"Playing the stock market is easy. Buy something at random and if it goes up, sell and take the credit. If it goes down, say its a long term investment and hide in the cupboard."
-- Milton Jones.
Which is a good thing I think. The sad thing would be if it had no reaction at all because it was dominated by trading algorithms which don't panic. Then I'd start to wonder whether or not it was a market at all.
No, that's what the title says, but it is click bait.
What the actual article says is that in social groups with well defined hierarchies, higher ranking members tend to contribute more than average to the common good (though this might be biased due to their role in defense against external threats). This old fashioned notion that the rich are expected to hit above their weight level is called Noblesse Obligue, and it's almost the exact opposite of Gecko's doctrine.
What reasons there might be to have come up with such a title/conclusion given the information available? I can only think of one: Assholeness apologetics.
Slight nitpick: "noblesse oblige" not "noblesse obligue"
French locution Noblesse oblige ~ En raison de leur caractère noble ~~ Because of their nobility
As opposed to people, who generally come up with decisions of varying degrees of complexity, which are still suboptimal when the whole picture is taken into account.
That Time article is linked on a bunch of fora, but none of them have a link (or reference) to the actual study.
Any idea if it's available? I suspect that Time's treatment of it is not as nuanced as the original authors would have liked, and even then, the Time article doesn't actually concur that "Greed is good". They just have that phrase in the headline.
The younger you are, the less it all matters, as the trend over a decade or more will always be "up". (If not we have bigger problems.)
So if you don't plan on retiring off your investments in the next 10 years, just enjoy the ride. If you do want your money in the next few years, it shouldn't be in stocks.
A DJIA index bought on September 3, 1929 was underwater until November 23, 1954. That's over 25 years to get back the exact amount you invested. Of course factoring in inflation, that investment had actually shrank.
The attitude that the market had nowhere to go but up, and $1 invested this year was assured to be $1 + $X ten years from now, is the exact attitude that investors in 1929 had (or 1999 for that matter).
Well, yes, but no one is suggesting that making a single large buy on one particular day - any day - and no other investments at all after that, is a sound strategy.
Considering that the time period you're talking about saw: the Dust Bowl, the rise of Fascism, a global conflict on a scale never before seen, industrial genocide, and the start of the Atomic Age and with it the threat of nuclear war and the annihilation of our species... the fact that a 20 year-old could have made the insane investment choice you've presented, and still managed to break even by the age of 45, is actually quite remarkable.
(And I'll just ignore that you've not accounted for dividends.)
How many times in 100 years was this true, besides the 2 times you mentioned? There is risk everywhere. We can only hope to take on risk for a goal after doing our due diligence to understand and mitigate the risk.
Adjusted for inflation, the SP500 had a peak in 1968, then dipped and did not return to this real level until 1992. 22 years.
The S&P 500 entered 2000 at 1425. Not until 2013 would it open the year at or above that. Adjusted for inflation, it did not hit its 2000 level until the turn of this year. It has been tanking the past few days.
as the trend over a decade or more will always be "up"
This is a growth based analysis (in effect a form of pyramid scheme), and it increasingly simply isn't true, as many in Japan are discovering. As populations flatten and eventually decline, most of the established dogma will fall.
I'm pretty sure the phrase was just used in terms of the nature of a free market.
Are you suggesting that because the U.S. stock market has risen during the tiny blip in history that the U.S. has been an uncontested world superpower, we can expect it to rise forever?
What else would you have us expect? That when the US is no longer relevant, and the stock market is permanently declining, that somehow a stash of dollars will be meaningful?
No, for all practical purposes, go ahead and expect it to rise forever. Anything that would make that untrue would make your investment balance unimportant.
I wouldn't expect unsubstantiated claims that have no basis in reality to be stated as plain fact, as in:
> the trend over a decade or more will always be "up".
This statement is demonstrably falsifiable since we've had several decades where the inflation-adjusted returns of the stock market are negative.
