Have the record number of investors in the stock market lost their minds?

We haven’t even felt the main wave of bankruptcies and disruption yet.

Credit is locking up (try getting an unsecured loan) and people aren’t paying bills. 50% of New York tenants didn’t pay rent. Every seasonal business is dead. Life looks ok for IT people working in their underwear right now, but we are heading into a very challenging time with fundamental changes in consumer behavior.

The next big thing will be underwater mortgages.

I am not a financial planner, but just a few thoughts. First, folks who try to invest in crashes or divest on peaks tend to do it too early. Most of such events give you more than one opportunity to buy/sell and not being first in/out can give big advantages.

Second, we did not (yet?) see a big drop. A rise of 20% would put S&P at or near all-time highs. For comparison, during the 2008 crash, S&P dropped by over 50%, so the rise back would give you ~120% return. Thus the reward for "catching the knife" today is much, much smaller than in 2008.

Finally, a lot of stocks are now indexed and held in retirement accounts. Many folks there hold more than they should in stocks because they have been going up and seem to be the only game in town beating inflation. And all advisors say "leave your retirement accounts as is, long term view, yada yada". If a significant number of people start moving retirement money out of index funds, which they might do in uncertainty, there may be a lot of pain for stocks. For example, many smaller stocks just do not have the trading volumes to withstand even a moderate sales increase driven by index funds. My 2c.

I'm with you on this one, but it also feels like there's no other choice. Where else can you get high liquidity, with good returns, and a government ready to spring into action if the market goes down too much? European and Japanese markets generally have lower returns. Emerging markets are iffy. Bonds don't yield as much as equities.

It's like "I'm gonna take a bet that I'm going to keep working a 9-5 job". Most people have no other real choice.

You have no choice but to invest in a mix of US equities and bonds to be able to retire in a sane timeline.

Plus, you don't really retire, your job is now investing. If you really love that particular job (like Buffett does), then this works out well.

But if your innate talents and interests lie elsewhere, you'd be happier doing that... and the need for money can help motivate you, during those times you don't feel like it.

It doesn't seem like extra motivation should be important, but is was for me personally. Maybe I'm lacking somehow, as I note that many independently wealthy people do keep working without that motivation. e.g. YC itself. (Though pg now does seem to have really retired, or maybe is a fulltime career parent - there is no more important job!)

Thoughts on motivation?

I do think “things are different” in many ways, in the sense that it’s impossible to ignore the interventions the Fed has taken to blow up their balance sheet to $7T and will likely reach $10T by end of year. The speed and size is unprecedented.

Unfortunately I think Millennials will be the ones that have to deal with the massive debt we are in as a country and unwinding of the Fed’s massive balance sheet, which will play out 10-20 years from now.

However, I offer up two counter thoughts to consider:

1) You say you don't need the money, but how do you know? There could be a better investment opportunity that comes up or we could go into a prolonged depression. Leaving some money not invested gives you more flexibility to allocate your capital down the road. You'll have lower highs but higher lows, which in the long run is good.

2) I actually do know a lot of people who are investing toady in hopes that there is a V-shaped recovery. This is particularly worrying to me and I can't tell you how many times I've overheard amateur investors at work say things like "the market is at a bottom so now is a good time to invest". These are people who have never invested before and only look at the stock price as the determining factor. Like Howard Marks says, market bottoms don't occur until all hope is lost. I'm not sure we've felt that yet.

For the USA, business is affected, the question is if it's long term: Will closed businesses reopen? Will unemployed find work? Will the US lose its centrality to China? But however bad it is, the market overreacts.

Not to mention most americans' retirement is tied to their homes\ equity and their 401k/stocks. So it is political suicide for the government to let either drop in value for an extended period of time. Therefore, over the long term, house prices and stock prices will likely go up because politicians want to be reelected.

The only caveat is that eventually, we will reach out "limit" ( demographically, economically, etc ) and then housing/stock prices will drop and stay down for decades/maybe forever. Japan hit their limit in the early 90s and their housing prices and the nikkei today is a fraction of what it was back then.

https://tradingeconomics.com/japan/stock-market

If the check the 50Y chart, you'll see that the nikkei was at 37000 in the early 90s and is now at 20000. 30 years in and still nearly 50% down.

Everyone forgets about Climate Change...

https://taylorpearson.me/thedragon/

The basic idea is that you create a balanced portfolio of assets that are negatively correlated with each other so that, over a very long time horizon , your wealth retains its value even in the face of uncertainty, black swan events, and volatility. An example would be owning an equal proportion of stock, cash, bitcoin, gold, fixed income, commodities, and volatility. (Harder for the average person to get exposure to commodities and volatility - but I think bitcoin checks those boxes).

