It’s scary headlines like this: ‘trampled’, ‘crashes’, that put off less informed, risk averse individuals on lower incomes/ net worth, from investing in stocks.
It’s a shame, as ETFs, and hell, index funds if you must, outperform savings on a 3 year or even less horizon.
Yes, my portfolio dropped 7% this month. I’m still up 6% YTD and 13% in the last 12 months.
My horizon is well over 5 years. It would be an easy way to slow or even reduce my net worth if I were to put it all in a savings account.
Yet this is what a lot of folks do, frightened by scary bombastic headlines without a balanced long sighted story.
Current stock performance is very notable and newsworthy, yet lacks any narrative outside of short term performance.
Japan is notable because they're one of the clearest indicators that 'stocks always go up' is simply not true. This [1] is the Japanese stock market (Nikkei225) inflation adjusted. It reached its highest point in December 1989. It's unfortunate that that table ends in 2013 because obviously a huge amount has changed since then, but even in unadjusted currency [2], its current price is lower than in 1989.
For those who might not know in 1989 many were expecting Japan to imminently become the largest economy in the world, overcoming even the US. Then stagflation hit for reasons that are still not completely clear.
From an investor point of view, this is a wrong way of looking at it.
Companies can do 2 things with their revenues: reinvest into the company (stock price grows), or take it out as profit (dividends, value of company stays the same).
Only looking at stock price is too narrow minded. Maybe companies don't want to grow and just take the profit.
The largest time frame I could find on the site you linked is a month. I was able to find a calculator for this exact thing here. [1] Adjusted for inflation, investing from December 1989 to February 2013 (latest date available on the site) an investment in the Nikkei, with a reinvestment of dividends in Yen, would yield a return of -6.2%. It'd be -48% had one chosen to invest to/from USD, owing to the collapse in exchange rate.
1989 was picked as it was the peak of the Japanese economy, the point from which people thought the economy could only continue to grow even larger, because that's what it'd always done - basically the same sort of stuff you're espousing here. But of course that's not what happened - anybody who invested at that time (or in many years around) would have seen nothing but losses over the decades to come. The end date was a typo, of course I picked 2023, the latest date the site supports. Do it 1989-2013 and you'd have lost 64% of your money!
Not only is markets declining longterm an obviously possible outcome, but as population levels start to decline, it's likely to become more the norm than the exception. When your population is growing, each year all businesses naturally grow. When your population is shrinking, all businesses naturally shrink each year. Fertility collapse is going to shake the world like nothing before.
I was going from December, as per my earlier comment. In any case, if we're engaging in good faith then of course even 8.8% after near to 40 years is not what people mean when they talk about the market being a stable investment. The comment that started our little thread said,
---
It’s a shame, as ETFs, and hell, index funds if you must, outperform savings on a 3 year or even less horizon.
Yes, my portfolio dropped 7% this month. I’m still up 6% YTD and 13% in the last 12 months.
My horizon is well over 5 years. It would be an easy way to slow or even reduce my net worth if I were to put it all in a savings account.
---
He's clearly still expecting reasonable returns on mid-range time frames, which is what people mean when suggesting the market always goes up - not an annualized 0.25%, let alone loss, for the next 40 years.
It's scary headlines like this that make me push more of my money into index funds (can't be bothered to deal in stocks with the increased effort required).
But... the problem with being on lower incomes / net worth is that there is a highly increased risk that you're forced to pull money out of stocks / funds when they are low because you have little or nothing else to take from to cover unexpected expenses (and you will have a lot more of those when you can't afford to act and instead always react). So if you're living anywhere close to the limit of your income, you really are better off with a savings account.
Even worse is the minute-to-minute reporting of “AAPL down 17!” “GM below $40!” .. as if the media is actively eroding our statistical intuition. I used to have a broker who would always quote the spot price of the stock after every stock name. It drove me crazy because it signalled a kind of superficial, counterproductive mastery of the state of the market.
Every time the market is down 10%, news outlets can't shout loud enough how the end times are upon us. Various doomsayers come out of the woodwork and point at how they predicted this crash, but conveniently gloss over the 20 other crashes they predicted and that never happened.
The media fanning the flames when the markets are down is something you have to get used to or simply ignore. Tney have no clue, they just want the clicks :D
I think it's also the jargon-laden complexity of investing. A safe choice for a lower income investor is called "FTSE All-World UCITS ETF (VWRP)", which is meaningless mumbo-jumbo to most people.
I think you’re right, and even though it scares me a lot seeing my portfoilio down like this, I still try to see it as an opportunity to buy at a discount. It means I have to hold onto some more liquid funds, but i think it can turn out to be well worth it if you’re long term.
>It’s a shame, as ETFs, and hell, index funds if you must, outperform savings on a 3 year or even less horizon.
I think sentiments like yours are just as bad as the sentiments you find aggravating.
Yes, investments can produce bigger returns than simple savings, but the keyword is there is no guarantee. Unlike savings which are guaranteed by the bank and the government and will grow at a known rate, investments are not.
