If you find your Thanksgiving table descending into a fight about whether President Donald Trump’s Ukraine scandal rises to an impeachable offense, put down the mashed potatoes, tap your wine glass, gather your family’s attention, and tell them that this holiday is reserved for gratitude. If they doubt that American public life offers anything to be thankful for, ask them to consider this: The American people are finally back to work.
This year, the rate of employment for people between the ages of 25 and 54 — those who are mostly too old to be in school and too young to be retired — has finally recovered from the Great Recession.
At the peak in employment in April 2000, nearly 82 people out of every 100 in this age range had jobs. In January 2008, one month after the recession began, 80% of prime-age adults were employed. The rate cratered as employers shed workers, bottoming out at 74.8% in December 2009, six months after the recession officially ended. Prime-age employment showed no signs of recovery for several years thereafter, and only began a sustained upward climb in 2014.
Three months ago, in August, the rate finally hit 80% again. In September, it climbed to 80.1%, officially exceeding the post-crisis peak for the first time, over a decade after the downturn began. Last month, the climb continued, to 80.3%.
In the years since the recession ended, the stagnating prime-age employment rate provoked gloomy predictions that there would never be a full recovery. Many commentators and economists argued that structural factors were holding back employment — that people who were out of work simply didn’t have the skills that businesses needed. These were reasonable concerns in theory, but the evidence for them was always scant.
This period also witnessed theories that were less reasonable, including some by professional economists — for example, that young men weren’t working because video games had become so much more entertaining. (Are we to conclude that the recovery of prime-age employment was driven by a reduction in the quality of video games?)
The argument that employment wouldn’t fully recover also related to cyclical factors. The concern was that falling unemployment and a tightening labor market would spark consumer price inflation before the rate of employment would reach its January 2008 level.
Here, the skeptics were on stronger ground. It was reasonable (though incorrect) to conclude — based on historical experience, among other things — that the labor market was nearing full employment when the unemployment rate fell below 6% in 2014. It was even more reasonable (though still ultimately incorrect) to argue this in the spring of 2017, when the unemployment rate fell below 4.5%.
The unemployment rate is now 3.6%, lower than it has been in five decades. By letting the labor market aggressively tighten, the Federal Reserve has allowed the prime-age employment rate to recover fully. (Though it hasn’t fully recovered for male workers. The rate for men still has about 1 percentage point to go to reach its pre-crisis level.)
The lesson here for the Fed is to continue allowing the hot economy — the best jobs program there is — to increase employment. The Fed should always be concerned about inflation, of course. But if anything, inflation has slightly decelerated over the last year or two, and expectations about future inflation — a key driver of actual inflation — are flat. The experiment in very-low unemployment should be allowed to continue until the Fed can see the whites of inflation’s eyes. Another reason to be thankful: the Fed seems to be planning on exactly this. Rate increases in 2020 are (currently) unlikely.
And here’s yet another reason to be grateful this Thanksgiving: the economy in 2020 is set to have a better year. In 2019, the housing market had to absorb the effects of two years of rising interest rates and businesses had to deal with tariffs and uncertainty from Trump’s ill-conceived and badly executed trade war, global eco...
I was only in high school in 1998, but at least old enough to be aware of things like the stock market. It doesn't feel anything like the Internet 1.0 bubble. For one thing, the companies today have actual revenues and profits. People are not blindly throwing money at every .com IPO that comes out.
Ok. To get to 1999 levels, now name several dozen more.
The angle where something like this could happen would be the advertising bubble, if there is one, collapsing. Then there are many companies who are currently quite solvent and profitable that suddenly wouldn't be.
I suspect a number of those are the types of companies that if they had to turn a profit, could do so by cutting back investment and taking profits, in addition to reasonable amounts of corporate restructuring and investment. Many of them are at least plausibly in that category. Some of them are not (TSLA for instance is not in a position where they can coast right now).
1999 was full of companies where even if they had captured 100% of the relevant market at the time, would still not be turning a profit or be viable businesses. They were fundamentally built on the presumption that 2015-levels of internet penetration and hardware capabilities in the first world would be obtained in 2001 or so. It wasn't just a matter of "they were investing what could have been profits into further growth", it was a lot more like "they were taking VC money and setting it on fire and calling that a business model". It is not the same today. (Modulo my caveat about advertiser money above.) It may be bad. But 1999 was insane.
I can easily see a correction, even one we'd consider large. But I would bet the "correction" doesn't undo more than two years of stock market growth when it happens, and it may not even manage to cause a recession, or if it does, a very minimal one.
Both have significant revenues and are arguably still in their growth stage. I don't like either stocks, but even these names aren't comparable to what was happening during the dotcom bubble.