> Anything that would make that untrue would make your investment balance unimportant.
I'm sorry, but reframing your false statement in terms of a false dichotomy (the either the U.S. stock market is going up, or your investments are worthless) does not make things right. The double-negative rule doesn't apply here.
In that case you would invest in assets, not cash or stocks. A chunk of land with a garden and a couple of goats would be very handy when a loaf of bread costs $10 billion at the store.
Yes, exactly, I have 3 acres, 8 goats, 30 chickens, bees, 14 fruit trees, and lots of gardens boxes. I would love it if my investments grow, but I'm covered in extreme cases either way.
(And I have my own well and produce my own solar power to boot.)
The $10 billion in that scenario isn't worth any more than ~$3 is today, so it's not actually as lucrative as it sounds. :) Plus because there's hyperinflation happening, the $10 billion you sold your bread for may not be enough to even buy a cup of flour tomorrow, so it's actually worse than owning a bread factory now. It would be better to keep the bread, which will be worth $25 billion tomorrow, except that bread goes bad eventually. So instead of holding bread, you hold assets that don't lose value over time. You don't want to get caught holding this hyperinflating cash because it devalues so quickly. So either you trade your assets directly for other things that you need, or use a different currency that isn't going crazy.
Yup it certainly could be, although it loses value in the form of maintenance costs and can only earn value in the form of bread. So if you can find good bread-trading partners or can sell your bread for non-devaluing currency then that can work out.
The stock market is less than 200 years old. Let's not make any bold predictions about unbreakable trends when we're talking about time periods up to 25% of the age of the market itself. After all, at one time the conventional wisdom was "No football team who plays their home games in a domed stadium will ever win the superbowl." And there were decades of evidence to support that statistical fact!
Yes but that fact doesn't have any scientific basis, it's just pure coincidence. There's no reason why it didn't happen other than the fact that it didn't. The stock market on the other hand, indicates the overall health of the country. It's not a coincidence that it keeps going up as the wealth of the nation goes up.
Recently in baseball, all 30 teams played on the same day, and all 15 home teams won on the same day. That hasn't ever happened before. Why hasn't it happened before? Not because of how unlikely it is. It hadn't happened before because it hadn't happened before. Because it happened now doesn't mean it's more or less likely to happen in the future. It doesn't mean baseball is changing. It doesn't mean anything. But a long term downward trend in the stock market? Means death for a nation's economy. Even a short term downward trend does significant damage.
Football and the stock market are not as closely related as you may think.
The stock market on the other hand, indicates the overall health of the country.
I think the parent's ultimate point is that no country (by which I mean under the same constitution, monetary system, or de facto political arrangement) has lasted longer than a few hundred years.
Even if everything seems economically fine right now and for the foreseeable future, at some point all countries and their associated economies go away and are replaced by something else entirely, at which point the stock market index within said structure goes to at or near zero.
You just need to take a longer time horizon than "when I retire".
Not my area of expertise but I'd imagine it's a function of population and interconnectedness of economies. I do see that some nation economies will be hurt and others helped as everything will probably revert to a mean to some degree.
I do imagine this growth will be asymptotic though on a longer timespan as we need to slow down population growth due to the environmental impact. But who knows? At some point maybe we will be mining asteroids and finding wealth (and places to spend it) outside of Earth.
> Not my area of expertise but I'd imagine it's a function of population and interconnectedness of economies.
So the population growth rate of the U.S. is declining, and many developed nations now have negative population growth rate.
> I do see that some nation economies will be hurt and others helped as everything will probably revert to a mean to some degree.
Right, so would you expect the U.S. economy to be helped or hurt by the decline of its economic dominance and a reversion to the mean?
> What evidence is contrary?
No nation, empire, or civilization in history has managed to sustain global economic dominance indefinitely.
