james22 Posted July 8, 2022 Share Posted July 8, 2022 1 hour ago, Lazarus said: Thoughts? There are always cross-currents. The Two Most Underappreciated Forces Driving Markets Today 1. Demographics 2. Flows https://awealthofcommonsense.com/2021/04/the-two-most-underappreciated-forces-driving-markets-today/ I assume the Dow 36,000 argument is at work as well. https://en.wikipedia.org/wiki/Dow_36,000 Link to comment Share on other sites More sharing options...
LC Posted July 8, 2022 Share Posted July 8, 2022 James, that is an interesting article, thanks for posting. Link to comment Share on other sites More sharing options...
Libs Posted July 8, 2022 Share Posted July 8, 2022 2 hours ago, Lazarus said: I've come to the realization that I'm a perma-bear pessimist about markets and that it is a huge flaw. I was underinvested in 2009 (I thought the world was ending) and didn't invest at all in the March 2020 lows (I thought the bubble was finally bursting and waited for blood in the streets). With that disclaimer in mind, I still can't help but think that we are still in bubble territory and we are nowhere near the bottom. Perhaps someone would be kind enough to explain the flaws in my thinking, so that I can join the optimists and make more money: 1) I think that the rise since 2009 has been largely due to QE, low interest rates and central bank interference (as opposed to fundamental business reasons). Hence, I am suspicious of the meteoric stock market rise since 2009. 2) The sharp rise in markets since March 2020 makes zero sense to me. We've been in lockdowns, had supply chain issues, etc. Does this rise reflect fundamentals in any way? What justifies the market rise? Why the hell didn't the market fall? 3) If the Fed is now going to focus on fighting inflation, common knowledge is that raising rates to fight inflation will make the markets fall. How much of a battle will this be? My pessimistic side thinks that it will be hard to get inflation under control, for two reasons: (a) the amount of QE and the increase in money supply since 2009 should have caused massive inflation for years. Buffett wrote an article to this effect back in 2010 or 2011, and Buffett has indicated in years since that he doesn't understand why inflation didn't hit, that it should have. Hence, maybe the inflationary pressures are like a loaded spring - they were held back for many years, and now are being released with a vengeance. Maybe all the inflation we should have had earlier, as per Buffett's predictions, are catching up with us. (b) will raising rates really lower inflation that much? To the extent that inflation is being caused by supply side issues (China lockdowns, supply chain issues, etc.), then how do rate increases address those particular issues? Rate increases will slow down demand, but perhaps the current inflation is due to supply issues? Thoughts? You guys mostly seem more optimistic than me (and you are better investors than me), and I'd like to join you on the light side. The flaw is in getting caught up in all this macro stuff. If Buffett doesn't, you don't have to either. Get comfortable finding stocks with moats, that will endure, and just buy them when they are reasonably priced. Berkshire for example. Link to comment Share on other sites More sharing options...
Lazarus Posted July 8, 2022 Share Posted July 8, 2022 Thanks all for the responses so far. Greg, you make some good points in (1) and (2). I don't know why I am picking the 2009 bottom or March 2020 as my starting points for a dramatic "rise". I guess it is my pessimistic viewpoint, and I need to change that. Libs - for what it's worth, I've been piling a bunch of my savings into BRK, even though I assume (likely incorrectly) we have a ways to go in this bear market. Great company at a fair price, and all that. Link to comment Share on other sites More sharing options...
