New Paradigm?

[SUPcheat]

The best thing I ever learned to do was establish an investment mix and just leave it alone.

If you want to gamble, buy lottery tickets.  Attempting to time markets and churning investments from an armchair is the best way to lose money in the long run.

[pdxmike]

It'd be interesting to see what that chart looked like a couple decades ago.  In a short time, stocks went from something anyone could invest in, and if you were at all prudent and conservative, you'd make money over time--at least that was the general view.  Now, I think the general view is that the stock market is something that's completely rigged, and unless you're an insider, you're a fool to participate.  Any money you put in will be taken out of your pockets and into the insiders' the next time they orchestrate a market manipulation.

[Admin]

Admin - you got that quality chart off the internet, didn't you?

It's the stock market.  I knew you would not take it seriously if there weren't fuzzy numbers.

[eastbound]

i have orders in to buy DIA SPY QQQ at or around the august lows.

have started to buy crude contracts--first purchase in CLF at 34, rolled to CLG, plan to add all the way down to 20$ in spot.

stocks can be a great investment---never buy strength or sell weakness, and you should do fine--if you start young and stay disciplined.

crude?? we shall see. I cant not buy it at these levels.

[SuppaTime]

It'd be interesting to see what that chart looked like a couple decades ago.  In a short time, stocks went from something anyone could invest in, and if you were at all prudent and conservative, you'd make money over time--at least that was the general view.  Now, I think the general view is that the stock market is something that's completely rigged, and unless you're an insider, you're a fool to participate.  Any money you put in will be taken out of your pockets and into the insiders' the next time they orchestrate a market manipulation.

If anything, the oversight by the SEC has gotten tighter rather than weaker in the last few decades. There is a lot of research that goes on in academia (and elsewhere) as to how "efficient" the stock market is. Efficiency in this sense has a very well defined definition but one of the key aspects of it is to what degree insider trading and other rigged investments are taking place. The US stock market is generally considered to be as close to the ideal definition of an "efficient" market as any stock exchange in the world. That is not to say that there is not cheating going on, because there is, but the extent to which that affects investors is low (in the US).

The fairness of stock investing outside of the US varies by region - Europe is maybe a notch below the US but emerging markets, particularly China is way off. Personally I do not partake in international investing and this is one reason why (currency risk is the other).

There are a lot of things to pay attention to and worry about when investing in equities, but all in all, the fairness of the US equities market is way down on my list of concerns.

If you want to read more about the Efficient Market Hypothesis (EMH), Wikipedia has a good overview: https://en.wikipedia.org/wiki/Efficient-market_hypothesis

[pdxmike]

It'd be interesting to see what that chart looked like a couple decades ago.  In a short time, stocks went from something anyone could invest in, and if you were at all prudent and conservative, you'd make money over time--at least that was the general view.  Now, I think the general view is that the stock market is something that's completely rigged, and unless you're an insider, you're a fool to participate.  Any money you put in will be taken out of your pockets and into the insiders' the next time they orchestrate a market manipulation.

If anything, the oversight by the SEC has gotten tighter rather than weaker in the last few decades. There is a lot of research that goes on in academia (and elsewhere) as to how "efficient" the stock market is. Efficiency in this sense has a very well defined definition but one of the key aspects of it is to what degree insider trading and other rigged investments are taking place. The US stock market is generally considered to be as close to the ideal definition of an "efficient" market as any stock exchange in the world. That is not to say that there is not cheating going on, because there is, but the extent to which that affects investors is low (in the US).

The fairness of stock investing outside of the US varies by region - Europe is maybe a notch below the US but emerging markets, particularly China is way off. Personally I do not partake in international investing and this is one reason why (currency risk is the other).

There are a lot of things to pay attention to and worry about when investing in equities, but all in all, the fairness of the US equities market is way down on my list of concerns.

If you want to read more about the Efficient Market Hypothesis (EMH), Wikipedia has a good overview: https://en.wikipedia.org/wiki/Efficient-market_hypothesis

That could all be true, but I was thinking of perception.  I'd guess the average person's perception of the stock market and its fairness is far lower today than it used to be a couple decades ago. It seems like people (with some justification) are becoming skeptical of all the things that used to provide a sense of financial security--i.e. a good education leads to a better income, insurance provides protection, home ownership is the foundation of financial security, hard work leads to promotions, etc. so skepticism of the stock market fits right in, whether justified or not. 

[PonoBill]

I think the biggest problem with financial markets is not the market itself, it's the financial industry that provides the access that most people use. If indeed the market is efficient (and I agree that the US stock market is) then there is no particular advantage in using professional stock pickers (fund managers) and no advantage to be gained from financial advisors and brokers beyond some fairly basic and consistent advice and implementation. Mostly the financial industry adds cost and friction.

the problem is that it takes a little bit of education and a little discipline to manage investments and most people suck at both. So they get ripped off by advisors that they trust for no good reason, or they buy into plans that have substantial expense ratios and management costs that outstrip earnings in anything but a great market.

Generally I've discovered that people want someone else to take care of investment for them, which is a pretty strange thing to me, even though I did the same thing for a long time.

As far as the perceptions people have about how the world is going to hell in a handbasket, I'd recommend the book "The Rational Optimist" or just read some history. I've been diving deep into Asian history recently after a wallow in North and South American history. Europe is next. It doesn't take much study to realize there was no such thing as the good old days. These are them.

[Admin]

There is a lot of research that goes on in academia (and elsewhere) as to how "efficient" the stock market is.