Investments are thus akin to gambling. Whatever money you put in to investing should be money you are willing to never see again, no matter how low the chances of such a thing happening.
Most people are not willing to effectively or theoretically throw their money away, rightfully or otherwise, and thus find saving more appealing than investing. There is nothing wrong with choosing to save instead of invest if that's what lets you sleep well at night.
If you lose all your money from index fund investments, the US economy has completely collapsed and no amount of FDIC insurance will protect your savings.
I appreciate your comment and share the sentiment. Yet I think about temporarily reducing the amount of stock in my portfolio, since one of the historic recession indicators is in pre-recession territory for quite some time [1]. In any case, recessions must not go hand in hand with a bear market, and even if so, we don't know how deep it will go and for how long.
The GDP and the number of open jobs isn't indicative of a coming recession to me. In my opinion, The FED will likely cause a recession when they start cutting rates because business will start cutting back spending in anticipation of cheaper credit. The faster they cut the shorter the recession will be.
This is how Wall Street makes their money. They use media to manufacture peak fear and buy the lower bottoms. This happens every single correction. Same thing with the phony analysts, majority of whom just follow the trends and spew out higher price predictions basically manufacturing a buying frenzy with seemingly little to no research. They were doing this with Nvidia for months before it topped out.
If everybody invests in these funds, then the thing is artificial yes? Are there enough people betting against it to keep the thing going up and to the right? What happens if everybody invests in The Fund?
Probably not immune but the US economy was able to latch onto software, which is still where world economy is heading, especially with AI leading the trends now.
It can always go lower, but this is called bear porn.
Path of least resistance is higher; too high too fast for too long causes people to lever up and this blows up sometimes, like in the past few sessions.
Question is how much of the carry trade will unwind now. Regulators will socialize the losses if it happens all at once, that you can be sure of.
Sure, but I wasn't talking about long term, I meant to point out that it's foolish to say "but my folio still up tho?", especially this early while things are still unraveling.
It's actually very good to look at the longer time frames to put the current panic in a context. Average for the sp500 over the last 50 years is ~8% yoy. If you're still up 6% YTD, there's literally nothing to worry about. You might be at 0% today and 6% again tomorrow with how these things unravel.
The idea behind long term investment is that you hold a diversified basket of assets, add a little regularly and hold for >10 years. This smoothes out the various drawdowns quite a bit.
A country's financial markets can be moribund over the long term, without any sort of apocalypse.
You could buy into the Nikkei at JP¥30,000 in 1988 and sell today for JP¥30,000
Invest in the FTSE 100 from 1984 until 2000, you saw 500% growth - a 10.5% annual return. Invest from 2000 until today and you saw 20% growth, a 0.7% annual return.
The precise causes are debatable - but it's completely possible for a rich, western-style economy, with no great wars or huge natural disasters, to just sort of stop growing.
To add to your examples -- take a look at any "emerging markets" ETF, say SCHE. For the last twenty years it has just bounced around without going up. As someone who assumed that global inequality would slowly diffuse away, that poor countries would become rich, that we would all sing Kumbaya, and that this would be a way to profit modestly from that "inevitability", I have been surprised. Luckily it isn't a huge part of my portfolio at this point.
Financial advisors constantly tell you to be globally diversified, but, as far as I can tell, only America goes up. I'm starting to think it's more of a monetary phenomenon than anything "real": America prints the money, so Americans can buy stocks and American stocks go up, and everybody from around the world risks life and limb to get to said place with the money. And, Brand America may not be as shiny as it used to be, but I don't see anything else that can challenge too strongly. China for actually getting shit done, say in Africa, perhaps: They'll build the trains. But it'll still be USD that people want to hold. At some level it's like LVMH. It blows my mind that Bernard Arnault is one of the richest men in the world, on the basis of bullshit handbags for rich people. But, when it comes to money, the fashions followed by rich people are the only thing that matters.
>As someone who assumed that global inequality would slowly diffuse away, that poor countries would become rich, that we would all sing Kumbaya, and that this would be a way to profit modestly from that "inevitability", I have been surprised.
Yes, the data in Africa—the classic target of such hope—is very depressing reading. From 1961 to 2015, real GDP per capita in Africa grew by 1.1% annually (!), compared to 3.9% for Asia, 1.7% for the Americas, and 2.2% for Europe. Growth from 2001 to 2010 of 2.9% is included in that figure; it was the first decade in that period in which Africa outgrew any other continent. <https://np.reddit.com/r/MapPorn/comments/6zlj6k/countries_by...>
This is mostly a reaction to the Bank of Japan raising interest rates to prop up the weak yen. Overall, the Nikkei is now back to where it was in October 2023, and still up almost 100% compared to its COVID lows in March 2020.
All things considered, time in market beats timing the market. The speculative bubble in Japan was of historic proportions and so is the stagnation that followed.
Good thing there's no speculative bubbles at all in the world today (/me casts nervous glance at housing prices and AI)
One story doing the rounds: the Japanese central bank was lending at roughly 0%. So the carry trade involved borrowing Yen, buying foreign currency, letting it appreciate (or investing it?) and paying back. Now the central bank has raised interest rates, so this trade is unwinding: the Yen is rising, and Japanese firms are selling their foreign investments to cover. (I hope I have this right.)
