So the Dow was down triple digits this morning if I understand correctly because of improving economic news fueling fears of an interest rate hike. In emphasizing 401Ks, thrift savings plans and the like we probably have the largest class of people in the US that are stock holders than ever before. So have we gotten to the point where you root for bad economic news so that your stock holdings go up at the expense of the overall health of the economy?
Does this system we seem to have created make sense to anyone any more? It just seems like a house of cards.
To be honest no industry is more vulnerable to techno obsolescence than FIRE. Even there it is decades to work out the last 5%. Sort of like IBMs 25 year quest to beat the chess champion. Easy to get to beating masters. Much longer to beat some grand masters. Eventually took teams and generations of " machine" to beat a champion. There is one heck of a lot of reasons besides technology behind the erosion of our manufacturing base.
But mainly I think the trend will be less than its promulgators claim because other completely different trends on the move will exert more influence on human affairs sooner and more completely. Imho
Where we go from here...well, we will see, pretty soon, I think.
But, being a total naif on econ,
Question? are there any other mechanisms? ones to slightly lower the dollar and marginally help us build our own manufacturing sector?
keep in mind, it is not all about exports, Brazil, with the huge high rates (13%?) and very high labor participation rates, some of what they manufacture is obviously sold at a low enough price right there in country.
The last chart along with what Manh George has been describing here has me preaching to my students - economic times are changing. Get in the investor class. You have no chance if you live paycheck to paycheck.
In response to the O.P., I have experienced many of the same feelings from time to time. I remember good economic news battering my investment portfolio as it foretold of changes by the fed, and being really upset as it seemed to force me to root for bad info.
I understand that the market is all speculation, and as such is driven by the rumor, not the news, etc.
Nowadays it's not even driven by the rumor or the news so much as it is by the algorithms/pricing models. I can't do that kind of math so I've given up trying to explain the day's actions on the marketplace, and even when I hear people who seem to explain yesterday's results in a rational way I don't invest on their recommendation. One has to look at the big picture, period.
But - the LAST thing anyone should want is for stocks to go UP. You want stocks to go DOWN, not UP (again, unless you are retired and no longer a contributor, but a spender of your portfolio).
So, CHEER when the market goes down and you are buying more shares with your weekly contribution. And Pray that next week stocks get cheaper still, so you buy even MORE shares. And my goodness, if you can possibly be fortunate enough to be contributing when there is an actual CRASH (say a 40-50% drop), borrow money on your house, beg borrow and steal, do whatever you can to BUY BUY BUY cheap stocks. And pray for it to go down even further.
Investing is very counter intuitive. But it is damn important to your future. If you don't understand the reasoning behind anything I've said above, then you owe it to yourself to read a few of the basic investing books recommended by most universities (Chicago School of Economics is probably the best and I'm sure they have a great finance section with recommended books. Random Walk Down Wallstreet is a great starter).
But - remember - you should be pissed off when stock prices rise because your weekly contribution is now purchasing fewer shares. And you should be pleased as punch when prices fall, because your contribution is purchasing more shares (and remember - the GOAL is to accumulate the most SHARES, not dollar value - the dollar value will come when the price of the shares eventually rises - which it will do over a 40 year investment period - but meanwhile, you want to buy LOTS of shares, and the lower the stock market goes, the more shares you will be buying).
If you are talking to me, then you are, sadly, an idiot and do not have a clue what you are talking about.
Well, let's see. Try reading John Bogle. Warren Buffett. Do you know who they are?
Do you have a clue how to project future returns? Which is better for future returns, a current stock market with high prices (let's say an overall PE of 30) or a current stock market with very low prices (say an overall PE of 7)? Do you know the answer? Do you know WHY the answer is what it is? My guess is you don't have a clue.
I suspect you also think that owning individual stocks is a wise thing to do. Or actively managed mutual funds? That somehow you (and others) can beat a passive index fund, right?
I can only laugh at you. But please don't spread your garbage to others at BBI (or elsewhere in the world) whose financial futures can be ruined by someone who hasn't studied finance like yourself.
You know, the one espoused by the Chicago School of Economics.
You?
CRISP doesn't "root" for stock prices to do anything. But if you have a clue about investing - you'd understand why every professor at CRISP would teach you that during the accumulation phase (i.e. making regular additional investments), if you are lucky enough for stock prices to continually go DOWN during your accumulation period, you will end up accumulating more shares and will end up wealthier at the end of the period.
Take two theoretical investors, A and B. Both invest in the S&P500 for 40 years. Both start with the S&P500 at 12,000 and end with the S&P500 at 36,000 when they are 65.
