 5y ago
      Hello environmental impact, my old friend.
zipiridu 5y ago
I used to think this was definitely a bubble, but I've become less sure after reading about the amount of debt the US has and the ways it can pay it. The easiest way the US can pay its debts is through inflation. Given that, the fed will likely keep printing money. People know this and therefore put their money in things that are safer than cash, which is guaranteed to lose purchasing power over the next decade. At 2% inflation that is something like %10 over 10 years, but at current rates you could lose >50%. This is especially true in assets, which is what people with lots of money want to own. So while the price of food might only go up 10% per year, the price of assets could go up much more than that, and that is not included in CPI calculations. This is like a financial crisis but only for people who don't own assets, since they won't be able to get into the game. At least in 2008 everyone but the banks suffered, this time it might be everyone but the rich. Of course, I could be completely wrong and I really hope I am because I was saving to buy a house. However this time things are different than previous bubbles because every asset type, even cash, is risky.
- WA 5y ago
  There's your story, why this time, it's different.
  - abernard1 5y ago
    This happened exactly as the poster mentioned in the 1970s. Equities, despite a 50% real drop (they were sideways through the decade) did not experience the 70% loss that cash did. Today multinationals are much more well... multinational, and they're currency-hedged better than they were then. This allows them to avoid much of the inflationary pain of a single currency. Countries have been inflating their way out of bubbles for thousands of years at the expense of the currency. Acting as if that either hasn't happened many times prior or can't happen again is an article of faith
- newaccount2021 5y ago
- ryandamm 5y ago
usui 5y ago
Whichever way it may happen, I just want it to happen already. The recent wave of pyramid schemers and cult-like praise of NFTs/smart contracts/the holy Web3 is much more insufferable than before. I think that before, it was relatively easy to maneuver around them in the media I consumed. Now, the pyramid scheme has infected literally everywhere I go on the internet, almost as if the only way to avoid cryptocurrency ramblings is to go offline. Please, just burst already, and let the insufferable stop their shilling.
- kristiandupont 5y ago
  Interesting, I hardly run into it in my personal bubble. Sure, it pops up here and there, but not much more than, say, VR when Occulous Rift was all the rage. It's just enough to make me realize that it's something some people consider to be revolutionary, but not enough to tempt me into googling what it's all about (web3, specifically. I kinda know what NFTs and smart contracts are about, I think).
  - usui 5y ago
    It's awful because even when I go offline, some friends keep trying to shill Web3 and try to get me to buy NFTs. I already stated that I'm not interested. What a shitty way to burn bridges. Oh well, at least it's an easy signal.
- mountainb 5y ago
  It will get much sillier before the end.
- pjc50 5y ago
  This reminds me, strangely, of the invention of Viagra and Cialis and their subsequent total domination of spam. Any blog in the early 2000s that didn't police their comments would be full of v1agr@ and c1@lis spam.
  - LinuxBender 5y ago
    And not many know that those were failed blood pressure drug companies. To recoup their losses their marketing groups came up with the medical term erectile dysfunction because of the well known side effect.
jasfi 5y ago
Use trading algorithms: https://tradeq.xyz https://tradeq.xyz You don't know when the bubble will burst, and emotion is usually the driving force.
hahajk 5y ago
“Don’t be afraid to do nothing.” The author doesn’t mention that his article is the latest in a long line of “bubble’s about to pop” articles that have been steadily written since around 2014. Sure the stock market is in a bubble. But I would be sad if I had spent the last 8 years waiting for it to pop.
- jimhefferon 5y ago
  > I would be sad if I had spent the last 8 years waiting for it to pop. I hear you. But later in the article he does advocate, or at least approve of, dollar cost averaging into a low cost mutual fund. I think he has in mind as an audience his college students. I have some students who with great enthusiasm have told me how much they are using to invest in things that are, let's say, a place where historically very savvy people have lost a great deal of money. It is all so easy, they assure me.
- arnvald 5y ago
  I agree, and I regret waiting for the last 2 years to buy my own place: 2.5 years ago I put it on hold, because with such high prices the bubble must burst. 1.5 year ago I put it on hold, because with COVID and high prices the bubble must burst. 6 months ago I finally bought an apartment. I paid 30% more than I would have in 2019, but 10-15% less than I would have to pay today.
- pdm55 5y ago
