Asset prices are high across the board
economist.com
economist.com
Multiple times recently I’ve been at restaurants recently overhearing people talk about how much money they’re going to make in Bitcoin. It’s hard to convey here, but the make-money-who-cares-how-it’s-magic came across every time in such a wow-this-is-definitely-a-bubble way.
But as they say, markets can remain irrational longer than you cane remain solvent.
Bottom line: still having naysayers isn't a relevant signal. Predicting that there will be a crash is easy (you are almost guaranteed to be eventually right). Predicting WHEN the crash will be is (almost?) impossible.
Plus, private equity is sitting on close to $1T of dry powder. That's a pretty strong back stop to stock prices. In short, to avoid the crash you need to figure out what causes mass PE withdrawal, and get in front of that.
https://www.bloomberg.com/news/articles/2017-09-01/why-priva...
Bond prices go down. Yields go up.
You put your money in btc and they may crash 30% in a day. If you panic then you lose money.
"Markets can remain irrational a lot longer than you and I can remain solvent."
As for BTC, approach with caution, short or long.
https://www.eventbrite.com/e/bitcoin-investmentwhat-how-when...
http://ei.marketwatch.com/Multimedia/2017/10/04/Photos/NS/MW...
Basically, the market's dollar denominated value is going up, but dollars are becoming less valuable. This combines to mean that market value has actually down this year, not up.
Perhaps op can correct me on anything I got wrong.
[1] http://www.marketwatch.com/investing/index/spx [2] http://www.marketwatch.com/investing/index/dxy
Of course, the falling dollar price benefits US exports in the future, so it could be a good time to invest in US, now that it has been performing less stellar compared to the rest of the world.
The US economy seems to be less dependent on exports as other countries, and the fortunes of US (tech) companies seem to hinge on other things than exchange rates.
That I blew most of last month's pay on European indices suggests I think the Maybot and chums are not done wrecking the UK yet :)
I keep hearing that, over and over, for years and years. Eventually it'll be true.
'In the clearest indication yet that there could be a rate rise as early as November, Mark Carney suggested that it was time for the bank to "ease its foot off the accelerator".'
http://www.telegraph.co.uk/business/2017/09/14/bank-england-...
When OP talks about dollar adjusted returns of S&P, an analogous mechanism is at work.
Inflation means the purchasing power of the unit of currency is reduced. iirc it was Keynes who noted that government financing can utilise the margin between real and nominal values, with the benefit of also maintaining animal spirits (bullishness/confidence) as the public sees only price. For economist perspectives: Paul Krugman's blog elaborates on this in a readable way. Mises.org provides one critique. David Harvey another. Dan Amerman provides an CFA/investor perspective (http://danielamerman.com/va/Dow36.html)
The graph linked to above could be viewed as a decline in real value of equities - or the value preserving market response to inflationary pressures (with some degree of non-market support)
The combination of inflation and tax rates is important to understanding the interplay between government, markets and the wider economy. Which is the dog and which the tail is a moot point. Not endorsing, and not by any means the last word, but David Graeber provides an alternative starting point before exploring further: https://www.theguardian.com/commentisfree/video/2015/oct/28/...
We've learned that you are not supposed to have idle capital. And yet we keep so much of our wealth as money, the only way to deploy it is to send it in a circle. Valuations go up, prices and costs don't.
Unfortunately it's a house of cards. When someone finally cashes out, they'll pull money from the whole system to the tune of the amount it's been amplified by circular investing.
There will be an ugly correction.
But then it'll get propped up again afterwards and everybody believes that now.
That's what FED and interest rates exist to do. Create and pop bubbles.
As the FED raises interest rates, money will start trickling out of "riskier" assets. The quicker the FED raises interest rates, the more quickly money will leave. Then we get a recession and when the FED feels they've sopped up enough money from the economy, then they will lower interest rates to get more money into the system, get more economic activity and re-inflate asset prices.
http://www.worldcat.org/title/great-crash-1929/oclc/93339017...
So far I've seen four posts that are spot on, downvoted.
The general sentiment is towards hype and bubble, and it's just another echo chamber reinforcing the spiral.
Not just here, and a lot more pronounced lately.
Oh, and Galbraith covers that in his short, very readable, book.
So now nobody wants to be left out, and so they predict crashes every week. Eventually when a crash will happen they'll say "see I predicted it, where is my book deal".
Having lots of dry powder in a downturn is a very good place to be for a professional investor. That said, most folks are not professional investors, so buy and hold is relatively simple strategy that performs fairly well for non-professionals.
If you can time the market correctly, that is obviously the optimal strategy.
[0] https://www.bogleheads.org/blog/bogleheads-principles-never-...
[1] https://www.schwab.com/resource-center/insights/content/does...
> Rather than putting it immediately into the market, he waited and invested after month-end January 1993—that year's monthly low point for the S&P 500. At the beginning of 1994, Peter received another $2,000. He waited and invested the money after March 1994, the monthly low point for the market for that year. He continued to time his investments perfectly every year through 2012.
That's hardly "perfectly timing the market" in the usual sense. I'd consider "perfectly timing" to be sell at every peak and buy at every trough, so you're always holding stocks when they're gaining versus the dollar and holding dollars when stocks are losing versus the dollar.
It's impractical, but it's a much better result -- the theoretical limit to how much you could have made with perfect knowledge of all the pricing ahead of time.
That analysis, by contrast, only looks at what happens if you have a little perfect information -- and the answer is "not much".
* people falsely believe that due to having learned about the myth of the buy&hold investor, they are now 100% in control of their psychology and will not succumb to 'this time is different' panic selling when things get serious. their own psychology will be the biggest surprise to young investors, who have entered the market after 2008 and haven't experienced even a single correction.
* people aren't properly accounting for being forced to sell at a loss due to unexpected expenses, which are dramatically more likely to occur during a downturn, i.e. the probability of losing their job during a recession is >> than any other time. same thing with divorces, probably. maybe even illness. distant relatives asking for money. etc etc
* people aren't entirely wrong to panic sell when mass hysteria breaks out. most of the research is based on the US stock market, which is exceptionally long-lived and uninterrupted. if you asked tsarist bureaucrats retiring in France how well their portfolios are doing, they would sing you a different song.
* [personal] if I had to put a monetary value on the psychological relief I feel since reducing my exposure to equities by half, it is very well worth whatever grandiose compounding fortune I am forgoing because of it, not to mention that should I be lucky with the timing, that may not even be the case. as a rule of thumb: when you repeatedly find yourself checking financial news, you are invested too much (and are now longer a 'passive investor')
the only good thing to be said about the 'buy & hold' meme is that it drives people away from the even worse active management industry, but that doesn't make it unconditionally good advice.
No. Decades of research has shown that it's better to sell early and get back in late. It has shown that selling late and buying back in early is worse than riding out. It has shown that selling and never buying back in is worse than riding out.
> Decades of research by now has shown that buy-and-hold beats timing the market every time.
No. It has shown that people are bad at timing the market. Nobody can buy at the lows and sell at the highs. That's why you sell early and buy back in late.
For most people, they should just buy dated mutual funds and not even think about the markets.
The simplest thing to do is to start liquidating your stock positions when the fed starts ramping up interest rates ( maybe a few quarters of consistent interest rate hikes ) and then start buying back in slowly when the FED starts lowering interest rates.
That will give you far better returns than buying and holding.