7 ms·

We educate our children to participate in greater fool games. Go to college, regardless of tuition. Put your money in the stock market, regardless of its heal

by Taek 3y ago

We educate our children to participate in greater fool games. Go to college, regardless of tuition. Put your money in the stock market, regardless of its health and structure. Buy bonds, regardless of the interest rate. Own a house, regardless of market conditions. --- Most people don't think critically about their money, which makes them easy prey for greater-fool games built on top of institions they were educated to trust.

anovikov 3y ago
Wait wait what's wrong about stock market? At least as long as we buy in gradually (from spare cash we have) over a time that's longer than a business cycle, ideally longer than 2 business cycles (which is the case with any normal retirement planning)? Also, no one suggests buying bonds for the sake of it. It makes no sense and never did. Bonds are little but a balancing component for stocks.
- XorNot 3y ago
  Moreover they're a safer vehicle as you approach retirement when your liquidity preference has a due date (the market might recover but you probably don't want to or can't delay 4 years waiting for it).
- fullshark 3y ago
  There was a lot of investment advice to buy bonds even when interest rates were zero as this "balancing component" as you say. That was pretty much "buy bonds for the sake of it." One reason is because it decreases volatility and most people freak out when their nest egg loses 40% of its value in a market downturn, but I do think a lot of it was just laziness and carrying over advice from before the zero interest rate days.
  - zeroCalories 3y ago
    I think you're mixing up suggestions to buy bonds with the suggestions to buy US treasuries. There are plenty of other bonds that are safe and provide steady returns.
- paganel 3y ago
  > Wait wait what's wrong about stock market There’s also the possibility of the market going 1917 Russian collapse or 1949 Chinese collapse, in which case you’d be left with literally nothing over night. And not that dramatic, there’s also the chance of the Western market going October 1929, and not everyone is Lord Keynes in order to afford to ride that event out for the following 10-15 years (and I think Keynes was lucky there).
- maest 3y ago
  > Wait wait what's wrong about stock market? Just by virtue of being a stock market, it's not guaranteed to always keep going up (e.g. look at other stock markets like, let's say, Japan). In fact, the US stock market has been largely unique in the amount of long term growth it's seen. This means that the default advice of "put your money in the stock market because, long term, it will go up" is wrong. It is wrong in the sense that _even if_ the bet is positive EV, the reason for the advice is wrong. Instead, you'd have to argue about why the US market is special, what mechanism has allowed it to go up, and why that mechanism will persist in the future. The same is largely true for housing btw.
  - anovikov 3y ago
    Well, claiming that is claiming that the entire idea of "private property" is bullshit, but it refutes the very foundation of our civilisation. Because stock market is a mechanism for facilitation "private property" in the purest sense - "ownership without physical control". Remove it, and you can only make money off what you can physically hold and defend, and that would be a scary world. Capital always generates return. If it doesn't it just moves to the other place where it does. If there is no stock market, there is no way to freely move that money and it means that private property is no more, and owning capital is more of a job of "being able to milk something for profit", rather than a passive income source. That means we no longer have capitalism. Do you claim the world is really a place like that? Or, do you claim that there are other mechanisms for that but the stock market. Which?
    - maest 3y ago
      Japan has private property, but the Japanese stock market has been going sideways for years.
funklute 3y ago
> Most people don't think critically about their money This is a bit of a naive viewpoint. Take your example of putting money in the stock market, regardless of its health and structure: So I'll follow your advice and I'll think critically about it. I'm not an economist, but I'm technically and mathematically quite literate. And what I see is that historically, it's generally been a good idea to put money in the stock market. But of course that doesn't mean that will apply to the future. Except, how can I tell whether the stock market is in good health? Even as an academic researcher, that is a really hard problem. The best I can do is look at the past, and then take a risk. It's not my lack of critical thinking that is the problem. It's that it is a genuinely very hard problem.
- breezeTrowel 3y ago
  I don't think it's that hard. Just ask - is the S&P500 lower now than it was three months ago? If the answer is "yes" then maybe stay in cash and put that money in when the answer is "no". Alternatively, if you want to get "fancy", you can use the 50/200 SMA crossover to determine entry and exit points. It's a much safer bet than "buy and hold" since it avoids massive drawdowns.
  - JW_00000 3y ago
    > is the S&P500 lower now than it was three months ago? If the answer is "yes" then maybe stay in cash and put that money in when the answer is "no". Wait, isn't that the wrong way round? You're waiting when it's low and buying when it's high?
    - breezeTrowel 3y ago
      "Buy low and sell high", while sounding good, is generally terrible advice since you only know what was "low" and "high" in retrospect. A stock (or an index, in this case) might hit a new low only for the price to crash even further. The same thing goes for highs. A stock or index making a new high may very well continue to rise. So, instead of "buy low and sell high" it tends to be a lot easier to "buy into strength and sell into weakness".