  I needed the reminder to be patient. I was lucky during the financial crisis to have cash that I could put in a term deposit for 5 years at 7%, my first-ever term deposit, To my detriment, I took out half after a couple of years to create an online game that failed. However, when the rest matured, I was lucky to triple that money by investing in a couple of speculative ventures. Having used up my allotted measure of luck, I now look for solid investments. I have recently liquidated about half my shares. I am waiting for the bubble to burst. I have my eye on a couple of solid companies whose share price may fall dramatically as people need the cash. I am approaching seventy and I need a solid portfolio that I can slowly sell down to meet living expenses. My rules: 1) Avoid bitcoin, it seems so much like the "Souk Market": https://www.livewiremarkets.com/wires/the-greatest-bubble-you-may-never-have-heard-of-2021-12-12/ https://www.livewiremarkets.com/wires/the-greatest-bubble-yo... 2) Avoid meme and NFT stocks; they seem like the new tulip craze. 3) Avoid unethical stocks; they remind me of the South Sea Company: https://www.britannica.com/event/South-Sea-Bubble https://www.britannica.com/event/South-Sea-Bubble 4) Avoid hugely inflated P/E ratios; remember pets.com. In short, look for ethical* companies with strong fundamentals. *However, I am not sure that ethical and profitable can co-exist. So my rule is to choose a company that has a product or service that I use and like, or a CEO/founder whom I admire. I try to research companies. But I find that other people's advice is rather limited, as they tend to know less about the companies than I do. In the end, you have to trust your own judgement.
HPsquared 5y ago
The problem is, people have different, mutually-exclusive ideas of what area is going to "pop". Is it going to be the currency? (in which case you should buy assets), is it going to be assets? (in which case you should buy currency)
locallost 5y ago
He's probably right but the criteria is somewhat wishy washy. E.g. "Belief replaces analysis among many market participants" Many? How many? I am not sure how much analysis there really is in the market. I doubt there is too much with the small investors -- not only is it complicated anyway but companies have too many tricks to pretty up their books. So even if you're diligent it's a good question if you're reading the real data. Most people don't have the time to learn that much. As for the big institutions, it's not my world, but I doubt there is a total lack of bias. There is obviously a lot of momentum trading. I also became somewhat sceptical if such a thing as a bubble really exists if we can only identify it after the fact, and only under certain conditions. E.g. last year in March the market crashed badly but it recovered quickly and there was no long term problem. Thus it wasn't a bubble bursting event. The very same thing could've happened without the "investors" getting confident again, and then everybody would've concluded that covid finally popped the bubble. Both of those can't be real.
zivkovicp 5y ago
My portfolio is cash-heavy these days, but I don't believe a crash is coming, I'm just not comfortable being fully invested at the moment; and I hate that because the cash is losing purchasing power every quarter. I get the feeling that investing in a quality company with a solid balance sheet is the better long term risk proposition because even if it goes nowhere for 10 years, what are the chances that my savings are going to grow in purchasing power? Probably zero. This market has made me more comfortable with risk than I probably should be, but that is another reason why I refuse to go "all in", to protect me from myself. :D
- potamic 5y ago
  > I get the feeling that investing in a quality company with a solid balance sheet is the better long term risk proposition From a risk perspective, you are better off investing in an index. Any individual company might stagnate or go bust, but an index is highly diversified and constantly rebalanced to track the best performing companies. The risk reduces even further as your horizon increases.
  - zivkovicp 5y ago
    That's true, and good advice. I've only used index investing to get exposure to specific markets or segments where I find it difficult to do decent research, but you're right that it's a better way to park funds over a longer term.
- room505 5y ago
  The best way to improve your odds of success is to stay invested over time, no matter when you start. https://www.schwab.com/resource-center/insights/content/is-there-perfect-time-to-invest https://www.schwab.com/resource-center/insights/content/is-t...
- rufus_foreman 5y ago
  >> the cash is losing purchasing power every quarter I Bonds are paying over 7% right now. You are limited in the amount you can buy but could buy $10,000 now and $10,000 next year (i.e., in a couple weeks) plus another $5,000 if you are getting a tax refund. You've got to lock your money up for a year but worth looking at if you've got money sitting around in a savings account that you don't need next year.
pezzana 5y ago