There are probably many events that could cause the U.S. economy to contract. But even if the U.S. economy continues to grow, though at a much slower pace than competitors or the global economy, I just don't expect the U.S. markets to continue rising in a meaningful way. People in this thread are claiming that local markets always rise as though they're stating a law of physics, and it's absurd.
> The US stock market is ... a financial center for earth
This is true currently. But again, there's no reason to assume this will continue forever.
> If we talk about civilization at this point in time then its the global civilization of earth we are talking about.
Nice idea, but I'm unconvinced. What does "the global civilization of earth" even mean? The world always seems more connected than the day before. Of course, in 1914 it seemed more connected than ever before. In 1939 too. Yet our global civilization split apart at the seams and we were thrown into two of the most devastating wars ever. And both hugely impacted the economies of the nations involved. The U.S. has been at war almost continuously for the last 25 years. With whom? The global civilization of Earth?
Even if you restrict your perspective to purely economic matters, to a "global economy," this seems dubious. If we truly have a global economy, it's one disproportionately controlled by a single nation -- a situation many nations are probably unsatisfied with, but currently unable to change.
So you've reached the conclusion that other nations are now content to sit back and let the U.S. run the global economy forever. Where's the evidence? Just because no other country has been able to challenge the U.S.'s dominance over the world economy in the past 50 years, doesn't mean they've accepted this as the natural state of affairs.
But even talking about down-trends, I think "death" is a bit strong. It could also indicate a gradual transition to a lower stable position. Plenty of economies survive at small sizes.
There are real forces that propel the stock market upwards: productivity and an ever increasing population (so more overall revenue and therefore profits over time).
This is why its a pretty safe bet that over 15 year+ time periods that the stock market will go up.
Except that, in many nations around the world, the population growth rate is negative. There is no shortage of space, or food, or energy, but the populations are aging and couples are having fewer children. This is the situation in Japan, Germany, Russia, South Korea, and almost all of Eastern Europe.
The U.S. population growth rate has also been in decline for the past 50 years, dropping from 1.7 percent to 0.7 percent, heading towards negative growth if this trend continues.
So much for "an ever increasing population" to bolster a market that always goes up.
But our population can't increase steadily forever. That trend HAS to end or even reverse at some point.
I understand increases in productivity enable support for a larger population- but that's not a bottomless well. There are insurmountable practical limitations.
Well, the US population can continue to grow until overcrowding becomes a problem, or food becomes a problem, or energy becomes a problem, or nobody wants to live here anymore. The first three seem a long way out; the fourth might arrive sooner...
How long of a time period? Is 20 years sufficient? 200 years? Historically, most empires rose to greatness and then imploded in fewer than 200 years. So I guess we shouldn't look over too long a time period.
We've enjoyed the repercussions of the United States' rapid ascent from a fledgling colony to a world superpower. If we look at the stock market during this period of remarkable growth, it's very easy to conclude that markets will always go up. Of course, this would be a very foolish conclusion.
The major market indexes are not representative of the overall economy. They are representative of the economic winners.
First, public companies tend to be very large. They are the companies that grew at the expense of their competitors. Second, the companies in the major indexes tend to be the winner among public companies. Third, a lot of these larger companies expand overseas, sometimes in higher growth emerging economies.
Finally, IIRC, the long-term growth rate of the S&P 500 is 7% or 8% per year. That's about a 2% to 3% premium over GDP growth + inflation. That premium is the "winner" premium.
This is exactly why we have boom and bust cycles. Markets simply oscillates around the "true" value of assets. I suspect one can model these oscillations using control theory with a positive feedback system. The herd mentality is exactly an example of control system with positive feedback loop. When markets are up, nearly all analysts predict that next day it will be up as well until it isn't and then they all predict doomes day. Ultimately oscillations occur around the true value that is governed by inflation + GDP growth. Market will keep sliding down until it is 10-20% past this true value and then it will keep climbing 10-20% over that value. I wish I'd some time to chart this and test this theory...