crs223 Posted July 8, 2022 Share Posted July 8, 2022 (edited) @LazarusI had/have the same permabear disease. I "foresaw" the housing/fannie/subprime and pulled all my money out in 2007 and bought gold. I bought a ton of WFC (copying BRK) at the bottom in March 2009 and tripled up in a few months. Turns out I was just a lucky broken clock. I thought I figured it all out: 1) govt printing money means gold is the only beneficiary and 2) buy when there is utter panic and fear. From May 2009 until COVID I was all in cash/gold waiting for another panic. Awful. Thank God I got my head out of my ass enough to buy a house in 2012 (again lucky at the bottom). Eventually I decided to trade my cash and gold for BRK. WEB's essay on "the gold cube" helped change my mind. However, I was/am still convinced that all this govt printing is not going to end well. Nevertheless I committed to just start buying BRK -- after all they have a bunch of cash too -- so it's sort of like trading my dumb-cash for BRK smart-cash. I couldn't stomach the though of going suddenly all in on BRK (from cash/gold) because I was "convinced" that a massive drop was right around the corner. So I committed to DCA my way in over five years. Well I lucked out again because COVID gave me a chance to move most of my money into BRK. I'm still about 20% cash/gold. I went from 25%->20% cash a few weeks ago to buy more BRK at the 52 week low. ... so if you are committed to converting your cash to BRK, I recommend picking a time horizon ("I will be fully invested in 10 years") and just start buying on the first of every month. And if you get lucky and there is a major panic along the way just buy more. I'm hoping for more panic. But if there is no panic, I will still be buying -- unlike the past decade. Edited July 8, 2022 by crs223 Link to comment Share on other sites More sharing options...
Gregmal Posted July 9, 2022 Share Posted July 9, 2022 The biggest thing I think every investor should realize is that it’s terrible to invest from a position of fear or weakness. Being constantly bearish is counter productive. But I also think symptomatic of not really getting the hands dirty on the deeper fundamental stuff. Think about the thought of buying a home. Or managing a store, or running a business. You do so with an eagerness and excitement for the future. It’s definitely possible to invest the same way. You buy a great asset and are excited about owning it and that trumps what the stock does next week. Too many people obsess over the daily quotes and only have an affinity for the p in p/l which of course feeds right into the transaction inducing Wall Street machine. If you are 20/30/40 you should looking to acquire assets. Berkshire I agree is probably the best one to just own and stfu. FRPH and ALCO are two others I just buy and on one end I get a fat dividend while they sell oranges to Tropicana and land to developers. And FRPH develops trophies while holding a war chest for the down times. Internalizing what you own is a huge mental edge. Ultimately, good market, bad market, whatever….the more noise you can eliminate from the process then better. Link to comment Share on other sites More sharing options...
Lazarus Posted July 9, 2022 Share Posted July 9, 2022 Yeah, I'm guilty of investing with fear and weakness, as well as being trigger shy. I first got started with investing during the 2008 crash. I read Buffett's NYT article and thought, "this is a once in a lifetime opportunity" and convinced my wife to put our life savings into some of Buffett's biggest holding. We were recently married, in our early 30s, doing well. We put $100,000 into WFC, BAC, and various other Buffett holdings, just copying his investments. That was November or December of 2008. We watched in horror as our $100,000 dropped to $50K and then around $30K. We held on, but as soon as it got back to the original $100,000 by about May or June 2009, we pulled it all out and thanked our lucky stars we hadn't lost everything. I've done some back of the envelope calculations and we would have been quite wealthy by now if we had just left it be. Since then, I've been maybe 50% invested in index funds. Total waste of investment time! For a long time, I had my eye on Canadian oil stocks and almost invested the other 50% in it when Cdn oil dropped to negative value but chickened out. Once again, I would be sitting pretty. So I need to stop chickening out. I'm trying... I bought a chunk of BABA averaging about $110 and I'm just going to sit on it (macro view - China is going to eat our lunch so might as well buy into it). And I'm also happy to just buy BRK and forget about it. But since I have at least half my money sitting around in cash still, I want to try to make up for lost time by attempting to "time the market" and wait for the bottom. I sometimes think I'm exceptionally dense... Link to comment Share on other sites More sharing options...
Lazarus Posted July 9, 2022 Share Posted July 9, 2022 4 hours ago, crs223 said: I recommend picking a time horizon ("I will be fully invested in 10 years") and just start buying on the first of every month. I like that idea a lot. Thanks. I definitely don't want to be sitting on cash any more. I will pick 2 years as my time horizon - if the market crashes further within that time period, I will accelerate. But otherwise, just shovel money into the market so that in 2 years I am all-in. Of course, this means the mother of all crashes will come in 25 months. Link to comment Share on other sites More sharing options...