> Surveying the landscape, it seems likely that if there is a bubble that it is not in equities but rather in credit. In an environment where low single-digit positive inflation is widely expected by market participants, how can it be rational for “investors” to buy long-term bonds with negative yields? ... It can be rational if investors believe that interest rates are headed even lower. When that happens, bond prices will appreciate still further. There is no limit, technically, to how low long term treasury yields can go. Therefore, there is no upper bound to treasury prices. The thing about bubbles is that at the top few are calling out "bubble." Instead, every bear whose mind can be changed has thrown in the towel and joined the party. It's all about how the old rules don't apply anymore. A new paradigm. The only voices of caution are the parma-bears with their tinfoil hats. They will eventually be right, but will have missed booking profits during the entire insane event in the process.
gandalfian 5y ago
So if everyone thinks it's a bubble stocks must be undervalued? Time to buy? Actually enjoyed the article preamble, the five actual points less so.
sixQuarks 5y ago
This article is so cringey. The author is using Tesla as an example of a bubble stock, for which he is sure Offers no attractive returns in the future. He dismisses a “naïve” student who presents the opposite picture. I will bet anyone $1,000 this author will look like the idiot in 5 years while the student was right all along.
- dsr_ 5y ago
  The point of the article is that bubbles involve belief in the superiority of an equity without reference to fundamental value. You and the student appear to have a large amount of belief in this equity, but neither one of you offers evidence...
  - sixQuarks 5y ago
    Tesla has a forward looking 12mo P/E of only 100 just with its current operation selling 1 million vehicles per year. It's growth rate is 50%+ per year, by 2030 it should be selling 15-20 million vehicles per year. Tesla can justify it's current valuation solely with its automotive business, but that's just the tip of the iceberg. Other areas of growth and profit that will likely outperform the auto business: - Energy Storage and Distribution (including Solar Roofs) - Full Self Driving, Robotaxis - AI as a service - Insurance - Charging Network: Access Fees / Restaurants / Convenience Goods Like I said, put your money where your mouth is if you're so sure the author is correct here.
    - Kon-Peki 5y ago
      > It's growth rate is 50%+ per year, by 2030 it should be selling 15-20 million vehicles per year. I can't wait until 2040, when Tesla is selling 5 billion vehicles per year! </snark> Really though, I don't think it is rational to believe that kind of growth rate is sustainable...
      - sixQuarks 5y ago
        Tesla is severely supply constrained. Wait times in some areas is one year. They could easily sell 3-4 million this year if they had the supply, and this is before their $25k car which should be available by 2025.
asimpletune 5y ago
Does anyone have a recommendation on what to do with their cash while they're waiting to buy shares using dollar cost averaging? Like, let's say I have $120, and I plan on buying $10 of stock per month. Is there a good way thing that you can do with the money while it just sits?
- patwolf 5y ago
  I've been in the same boat. I ended up putting it in a robo account with my risk profile set to be very conservative. Most of it ends up getting invested in a bond ETF under the covers, like $BND. Unfortunately with interest rates so low, it's not going to keep up with inflation. I can see why crypto is so attractive--every other "safe" investment seems like it's bound to lose money when considering inflation.
- valzam 5y ago
  If you are slightly risk-tolerant you can use services like nexo or blockfi to earn interest on fiat. You don't take crypto price risk and they generally only lend out money on an over-collateralized basis, so the default risk is small.
  - ac29 5y ago
    You can earn interest on stablecoins, not fiat. Theres a big difference there, since the stablecoin itself has risk in addition to the risk of whatever those services do with it to generate returns.
oxymoran 5y ago
I don’t disagree with any of this as it is pretty much Finance 101. But what I feel like this sort of analysis tends to lack, is that the markets have always been decoupled from “reality”. The only difference is that, historically, there were less retail investors and more professional traders. These pros shared a consensus reality regarding valuation etc. But at the end of the day, the price of the stock has always been based on the supply and demand of the asset which can have absolutely no connection to the actual performance the underlying company. Think about it, a stock price rises or falls based on people buying and selling the stock. That typically happens when there is news about company performance but there is no direct correlation between company performance and stock price. If we all decided we actually value poor performing companies, their stock price would be through the roof, a la Tesla. It’s all smoke and mirrors, and it always has been.
- deepsun 5y ago
  It's not _all_ smoke and mirrors, but only on the low level of P/E ratios. E.g. companies paying dividends -- if company has no money, it won't pay dividends, so the stock goes down. But if investors see dividends as a good income source, then the stock price goes up. But that only works with dividend-paying stocks, obviously.
- enjoy-your-stay 5y ago
  Well, that was all good up until the point that CDS's exposed the Ratings Agencies as corrupt, and LIBOR imploded, again due to corruption.

