Luddite.Originally Posted by GGT
Luddite.
Well, so far I'm on the up side of the 50% chance of regretting my investment. Not sure this will last, but on the plus side I've hit the minimum needed for a number of new Vanguard funds so I can slowly build them up without having to throw large amounts of money at 'em.
So whatcha guys reckon, is the US stock market overpriced atm?
"One day, we shall die. All the other days, we shall live."
It's been over-valued for quite a while. Mostly due to Federal Reserve (and Treasury) monetary policies after the Financial Crisis. That helped avoid a total meltdown of the global Financial Industry, but it didn't prevent pockets of Depression in the aftermath of the Great Recession.
Five years out, institutional investors -- and the top 1% of asset wealth holders -- have recovered all of their losses, and earned record profits (even before the housing sector/REI has fully recovered). A smaller number of people *and banks* now hold a greater portion of "investment" wealth since the 1920s, and The Great Depression that followed.
The disparity continues to grow. The 'little guy' or small retail investor can't keep up when the game is rigged, and The House always wins.
I've not really been putting my money where my mouth is, in that I've been negative on US stock market values for a while but nonetheless made some hefty investments a few months back. But this was long-term savings, so my time horizon was/is very long.So whatcha guys reckon, is the US stock market overpriced atm?
At the moment, I would argue it seems likely that*US market values will remain high because Obama is being cornered by his own political party to nominate someone to the Federal reserve who wants to keep engaging in quantitative easing. This Fed nomination process is being unduly politicized, and it's hard to imagine that this nominee won't feel some pressure to keep the easy-money spigots open at least through 2016 because the Democrats want Hillary Clinton in the White House.
On the flip side, it's becoming clear that a substantial portion of the Federal Reserve board isn't comfortable with ongoing bond purchases. They may choose to, instead, simply commit to a target short-term funds rate. I think this is problematic in a few ways, but also not the worst compromise if they can pull this off. But it's an open question over whether they can pull this off.
The best case scenario is the Fed stops buying bonds but the private sector, hungry for yield, starts taking more "risks" in the bond market.
Monetary policy is 'politicized', but not because of Obama/Democrats/Hillary Clinton.It's had political (party) overtones for generations, based on philosophies and attitudes toward capital, central banking, and congressional authorization/mandates.
Any regional Federal Reserve Bank or Board of Governors would consider QE an appropriate "tool" for managing money supply and/or inflation. Just not necessarily the huge expansion that was authorized during the height of the Financial Crisis for the benefit of Big Banks, SIFI, Wall Street....at the expense of small business, community banks, or 90% of the public.
Good thing Summers bowed out, huh.
I wrote that post yesterday having not seen some of the back and forth over the US budget. If you have money to invest, I'd say maybe wait a bit and see how the next 2-4 weeks pans out. Might be some pullback to buy into if you're into that short-term stuff.
Wall Street gets high (again), after Fed says they'll continue the bond buying program. Addicts and their supplier love to party, and drink the bubbly.
Dread, what were you saying about Fed policy being politicized by Democrats?
I have a bone to pick with anyone who considers this Free Market Capitalism, regardless of their political party affiliation. The Dow, S & P, and Nasdaq have had 20% growth YTD, 'all time highs' seen more than once, Priceline hit a historic $1,000/per share, and traders are aflutter with Twitter's IPO.
Meanwhile, the London Whale exposes more blubber, with JP Morgan gagging up $920 Million in fines. The top six banks/SIFI are bigger now than ever, and continue to pose systemic risks -- globally. Very little regulatory legislation has been activated, and attempts to put consumer protections in place has been portrayed as Communism
Asset bubbles are only a secondary impact of the Fed's policy. The main impact is keeping rates low enough that financing flows smoothly and there are no temporary economic hiccups that happen at inconvenient times, such as during the mid-term elections next year or during the roll-out of Obamacare. Even if that economic hiccup has to happen to get us back to a more normal rate environment.
I think it's a key reason that Senate Democrats have been trying to manipulate the Fed Chairperson selection process; they are steering towards a candidate who is known for her views on keeping the Fed bond buying program open for the foreseeable future. I don't hold Democrats maliciously responsible for this, but I think it's an important motivation whose bad long-term consequences are similar to the long-term monetary deterioration the Fed is risking. You're forgetting that most right-wingers want the Fed to wind down this program.
Rates "low enough to keep finance flowing smoothly" doesn't need to be near zero, though. That just incentivizes large investors to use cheap money to buy Treasurys...not putting money to work in lending or hiring, which would increase employment and consumer demand. I agree timing is important, but the "inconvenient time" remains a tepid recovery from a massive recession/depression. Wall Street uses every/any economic 'hiccup' as an opportunity for profit, even if that means creating volatility and risk...and more uncertainty, which they claim to loathe.
