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If you think that there is some major economic turmoil ahead with dropping asset values across the board (and I personally this is fairly likely), the general a
by ptero 4y ago
If you think that there is some major economic turmoil ahead with dropping asset values across the board (and I personally this is fairly likely), the general advice is to aim for a positive alpha. That is, if you are moderately well off or better, invest to "go down less than your neighbors". Assets across the board lose value, but if at the end of the fall you preserved a higher fraction of your money to invest than your neighbors and are willing to pick the best assets after the collapse you can reap huge benefits.
The counter argument to this is that the above approach absolutely requires an iron discipline. And without experience non-professionals are prone to making very costly mistakes (e.g., invest on feelings, double down inappropriately, etc.). So, a general audience advice is usually: do not invest money you need within 5-10 years and do not make rash decisions; it is better to ride this train down and then hopefully back up than jump randomly. And diversify (across countries, economies, asset classes, etc.).
Just my 2c; not an investment advice!
- nradov 4y agoThe general advice is always to aim for a positive alpha. No investor aims for a negative alpha, regardless of the economic climate.
- etrautmann 4y agoYes, but it's unclear how to intersect this with a reasonable tax strategy for many retail investors. i.e. do I sell everything and pay capital gains or sit?
- ptero 4y ago> The general advice is always to aim for a positive alpha. On the contrary, for the past 20+ years the general advice has been to specifically aim for the alpha of zero ("just use index funds"), not for a positive alpha ("don't try to beat the market", etc.). > No investor aims for a negative alpha, regardless of the economic climate. Factors other than alpha are way more important for most people. Many retirees put a high value on low volatility or stability of dividends and are perfectly OK with getting a small negative alpha as part of the package. Original hedge funds (before they joined a cutthroat trading jungle) set up with a similar goal in mind: a small negative alpha, but protected against the loss of the principal. And had plenty of wealthy investors who were happy with this deal. Alpha becomes the critical parameter to optimize for when actively investing in times of turmoil (then a negative total return on a positive alpha on the down leg is a success). But few people actually do that, so few care about alpha.
- spicyusername 4y agoI think this is probably the most useful wisdom for the average person: > do not invest money you need within 5-10 years and do not make rash decisions; it is better to ride this train down and then hopefully back up than jump randomly. Gaming the market successfully requires a ton of skill and knowledge, and even then you are not guaranteed success. Most people are better off focusing on asset-class diversification (i.e. spreading money across many different kinds of asset classes - i.e. physical assets, securities, commodities, cash, etc) than playing just the stock market. And even when playing the stock market, most people are better off focusing on "time-in-the-market" vs "timing the market".
- thechao 4y agoRight; so my plan of having 60% of my wealth tied up in unvested stocks in a single company is really coming to fruition!
- FollowingTheDao 4y agoOh man, so sorry.
- quickthrower2 4y agoNot really, if they go to zero, then he/she will be in the same situation as most (99.9%) of employees who get no stock.
- thechao 4y agoWe call it the lottery — the last ~5 years we "won"; this year? Maybe not so much.
- quickthrower2 4y ago“We” meaning a subset of “not me”
- 4y ago