baybal2 3y ago
[dead]
deleted 3y ago
[deleted]
wslh 3y ago
Separate apples and oranges. I think you are right that we are all participating in the greater fool game so educate your kids to think about the real game! It is an epistemological problem. When you buy US bonds at a low interest rate you are lowering your risk because those bonds are supported by F-35s, nuclear bombs, and aircraft carriers, while, in general, other countries bonds don't have that shield. This is not an investment advice but if you have money bonds should be taken into account. Stock market? Technology advances are accelerating, that is a reality, so buying ETFs does not seem bad to have some participation. The story doesn't end in software startups. Go to college? Well, the tuition could be insignificant if the diploma gives you the signal and network to scale after graduating. If it is not, you can study in another place with zero or minimum tuitions or skip college.
AzzieElbab 3y ago
These are the games rational ppl play when interest rates are close to 0. Things are changing.
carlossouza 3y ago
I don’t think it’s that simple. Kahneman and Tversky identified several cognitive shortcuts (heuristics) that people use to make judgments and decisions, which can lead to systematic errors (biases)... often leading to irrational decision-making. Their research explains several irrational decision-making processes that we demonstrate while investing (either in private or public markets.) Thinking Fast and Slow is such a great book…
GuB-42 3y ago
A "greater fool" game doesn't just require fools. In fact it doesn't require any fool at all, and by fool I mean people who really believe into what they are investing on. Only belief in that such fools exist matters. For people playing the game, the actual value is not the important part, what is important is that they think the hype will continue and that the price will continue to go up. Their intention is to sell just before the hype ends, to profit off the supposed "greater fools". You lose if the "greater fools" you expected are not here. Scammers trying to outscam each others if you want, not much trust here.
- mcv 3y ago
  Those people are the fools. And perhaps they even know it. They're just hoping for even greater fools that will buy from them at even higher value.
tristor 3y ago
> Put your money in the stock market, regardless of its health and structure. I’m not convinced that this is a bad thing. The basic reason is due to broad market ETFs like VT/VTI/VXUS and similar. The problem an individual investor has is primarily an issue of information density and information asymmetry. They don’t have the time to be an expert at the same level as institutional/professional investors, and institutional/professional investors have better sources of information. So what can you do? Observe the behavior of institutional/professional investors as a proxy for your own analysis. What you see on even relatively short timescales is that as some investors leave the market pulling prices down, the lower prices convince other investors to enter the market (more deeply). Individual companies/stocks may flounder, but the market as a whole on a long enough timescale appreciates in equivalence to inflation + new value. This is inclusive of crashes, which are historically the /best/ times to invest. If you aren’t trying to pick stocks you completely change the risk calculation (and the reward, you won’t get 100x multiples). There’s nothing stupid about consistently investing in a broad market fund, but I’m open to evidence to the contrary.
paulpauper 3y ago
Go to college, regardless of tuition. The average student loan debt per student is around 30k, which is easily negated by the college wage premium, and also a much lower unemployment rate for college grads. it is not even close. This holds even for low-ROI majors and low-ranking colleges. Put your money in the stock market, regardless of its health and structure. after factoring in dividends , S&P 500 has pretty much outperformed everything and has a 10 % annual return, which solidly beats inflation. Own a house, regardless of market conditions. same as above. even someone who bought a home in 2004-2008 would be ahead now. home ownership easily beats renting. market timing has generally been shown to be futile. the best time to buy stocks is always now.
- randomdata 3y ago
  > which is easily negated by the college wage premium We once thought there would be such premium. Wages held stagnant as people started going to college, though, and have continued to.
  - edmundsauto 3y ago
    I think this refers to the fact that college graduates make something like $1M more over their working life than non-college graduates.
    - randomdata 3y ago
      While that may be true, you are not comparing like people. I'm sure anyone here, even if they dropped out of high school, can make $1M+ more in their career than someone with a crippling mental disability. The latter of which being much less likely to be college gradates, making any comparisons meaningless. If what you are trying to say is that college filters out those who are not well suited to high level careers, there is no doubt truth to that, but that is not the same as a premium. It is not like college can cure someone's disability. The same person sees no change, statistically.
      - paulpauper 3y ago
deleted 3y ago
[deleted]

by Taek 3y ago

anovikov 3y ago

Wait wait what's wrong about stock market? At least as long as we buy in gradually (from spare cash we have) over a time that's longer than a business cycle, ideally longer than 2 business cycles (which is the case with any normal retirement planning)? Also, no one suggests buying bonds for the sake of it. It makes no sense and never did. Bonds are little but a balancing component for stocks.