Investor A sees the S&P500 go DOWN continually over 40 years from 12,000 down to 1,000 when he is 64. Then in the last 12 months it goes on a huge boom and reaches 36,000 as promised.
Investor B sees the S&P go UP continually over 40 years so that it reaches 100,000 at age 64. Then in the last 12 months it goes on a huge downward spiral and ends at 36,000 as promised.
Which investor has the better performing portfolio at 65? Investor A who saw stocks go down during his entire period of accumulation? Or Investor B who stocks go UP during his entire period of accumulation?
The answer is quite simple. Obviously the example I've provided is exaggerated for purposes of illustration. The point is, that you should be investing in an index fund and accumulating (acquiring) as many SHARES as possible (which means low price - the lower the better) - with the knowledge that reversion to the mean requires that the prices will go up in the later stages of acquisition, making you much wealthier than someone who sees the higher prices early, and reversion to the mean results in fewer shares acquired and lower price performance at the end.
You?
Don't make me laugh. John Bogle and Warren Buffett will tell you there is no such thing. Wall Street is nothing but a snow job - they are salespeople.
Again, the school that was made famous for "rational expectations", and not once do you actually put that into your silly tripe?
How, perchance, do risk strategies play out for a risk averse and risk loving individual if the expectation is that stocks will, in general, decline. And how does this differ from an individual who expects that stocks will rise?
How do these expectations play a role in shaping the broader market, as you are a market taker? Do these expectations drive down stock prices even when fundamentals say they should increase, and how does this affect returns?
But, we've got it. You have read like 3 books. Enlightening.
Again, the school that was made famous for "rational expectations", and not once do you actually put that into your silly tripe?
How, perchance, do risk strategies play out for a risk averse and risk loving individual if the expectation is that stocks will, in general, decline. And how does this differ from an individual who expects that stocks will rise?
How do these expectations play a role in shaping the broader market, as you are a market taker? Do these expectations drive down stock prices even when fundamentals say they should increase, and how does this affect returns?
But, we've got it. You have read like 3 books. Enlightening.
Try explaining the example I gave above re Investor A and B. You do understand that Investor A is the winner by a large margin, right? Do you understand why? And the consequences of why?
There are Street analysts all over the place with fabulous knowledge about their area of expertise. And yes, lots of salesmen. Smart institutional clients know how to tell the difference.
So, all you have done is highlighted how much you don't know about the profession, or the investment process.
Thanks for playing.
Change some numbers (since, you know, there are an infinite number of permutations to your example being incorrect) and your point goes bye-bye.
Especially since you have to rely on the wonderful timing of the market and your retirement...
Nice try, though.
Again, if you like sales people, then be my guest. Go to some stock broker and lose your shirt. Then try some annuities from an insurance company.
On the other hand, maybe you should try reading some books that come out of CRISP and maybe you just MIGHT save your financial future. No skin off my back. I'll stick with Warren Buffett and John Bogle. Peter Lynch. Shiller from Yale. Fama from CRISP.
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would take the word of someone who has worked in (or near the periphery of) the industry as an analyst over someone who's sole claim to fame is reading. Bravo.
Again, if you like sales people, then be my guest. Go to some stock broker and lose your shirt. Then try some annuities from an insurance company.
On the other hand, maybe you should try reading some books that come out of CRISP and maybe you just MIGHT save your financial future. No skin off my back. I'll stick with Warren Buffett and John Bogle. Peter Lynch. Shiller from Yale. Fama from CRISP.
If you've read Fama, then please, incorporate expectations into your theory. I've asked, and you haven't answered.
By the way, I've actually taken courses from Fama. This is not what this theory says. At all.
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endorse rooting for the stock market to go lower, lower, lower. That goes against their whole notion of rational expectations...
CRISP doesn't "root" for stock prices to do anything. But if you have a clue about investing - you'd understand why every professor at CRISP would teach you that during the accumulation phase (i.e. making regular additional investments), if you are lucky enough for stock prices to continually go DOWN during your accumulation period, you will end up accumulating more shares and will end up wealthier at the end of the period.
Take two theoretical investors, A and B. Both invest in the S&P500 for 40 years. Both start with the S&P500 at 12,000 and end with the S&P500 at 36,000 when they are 65.
Investor A sees the S&P500 go DOWN continually over 40 years from 12,000 down to 1,000 when he is 64. Then in the last 12 months it goes on a huge boom and reaches 36,000 as promised.
Investor B sees the S&P go UP continually over 40 years so that it reaches 100,000 at age 64. Then in the last 12 months it goes on a huge downward spiral and ends at 36,000 as promised.
Which investor has the better performing portfolio at 65? Investor A who saw stocks go down during his entire period of accumulation? Or Investor B who stocks go UP during his entire period of accumulation?
