Buy and hold works - Meet the 'unluckiest' stock market investor of modern times
Buy and hold works - Meet the 'unluckiest' stock market investor of modern times
Her timing was terrible but you'll never believe what saved her.
Here's an archived version of the page.
What follows is largely a reaction to analysts predicting a recession and giving advice on how to adjust your investing strategy. The TL;DR here is: don't, they get it wrong more than they get it right.
Among PF enthusiasts, there's a saying that goes something like this: analysts have predicted 20 of the last three recessions.
Here's a chart for the S and P 500 long term after inflation. As you'll notice, long downward trends are quite rare, and the general trend is upward. In general, you can expect 6.5-7% long term after taking out inflation (~10% before inflation) if you buy and hold a broad stock market index fund. It seems almost every year someone calls for a recession, and this year is no exception. People were calling for recessions staring in 2015 or so, and look how that turned out.
Finance pundits and blogs like saying outlandish things like "recession will happen this year, liquidate stocks and buy X, Y, and Z," and if you're lucky, they'll throw some fancy charts up to make you think they know what they're talking about. But just know that all of this is for attention, they make money through ads or airtime, and some will try to sell you a book or something. The worst ones do a pump and dump scheme where they'll invest in security X, hype it up, and then sell when there's a bump in prices and average investors are left holding the bag.
Everyone seems to think they have some system for beating the market, but few professional fund managers manage to beat the index they benchmark their fund with, and even fewer can do it consistently:
Across all domestic actively managed equity funds, 88.4% underperformed their respective benchmark over the last 15 years, according to an analysis of the S&P SPIVA report.
...
More than 80% of large-cap funds underperformed the S&P 500 over the last five years. In 2019, 79.98% of large-cap funds underperformed compared to the S&P 500, which was just a hair better than the five-year average.
So if you buy a large cap index fund, you'll do better than 80% of professional fund managers over 5 years, and you'll outperform nearly 90% of them over 15 years. So don't listen to their nonsense about changing allocation during a recession (or even whether there will be a recession) because you're statistically better off ignoring it.
To really drive it home, let's look at the linked article about Betty, the world's most unlucky investor, who invested only at the worst possible times (just before every major recession) since the 1980s:
Even though she picked the worst six moments since the 1980s in which to invest, she made an average profit over the next five years of 20% and an average profit over 10 years of 100%. She doubled her money. Despite her disastrous, terrible timing, she was in the black after five years on four occasions out of six, and in the black after 10 years 10 times out of 10.
Today, even though her total cash costs from those six investments totaled just $3,500, her portfolio is worth $17,500. That’s more than five times her investment. And that’s even factoring in losses this year, which have seen the global stock market — and Betty’s portfolio — fall 22%.
Just think of how much better she could've done if she had invested consistently, which means she would've bought at the lows and middles instead of just the highs.
If you instead listen to the pundits, you're likely to buy high (you'll miss the bottom, I guarantee it) and sell low (you'll sell early or late). Do what has worked well historically and buy and hold a diversified portfolio.
I don't know if a recession is coming, but I do know it'll change nothing about my investing strategy, other than perhaps how much I can invest. If you're nervous about the economy, make sure your emergency fund is funded and stay the course with your investing strategy, whatever your desired asset allocation is.
This seems like the author stole the concept of Bob the World's Worst Market Timer.
But the point still stands. Investing in broad market indexes and forgetting it is the best thing you can do financially for yourself.
Investing in broad market indexes and forgetting
I would say safe consistently is the alpha and omega.
If you are young the most important is to safe a stash. The yield gets important if you grow older and have a stack of cash.
The yield on your first investments is not important (presuming it wasnt lost due t9 gambling with stocks)
Yup, I couldn't remember the original, so I found this.
Things change though. All major civilisations have collapsed. I'm sure the Romans said it couldn't happen. The Aztecs the Greeks. Yet nothing lives for ever.