Not all US economic activity is encompassed by US listed companies; not all sales by US listed companies are in the US; the stock market can go up due to multiple expansion as well as by increased earnings.
That chart looks like it's leveling off. They don't say anything about that, and I believe that is the most significant attribute of that chart. They are, of course, trying to suggest behind their techno-babble that the market will keep going up. No surprise they dragged this little gem out to counteract the fear created in the recent correction.
A much more interesting analysis could be had from speculating on why it's leveling off. What happens when there's no more debt to buy?
This is likely to be a small-ish market correction. Short term, it might look like a big dip, but taking into account the massive growth the last few decades, it's not likely to be much.
I'm not surprised it made no sense. It's from a school of writing that uses poorly defined dramatic terms like blood-letting and secular bull to make it sound like the author knows something. If you read someone like Buffett who actually makes money trading stocks you get a completely different take and vocabulary.
Basically it's just propaganda. They're using complicated econospeak trying to confuse you into thinking that everything is alright.
In reality, nothing has been fixed since 2008, and Western economies are in shambles behind the scenes. It's a confidence game. At this point, investors are close to losing confidence, and when they do, a big crash will happen.
Because it looks to me like the stock market has a tendency to follow an exponential curve - or at least a high degree polynomial. I also believe that to a certain extent the stock market is bound to the real world and in the real world growth is currently not following an exponential/high degree polynomial curve. The tension between the two is causing an oscillation to develop which overrides the tendency for high disorder in price movements.
In short I think that over long time periods stock markets show some degree of predictability. They are not perfectly disordered because the they are bound to systems operating in the real physical world which display predictable behaviour.
Unfortunately the system operating in the real physical world is based around human behavior, which, despite probably following some heretofore undiscovered law or algorithm, is very difficult to predict.
Depends on the granularity. Total stock market return is a measure of the intersection of time valuation with productivity growth, which has remained consistently exponential for the entire archeological record.
Double bottom, that's what happens. Expecting more heights. Long FTSE!
edit: Stock market theme is huge for click baits and zerohedge readers. No extremes are healthy and there's too much drama around this.
It's people like you who give chart reading a bad name. There's no double bottom here. A double bottom indicates that a downtrend may have reversed. There's no downtrend on this timeframe.
Chart reading is not voodoo, but bad chart reading is worse than voodoo.
The stock market is fine. It's probably the healthiest aspect of the global economy right now. All of the bad things about the stock market are because it's the only safe place for investment right now.
Stock market is probably least safe place for investment right now. Why do you think real estate has gone crazy in the past 5 years? Lots of people that I know who manage their money are almost entirely in cash and many of them avoided the carnage last week.
Real estate and stock market performance are actually very co-related but with some delay. If one gets in downturn, other would follow sooner or later. The difference is that real estate can absorb more shocks and it requires consistent long term downturn in stocks before real estate reacts. Typically real estate is not a favorable way to invest money except when you are very long term. It has huge liquidity problem and it usually has lower returns due to maintenance, property taxes, rental churn, natural disasters and property depreciation costs due to aging. For example, if you had invested in real estate in 2007 you would not have broke even until late 2014 (that's 7 years of wait to get 0% profit). There are obviously exceptions, usually in urban area where no new constructions will occur. Also if you are living in the property then you can subtract rental cost that would put you ahead in ~20 year cycle. But if you are investing heavily in real estate as investment you are gambling in even bigger casino than stock market.
I would fully expect real estate to go down in drain within next 6 months if stock market doesn't improve. This might cause all the private funds that had been buying up tons of properties to take a flight. This would accelerate the downturn in real estate more severely. Lot of people might get badly burned by this but this time it would be mostly private investors as opposed to people who got subprime.
What gets me the most is how much everyone buys into the massive ponzi scheme that is the stock market. Look, first you have to realize that most people and entities on the market are only a small blip on the graph compared to the big ones. The central banks, the banks that make up the central banks, and the various offshoot parasitical entities such as financial manipulation agencies and suprainternational corporations, are the real players in the market.