Gregmal Posted July 9, 2022 Share Posted July 9, 2022 Another thing I’ve heard is helpful is just sidepocketing $50-100k in a small savings account. One of the most obvious things people seem to overlook when investing is that they don’t actually need the money they’re investing. It’s excess. So again it shouldn’t matter what it does short term if your horizon for it is not short term. A year or two worth of living expenses will greatly remove your need to fret about what the stock portfolio does tomorrow. Link to comment Share on other sites More sharing options...
LC Posted July 9, 2022 Share Posted July 9, 2022 Agree on that. I keep 50k in a 3% earning account. When shit hits the fan that’s where I would pull from. When shit really hits the fan, I can pull from the helocs. When the Russians nuke us, none of it matters anyways. Link to comment Share on other sites More sharing options...
Blugolds Posted July 9, 2022 Share Posted July 9, 2022 I have an investment for you...here's my pitch $50k initial investment The day you "invest" it will drop $10k (20%) Additionally your investment will NEVER be worth more than $50k it will actually continue to depreciate each year Oh also, there is an ER of 3-4% Any takers? Its all psychological. People apprehensive to put $50k in an account and within 6 months it drops 20% and they panic....same guy has no problem going to a dealership and buying a $50k truck and having it drop $10k as soon as he drives off the lot...not to mention he is paying 3-4% for that "privilege" on the auto loan, and doesnt think twice about it. There are tons of examples of this...people make decisions EVERY DAY that are HORRIBLE investments, some large like auto, boats, campers other toys..and they happily take the hit...some smaller like subscription based sign ups, services, not shopping insurance, home upgrades that they will NEVER get the money back out of etc etc....but when it comes to doing what is actually in their best interest (no pun intended) they act irrationally and get all emotional about it because they see a little red in the account. Put the money in and stop thinking in 6-12mo windows...when you view things through a 5-10 yr lens things look totally different. If you know what you're buying, have done your homework and the ability to stay rational you should do fine. Obviously you need transportation, and not everyone is gonna be rolling around in some 1991 Chevy Lumina ghetto hoopty because its the best ROI...but my point is...people are so emotional about ROI when it comes to the things that are actually capable of giving them a return! But then when it comes to other things that probably make up the majority of their monthly spend, they throw any caution to the wind and dont consider the same metrics. I have a coworker concerned about 401K balances dropping and in the last year they have bought a brand new $70k truck, $50k camper 5th wheel, put in a $100k inground pool, even bought a new $13k commercial lawnmower...thats over a quarter million "invested" that the return will be horrible on...if we're speaking strictly from an investment standpoint...but IVV is down 18% YTD and its got him flustered LOL...I mean come on...sometimes people need to put stuff in perspective.. Link to comment Share on other sites More sharing options...
Sinbius Posted July 9, 2022 Share Posted July 9, 2022 (edited) Can we have a bottom without having tamed inflation (or being near to tame it)? Edited July 9, 2022 by Sinbius Link to comment Share on other sites More sharing options...
flesh Posted July 9, 2022 Share Posted July 9, 2022 You've got to get it through your head that the risk is actually greater by not investing than by investing. If you do the math... the only time you shouldn't be invested is when you can't find anything worth the DCF to invest in compared to everything else. There's always something to do. In 2019 I couldn't find any stocks I liked.... I told my neighbor if he ever wanted to sell his house I"d pay full value, no realtors fees, just get an appraisal. After a few months he said yes. It's literally right next door, easy peasy. It has two separate units with all amenities so they can be rented separately... with a 20% down payment and a 3% mortgage it cash flows 1500/month positive and ofc we've seen what happened with re prices since, but that was luck. If you like brk, why not go all in at 270 lately? If you're really scared buy some 220 puts at whatever expiration. Would it really be so bad if it went to 240 and your cost was 270? Isn't it worse if you don't buy it and it's at 350 1-2 years from now? Even if it went to 240 couldn't you sell some shares at a loss and buy some 2 year calls or use a little margin? Buy some puts at 200 when you swap at 240? There's always something to do. I recently went all in.... and I told my partner to let me know if brk is at 250 or 300 so that I don't have to look of feel anything. There's nothing for me to do for now. Now I'm back to more important things like reading great books and spending time with my kid/travelling/hobbies. We are so fortunate to have so many amazing companies to invest in intermittently at good prices it's ridiculous relative to history. The democratization of enterprise was one of the best innovations ever and you get to benefit! The bottom line is, if you own 5-10 plus companies in diff industries the only way you fail is if USA fails and if that happens, we're all fucked. Link to comment Share on other sites More sharing options...