124 points by gmishuris 5y ago

Definitely an interesting read but I'm surprised he doesn't even approach the notion of asset price inflation being the primary form of inflation from all this money printing that's been going on.

alejohausner 5y ago
Oddly enough, gold is one asset whose price is flat to down over the past few years. This ain't the usual kind of inflation, where people start to buy gold because too much money is being printed. These days gold prices seem to be driven by fear: gold tends to spike up on market crashes, as a flight to quality. I think people aren't afraid enough yet; they're still feeling greedy.
- Guest42 5y ago
  I think crypto took a lot of money that would've gone to commodities, along with the speculative money.
  - zivkovicp 5y ago
    I'm inclined to agree with this.
- Grimburger 5y ago
  The problem with investing in gold is that there's actually a lot of it to dig up, it's just expensive to do so, there's always a lot of natural ceiling pressure on the market, if the price goes up enough we'll be extracting trace amounts from seawater.
boppo1 5y ago
I don't think most people do. For the howver many years of QE I remember that critics were met with finger-pointing to flat PCI and CPE. Few outside of finance seem to recognize summary P/E growth as inflation.
- dragonwriter 5y ago
  > Few outside of finance seem to recognize summary P/E growth as inflation. Because it's not “inflation” as that term is used without modifiers, which is increase in the nominal price of final consumer goods and services. Asset inflation is a different thing than general inflation and it makes no sense to conflate them.
  - hedora 5y ago
    Agreed, but, in fairness, the inflation numbers that are currently being used by the press explicitly exclude the real cost of housing, which is an asset that has definitely increased in nominal price. Instead, they’re using “non market rent” or some such nonsense to estimate housing costs. Measured as it was then, our current inflation rates are significantly higher than they were at the end of the seventies, even though they’re reported as being lower. Inflation has been redefined to exclude asset prices, and that directly broke its traditional relationship with the actual cost of living. Given that, I’d argue it’s fair game to point at asset prices as evidence of out of control inflation. This situation is textbook Orwellian Doublespeak: Rational conversations about inflation are now nearly impossible to have, since all the useful vocabulary has been sabotaged. Instead of talking about inflation, we get tripped up on vocabulary and semantics.
    - dragonwriter 5y ago
      > housing, which is an asset No, it's not. Residential real estate is an asset, housing is service. Imputed rent (the cost of rent forgone as a result of choosing to reside in the property you own rather than renting it out) is the cost (the money given up in exchange for) that service, for homeowners choosing to reside in the home they own. > Inflation has been redefined to exclude asset prices, Inflation has generally excluded asset prices for the entire 102 years for which the US has measured it, as the fundamental concept has always been measuring final consumer goods and services prices, not assets. The exception, for a 30 year period in the middle (starting in 1953 and abandoned in 1983) was homeownership costs, which was a clumsy way of dealing with the fact that only counting direct rent, as had been done from 1919, was completely of ignoring housing costs for the growing group of homeowners. The switch to the owners equivalent rent method in 1983 returned the measure of inflation to it's core purpose, while not excluding homeowners actual costs of housing.
smat 5y ago
I think he does though. He mentions that many assets are priced on a level that is only realistic if interest rates remain on the current level for decades.

LaserHodl 5y ago

One word: Bitcoin

Joeboy 5y ago
That is indeed one word. However it's a compound of two words, one of which is itself a contraction of two other words.
drcode 5y ago
I'm still hopeful my gamble in plastics will pay off
- boppo1 5y ago
  Is this a comment on Bitcoin's environmental impact?
  - Joeboy 5y ago
    https://www.youtube.com/watch?v=eaCHH5D74Fs&t=25s https://www.youtube.com/watch?v=eaCHH5D74Fs&t=25s
    - boppo1 5y ago
      What a relief.
  - rufus_foreman 5y ago
    Hello environmental impact, my old friend.