Edit: include original paper that describes the portfolio by Christopher Cole: https://docsend.com/view/taygkbn

Why do individuals think they should receive the same treatment as key infrastructure companies?

It is not clear how these two are sustainable.

Says who? For which stock? I understand a company's stock price to represent the net present value of the expected future performance of that company alone. I don't see how there can be one expected return on investment that applies equally to all companies, as expected return on investment will be determined heavily by risk which will vary considerably company by company.

When I say "I think stocks are overpriced" I don't necessarily have a specific number in mind. Rather, it's shorthand for "I think that the Fed and USG attempts to avoid deflation at all costs have created an economic environment that over-promotes stocks as an investment vehicle. In addition, I feel that these attempts have worsened inequality by injecting liquidity in a way that increases asset prices more than it increases the velocity of money".

That’s basically how you evaluate what to pay for a company. When you buy stocks, you buy fractional ownership in a company.

Edit: many think the market is overvalued, because it’s currently at historically high price relative to the estimated earnings potential. This, while risk of insolvency for many companies is much higher.

The problem, of course, is that we've been in an unprecedented financial situation since 2009 fueled by massive debt inflation among corporations due to near-free money from the government for an entire decade. When will the party end? Who knows. The other problem is that it's hard to predict what will happen post-lockdown globally. As a result, traditional analysis is easily beat by irrational investment even on multi-year timescales these days.

> I think in 99% of cases it's just a feeling - that the decline should have been bigger given how bad the economic impact seem.

As you are suggesting, prices are simply what they are, whether or not someone views them as being "too high" or "too low" the only Goldilocks price is the one you agree to.

However, the markets can be distorted. The Federal Reserve, through policies such as lowering interest rates to zero, eliminating reserve requirements, and announcing purchases of corporate debt, has all but published "we will not let the stock market crash under any economic circumstance" as their official policy.

And, if history is any guide, SPX can fall all the way to ~500 without breaking all time lows on CAPE (this would be extreme, but is not entirely impossible, and inflation is not required for this scenario - look at 1950s).

Numbers would have to be adjusted if inflation speeds up. It hasn't sped up at all yet, in fact all we see today is deflation.

I'm also leaning towards a longer recovery in consumer discretionary right now. Someone posted a story here about how people started self locking down before government lockdowns. While I think people are over the strict versions and are ready to get out of the house, I also think they'll be slow to return to malls and movie theaters.

It does make me wonder how many people are using total market indexes without caring about anything in them and how that could prop up the underlying assets.

This isn’t an original idea, there’s been lots of talk about index funds being a bubble, but there isn’t a great alternative.

Though I’m starting to wonder if I should pull most of the money out and split it between Apple, Amazon, Google, Microsoft, and Facebook.

The long tail of the market index funds I find more likely to have issues than these companies (particularly Amazon and Apple).

The stock market is generally governed by two feelings: confidence and fear. Often times those feelings are outwardly feigned for one's own self interest

Yes. That's where my RIA has 33% of my assets now, we moved them in 2019. We will be "piecing back into" the market over the next 12 months. I'm 50 and have a 30 year investment horizon. I've been investing since I was 21. I've been through two massive drops in the market that took years to recover. Don't panic. Valuations will correct themselves and fundamentals will continue to hold until the next bubble. I think that is model we're facing at the upper limit of an exponential.

> Is this all gonna crumble like a Ponzi scheme?

It has to stay alive so that the rich can get richer. Remember the players in the Panama Papers? There's an entire society that runs the planet. And this isn't a conspiracy, it's out in the open! Look at the Carlyle Group: it is an investing firm funded by people liek MBS (The Saudi), the Clintons, the Bushes, and many other politically-culturally diametrically opposed clients. It's no mystery that rich world leaders who go to war with each other give their money to the same investors.

You know that there are investments only available to people with $5, $10, or $100 million more in holdings? There are entire class of investment devices that you and I will never see. It takes tens of millions to even play in hedge funds. The "real" markets are for the 0.1%. Those will continue to feed off the other markets, which they need to distance themselves from the pack. (Look at wealth distribution over the past 50 years.) But these top tier funds require us schlubs to hand them money while we scrape by with 5-8% yearly returns. They will keep the dials set just right so that we'll have a reasonable retirement while they own the planet (Larry Ellison owns a Hawaiian island. Techbros are buying up New Zealand [Theil]. Think about what happens when trillionaires start to buy entire countries.

