Money and Investing (1996)
philip.greenspun.com
philip.greenspun.com
The more Warren Buffet I read, the more I want to become a value investor due to the above premise.
This almost never happens. Individual stocks do it sometimes, but not the Dow. The circuit breakers also mostly prevent this.
Which isn't to say there aren't issues with the efficient market hypothesis.
It remains to be seen whether the Fed can, or will unwind the QE that they’ve performed. It’s not a given.
I love Buffett, but probably it's expected to be convinced by whatever you're consuming right now.
If you spend a lot of time watching Ben Felix[0] you'd probably think "the more I listen to Ben Felix the more I want to become a factor investor".
Replace with Kathie Woods, Ray Dalio or whoever. They are all convincing!
[0] a pretty popular youtuber/investment advisor/passive investor
Do you mean “those people are notorious for a reason, they can convice” or “our minds are susceptible to believing something we hear repeated several times”?
I think this is true of all topics. Unless you already know about something you may believe what you're told if it seems reasonable, see also the Gell-Mann amnesia effect.
The EMH says that you cannot, in the long run, make money on your prediction that there will be a 20 % rally tomorrow, because this, along with the relevant probabilities, are already priced in.
This is related to something that used to confuse me too: the most thickly traded commodity futures are extremely efficiently priced. Yet they exhibit clear seasonal patterns. Why wouldn't someone just buy in the low season and sell high for a near-guaranteed profit? The keyword is "near" -- the prices are such that they counterbalance the risk of deviation from the seasonal pattern.
To answer your specific question about what happens when markets drop: information happens. Events can have nth-order consequences that echo through the markets for months or years, as we find out more about them.
Edit: I should also say that market efficiency isn't a black and white thing. A market can be efficient to me even if someone like Ed Thorp can find mispriced assets.
The market is only completely efficient in the limit. For every mispricing someone finds and exploits the market gets a little efficienter.
The interesting version of this discussion is where we acknowledge there's a spectrum of applicability where we can argue about statements like "some markets are pretty efficient sometimes" or "markets are almost never efficient" etc.
There could be too few, in which case the asset can be mispriced vs its true value.
There could be too many, in which case the asset can be mispriced vs its true value.
Both of these are often true, because equities don't trade in a vacuum. There are other asset classes. And limited amounts of buyers and sellers.
But something tells me that this might be rose-colored glasses, and it has always been a pyramid scheme at some level.
no, because dividends are equivalent to buybacks.
Dividends are payments to those who own shares, and the company does not own more of anything after a Dividend pay out.
No, they own the same amount (as a group, proportionally), and each remaining shareholder owns more. Furthermore, the shareholders (as a group that owned the stock before the buyback was done) does get paid, because some of the shareholders sold their stake for cash.
>Dividends are payments to those who own shares, and the company does not own more of anything after a Dividend pay out.
Dividend payments aren't free. In fact, you can see that for dividend paying stocks, the share price steadily goes in the months leading up to a dividend payment, and on the dividend date it goes down roughly equal to the dividend paid.
I thought it was a matter of math: company gave away some amount of money per share so it should have lost exactly that amount in valuation, what’s the catch?
Treasury shares can be ignored for most purposes and are often destroyed.
Yes, there were drops, crashes, and those hurt a lot of people, but in the long run, growth has continued to go up.
At least this time around, it's worth noting that money has become much cheaper, which inflates the price of every asset. When that's factored in, the present valuations are actually quite reasonable.
Any charts to show this?
https://economicprinciples.org/
The world may be near the end of a long-term debt cycle, we will have to see.
In 1996 PE multiples were indeed high and there was indeed a correction. For instance the Nasdaq went from 1300 at the end of 1996, to over 5000, and back to 1300 in 2002. There was obviously productivity growth over 7 years, but valuations are another thing entirely.
None of it seems to me (although I am not an economist), but it should probably be taken with a grain of salt.
How so? What's the evidence for this, especially when you consider that the company's stock price goes up/down depending on their quarterly performance?
I think so far investors have been lucky with some of the tech companies which have IPOed and then proven that they do have the potential to generate a profit. I don't think it will take too many of these unicorns to IPO and fail before the blood bath in the "tech" industry begins.
