unknown_apostle

Well it looks to me like 1980 is a mirror of 201x.

Low valuations vs super high valuations. Brash and hawkish central bankers vs anxious and dovish central bankers. 20% vs negative yields. Nobody even considering financial investments vs E-trade babies. Bruce Springsteen vs 20-something hedgies. Lowered debt (because of 60s and 70s inflation) vs record debt. Fear of inflation vs pining for inflation.

Why not follow the analogy? In 1980 people were lining up for gold when they should have been buying stocks and paper. Why not put 5% of your savings in gold? Like coins or GLD or something.

It meant "barely kept up with inflation" in the end. In those few instances: after 2 or 3 decades.

During the intermediate years you would have spent a great many years looking at absolute carnage. Periodically getting trolled by bear market rallies.

"Barely kept up" is therefore very theoretical, because few people have the character to wait it out that long. Many who call themselves long term buy-and-hold, will quietly change their designation after 10 years of watching blood stains drying up.

That's exactly why, after such periods, markets are not just cheaply valued but almost literally "empty" and deserted.

Btw, we haven't had one of those since the 60s/70s.

Since 1980 and especially since 2000, people have learned that buying into a crash will be rewarded within 2-3 years because of central bank response.

They think "you can't loose with stocks long-term", which I believe is largely correct. But they have lost all historical perspective on what "long-term" has occasionally meant. And they underestimate the interim carnage in those instances (1930s, 1970s).

> "S&P has never lost money over any 10 year period"

Investing a dollar in 1929 meant 20 bad years. Sitting on that dollar for 3 years and investing it in 1932 meant no bad years.

If I look at some expectations and common beliefs that people hold in 2016, I can't help but wonder whether we have one of those 20 bad year periods coming up.

(By the way, part of the success of US assets is definitely related to American companies leading the way in business innovation like IT. But another part is related to the US running trade deficits and the dollar being the reserve currency, meaning large amounts of dollar liquidity flooded back into the US and mostly into its financial system.)

You're right. High valuation multiples imply high expectations about future profits. But those expectations will need to be met before you can look back and say you've done a good investment.

TINA -- "There is no alternative". Many people in 2016 are being talked into stocks and bonds on the conviction that central bankers give them no other choice.

Or on its corollary, that central bankers are committed (and are capable) to keep the prices of stocks and bonds elevated to fight global deflation.

It's interesting to note that at the beginning of the best periods to invest (the big green regions on the graph, like 1942-1960s or 1980s-2000), the stock market was often not just low in terms of broad valuation. It was just "empty". It had typically gone through many years of very little participation, little activity and low liquidity.

E.g. in 1980 the (Belgian) stock market was pretty much comatose. The typical stock owners were wealthy families, often holding their family fortune as a large stake in a single company. To most non-financial people in 1980, owning public common stock would have been something from a bygone era. They didn't consider it an option.

Rather, people in 1980 were standing in line to buy gold coins. People then feared that Volcker's dramatic rate hikes would cause severe problems. When the stock market sprang to life in early and mid 80s, back offices were often not able to keep pace and doing transactions could be cumbersome.

Compare this with 2016, where central bankers are walking on egg shells to hike rates with as little as 0.25%. Stocks and bonds are more expensive than ever. Yet almost everybody I know has a trading account. Regular people can trade advanced derivatives with minimal hassle. Every time I visit a bank, I see desks and booths filled with people getting talked into investing their savings into various kinds of "high" yielding constructions. Because "TINA".

Feels to me like the worst time to invest. 36 years of buy-the-dip reinforcement learning. But then again I've felt like this for years.

No, but the sanguinary headline made me imagine a future where all biological stressors have actually been eradicated. Our species would be at its weakest.

I guess I was briefly taking the donator's unicorn propaganda literally. Sorry.

The commitment is very big, my comment is very small.

Whatever exists needs to be challenged continuously to keep existing. Any naive attempt to suppress all adversity forever will backfire.

All people who are net receivers from the system do so literally for their own well being.

Which is logical. And ok, because obviously there are lots of truly helpless cases in any given country.

But over the decades, it accumulates fraud. Or even worse, a kind of learned helplessness which keeps people in their place. Maybe Denmark is different. But my guess is that many living in Belgium and France will be able to point out multiple cases of fraud or at least debatable cases in their immediate surroundings.

Finally, a lot of the available money never leaves the hands of the vast bureaucratic caste that manages the system.

I guess what I want to say: people will be people, regardless of the system. Social democracy involves a lot of cynicism and greed too. And probably in a less constructive way than systems that don't rely exclusively on "anonymous" Big State-enforced redistribution.

Well, we'll see whether they want us. I'll be visiting the country with my wife in a couple of weeks. Then I'll file the paperwork.

Btw I'm not frustrated in daily life ;-)

I've just started to believe that "happiness with high taxes" is a euphemism for an ever growing sense of entitlement that is (barely) being fulfilled. At least in Belgium and France.