Guest Posted July 9, 2022 Share Posted July 9, 2022 9 hours ago, LC said: Agree on that. I keep 50k in a 3% earning account. When shit hits the fan that’s where I would pull from. When shit really hits the fan, I can pull from the helocs. When the Russians nuke us, none of it matters anyways. Where are you getting 3% man? Link to comment Share on other sites More sharing options...
Sinbius Posted July 9, 2022 Share Posted July 9, 2022 (edited) 2 hours ago, flesh said: You've got to get it through your head that the risk is actually greater by not investing than by investing. If you do the math... the only time you shouldn't be invested is when you can't find anything worth the DCF to invest in compared to everything else. There's always something to do. In 2019 I couldn't find any stocks I liked.... I told my neighbor if he ever wanted to sell his house I"d pay full value, no realtors fees, just get an appraisal. After a few months he said yes. It's literally right next door, easy peasy. It has two separate units with all amenities so they can be rented separately... with a 20% down payment and a 3% mortgage it cash flows 1500/month positive and ofc we've seen what happened with re prices since, but that was luck. If you like brk, why not go all in at 270 lately? If you're really scared buy some 220 puts at whatever expiration. Would it really be so bad if it went to 240 and your cost was 270? Isn't it worse if you don't buy it and it's at 350 1-2 years from now? Even if it went to 240 couldn't you sell some shares at a loss and buy some 2 year calls or use a little margin? Buy some puts at 200 when you swap at 240? There's always something to do. I recently went all in.... and I told my partner to let me know if brk is at 250 or 300 so that I don't have to look of feel anything. There's nothing for me to do for now. Now I'm back to more important things like reading great books and spending time with my kid/travelling/hobbies. We are so fortunate to have so many amazing companies to invest in intermittently at good prices it's ridiculous relative to history. The democratization of enterprise was one of the best innovations ever and you get to benefit! The bottom line is, if you own 5-10 plus companies in diff industries the only way you fail is if USA fails and if that happens, we're all fucked. Generally I agree with that kind of mindset...and in the long term you do great with that... But considering the time we are in I can not help myself but to think that the opportunity value of cash increase...of course if I could diversify in 5-10 extremely attractive bet I would do it... I have basically only 3 positions (one of this is BRK) and some cash...not able to spot other 2 extremely appealing (they have to be great not just good) and non correlated bets... Will be there another time in my life when I would be so confident that the $hit is about to hit the fan...?..I don't think so...so I choose some cash to sleep well... Of course I have in the back of my mind the though that I will regret not putting the rest of my portfolio in brk (I have already a 25% position) ... I think that the probability that we are going to have just a minor recession and inflation will disappear, in no time without some big pain, is very very low. (and BTW even if inflation will disappear fast...doesn't work that it doesn't cause huge damage in its travel...) Edited July 9, 2022 by Sinbius Link to comment Share on other sites More sharing options...
james22 Posted July 9, 2022 Share Posted July 9, 2022 2 hours ago, Sinbius said: Will be there another time in my life when I would be so confident that the $hit is about to hit the fan...?..I don't think so...so I choose some cash to sleep well... You've got to get it through your head that confidence is risky. Link to comment Share on other sites More sharing options...