zipiridu 5y ago

I used to think this was definitely a bubble, but I've become less sure after reading about the amount of debt the US has and the ways it can pay it. The easiest way the US can pay its debts is through inflation. Given that, the fed will likely keep printing money. People know this and therefore put their money in things that are safer than cash, which is guaranteed to lose purchasing power over the next decade. At 2% inflation that is something like %10 over 10 years, but at current rates you could lose >50%. This is especially true in assets, which is what people with lots of money want to own. So while the price of food might only go up 10% per year, the price of assets could go up much more than that, and that is not included in CPI calculations. This is like a financial crisis but only for people who don't own assets, since they won't be able to get into the game. At least in 2008 everyone but the banks suffered, this time it might be everyone but the rich. Of course, I could be completely wrong and I really hope I am because I was saving to buy a house. However this time things are different than previous bubbles because every asset type, even cash, is risky.

WA 5y ago
There's your story, why this time, it's different.
- abernard1 5y ago
  This happened exactly as the poster mentioned in the 1970s. Equities, despite a 50% real drop (they were sideways through the decade) did not experience the 70% loss that cash did. Today multinationals are much more well... multinational, and they're currency-hedged better than they were then. This allows them to avoid much of the inflationary pain of a single currency. Countries have been inflating their way out of bubbles for thousands of years at the expense of the currency. Acting as if that either hasn't happened many times prior or can't happen again is an article of faith
newaccount2021 5y ago
ryandamm 5y ago

usui 5y ago

Whichever way it may happen, I just want it to happen already. The recent wave of pyramid schemers and cult-like praise of NFTs/smart contracts/the holy Web3 is much more insufferable than before. I think that before, it was relatively easy to maneuver around them in the media I consumed. Now, the pyramid scheme has infected literally everywhere I go on the internet, almost as if the only way to avoid cryptocurrency ramblings is to go offline. Please, just burst already, and let the insufferable stop their shilling.

kristiandupont 5y ago
Interesting, I hardly run into it in my personal bubble. Sure, it pops up here and there, but not much more than, say, VR when Occulous Rift was all the rage. It's just enough to make me realize that it's something some people consider to be revolutionary, but not enough to tempt me into googling what it's all about (web3, specifically. I kinda know what NFTs and smart contracts are about, I think).
- usui 5y ago
  It's awful because even when I go offline, some friends keep trying to shill Web3 and try to get me to buy NFTs. I already stated that I'm not interested. What a shitty way to burn bridges. Oh well, at least it's an easy signal.
mountainb 5y ago
It will get much sillier before the end.
pjc50 5y ago
This reminds me, strangely, of the invention of Viagra and Cialis and their subsequent total domination of spam. Any blog in the early 2000s that didn't police their comments would be full of v1agr@ and c1@lis spam.
- LinuxBender 5y ago
  And not many know that those were failed blood pressure drug companies. To recoup their losses their marketing groups came up with the medical term erectile dysfunction because of the well known side effect.

jasfi 5y ago

Use trading algorithms: https://tradeq.xyz https://tradeq.xyz You don't know when the bubble will burst, and emotion is usually the driving force.

hahajk 5y ago

“Don’t be afraid to do nothing.” The author doesn’t mention that his article is the latest in a long line of “bubble’s about to pop” articles that have been steadily written since around 2014. Sure the stock market is in a bubble. But I would be sad if I had spent the last 8 years waiting for it to pop.