Yes. Flemish/Walloon stuff is a lot, but it doesn't stop there. France has similar problems with out of control government.

Why not Australia? My occupation is on the list of wanted occupations?

(Caution: serious venting ahead ;-)

Same here in Belgium. Both the situation and the propaganda about it.

Total tax pressure is extremely high. Government services in Belgium are mediocre at best.

Imagine every public institute disease possible (rent seeking, no skin in the game, resistance to reform, employees not giving a shit, impossible size, …). Then multiply it by the fragmentation between Belgium’s many governments and departments and regions and bureaucracies. Then there's the EU.

But in the end it all depends on whom you ask.

The ever growing group of net receivers of the system are very happy. Multinationals and the very rich don’t care.

Even people who are employed in the private sector don’t care. They have a significant portion of their taxes paid for by their employer. So for them it remains an abstract thing as long as they don’t get fired.

The ones who sweat extremely high taxes the most are self employed people and SMEs. Basically most people who are personally involved with a business and are willing to work very hard to get ahead with something.

But hey, it’s social democracy so the majority is what matters! And boy let me tell you, the majority is very happy with socialism. I bet a lot of them would rather get rid of refugees and immigrants than abort socialism.

And since the majority has got it all figured out, I’m looking to emigrate, away from Utopia.

It’ll have to be Australia or NZ because Canada and the US have closed down. Anything Western outside the EU that’s just slightly behind on the curve is fine.

And then there are these terrible products they promote to retailers (at least in Europe). Like CFDs and such. Orders in these things don't even go to the market, like in those bucket shops from old days.

> I don't invest, I leave that to professionals.

Ok so when giving people advice and talking about courses and backgrounds, at least you have experience with investing or trading in the past?

Or just the courses?

“I don't think you have a background in finance", don’t worry about it, I’ll take it as a compliment.

* Please do pay for the advice of experts and consultants. I'm sure there's a couple of useful ones amongst the subgroup who don’t speak in riddles and who put their own money where their mouth is.

* Please do engage in hedging and diversification to manage risk. Can’t spend enough on safety! I mean, what else can you do if you’re not sufficiently convinced that some company is super cheap vs earnings?

* Please do spend lots of time and money dwelling on volatility. Hey maybe it will reduce your risk!

* Oooh the “mark at the poker table” thing. Very hedge fundy.

Truth is, I constantly feel like the mark. Like everybody is out to get me. I've considered legally changing my name to Mark but I'm Dutch so it doesn't make much sense.

I feel like a mark with most management teams whose companies I’m looking at. I feel like a mark when people try to overcharge me on the market. I especially feel like a mark when financial services people offer me better research and better trading tools. Since ~2003 I’ve been afraid the entire planet has become a mark for finance.

The good thing is, when I feel like a mark, I don't act. I've never felt like a mark more often than today.

Anyways, if you think we're sitting on the same table, come and get my money. I from my side think you're just 20 years late to your table.

Good luck hedging dude! Being a self admitted gambler, you’ll need it.

2% being big or small has nothing to do with the size of AUM. In this age of NIRP, 2% is yuuuge especially compared to costs associated with passive funds. Personally, I can see the 2 and 20 model dying within the next few years. The plebes will no longer associate hedge fund managers with the shadowy pinnacle of intellect (Limitless anyone?)

* “Stuff everyone is talking about”: I mean mostly staying away from IPOs, crap on business magazine covers, TINA narratives etc. Especially stay away from “tips”. And from stuff involving former politicians or government (yea I’m European). Actually I can go on for hours on all the stuff I don't like.

* Dealing with risk: hedging and diversification are expensive in more than 1 way. An investor can manage risk with cruder and cheaper means. E.g. by taking out the original investment after the first ~100% in capital gains. Or quickly cutting companies that start violating your initial criteria. Or limiting yourself to trampled paper that hides a beautiful earning machine. Or most important of all: doing nothing in case you can’t find that kind of trampled paper.

* Wrt risk: I guess periodically holding a huge war chest of cash is the only “diversification” I can approve of.

* Many funds and portfolios are built around arbitrary criteria. By which I mean any criteria that have nothing to do with predictability of earnings and low prices for each individual position (when talking about stocks).

* Volatility is irrelevant. Actually, if you have the tiniest bit of patience and a decent stomach, volatility is awesome. I’m happy if I can pay $1 dollar for a well run company that makes 0.25 dollars in yearly profits. I’m happier if it’s an illiquid company and one beautiful day my fishing order for $0.75 dollars gets filled. Often, companies are more volatile when they’re down, so I even feel confident to say that volatility can do wonders for your performance.

I don’t think proper investing is anything like gambling and I’m pretty sure you’re not playing a zero sum game.

Trading on the other hand is a zero sum game. That’s one reason to not be bullish on any given guy who trades without working for Rentec & co.

No. Just the vast majority.

