> History says speculative 'investing' ends poorly
Does it? If you look past the biggest scams and bubbles, I think most research shows that a moderate amount of speculation actually decreases volatility and makes market manipulation more difficult. Speculators after all are the ones who correct the prices of assets which are being wrongly valued.
Copy / paste from elsewhere but here's a recent list of speculative investing bubbles and their outcomes:
The Japanese Nikkei is still down 40% from 1989. That was 31 years ago. The Shanghai Composite index is down 45% from 2007. That was 13 years ago. Hong Kong’s Hang Seng Index is down 10% from the peak in 2007. The German DAX is a “total return” index that includes dividends. So it cannot be compared to the other indices here, or to the S&P 500. The German index that is not a total return index and therefore can be compared to the S&P 500 is the DAXK. Despite its red-hot surge in recent months, it’s still down 8% from the peak in the year 2000. That was twenty years ago. The London stock exchange index FTSE is down 13% from 1999. 21 years ago. The Italian stock index, the FTSE MIB, is down about 60% from the year 2000. 20 years ago. The French stock index, the CAC40, is down 24% from its peak in the year 2000. 20 years ago. The Spanish stock index IBEX 35 is down 58% from its peak in 2007, which was the peak of the Spanish housing bubble that collapsed with devastating results 12 years ago.
Yes, but what about all the speculation that happened that didn't lead to bubbles and actually led to improved market efficiency? My point is that you can't just look at the most obvious examples of past bubbles with full hindsight and say that all speculation is a net negative because of those.
Yes, of course, some speculation can lead to improved market efficiency. I suppose we should define at what level of speculation deems a speculative market.
"I think most research shows that a moderate amount of speculation actually decreases volatility and makes market manipulation more difficult."
I'd be interested to read such research.
To me, this current craze (Stocks, housing, crypto, etc) just doesn't pass the sniff test. It just seems off. Has for a long time. Something has to give. It doesn't make sense. I tell my friends, either things correct in a large way or we're going to be eating $50 cheeseburgers. Again, who knows!? If you did, you could make a killing.
> It doesn't make sense. I tell my friends, either things correct in a large way or we're going to be eating $50 cheeseburgers.
Why not? My parents paid 50c for a cheeseburger in their youth and now I pay $5. What doesn't make sense about inflation? It is the expected way in which our market works.
Thanks for the link, I'll have a read. From the abstract, it clearly references only hedge funds and swap traders in the study. Most speculative markets get in trouble when retail gets involved.
> Why not? My parents paid 50c for a cheeseburger in their youth and now I pay $5. What doesn't make sense about inflation? It is the expected way in which our market works.
My point is that current asset prices only make sense relative to an $50 cheeseburger at current prices, not that inflation cannot occur and cheeseburgers won't be $50 in the future. Again, I don't have the answer. Wish I did. Wouldn't be reading HN at work but building golf courses :).
For what it’s worth, you cannot really compare non-total return indexes with one another either. You’re assuming they have had the same dividend yield during the comparison period, which isn’t a reasonable assumption. In reality, only total return indexes can be relied on for accurate information.
That makes it look like you would have lost money if you’d put it into those indices. Looking more closely (I only bothered with Nikkei), that seems unlikely. Compared to the full year average for 1989, it’s only down 15 percent. Or zooming even further out, it’s nearly double the eighties average today. If a peak is short lived enough, it’s unlikely to strongly affect people investing steadily.
It would be interesting looking at the peaks of 1/5/10 year averages that contain the actual peaks.
My point still holds true. Down 15 per over 32 year period and inflation of the Yen is down 16%. This is one famous example of how speculative investing ends poorly. 3 decades of flatline at best. Look up Japanese lost decade. It's fascinating to read about and the eerily similar to current day US.
Does it? If you look past the biggest scams and bubbles, I think most research shows that a moderate amount of speculation actually decreases volatility and makes market manipulation more difficult. Speculators after all are the ones who correct the prices of assets which are being wrongly valued.