jimhefferon 5y ago
> I would be sad if I had spent the last 8 years waiting for it to pop. I hear you. But later in the article he does advocate, or at least approve of, dollar cost averaging into a low cost mutual fund. I think he has in mind as an audience his college students. I have some students who with great enthusiasm have told me how much they are using to invest in things that are, let's say, a place where historically very savvy people have lost a great deal of money. It is all so easy, they assure me.
arnvald 5y ago
I agree, and I regret waiting for the last 2 years to buy my own place: 2.5 years ago I put it on hold, because with such high prices the bubble must burst. 1.5 year ago I put it on hold, because with COVID and high prices the bubble must burst. 6 months ago I finally bought an apartment. I paid 30% more than I would have in 2019, but 10-15% less than I would have to pay today.
pdm55 5y ago
I needed the reminder to be patient. I was lucky during the financial crisis to have cash that I could put in a term deposit for 5 years at 7%, my first-ever term deposit, To my detriment, I took out half after a couple of years to create an online game that failed. However, when the rest matured, I was lucky to triple that money by investing in a couple of speculative ventures. Having used up my allotted measure of luck, I now look for solid investments. I have recently liquidated about half my shares. I am waiting for the bubble to burst. I have my eye on a couple of solid companies whose share price may fall dramatically as people need the cash. I am approaching seventy and I need a solid portfolio that I can slowly sell down to meet living expenses. My rules: 1) Avoid bitcoin, it seems so much like the "Souk Market": https://www.livewiremarkets.com/wires/the-greatest-bubble-you-may-never-have-heard-of-2021-12-12/ https://www.livewiremarkets.com/wires/the-greatest-bubble-yo... 2) Avoid meme and NFT stocks; they seem like the new tulip craze. 3) Avoid unethical stocks; they remind me of the South Sea Company: https://www.britannica.com/event/South-Sea-Bubble https://www.britannica.com/event/South-Sea-Bubble 4) Avoid hugely inflated P/E ratios; remember pets.com. In short, look for ethical* companies with strong fundamentals. *However, I am not sure that ethical and profitable can co-exist. So my rule is to choose a company that has a product or service that I use and like, or a CEO/founder whom I admire. I try to research companies. But I find that other people's advice is rather limited, as they tend to know less about the companies than I do. In the end, you have to trust your own judgement.

HPsquared 5y ago

The problem is, people have different, mutually-exclusive ideas of what area is going to "pop". Is it going to be the currency? (in which case you should buy assets), is it going to be assets? (in which case you should buy currency)

locallost 5y ago

He's probably right but the criteria is somewhat wishy washy. E.g. "Belief replaces analysis among many market participants" Many? How many? I am not sure how much analysis there really is in the market. I doubt there is too much with the small investors -- not only is it complicated anyway but companies have too many tricks to pretty up their books. So even if you're diligent it's a good question if you're reading the real data. Most people don't have the time to learn that much. As for the big institutions, it's not my world, but I doubt there is a total lack of bias. There is obviously a lot of momentum trading. I also became somewhat sceptical if such a thing as a bubble really exists if we can only identify it after the fact, and only under certain conditions. E.g. last year in March the market crashed badly but it recovered quickly and there was no long term problem. Thus it wasn't a bubble bursting event. The very same thing could've happened without the "investors" getting confident again, and then everybody would've concluded that covid finally popped the bubble. Both of those can't be real.

zivkovicp 5y ago

My portfolio is cash-heavy these days, but I don't believe a crash is coming, I'm just not comfortable being fully invested at the moment; and I hate that because the cash is losing purchasing power every quarter. I get the feeling that investing in a quality company with a solid balance sheet is the better long term risk proposition because even if it goes nowhere for 10 years, what are the chances that my savings are going to grow in purchasing power? Probably zero. This market has made me more comfortable with risk than I probably should be, but that is another reason why I refuse to go "all in", to protect me from myself. :D

potamic 5y ago
> I get the feeling that investing in a quality company with a solid balance sheet is the better long term risk proposition From a risk perspective, you are better off investing in an index. Any individual company might stagnate or go bust, but an index is highly diversified and constantly rebalanced to track the best performing companies. The risk reduces even further as your horizon increases.
- zivkovicp 5y ago
  That's true, and good advice. I've only used index investing to get exposure to specific markets or segments where I find it difficult to do decent research, but you're right that it's a better way to park funds over a longer term.
room505 5y ago
The best way to improve your odds of success is to stay invested over time, no matter when you start. https://www.schwab.com/resource-center/insights/content/is-there-perfect-time-to-invest https://www.schwab.com/resource-center/insights/content/is-t...
rufus_foreman 5y ago
>> the cash is losing purchasing power every quarter I Bonds are paying over 7% right now. You are limited in the amount you can buy but could buy $10,000 now and $10,000 next year (i.e., in a couple weeks) plus another $5,000 if you are getting a tax refund. You've got to lock your money up for a year but worth looking at if you've got money sitting around in a savings account that you don't need next year.

pezzana 5y ago

> Surveying the landscape, it seems likely that if there is a bubble that it is not in equities but rather in credit. In an environment where low single-digit positive inflation is widely expected by market participants, how can it be rational for “investors” to buy long-term bonds with negative yields? ... It can be rational if investors believe that interest rates are headed even lower. When that happens, bond prices will appreciate still further. There is no limit, technically, to how low long term treasury yields can go. Therefore, there is no upper bound to treasury prices. The thing about bubbles is that at the top few are calling out "bubble." Instead, every bear whose mind can be changed has thrown in the towel and joined the party. It's all about how the old rules don't apply anymore. A new paradigm. The only voices of caution are the parma-bears with their tinfoil hats. They will eventually be right, but will have missed booking profits during the entire insane event in the process.