The answer is quite simple. Obviously the example I've provided is exaggerated for purposes of illustration. The point is, that you should be investing in an index fund and accumulating (acquiring) as many SHARES as possible (which means low price - the lower the better) - with the knowledge that reversion to the mean requires that the prices will go up in the later stages of acquisition, making you much wealthier than someone who sees the higher prices early, and reversion to the mean results in fewer shares acquired and lower price performance at the end.
Great example...so long as the market is up 36x in the final year...let me make up one...market goes down 5% per year for one investor, up 5% for another, 40 year contribution period, $1,000 per year.
Down 5% investor wins on your all-important number of shares metric, enters distribution phase with $17,000 and change.
Up 5% - a lot less shares, but $121,000 in retirement savings.
To be clear, you want the market to go down until retirement?
The evidence is that you do not.
2) Given that, would you have a job, let alone be able to retire?
Nice try, though.
That isn't the point. Of course it doesn't represent the way markets behave. It simply makes the point that during one's accumulation phase, LOWER prices early in accumulation mean two things:
1. You will acquire more shares with the same money invested as does someone unlucky enough to be experiencing HIGHER prices early in their accumulation phase.
2. Reversion to the mean dictates that your lower prices will, over time, revert to higher prices, hopefully by the time you retire. On the other hand, someone who starts with HIGH prices not only acquires fewer shares, but reversion to the mean dictates that over time prices will fall.
Of course there are likely to be mutliple market cycles during an investing lifetime, with a generally upward bias.
But the point is that there is nothing better than a crash during one's accumulation phase. It is an opportunity to buy MORE SHARES at much cheaper prices (think of them as CARS - but now instead of $30,000 per car you're paying $5,000 for the same car).
I'm only talking about what one would wish for (root for) - but it is out of our control and we are subject to lady luck. Just hope that when you retire, the day before you actually retire is at a 30 year market low, which will virtually guarantee RISING stock prices during the early part of your retirement which is exactly what you need.
Likewise, if you could control it, you would LIKE to have low prices as often as possible during your accumulation phase. It is counter intuitive until someone explains it or you actually crunch the numbers. Bottom line - BUY LOW. And if possible - BUY EVEN LOWER.
You do understand what it entails, right? That, because stock prices are falling each period, consistently, the average stock price will be very low as well?
Not even close.
If not, run the fuck away from it as fast as you can.
1. Low volatility in prices (isn't happening)
2. Low business risk (isn't happening).
The only people benefit from such a market are those that retired over the past 7 years and kept a fair percentage of their portfolio properly invested in stocks.
Anyone accumulating assets right now are buying fewer shares and paying a very high price (nevertheless, for someone young enough, better to be steadily acquiring stocks at any price that not investing at all) - but this is not a good market for anyone in the accumulating phase. What they should want is a SHILLER PE of 7.
We will see a PE of 7 again. And people who are lucky enough to be in their accumulation phase when the market is at a Shiller PE of 7 will be very wealthy some day - much much wealthier than those who are accumulating shares at today's prices of a SHILLER PE of 27.
This isn't an investment theory. This isn't an investment philosophy. This has to do with reversion to the mean. This has to do with the fact that the markets have cycles. This has to do with understanding that you aren't MAKING money just because the market goes up - you only make that money if you sell (which is a different story - but trading or trying to time a market is generally a very risky behavior).
If not, run the fuck away from it as fast as you can.
I have not talked about a PLAN of any kind. I made a simple statement. Lower prices are a good thing for someone BUYING stocks. If you don't understand that, then I can't help you.
Trying to time the market is plain stupid.
Or, as markets continuously fall, the probability of mean reversion gets weaker.
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foresight, bill's plan is the way to go.
If not, run the fuck away from it as fast as you can.
I have not talked about a PLAN of any kind. I made a simple statement. Lower prices are a good thing for someone BUYING stocks. If you don't understand that, then I can't help you.
Oh, trust me, I don't want to follow your path to success...
By the way, how do you not know what a plan is? Because you perfectly summed one up in your doozy of a post.
I am making a very simple statement. To the extent that you are fortunate enough to be able to experience very low stock prices, be happy about that and try to find a way to invest even more money than normal into stocks when they are so low.
When stocks are booming - be wary. It is foolish to try to time the market (i.e. sell) but it certainly isn't a time to be happy (and it is natural for us to be feeling good about our investments when they double in price - it makes us feel as though our strategy is working - and it is - but the reality is that now that prices have doubled, we are now acquiring 50% fewer shares with each weekly contribution than we did 10 years earlier before stocks doubled).
So, in general times, so long as I am in my accumulation phase, I WANT lower prices.