Sinbius Posted July 9, 2022 Share Posted July 9, 2022 (edited) 5 minutes ago, james22 said: You've got to get it through your head that confidence is risky. Not going all in on it...just keeping some cash if I don't find ultra great investments... Edited July 9, 2022 by Sinbius Link to comment Share on other sites More sharing options...
flesh Posted July 9, 2022 Share Posted July 9, 2022 2 hours ago, Sinbius said: Generally I agree with that kind of mindset...and in the long term you do great with that... But considering the time we are in I can not help myself but to think that the opportunity value of cash increase...of course if I could diversify in 5-10 extremely attractive bet I would do it... I have basically only 3 positions (one of this is BRK) and some cash...not able to spot other 2 extremely appealing (they have to be great not just good) and non correlated bets... Will be there another time in my life when I would be so confident that the $hit is about to hit the fan...?..I don't think so...so I choose some cash to sleep well... Of course I have in the back of my mind the though that I will regret not putting the rest of my portfolio in brk (I have already a 25% position) ... I think that the probability that we are going to have just a minor recession and inflation will disappear, in no time without some big pain, is very very low. (and BTW even if inflation will disappear fast...doesn't work that it doesn't cause huge damage in its travel...) It sounds like the only thing you have high confidence in atm is brk, isn't brk 5-10 companies? Why not go all in on it? No honestly, what's the diff? Munger once talked about how if you're some guy in some town usa and you own the car dealership, the re brokerage, the gas station, the hotel whatever it was.... and they were all profitable, would you spend you time worrying about being diversified? Brk is a concentrated index with special properties, you can argue for via negativa or positiva but the principal is the same. It is actually this simple if you can accept that it can be this easy. It's probably fair to disclose that I've read all the books and all the books about all the recessions. It's also probably fair to frame this by considering that one of you asked for how to get over this fear. Link to comment Share on other sites More sharing options...
james22 Posted July 9, 2022 Share Posted July 9, 2022 53 minutes ago, Sinbius said: Not going all in on it...just keeping some cash if I don't find ultra great investments... Better investments than found in 2009? March 2020? If you didn't act then, why believe you'll act now? Link to comment Share on other sites More sharing options...
Spooky Posted July 9, 2022 Share Posted July 9, 2022 Some really good points above. Something that has really helped me is to take a long term view. Check out this chart below (from Li Lu's paper on value investing in China). If you invested 1 US dollar in the stock market in 1802, after discounting for inflation, you would have experienced an appreciation of 1 million times the original value over the past 200 years (as of 2011)! Stocks significantly outperformed the other asset classes below. Because of this, my age and my time horizon, my portfolio is basically 100% equities and some real estate securities with the goal to just keep compounding over time. I also have a small reserve fund for emergencies and so that I never have to be a forced seller at a bad time. I recognize that my wealth / portfolio could be very volatile but I don't view the volatility as a problem as long as I just keep my cool and stick to my strategy - the real risk is not having enough funds in retirement. If a big 50% drop comes I will ride it out and view it as a great opportunity to deploy more capital. I just make sure for the individual stocks that I buy they are bomb proof - 60% of my portfolio is in Constellation Software and Berkshire which are nearly unkillable and will do well in any macro environment, I don't have to stress, worry or even check what they are doing in the short term. Link to comment Share on other sites More sharing options...