gandalfian 5y ago

So if everyone thinks it's a bubble stocks must be undervalued? Time to buy? Actually enjoyed the article preamble, the five actual points less so.

sixQuarks 5y ago

This article is so cringey. The author is using Tesla as an example of a bubble stock, for which he is sure Offers no attractive returns in the future. He dismisses a “naïve” student who presents the opposite picture. I will bet anyone $1,000 this author will look like the idiot in 5 years while the student was right all along.

dsr_ 5y ago
The point of the article is that bubbles involve belief in the superiority of an equity without reference to fundamental value. You and the student appear to have a large amount of belief in this equity, but neither one of you offers evidence...
- sixQuarks 5y ago
  Tesla has a forward looking 12mo P/E of only 100 just with its current operation selling 1 million vehicles per year. It's growth rate is 50%+ per year, by 2030 it should be selling 15-20 million vehicles per year. Tesla can justify it's current valuation solely with its automotive business, but that's just the tip of the iceberg. Other areas of growth and profit that will likely outperform the auto business: - Energy Storage and Distribution (including Solar Roofs) - Full Self Driving, Robotaxis - AI as a service - Insurance - Charging Network: Access Fees / Restaurants / Convenience Goods Like I said, put your money where your mouth is if you're so sure the author is correct here.
  - Kon-Peki 5y ago
    > It's growth rate is 50%+ per year, by 2030 it should be selling 15-20 million vehicles per year. I can't wait until 2040, when Tesla is selling 5 billion vehicles per year! </snark> Really though, I don't think it is rational to believe that kind of growth rate is sustainable...
    - sixQuarks 5y ago
      Tesla is severely supply constrained. Wait times in some areas is one year. They could easily sell 3-4 million this year if they had the supply, and this is before their $25k car which should be available by 2025.

asimpletune 5y ago

Does anyone have a recommendation on what to do with their cash while they're waiting to buy shares using dollar cost averaging? Like, let's say I have $120, and I plan on buying $10 of stock per month. Is there a good way thing that you can do with the money while it just sits?

patwolf 5y ago
I've been in the same boat. I ended up putting it in a robo account with my risk profile set to be very conservative. Most of it ends up getting invested in a bond ETF under the covers, like $BND. Unfortunately with interest rates so low, it's not going to keep up with inflation. I can see why crypto is so attractive--every other "safe" investment seems like it's bound to lose money when considering inflation.
valzam 5y ago
If you are slightly risk-tolerant you can use services like nexo or blockfi to earn interest on fiat. You don't take crypto price risk and they generally only lend out money on an over-collateralized basis, so the default risk is small.
- ac29 5y ago
  You can earn interest on stablecoins, not fiat. Theres a big difference there, since the stablecoin itself has risk in addition to the risk of whatever those services do with it to generate returns.

oxymoran 5y ago

I don’t disagree with any of this as it is pretty much Finance 101. But what I feel like this sort of analysis tends to lack, is that the markets have always been decoupled from “reality”. The only difference is that, historically, there were less retail investors and more professional traders. These pros shared a consensus reality regarding valuation etc. But at the end of the day, the price of the stock has always been based on the supply and demand of the asset which can have absolutely no connection to the actual performance the underlying company. Think about it, a stock price rises or falls based on people buying and selling the stock. That typically happens when there is news about company performance but there is no direct correlation between company performance and stock price. If we all decided we actually value poor performing companies, their stock price would be through the roof, a la Tesla. It’s all smoke and mirrors, and it always has been.

deepsun 5y ago
It's not _all_ smoke and mirrors, but only on the low level of P/E ratios. E.g. companies paying dividends -- if company has no money, it won't pay dividends, so the stock goes down. But if investors see dividends as a good income source, then the stock price goes up. But that only works with dividend-paying stocks, obviously.
enjoy-your-stay 5y ago
Well, that was all good up until the point that CDS's exposed the Ratings Agencies as corrupt, and LIBOR imploded, again due to corruption.