The BoJ put interest rates up last week, which surprised everyone because they've been an outlier for a long time in having negative interest rates and then a 0% rate. That strengthened the currency even more.
If the yen strengthens, then it means the goods sold by Japanese companies become more expensive for foreign buyers, so they'll sell less and earn less. Along with fears of the US economy starting to struggle (worse than expected job figures last week) it's a perfect storm. Gains up to this year have been good so for many firms wanting to de-risk they can still sell now and still make a profit.
People saying this is nothing. Yes, it is not productive for a longterm investor to focus on individual days (and I'm not panic selling now) but 13% down is a lot. The point isn't that 13% in itself is the end of the world (I'm still up 40% this year) but rather that it signals that the market thinks things are going to get bad. And that could be bad for our portfolios (and our jobs, etc).
Selling of all risky assets tends to be correlated. It's called "risk off" sentiment.
This happens because when one asset drop in price, leveraged investors (i.e. those who borrowed to buy) may get "margin calls" from their lenders. This means that the total value of their portfolio (when including the loan) is in danger of going negative, and they may need to sell everything.
My media's telling me that US recession fears are affecting US stocks. And when US stocks are affected, the effect on cryptocurrencies is generally magnified since cryptocurrency is viewed as a risk asset, so one of the first to be sold off in a panic.
I actually haven't thought about it in terms of presidential candidate selection. But to engage in conjecture, I'd very uncontroversially say that it's precisely split down party lines - if you're going to vote Democrat then you're going to thing the Republicans are more likely to make recession worse, and vice versa.
Personally, I think parties and politicians are somewhat leaves on the stream of momentum and world events. They may have some control of variations in speed and direction, but nowhere near what they're blamed / given credit for.
This recession is a predictable outcome of the global shake up caused by COVID, and particularly the money printing / incentive cheques, which was a political decision. But not doing it could have had a worse result, who knows?
Japan's situation, Ukraine, and now Israel and Iran, those destabilising forces are going to do more to world economics than any individual politician or country (although the US's influence is outsized).
I don't find it at all surprising that "tech" "gold" would be correlated with other tech stocks. And tech stocks being so big dominating most of the market. Leading to general correlation between everything.
Bitcoin is probably lot less safe heaven than most people invested in it think.
BTC is just another asset to diversify into, so it'd be really weird if it wasn't affected by global deleveraging and some margin calls, even if tradfi.
It occurs to me that BTC behaving this way is a good thing in the long term, because it means that people are treating it like other asset classes—something to rotate in/out of as appropriate—as opposed to its own thing (which, in this context, means "different"/"bad")
At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?
Things get really out of hand when there's a big move outside of the US trading hours because liquidity is so thin. Usually it recovers of course, the scary thing is when it degenerates into a 2020 covid style selloff - 10% down day followed by a number of 10% down days.
Those times are not coming back. We need to stop looking at market behavior 100 years ago. Modern markets and society function very-very differently. Even looking at 2008 as a model for how modern crises happen is very likely to give you incorrect conclusions.
Everything has sped up drastically. Information (whether valid or invalid) is priced in vastly faster. In 2008 you had a month to buy various crisis insurance products (e.g. variance swaps), in 2020 you had days. The next crisis you might only have hours.
Sure, fundamental human behavioral patterns stayed the same, but these are things like herding behavior (monkey see price go up, monkey buy, monkey see price go down, monkey sell), panics, various interests fanning the flames one way or another, etc. But the interconnectedness and the speed at which information travels across that interconnect has increased orders of magnitude just over the last decade.
It's important to recognize that the increased processing speed has a non-linear impact on the system as a whole. New kinds of failure modes and boundary conditions arise that never happened before. New feedback loops get amplified and old ones stop working as they operated on different time scales.
Japanese markets limit the maximum amount stock can move in single day. These limits are known as circuit breaks, basically when you get over current that is too much drop it shuts off.
Not sure if there is same for other direction too.
I assume “circuit breakers” is a technical term for some automatic system that is built in to the market to activate if some condition occurs, to alter market behavior.
Its a metric developed by econ researcher Robert Shiller, meant to aid those long term investment strategies by quantifying the idea of 'value'. Using 10-years of earnings helps to sidestep a lot of the problems of P/E as a snapshot.
As the time series helps to show, 10-year returns are highly correlated to the price paid for those corporate earnings.
It’s a shame, as ETFs, and hell, index funds if you must, outperform savings on a 3 year or even less horizon.
Yes, my portfolio dropped 7% this month. I’m still up 6% YTD and 13% in the last 12 months.
My horizon is well over 5 years. It would be an easy way to slow or even reduce my net worth if I were to put it all in a savings account.
Yet this is what a lot of folks do, frightened by scary bombastic headlines without a balanced long sighted story.
Current stock performance is very notable and newsworthy, yet lacks any narrative outside of short term performance.