Where those "right wingers" stand depends on where they sit. If they're in Big Banks, SIFI, and Wall Street in general, they love huge profits from trading with cheap money, other peoples' money, federally insured tax payer dollars. They can do quite well by speculating on exchange rates, even if the USD value shrinks. If they're from multi-national, large corporations, or their lobbyists, they love the clout and power they have over legislators. And if those right-wingers are sitting in the House or Senate....too many value their political positions or party power, over anything else, even the economic health of the country. Some would rather risk a credit down-grade or gov't shutdown, and another global recession...than actually govern like a first-world nation.I think it's a key reason that Senate Democrats have been trying to manipulate the Fed Chairperson selection process; they are steering towards a candidate who is known for her views on keeping the Fed bond buying program open for the foreseeable future. I don't hold Democrats maliciously responsible for this, but I think it's an important motivation whose bad long-term consequences are similar to the long-term monetary deterioration the Fed is risking. You're forgetting that most right-wingers want the Fed to wind down this program.
The sad truth is that plenty of our wounds are self-inflicted, but the Fed can't fix all the damage caused by a dysfunctional, and hyper-partisan congress.
Actually low rates incent investors to buy most products besides Treasuries. When rates go down, Treasury rates go down too. Investors want returns, so rate decreases make other investments (and risks) more attractive than Treasuries.
That's why rate decreases inflate the stock market, housing prices, etc. Investment flows "up" from Treasuries. That said, as we both know, this "tool" has limits and isn't effective if the economy has other structural problems.
Exactly -- and one of those 'structural problems' is that low interest rates trickle down from the Fed to Banks, and banks are supposed to pass that onto consumers via low mortgage interest, and/or low rates for small business loans. The type of lending that injects money into our consumer-and-service based economy. But with employment uncertainty, stagnant wages, and a wacky housing market that's still in recovery.....banks remain reluctant to lend (or even refinance).
Oh, banks still get Billions of profit from fees and fines, but they're not using their access to cheap Fed money in ways that, theoretically, was supposed to make our money a better collateral asset. Average consumers are essentially paying banks to hold and transact their own deposits.
As you say, that "incentivizes" people to chuck income into 401-Ks, IRAs, and Wall Street investment portfolios...because Saving doesn't yield a return, and actually loses value. Retail banking, with FDIC protection, wasn't designed to work this way.
Question: who has more power in this "structure"? The Federal Reserve, the Treasury Department, SIFI, or Big Banks?
edit: a related article http://online.wsj.com/article/SB1000...Tabs%3Darticle
Last edited by GGT; 09-24-2013 at 04:37 AM.
Does survivorship bias fuck up our ability to come to smart financial insights about the private sector?
Discuss.
"One day, we shall die. All the other days, we shall live."
Depends on what you mean by 'survivorship bias'. Want to clarify the question?
Is it meaningful to look for good investments by screening stocks and ETFs using several criteria (eg. dividend growth over time) or should it all be about fundamentals?Depends on what you mean by 'survivorship bias'. Want to clarify the question?
Also, did any of you buy a lot of Tesla stocks a year ago?
"One day, we shall die. All the other days, we shall live."
I wish I had bought Boeing earlier this year. I felt the troubles with the Dreamliner were being overhyped and not too material to revenue as long as they didn't somehow design a total fuckup. But I put my money in something more conservative, which is still up, but not as much as Boeing.
Oh, if that's what you meant by "survivorship bias"...you might get five different answers for every three 'Financial/Investment Experts' asked. That's like asking Economists about the economy, or Political Scientists about politics.Those professions earn their living by prognosticating, and cite "fundamentals" like physics or gravity, even when their quantum math is proven flawed or wrong, or downright destructive. (See: Global Financial Crisis and The Great Recession.)
The main reason Tesla wasn't getting a foothold in the US is because Auto Dealership lobbyists managed to prevent them from having showrooms, using legislation. That meant interested buyers couldn't test drive the car, and buy from the dealer. (The only way to buy a Tesla was through the internet, sight unseen.Also, did any of you buy a lot of Tesla stocks a year ago?
So my mom wants to put some money in the stock market; she has some money their through a bank, but they suck, and consistently get sub-par returns. I told her to think about an S&P 500 index fund. A) Good idea or bad idea (she's ok with short-term losses, but doesn't want to be exposed to too much risk)? B) I've only bought individual stocks before. Any tips for getting a hold of an index fund?
Hope is the denial of reality
1) Good idea in general if her investment horizon is long enough. Very low fees and the return is likely to be as good as you can get anywhere without some serious capital (which would give you access to more obscure forms of investments). Depends on her plans, though.
2) Index funds are easy to buy. You can get them through any of the big discount brokerages (e.g. Schwab, Fidelity, etc.) and you can also buy directly from some funds (e.g. Vanguard I believe). You open a free account with them, and you can generally find no-load funds without any trouble. Another option is to purchase an index ETF through a discount brokerage - generally lower costs, but make sure the ETF is big enough to have high liquidity and low bid/ask spread. Not all indexes are equal, but generally the bigger funds are all roughly equivalent.