Gregmal Posted July 9, 2022 Share Posted July 9, 2022 6 hours ago, Sinbius said: Will be there another time in my life when I would be so confident that the $hit is about to hit the fan...?..I don't think so...so I choose some cash to sleep well... The problem with this sort of thinking, is that the types that generally do have these hunches, are consistently having them. Over the past half decade just off the top of my head, the same group was worried about....2016/17...Trump. 2018/19..the punch bowl, 2020-21 Covid, 2022 the Fed/rates. Its just always something with them and if I missed my top 5-10 investments over this timespan it would have been hugely to my determinant. As some have stated, theres always something going on, you just need to find it. Shutting off the creativity or adventure seek valve over the fear flavor of the year is counterproductive to this. Every day you should wake up wanting to make investments but also having the discipline to sort them. Some variant of dollar cost average or time disciplined purchases is also so underrated. I just finished up with my APTS stuff and chuckled printing out the transaction log for my accountant. Taxes are a bitch. Over a 12 month period from January 2021-January 2022 there were 178 different purchase transactions between stock and options. Berkshire early 2021 I bought the same dollar amount every day from Jan 1 until end of February. Find something, and then just stick with it and execute. Paying attention to the other side is important but too scrupulously just causes undue hesitation. An investor and friend of mine earlier this week asked what to make of MF REITs selling off like 20-25% this year. And again I asked "why is it, that things that have absolutely ripped face the past few year, pullback, pullback mind you, the same amount as basically everything else in the market, and we need to conclude it s proof of something that should prevent you from investing?", especially when the real market, the private market, didnt move anywhere near there and the only evidence one has to make that case is small timers buying class C assets claiming theyre getting better deals LOL? I dont really like BTC, but the argument and point is best highlighted there. Ignore that its Bitcoin. The negative clowns have been hating on it since $1,000-$5,000. Its now come back from $60,000 to $20,000....THAT?!? is proof they were "right all along"??? You wouldnt know it from how they cheerlead, but again, perspective is everything. If you cant get excited about an investment or sector, just move on to another one til you do. Link to comment Share on other sites More sharing options...
nafregnum Posted July 9, 2022 Share Posted July 9, 2022 10 hours ago, Sinbius said: Can we have a bottom without having tamed inflation (or being near to tame it)? I really like this question. I once read the market is priced for what people think conditions will be in 18 months. If that's true, I imagine we'd see a bottom after the first official readings show inflation cooling off. Mr Market will see a light at the end of the spooky Fed rates tunnel. @Ulti contributed this link in the other thread about inflation, with some evidence that we may already be past the inflation peak. https://ritholtz.com/2022/06/revisiting-peak-inflation/ Question is... will it be the real multi-year bottom, or a head fake? For example, there are 1M barrels of oil per day coming from the US strategic petroleum reserve until September 30. What happens to oil prices after that point? Will speculators pile back into oil and cause inflation fears to resurface? https://www.reuters.com/business/energy/us-sell-up-45-mln-bbls-oil-reserve-part-historic-release-2022-06-14/ I know I shouldn't enjoy thinking about the macro stuff this much. None of my thoughts are very original, but it's still pretty fun to dream up this big Rube Goldberg machine and imagine it in motion. Link to comment Share on other sites More sharing options...
nafregnum Posted July 9, 2022 Share Posted July 9, 2022 Thanks, by the way, to everyone in this thread as well as the energy sector thread and the inflation thread. I've gained a lot from your contributions and experiences. Link to comment Share on other sites More sharing options...
crs223 Posted July 9, 2022 Share Posted July 9, 2022 11 minutes ago, Gregmal said: The problem with this sort of thinking, is that the types that generally do have these hunches, are consistently having them. When you have this macro bearish/pessimist/doom mindset you will never buy. Not in the depths of the GFC. Not in the depths of Covid. It's a mental sickness and zerohedge/Schiff capitalize off it. The problem with this bearish line of thinking: if the market goes down you say "I'm right; market is going down... and it's got a lot further to go". When the market goes up you say "I'm right; we're in a bubble; market is going to go down". You can't win. Link to comment Share on other sites More sharing options...
Sinbius Posted July 9, 2022 Share Posted July 9, 2022 3 hours ago, flesh said: It sounds like the only thing you have high confidence in atm is brk, isn't brk 5-10 companies? Why not go all in on it? No honestly, what's the diff? Munger once talked about how if you're some guy in some town usa and you own the car dealership, the re brokerage, the gas station, the hotel whatever it was.... and they were all profitable, would you spend you time worrying about being diversified? Brk is a concentrated index with special properties, you can argue for via negativa or positiva but the principal is the same. It is actually this simple if you can accept that it can be this easy. It's probably fair to disclose that I've read all the books and all the books about all the recessions. It's also probably fair to frame this by considering that one of you asked for how to get over this fear. I don't want to go all in on BRK because even if it has more then one business inside is mainly a bet on one country/currency and one management. Link to comment Share on other sites More sharing options...
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