In recent years, Facebook did not IPO until it had a market cap of $100 billion. Stripe was just valued at ~$95 billion and there is little news on the horizon about a forthcoming IPO. Even considering inflation, hot tech companies are IPO'ing at a much higher valuation than they did 25 years ago. So the old stock market where you could ride up hot tech stocks in the public market is not the modern market. This also affects the returns on investing in the NASDAQ index and other indexes.
> Make sure they have an ancestor who was a very close friend of William the Conqueror
Huh? Take $500, double your money every year, and in 20 years you have over $500,000,000. Not very exciting? (And if he truly meant tripling your investment each year, i.e., a 200% return, the numbers are much crazier.) The article strains credulity for a tragicomic punch.
If you can average even 20% annual returns, you can become a billionaire within your probable lifetime, with a few years of a frugal engineer's savings as your stake. (Although the most common "self-made" trajectory from salaried to $1B is to achieve far greater than 20%/yr at the start, and much less than 20%/yr at the end.)
I'm not saying 20%/yr is easy or even a reasonable goal; but the fact that the article contemplates "200 per cent per year" returns evidences a lack of familiarity with how fortunes are actually built. Read "The Snowball" for a far more realistic account of getting to $1B.
But I doubt there's such a thing as 20% that's going to keep going over anyone's lifetime. Not by means other than criminal.
Both of them have been underperforming in the last decade or so. Medallion is still radically outperforming, however.
Based on what I see from quant prop trader friends of mine in the Chicago area, if Medallion was an order of magnitude smaller they could probably juice their returns up to 150-300% pretty reliably.
These figures are net. And for what it's worth, I am in the industry and I don't know any professional who thinks there's obvious fraud going on. It's possible, but you make it seem like there's a consensus that it's illegitimate when you say "most sane people." Frankly it's the other way around.
People who think the returns are fraudulent tend to be outside the industry and thoroughly unacquainted with what quantiles of returns are rare versus implausible. They usually hand wave a misinterpretation of Buffett's famous bet against hedge funds and Fama's (strong) Efficient Market Hypothesis.
I find it highly unlikely that it is about a winning scheme. In my limited understanding of these types of things, it is more likely about a succession of many winning schemes, because these things tend to stop working after a while so you have to find the next inefficiency to exploit.
Interestingly, the P/E ratio of the S&P 500 right now is 40.30.
The money being printed has got to go somewhere and a 1% return in the stock market (with high PE) is still worth more than a negative real rate accounting for inflation.
This metric is awful as well. I'm out of stocks and will be for quite some time.
https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iDFYG8plPsz...
That graph says it all.
(Genuine interest: I also debated exiting but then remembered the thing risk takers say about careful deliberation followed by fearless execution and I now have net negative equity exposure.)
1. Any time you make a risky investment (and this includes low-cost index funds) you should make it based on a falsifiable trading hypothesis specified in advance. E.g. "if Microsoft gets valued over $25, I should realise that I got either the direction or the timing of this one wrong and close the position, profit or loss."
2. Again, in advance, formulate a more general drawdown policy to gradually decrease the size of your losing positions.
3. Not ever make risky investments with anything that approaches your entire wealth.
My bearish position is not going to throw me into debt even in the worst case. And the EMH, in a sense, guarantees that less commissions, this bet (as would any bet) is on average going to get me my wager back.
So the question that remains is why I think the long-term average return is an unusually bad approximation for the near future. I could argue fundamentals, I could argue technical analysis, but it'd all be bunk.
I can list other reasons, too. Many big investors are short the market. My employment is long the market, so my capital being short it is sort of a hedge.
I can also list reasons it might be a bad idea. They don't weigh as much in my mind, of course.
In the end, I just don't know. I'm fully aware that I might have either direction or timing fully wrong. Most likely I do. But it seems to me like a low risk bet with potentially fairly good payoff.
[0] https://fortune.com/2021/01/25/stock-market-value-metric-rob...
There are those who hold the viewpoint that if you don't have money from a job, you're eventually going to run afoul of those with guns (police), so you are forced at gunpoint to work somewhere. I've seen people say that here on HN. This is why I'm not sure that it was sarcasm. But still, I suspect it was.
Trump has been a punchline since long before he decided to run for president.
I think you can attribute a LOT of the sensationalism to the man who basically swam the sensationalism ocean for most of his life.
And the article does nothing but state a truth. Mainly because he is a well-known example of inherited wealth. And that he did not beat the average. How is that denigrating?
He spends way more words talking about Bill Gates than Donald Trump.