The public has taken note of the migration of financial experts from government to academia to private sector to rating agency to...and has grown to largely mistrust the experts as one entity.

This mistrust of our institutions is not limited to the financial sector.  Government as a whole, Health, Law, Religion, etc.

This mistrust is growing and it has been the defining factor in the election process that we are in.  It is essentially anger.  We have two guys shaking up the process, both of whom look like they may actually ignite at any moment.

[pdxmike]

If you combine what both of you just said (Admin about general mistrust, and PB about the problem being inefficient access to the efficient market) then what a mess.  If you wanted to create anger and mistrust about an institution, you'd be hard pressed to do better than to tell people who just got screwed that the system is working exactly as it should.  If the reason someone's retirement money evaporated is because of what their financial manager did with the money as it went in or out of the efficient market, and not the market itself,  that's not really an important distinction to the investor.  After all, the financial managers are part of the system.  Same with health, law, etc. as Admin noted. 

The widespread perception is that in all cases, the common man will get screwed while Wall Street, insurance companies, bank, bureaucrats, etc. will always emerge unscathed, because the system is rigged.  And Admin is right about that perception driving the election. 

[Subber]

The "Financial Crash" of 2006 down to the 2009 bottom
made a few things more evident.

First, it discredited the Efficient Markets Hypothesis.


Second, it showed how rigged the markets are.

Executives that were complicit in creating the bubbles
and in the crash, not only kept their jobs but got huge
bonuses.
Banks and insurance companies that were complicit
not only were not liquidated but were bailed out and made
survivors of government-arranged financial mergers and are
now even bigger than previously when they were already
"too big to fail."

[Subber]

"The stock market closed out a record year with more all-time highs on Tuesday, giving U.S. indexes their biggest annual gains in almost two decades."

VS

"the jobless rate (is at) a five-year low of 7 percent, but some 11 million Americans are still unemployed, and many are earning less than before the recession. When adjusted for inflation, average weekly wages have barely budged since late 2008"

Where do you see us on the chart?  Is the "Smart Money" already out?

Maybe we should take another look at that chart.

It pretty much matches the chart of the Chinese Shanghai Stock Exchange Composite Index when it rose 502% in a parabolic curve from mid-2005 to its October 2007 top - only to fall much more steeply by 72% in just over a year to its November 2008 bottom.

More recently the Chinese index rose in a 155% in parabolic curve from mid 2014 to its June 12th 2015 top.  From that top, just six months ago, it has fallen in a steeper drop by 44%. 

[PonoBill]

Remember the book "The Long Boom". Kind of funny now.

My point was more that a hands off approach won't work for anything important.

[SuppaTime]

If you combine what both of you just said (Admin about general mistrust, and PB about the problem being inefficient access to the efficient market) then what a mess.  If you wanted to create anger and mistrust about an institution, you'd be hard pressed to do better than to tell people who just got screwed that the system is working exactly as it should.  If the reason someone's retirement money evaporated is because of what their financial manager did with the money as it went in or out of the efficient market, and not the market itself,  that's not really an important distinction to the investor.  After all, the financial managers are part of the system.  Same with health, law, etc. as Admin noted. 

The widespread perception is that in all cases, the common man will get screwed while Wall Street, insurance companies, bank, bureaucrats, etc. will always emerge unscathed, because the system is rigged.  And Admin is right about that perception driving the election. 

I agree that perception often trumps truth. There is nothing that any of us can do about that and it is a human failing that is far greater than just how people view the financial world. But looking at just financial business, most of those people who think they are getting screwed spend what, 1% or maybe even 5% of their time on research and education about finance and investing and yet they assume they should get the same result as someone who works full time at it? There is a disconnect right there.

Believe me, big investors like insurance companies and retirement funds (like CALPERS) are hurting just as much as I am during this recent dip in the market. The difference is, the pros understand it is just the market doing what it does and they don't flip out about it. Plus they are diversified, which all investors should be, which softens the impact of a down market.

[eastbound]

i just bought my spy's--getting ready to add (do the more-on trade) to my crude.

i have been way underinvested in stocks, so hope the dip will prove to be my friend.

need to get back to bogle approach--"own your age in fixed income, balance in stock indices"--so at my precious 57 years of age, i shd have 43% in stocks. after today, i will be only around 25%. will have bids down another 10-15%.

the crude trade worries me, but buying severe weakness is always worrisome--we shall see on that one

and there is a bear camp saying that our economy is shit, and the fed will be back with QE again soon--ray dalio is a credible camper there.

but there are always camps that form when markets are strong or weak.

[PonoBill]

A ran a lot of Monte Carlo simulations to determine a reasonable asset allocation for our investments. A couple of days of work using tools available on the web as well as working to understand the underpinnings of the tools. Came out with 70 percent bonds, which is close to my age, so I'd say you could just Bogle it. Ran the same tools for Diane and it came out closer to her age, but given her high degree of conservatism we went with geezer. 

Of course the bond market gets hammered in really nasty cycles, but corrections don't matter much if you hold to maturity and no one defaults. I generally choose solid muni bonds with an income stream instead of general obligation and ladder them. And bond funds work well too for investors that don't want to undertake the effort of managing a portfolio. Doesn't do much to handle real inflation or to grow the investment, which is why younger people need riskier investments. There is both time to recover from the result of risk, and a need to take risk to see growth. In an efficient market there is NO growth without risk, that's all you ever get paid for in a passive investment.

My take on the distant future is that I won't be here for it, but the investment to move from a carbon-based economy to something more sustainable is huge and is underway. I think massive infrastructure change bodes well for the long term economy.  Interesting times.