Another option to consider for broad exposure in a relatively passive manner is to look at various fundamental indexing strategies - where indices are weighted not solely on market cap but instead something like EPS or revenue growth or whatever. It often makes more sense, sorta like built in value investing rather than weighting your portfolio towards stocks with bigger valuations but not necessarily good P/E ratios.
I recommend Vanguard. And Wiggin is right that funds need not just be S&P index funds. EG, Vanguard has some funds focused on Dividends, large-cap, medium cap, bonds, etc. If you have enough to invest, you can spread-out across a few of them. Though each fund usually has a $3,000 minimum investment, but the fees are very low and the manager quality of Vanguard funds tends to be pretty high (in my opinion).
Thanks for the advice, guys. I'll look into all of it.
Hope is the denial of reality
I sold my Vanguard stock long ago (probably before many here were even born). One primary reason was that Vanguard was changing its traditional business model, and trying to jump on predictive models that hadn't been fully proven. That decision happened to save me from real-time financial losses, but only because I had some really good financial advisors who didn't work on commission.
Loki, if your mom has some extra money, and wants to use it as an "investment" vehicle....then she should be prepared to consider the stock market as any other type of gambling, just with longer results. Seriously. She's not young enough to buy-and-hold (speculate), and is probably old enough to avoid that kind of high risk 'investing' anyway.
If she's not prepared to take that chunk of money and play the slots or bet on ponies (and lose it all), then I'd encourage her to spend it on living expenses, or take that once-in-a-lifetime vacation, and invest in her own twilight years -- instead of trying to leave a financial legacy to her children.
If you can find me a casino game that gets you an average annual return of 8-10% per year, I'd be happy to play it. The main risk of the stock market is that you won't be able to take out the money when you need it. If you're not desperate to take out all the money, you can last through recessions. The market right now is 25% over the previous peak (before the recession), for instance.
Hope is the denial of reality
Few stock investments reap 8-10% annual returns. Those that do (or might) fall in "high risk" or speculative categories that suit Day Traders, HFTs, or hedge funds....not individual investors in your mom's age group who should use a more conservative approach.
The stock market has been running above normal averages -- and breaking "all-time highs" -- for a few years now. But that's related to monetary policy, Federal Reserve and Treasury stimulus, and not a true reflection/valuation of stocks (or the economy) in general. As a general rule, it's not good "timing" to enter the market when it's running high, let alone during times of false adrenaline that 'prime the pump'.
It might be appealing to think of stocks as a way to park funds and "last through recessions", but it can also be a dangerous and risky way to manage money...for people near/at/post retirement. Not just because no one has figured out how to predict the depth and breadth of recessions/depressions, or the perfect place to protect assets.....but because no one can predict their own life span. There is no "magic" number or formula here.
Investments that preserve capital can be more important (and valuable) than looking for profits. That's what makes it so difficult for the average, retail investor in 'certain' age groups like your mother.
I think my average year is around 15% (lowest was -2%, highest was 36%), and I've used/done none of those things you've listed. The stock market is only gambling if you treat it as gambling.
Absolutely untrue. The data is clear - long run returns for a simple index like the S&P 500 runs right around where Loki pegged it. That doesn't involve any day trading, hedging, or quants, and is widely available to retail investors. You'll have to stomach a lot of up and down (this being a stock index, after all), but long term returns are quite robust.
Obviously a portfolio weighted only towards stocks can be quite risky, but that's not the point Loki was making - he was arguing it was, on the long run, a very good bet that you'd beat the house by 8-10% (rather than a crapshoot that you were characterizing).
15% is definitely well above market returns, so your experience is definitely a minority. Doesnt' mean GGT is right, though.
Yeah, I know, I was just making the statement to disprove by counter-example the claim that only day traders, high frequency trading algorithms, and people with access to hedge funds can make decent money in the stock market.15% is definitely well above market returns, so your experience is definitely a minority. Doesnt' mean GGT is right, though.
I'm not quite sure I follow. I mean, if you started with their index funds...they still have 'em.I sold my Vanguard stock long ago (probably before many here were even born
I had their early no-load mutual funds when that was their specialty. When its founder retired, my advisor thought they were becoming too large and diverse, selling other products for management fees. I don't really remember the details, but it worked out well to sell.
To wiggin and Wraith -- I'm saying "annual returns" can be misleading terminology. Yes, it requires 'stomaching' those ups and downs, balancing negatives with highs, and holding for a long time. Sometimes decades. Since Loki was asking about his mother's money, and her age and timeline is shorter than someone in their 30's....then her investments should be more 'conservative' and risk-averse.
It's commonly advised for folks to re-balance away from stocks (or stock-heavy indexed funds) when they hit 50 yrs old, and have more laddered CDs or short term bonds or treasurys that are 'guaranteed'. For that matter, she could use whatever chunk of money she has to buy a Disability or long-term care Insurance policy, or a Medicare gap policy, depending on her personal needs (which we don't know).
All I'm saying is that investing should be tailored to an individual's needs, and not just what "the market" wants.
I still find that their programs are basically still confined to mutual funds, ETFs and index funds...
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