> Judging each and every investment on its own merits is the only way to succeed.

True. And yet the world of investing (I'm not talking about market makers etc) is filled with funds whose composition is determined by everything except simply buying predictable cash flows for cheap, wherever you can find them.

I’m bullish on any investor who:

* stays away from the pressure to be "with it" every quarter

* stays away from stuff that everyone is talking about

* stays away from short term thinking (like real time datasets)

* stays away from statistical artefacts and spurious relations (aka “huge amounts of data”)

* stays away from stuff where they don't understand the basic business models

* stays away from stuff that is built on promises

* stays away from mostly all hedging, other than paying the proverbial 50c for a dollar

* stays away from diversification "just because" (looks at each individual investment on its own merits)

* stays away from arbitrary limitations on asset types or sectors

* stays away from short selling (or situations where you can loose more than what you put in)

* stays away from giving or taking tips on individual investments

* even stays away from feeling they have to kick ass every quarter (if you just can't find anything good... do nothing)

* instead just focuses on not loosing big quantities of his/her own money

* tries to keep costs down (less data, less trading, no hedging, low fees, less dealing with currency exchange)

* doesn't worry about volatility or even enjoys it

* has a few large winners and then some smaller potential winners

That may exclude most if not all funds, hedged or otherwise.

Also: in my experience every 19 year old and his dog now tend to consider themselves "macro traders". It’s an indication of how extremely financialized the entire world has become since the 80s. That in itself bodes ill for the 2 and 20 crowd.

Yeah but you don't want to spend most of your time writing and maintaining scraping code :-)

Thanks, quandl looks interesting. API and what not. Getting a few fundamental datasets probably costs less than subscribing to a couple of investment newsletters.

Well definitely a valid response. But it still seems like a bigger problem to beat professional traders using Zipline, than to spend time looking out for a good company that is being sold for a price that I really like.

In the latter case, investing and looking for value, it seems to me like an amateur can even give himself a little edge over the pros.

First, it's a worse fate for most professional money managers to miss out on some bull market, than to go down together with all his colleagues.

Second, amateurs working with their own money are not evaluated every quarter or even every year. They can just wait and keep looking if unsure. There are no mandates or arbitrary limitations, so the amateurs are free to look for value wherever they can find it. They can look in places that would require more patience, or that have a bit less liquidity or some more volatility (because they will typically have less money to move in/out the stock).

Of course, the pro will definitely have benefits in terms of legislation, taxes and lowering the costs of research vis. the amount of money being invested.

But in the end: does the extra information and non-GAAP stuff that the pros use, help so much over common sense and a decent understanding of accounting? (That's a genuine question, not a statement.) In fact, does succesful investing even involve outsmarting everyone else in the same way that trading does?

Actually, does anyone know where an amateur could buy/download quarterly balance sheets/income statements for the broad stock market universe?

Everybody's trading nowadays.

How about just investing :-)

I.e. focus on periods longer than a year, which so few people/professional market participants do. And on actual businesses instead of the crazy antics of a line.

I wonder if you could use something like Zipline/Quantopian to screen huge amounts of consolidated balance sheets for markers of undervaluation. You could reject 1000s of companies and focus your “manual” vetting on the few that remain.

If you can find the dollar selling for half a dollar and you can understand why it's selling for that price (e.g. because the entire market is down), you may have identified a winner. Then all you need is a little guts and lots of patience. And a predefined set criteria that you would constantly monitor to decide if your thesis is still valid.

Yep, "I Pencil" came to my mind as well. But opaqueness is the only thing that AI shares with global market (or catallaxy as Austrians would call it).

What Brian Eno is missing, is that global markets are created by billions of human minds on the basis of a constant process of trial-and-error (to the extents government allows them to try and fail). It's not just error tolerant. It's constantly making profit by improving and correcting errors. And it's been around for 1000s of years.

Whereas computers have been around for less than a century and are programmed by a few people and AI may not have with "common sense" or error tolerance. To deliver yourself to that seems unacceptable to me.

After France and the Netherlands rejected the original proposed European Constitution (basically confirming the EU as a socialist superstate), they came up with the Lisbon treaty. When Ireland rejected the Lisbon treaty, they were made to vote again one year later. I would say that some form of a second Brexit vote with slightly changed conditions would be a very EU-like thing to pull.

Another way to say the same: there is no slack. Errors can be sudden and complete.

Compare with "old fashioned" contract law or e.g. national currencies or gold. The errors there (theft, counterfeit and fraud) tend to impact only one or a few transactions. It's all more localized/

In case of broader failure of old fashioned money (e.g. national currencies being destroyed through inflation): at least this is a very slow process that is usually being telegraphed years in advance.

and for the record, it doesn't have to be the next cyclical recession. Anything that makes the Japanese government abandon its last shreds of fiscal credibility may seal the deal for yen holders. How about a military build-up to confront their good friends the Chinese?