XorNot 3y ago
Moreover they're a safer vehicle as you approach retirement when your liquidity preference has a due date (the market might recover but you probably don't want to or can't delay 4 years waiting for it).
fullshark 3y ago
There was a lot of investment advice to buy bonds even when interest rates were zero as this "balancing component" as you say. That was pretty much "buy bonds for the sake of it." One reason is because it decreases volatility and most people freak out when their nest egg loses 40% of its value in a market downturn, but I do think a lot of it was just laziness and carrying over advice from before the zero interest rate days.
- zeroCalories 3y ago
  I think you're mixing up suggestions to buy bonds with the suggestions to buy US treasuries. There are plenty of other bonds that are safe and provide steady returns.
paganel 3y ago
> Wait wait what's wrong about stock market There’s also the possibility of the market going 1917 Russian collapse or 1949 Chinese collapse, in which case you’d be left with literally nothing over night. And not that dramatic, there’s also the chance of the Western market going October 1929, and not everyone is Lord Keynes in order to afford to ride that event out for the following 10-15 years (and I think Keynes was lucky there).
maest 3y ago
> Wait wait what's wrong about stock market? Just by virtue of being a stock market, it's not guaranteed to always keep going up (e.g. look at other stock markets like, let's say, Japan). In fact, the US stock market has been largely unique in the amount of long term growth it's seen. This means that the default advice of "put your money in the stock market because, long term, it will go up" is wrong. It is wrong in the sense that _even if_ the bet is positive EV, the reason for the advice is wrong. Instead, you'd have to argue about why the US market is special, what mechanism has allowed it to go up, and why that mechanism will persist in the future. The same is largely true for housing btw.
- anovikov 3y ago
  Well, claiming that is claiming that the entire idea of "private property" is bullshit, but it refutes the very foundation of our civilisation. Because stock market is a mechanism for facilitation "private property" in the purest sense - "ownership without physical control". Remove it, and you can only make money off what you can physically hold and defend, and that would be a scary world. Capital always generates return. If it doesn't it just moves to the other place where it does. If there is no stock market, there is no way to freely move that money and it means that private property is no more, and owning capital is more of a job of "being able to milk something for profit", rather than a passive income source. That means we no longer have capitalism. Do you claim the world is really a place like that? Or, do you claim that there are other mechanisms for that but the stock market. Which?
  - maest 3y ago
    Japan has private property, but the Japanese stock market has been going sideways for years.

funklute 3y ago

> Most people don't think critically about their money This is a bit of a naive viewpoint. Take your example of putting money in the stock market, regardless of its health and structure: So I'll follow your advice and I'll think critically about it. I'm not an economist, but I'm technically and mathematically quite literate. And what I see is that historically, it's generally been a good idea to put money in the stock market. But of course that doesn't mean that will apply to the future. Except, how can I tell whether the stock market is in good health? Even as an academic researcher, that is a really hard problem. The best I can do is look at the past, and then take a risk. It's not my lack of critical thinking that is the problem. It's that it is a genuinely very hard problem.

breezeTrowel 3y ago
I don't think it's that hard. Just ask - is the S&P500 lower now than it was three months ago? If the answer is "yes" then maybe stay in cash and put that money in when the answer is "no". Alternatively, if you want to get "fancy", you can use the 50/200 SMA crossover to determine entry and exit points. It's a much safer bet than "buy and hold" since it avoids massive drawdowns.
- JW_00000 3y ago
  > is the S&P500 lower now than it was three months ago? If the answer is "yes" then maybe stay in cash and put that money in when the answer is "no". Wait, isn't that the wrong way round? You're waiting when it's low and buying when it's high?
  - breezeTrowel 3y ago
    "Buy low and sell high", while sounding good, is generally terrible advice since you only know what was "low" and "high" in retrospect. A stock (or an index, in this case) might hit a new low only for the price to crash even further. The same thing goes for highs. A stock or index making a new high may very well continue to rise. So, instead of "buy low and sell high" it tends to be a lot easier to "buy into strength and sell into weakness".