Yeah, the market will survive and make sure the upper middle class continues to invest, otherwise there won't be a wealth generating machine for the 0.1-0.01%. As for people who can't afford to even put money in a 401k? Well, we know what one political party things about those people.

At a certain point, we should just admit that we're taking money from the middle class and using it to play-act private investment while actually socializing investment. We should then go the full distance and actually socialize most of the economy, so that twice a month people are compensated not with abstract, speculative 401(k) prospectuses, but with an equal vote and a dividend in their own workplace.

https://www.jacobinmag.com/2017/08/sweden-social-democracy-m...

https://journals.sagepub.com/doi/full/10.1177/08969205134853...

What else should it be backed with? Dollars are subject to (hyper)inflation. Real estate is nice, but I need more liquidity.

Seems like owning a chunk of the economy is where the action is.

Honest question about FIRE: you hear stories about people retiring and dying a few years later in part because they lost their purpose in life, or people nearing 65 asking themselves "what am I going to do with my time." Purpose in life is strongly tied to emotional well being. What's FIRE's answer to that? Retirement is not an end unto itself.

The shutdown already spotlights the fact that the true economic value of non-essential business and workers is primarily as consumers.

Chipotle has bought some good will in the past and probably is making decent cash on deliveries.

I'll take it a step further. Animals have coexisted with nasty viruses for a long time, and lots of animals are still susceptible to them. Are threats that constantly cull the population beneficial to the strength of the species? Are there viruses some species are genetically immune to because the virus killed indiscriminately, while other viruses provided a net benefit?

This document looks at the historical trend from a variety of perspectives: https://www.yardeni.com/pub/valuationfed.pdf

Current valuations are roughly in line with post-2008 history, but looking at a longer history suggests that they’re actually undervalued relative to other assets.

If there's a sharp rebound and everyone gets re-hired in a month when things open up again, and there's no second wave, then perhaps this will all blow over soon given valuations are based on future cashflows of which two months isn't a big deal.

But there's lots of reason to believe that will not happen. There is no vaccine, the virus is highly infectious, restrictions will be relaxed but they will need to remain in partial effect and this will impact employment/productivity in many sectors.

And eventually (particularly leveraged or low-margin industries) companies will simply collapse, there won't be any organisational framework to rehire these people and you'll just have to rely on new companies to form from scratch, which is a much slower process than rehiring furloughed workers under business-as-usual.

Average, but to believe it you have to assume the E doesn’t change meaningfully over the next couple of months.

https://futureoflife.org/2017/07/31/podcast-art-predicting-a...

Absolutely, and quite a few people making this error on this thread.

Anyone ever seen such indices?

The source of the flow of dollars is changing, because businesses are shut down, so dollars are flowing more directly from the Fed, which is trying to make up for the loss of flow elsewhere in the economy.

Gold prices are up because of the collective fiction around the idea of "assets" and "store of value."

There is no risk of loss of "reserve currency" status. There is always jostling around relative currency valuations, but the Fed has only strengthened its position as world premiere source of liquidity. And for the west there is no viable alternative.

What the Fed is buying is bonds. Which are non-dilutive.

I understand the sentiment, but let’s try to get the facts right

But the borrowed funds used to do this is probably not as productive as investing in capital infrastructure.

Equities are less exposed to low to moderate inflation than assets with fixed pay-outs. No need to model stocks as currency.

Maybe I have some shares I bought for $10; the price dropped and now I can only sell them for $8. There is a solar farm off to one side selling bonds at some unreasonably high yield.

I could be stubborn and hold the shares until the price comes back - but that would lose me money in the big picture. Instead I sell for whatever I can get and put the money where it will be generating a good return.

If a bunch of people behave like that, sellers quickly overwhelm buyers (potential buyers are flocking to the new opportunity too) and the price corrects to something reasonably fair.

What bothers me is that most traders don't care about control or profits - they just want the number to go up (or down). How does the price get grounded in reality in this case? The answer is presumably: in trades between speculators and those who do care about profits and control. But where is the guarantee that those trades happen? What if speculators mostly trade among themselves?

There might be a few companies that fall into neither group, being so fundamentally unsound that they will simply be shuttered with no sale, but that would surely be a small percentage of the stock market.

How about not "correcting" the corrections in the first place? Let the market actually be a market, don't inject huge amounts of money into it?

Not to be confused with helping out ordinary people who need money for spending.

I would also of thought volatility over 15-20 year term when choosing between DCA or lump investment is largely irrelevant and not worth hedging against.

(Condé Nast publishes the New Yorker)

[0]: https://www.federalreserve.gov/releases/h41/current/h41.htm

None of what you said means anything. You may as well be saying "Listen to what the roulette wheel is telling you".