Only three things are true
Everything dies Politicians are corrupt Things come to an end
Stock market has been going up since it's inception.it either has to stop at some point or monetary value loses all meaning. It already has and the market is fictional. Running on pure bullshit. Companies being valued at billions when they don't even turn a profit. Unicorn's are a dime a dozen. Systems fucked
One interesting thing about those civilizations is that they were largely centralized, so the nation failing was roughly equivalent to society failing because supply chains and whatnot relied on central authority. These days with globalization, a large country can fail and the economic system keeps going. We've seen that happen (Germany in WW1, USSR in the 80s), and someone else so far has picked up the torch. So if the US fails, for example, someone else will have to step up (after a period of war and whatnot).
stock market... has to stop
Why?
Stock valuations are largely based on the market's estimate of the value of the company, which takes into account future expected performance as well as current performance.
For example, my favorite punching bag is Tesla, which is currently worth about $750B (nuts imo), which compared to other auto makers is: >15x Ford (~$45B) and >2x Toyota (~$300B). Here's how the top car brands stack up in terms of total sales:
- Toyota - #1 at ~9.5M vehicles
- Ford - #6 at 4-4.5M vehicles
- Tesla - #15 at ~1.3M vehicles (up ~400k year over year)
So Tesla sells less than a third vs Ford and less than seventh vs Toyota, yet it has double the valuation of both combined, what gives?
Tesla's stock valuation is largely speculation, but it's also based on the idea that Tesla will continue to grow its share of the market and profit as a function of dollars invested into the company, so more investment means more growth. Toyota has been pretty flat in total sales, and Ford is declining, so investing in either won't likely be as profitable as investing in Tesla. In this case, it's a simple question of supply and demand, more people want to buy than sell, so the price goes up. The idea is that, if Tesla continues its trajectory, it'll eventually be worth that valuation when it shifts from growth to stabilization (i.e. pay a dividend instead of reinvesting in R&D).
That said, if Tesla hits a wall and can't grow any more (or doesn't grow as fast as investors want), investors will take their money elsewhere and Tesla's stock price will tank. That wouldn't cause the stock market to crash, it would just shift value from Tesla to wherever investors decide to go next.
Profit isn't particularly important here, what's important is growth and the prospect of future profit. If the company is heavily investing in growth, any excess beyond the cost of building products gets reinvested into the company to make more or better products, and that's where you see either low or negative profit in rapidly expanding companies. Net profit is revenue minus costs, and R&D is often a massive part of those costs. When R&D slows, that money can be returned to shareholders via a dividend. We see that with large companies that don't have much growth opportunity, like Coca Cola (spending more money on R&D won't meaningfully increase soda sales).
There are lots of surprising valuations, but to say the market itself is completely made up is nonsense and leads me to believe you don't really understand how it works. I'm happy to explain further if you have questions.
Utterly incorrect actually. Most civilizations such as Pitcairn Island were in a vacuum. They died due to have no outside sources and they whittled down their resources until they wiped themselves out.
Most of the civilizations from my research were destroyed due to natural disaster and they weirdly cut down all their trees.
Centralization may be beneficial in our destruction or it may hasten it. Impossible to tell.
I think when more than if USA goes under the market has to die to be reborn. It's currently just running in such an ethereal sense. It's not functioning correctly and is basically the symbol of unfetted capitalism.
Tesla is the poster child for betting on speculation. It was set up as a tech company but is a car company and it will likely peter out once the fan boys have bought up all the cars. It can't have infinite growth. No company can yet stock market requires infinite growth.
Weird how it how works. When it blows up it will be spectacular. It's our version of civilization collapse
Sure, but you can't practically hoard beans against the collapse of society, and you have to live in society until it collapses.
In the meantime, the stock market represents human activity - as long as there are more people doing more things with the tools and technology built by previous generations, stock market is going to trend up.
Has to trend up or shit hits the fan. Debt is leveraged to the tits by using it.