baybal2 3y ago

[dead]

deleted 3y ago

[deleted]

wslh 3y ago

Separate apples and oranges. I think you are right that we are all participating in the greater fool game so educate your kids to think about the real game! It is an epistemological problem. When you buy US bonds at a low interest rate you are lowering your risk because those bonds are supported by F-35s, nuclear bombs, and aircraft carriers, while, in general, other countries bonds don't have that shield. This is not an investment advice but if you have money bonds should be taken into account. Stock market? Technology advances are accelerating, that is a reality, so buying ETFs does not seem bad to have some participation. The story doesn't end in software startups. Go to college? Well, the tuition could be insignificant if the diploma gives you the signal and network to scale after graduating. If it is not, you can study in another place with zero or minimum tuitions or skip college.

AzzieElbab 3y ago

These are the games rational ppl play when interest rates are close to 0. Things are changing.

carlossouza 3y ago

I don’t think it’s that simple. Kahneman and Tversky identified several cognitive shortcuts (heuristics) that people use to make judgments and decisions, which can lead to systematic errors (biases)... often leading to irrational decision-making. Their research explains several irrational decision-making processes that we demonstrate while investing (either in private or public markets.) Thinking Fast and Slow is such a great book…

GuB-42 3y ago

A "greater fool" game doesn't just require fools. In fact it doesn't require any fool at all, and by fool I mean people who really believe into what they are investing on. Only belief in that such fools exist matters. For people playing the game, the actual value is not the important part, what is important is that they think the hype will continue and that the price will continue to go up. Their intention is to sell just before the hype ends, to profit off the supposed "greater fools". You lose if the "greater fools" you expected are not here. Scammers trying to outscam each others if you want, not much trust here.

mcv 3y ago
Those people are the fools. And perhaps they even know it. They're just hoping for even greater fools that will buy from them at even higher value.

tristor 3y ago

> Put your money in the stock market, regardless of its health and structure. I’m not convinced that this is a bad thing. The basic reason is due to broad market ETFs like VT/VTI/VXUS and similar. The problem an individual investor has is primarily an issue of information density and information asymmetry. They don’t have the time to be an expert at the same level as institutional/professional investors, and institutional/professional investors have better sources of information. So what can you do? Observe the behavior of institutional/professional investors as a proxy for your own analysis. What you see on even relatively short timescales is that as some investors leave the market pulling prices down, the lower prices convince other investors to enter the market (more deeply). Individual companies/stocks may flounder, but the market as a whole on a long enough timescale appreciates in equivalence to inflation + new value. This is inclusive of crashes, which are historically the /best/ times to invest. If you aren’t trying to pick stocks you completely change the risk calculation (and the reward, you won’t get 100x multiples). There’s nothing stupid about consistently investing in a broad market fund, but I’m open to evidence to the contrary.

paulpauper 3y ago

Go to college, regardless of tuition. The average student loan debt per student is around 30k, which is easily negated by the college wage premium, and also a much lower unemployment rate for college grads. it is not even close. This holds even for low-ROI majors and low-ranking colleges. Put your money in the stock market, regardless of its health and structure. after factoring in dividends , S&P 500 has pretty much outperformed everything and has a 10 % annual return, which solidly beats inflation. Own a house, regardless of market conditions. same as above. even someone who bought a home in 2004-2008 would be ahead now. home ownership easily beats renting. market timing has generally been shown to be futile. the best time to buy stocks is always now.

randomdata 3y ago
> which is easily negated by the college wage premium We once thought there would be such premium. Wages held stagnant as people started going to college, though, and have continued to.
- edmundsauto 3y ago
  I think this refers to the fact that college graduates make something like $1M more over their working life than non-college graduates.
  - randomdata 3y ago
    While that may be true, you are not comparing like people. I'm sure anyone here, even if they dropped out of high school, can make $1M+ more in their career than someone with a crippling mental disability. The latter of which being much less likely to be college gradates, making any comparisons meaningless. If what you are trying to say is that college filters out those who are not well suited to high level careers, there is no doubt truth to that, but that is not the same as a premium. It is not like college can cure someone's disability. The same person sees no change, statistically.
    - paulpauper 3y ago

deleted 3y ago

[deleted]