Sure, there are ups and downs, and a decent broker here or an ok hedge fund there may get you a reasonable return during the good years. That's not the point though.
The real point is that it is a massive ponzi scheme that feeds off of the misery and ineptness of the small players, not only that, but the market itself is manipulated as a way to gain much more substantial power in areas such as actual land ownership and commodities.
It's a cycle. Eventually, a few big players who know they have the ability to move entire markets, on a downturn cut losses and on the upturn amplify gains, do so, and then use their gains to grab exponentially more wealth, and power, enabling them to do it even better next time.
It's generally the classic Rothschild-Waterloo move. Nathan Rothschild heard back about Waterloo before even the British gov, caused a panic based off his reputation to get the market to plummet, and then turned around and bought it all up for pennies on the dollar. Market manipulation based on secret knowledge the rest of the market didn't have.
Then of course my other favourite example is the crash of 1907, (also a perfect example of the power elite rewriting history) The way they teach it is that United Copper was the instigator of the crash and JP Morgan was the generous saviour of the day, but the reality is much different. The panic really didn't kick off until Knickerbocker crumpled... and right as it started to, Morgan was the one who removed lines of credit to Knickerbocker in the first place! They were competitors, and Morgan got rid of them.
Then the Treasury intervened and suspended obligatory payments in the large Chicago and NY banks and that was that, the crash was inevitable at that point. Despite that fact, the crash was used to claim that a lack of a central bank was the problem (it wasn't), the National Monetary Commission was formed, which then toured Europe for insight into "proper banking methods".
They came back, had the Jekyll island meeting, and shortly after proposed the Aldrich plan, which got shot down because the public was up in arms against the "money trusts". The big bankers then pushed the Aldrich plan with a new name, aka the Federal Reserve Act, financed some groups to tout how much it was needed while pretending to hate it, and then got it passed on December 23 and signed by Woodrow Wilson the same day!
I could go on about the reasons why I think it was one of the worst things to ever have happened to the US, especially as it has spectacularly failed in its charge to prevent other crashes/panics, but what are the solutions?
I think we need to nationalize the federal reserve, and put control of monetary policy back under the congress where it constitutionally belongs.
Until then, we will continue to see Libor scandals, bailouts, hidden bailouts, crashes and fluctuations. We must address the fundamental problems of our economy before we can even begin to address the ponzi scheme that is the stock market.
edit: To keep it more on topic, I would be interested in seeing papers on the relationship between the Fed and the stock market, which I guess would be centred around interests rates, the federal funds rate, and dollar exchange rates on foreign markets.
You have some good points but you are edging on to alien abduction conspiracy mode. Yes, few handful of private firms like Blackrock, PIMCO etc have huge control over stock market. They have trillions of dollars to play with (mostly funded by public through 401Ks). They can make or break market by inducing fear or happiness with a small chunk of selloff or buyoff anytime they wish. Yes, stock of the company has little correlation with actual returns (aka dividends) and it's all about speculating. Stock market is in essence legally sanctioned casino and unfortunately few of the only alternatives for investment for general public who can't start their own companies.
What's the solution? It's actually very simple. Heavily tax any short term gains. Something like 90% if you sell in 1st year, 45% if 2nd year and so on. Make dividend income completely tax free. This will force people to use stocks as actual investment and companies to actually share earnings with shareholder (who are by definition partial owner). This can put an end to lot of speculation because your gains would simply be taken away if you do so. It might even end boom bust cycles because there won't be massive sell offs to cash out or algorithm day trading. It will give security to companies so they don't have to live in constant fear of stock tanking next quarter just because it happened to be little bad.
Number one thing I can think of is to figure out a way to prevent HFT algorithms. Put a 1 second timer on and put taxes on those trades, to prevent the whole "my fiber line is .2 ms faster to NY than yours" trading arbitrage. The more fundamental issue of corruption at every level though is still not addressed by this.
"You have some good points but you are edging on to alien abduction conspiracy mode."
I respect all the points you have made except for this one. I very clearly stated things that are fact based, with some speculation and broad-generalization, but to then equate that with "edging on to alien abduction conspiracy mode" is very frustrating to see. I understand the trepidation of even coming close to "conspiracy theory" subjects for fear of being somehow tainted by the crazy, but the history of the world was built on conspiracy, so to ignore the factual and everyday conspiracy that is verifiable under the banner of lumping it in with the crazier stuff is doing your own ability to critically think about a subject a disservice. Again, I understand the reaction, but I think it is one we need to guard against, as it is some strange form of logical fallacy that combines ad hominem and strawman.
To encase my point, did you know that the CIA really pushed the term "conspiracy theory" as a discrediting technique in 67 after outcry grew that the Warren Commission didn't do it's job? (which it didn't..).
"2. This trend of opinion is a matter of concern to the U.S. government, including our organization.
The aim of this dispatch is to provide material countering and discrediting the claims of the conspiracy theorists, so as to inhibit the circulation of such claims in other countries. Background information is supplied in a classified section and in a number of unclassified attachments.
3. Action. We do not recommend that discussion of the [conspiracy] question be initiated where it is not already taking place. Where discussion is active addresses are requested:
a. To discuss the publicity problem with and friendly elite contacts (especially politicians and editors) , pointing out that the [official investigation of the relevant event] made as thorough an investigation as humanly possible, that the charges of the critics are without serious foundation, and that further speculative discussion only plays into the hands of the opposition. Point out also that parts of the conspiracy talk appear to be deliberately generated by … propagandists. Urge them to use their influence to discourage unfounded and irresponsible speculation.
b. To employ propaganda assets to and refute the attacks of the critics. Book reviews and feature articles are particularly appropriate for this purpose. The unclassified attachments to this guidance should provide useful background material for passing to assets. Our ploy should point out, as applicable, that the critics are (I) wedded to theories adopted before the evidence was in, (II) politically interested, (III) financially interested, (IV) hasty and inaccurate in their research, or (V) infatuated with their own theories."
> I could go on about the reasons why I think it was one of the worst things to ever have happened to the US, especially as it has spectacularly failed in its charge to prevent other crashes/panics...
It didn't prevent 1929. It didn't prevent 2008. But nothing else in the time since has been on the level of 1907, let alone 1879. Two crashes in a century, instead of an average of one real crash every 7 years or so, is still a massive improvement.
Hope this is sarcasm. No one really wins from a recession. Sure you may make some money if you go short at the right time, but it's still better to have moderate wealth in a rich world than be among the richest in a poor one.
Periodic corrections/recessions are a necessary and healthy part of capitalism. Unfortunately, stock markets (and other asset classes) have been vigorously propped up by central banks in recent years (especially so after 2008).
Market corrections (and recessions) separate the good from the bad. Right now, there are many banks/companies which should not be in business at all. And they lock up resources which could be used elsewhere, and more efficiently.
I lived trough the fall of the Eastern bloc. It was a time of great opportunity there. I want one now too now when I am at proper age to take advantage of similar effects. There was no need for hiding in mountains.
And also sometimes the little guys getting a nice revenge on the banks. Case in point: friend bought a house at a relatively high price + mortgage, then hyperinflation happened, said friend paid off the house with one month's worth of salary.
FYI: the banks also borrow money usually, at low rates (see the amount of interest you are getting on your money at your bank), so their real business is the delta between these lower rates and the rates you pay for the mortgage.
so they made money in this transaction as well. its the entity at the top of the debt pyramid that lost money. it was probably the depositors in your case.
My dad did the same. But they didn't really get one over on the banks. For every such mortgage there were 100 people who lost all of their liquid savings. The bankers came out just fine on the other end.