WeWork is a prime example of why this is nothing like 1998. The street did not allow a hyper-inflated company to go public, they spoke, got the CEO fired, blocked the IPO, and are more or less dictating that they become "profitable" before any news of the having an IPO comes out...
I'm trying really hard to think of a recent IPO of a profitable company. Companies in 1998 had "actual revenues and profits", Pets.com was just not one of them. I worked at Microsoft during that time, and they were making money hand-over-fist. Pretty sure Oracle was raking it in. Hell, even Sun wasn't looking bad. Same deal today: MSFT is still making it by the semi-load, Apple is still making me money (and a dividend, which you weren't getting in 1998). I could go on.
But you're not wrong, there is a difference: crap like Uber doesn't shoot to the moon on opening day. Or, as you put it, people aren't throwing money at them, hence Uber (et. al) still sitting under IPO price. That's what I think might save us from a repeat of early 2000s. Hair stylists aren't giving me stock advice these days, either.
I think you are caught up in the fact that a company MUST be profitable to IPO. That is simply not true. Just because these companies are not profitable does not mean they are not stable self sufficient businesses. Amazon pioneered the idea that you do not need to be profitable, in fact you can lose money every single day, month, year, for the sake of growth. We do not know if these "companies have the ability to turn profitable if they want to, but my bet is they probably can. Not to rant, but this is prime example why people like Bezos and Buffet want to get away from the quarterly reporting, it just doesn't do a good job of letting companies lose money in the sake of growth it is WAY to focused on profit over growth.
This isn't true; reporting profits is to a large extent a choice that a stable self-sufficient for-profit business can make every year. If you have some reliability in predicting your revenues, you can time investments or expenditures to offset them and run a for-profit company in a stable way without ever (or rarely) reporting profits.
And of course there are a number of stable self-sufficient businesses who never report profits; in fact they are called nonprofits. The Sierra Club was founded in 1892, for example.
If you have high fixed costs, say to produce high-quality films, and you can grow your audience 40% per year with reasonable marketing expenditures, you have little chance to "bring in more than you spend" for several years until your subscriber base is large enough to cover the high fixed costs.
If you spend more on marketing than the customer lifetime value, or if you have high churn, then yes, you have a failed business. But if you have reasonable marketing, high growth, low churn, then you will have a fairly incredible money printing machine in the future. And there are many people willing to give you $10 now if you promise a portion of this future profit machine!
That's not GAAP profitability. R&D and sales appear as operating expenses and get deducted from revenue before net income.
This matters a lot for software businesses with recurring revenue (i.e. most SaaS businesses). With software, you build the software once and then you have an asset that you can sell a potentially infinite number of times, for many years into the future. The engineering salaries for building the software count as R&D, and get deducted from the current year's income statement. Then you sell the software, which may take an expensive consultative sales process but signs up a customer who will continue paying monthly for several years. The sales expense is recorded in the current year, but the revenue is booked over several years.
The metric you're looking for is unit economic profitability, and specifically for B2B software businesses, LTV - CAC. If this is positive, then you are making more for each customer you sign up than it cost to sign them up, and you have a sustainable business (at least until the competitive landscape changes, which is a risk every business faces). This is not the same thing as GAAP profitability: if you know that you have a product that makes $5 in revenue for every $1 in sales you put in, it makes sense to raise as much capital as possible, hire as many salespeople as possible, and get every possible user using the software before a competitor comes out. That will look like a money-losing business under GAAP, because for every dollar that comes in this year you might be spending $2 in sales. But the part that's missing from the GAAP statement is that next year you have 4x as many customers who will continue paying you money at no additional cost to you. At some point, when the growth curve flattens, you just lay off the salespeople and milk the existing customers for everything they're worth. This is the story of Oracle, Microsoft, Cisco, and now Facebook and Google.
VCs know to look for these metrics (along with growth rate, net promoter score, engagement, and churn, which are proxies for CAC and LTV). The general public does not, and they're not required in SEC disclosures or normal accounting statements (which generally predate the SaaS business model).
> Amazon pioneered the idea that you do not need to be profitable, in fact you can lose money every single day, month, year, for the sake of growth.
Amazon has reported profits almost every year since 2003 (the only exceptions are 2012 and 2014). The loss accumulated in 1994/2002 was $3bn ($4.3bn adjusted for inflation). Uber has been losing over $3bn per year since 2016 ($15bn so far).
Salesforce is a better example of this,that kept going in negative,while at the same time buying companies left and right.I think it took them good 15 years before they showed profit. However,this is a deliberate and I'd say quite smart business decision.
Is it? Salesforce reported annual profits starting in 2004, the year of the IPO (it was founded in 1999). Accumulated earnings were already positive in 2008. It had a good run of GAAP profitability (2004-2011) before losing much more than it had earned before in 2012-2016.
I assume that's true, but you're missing the perspective that 2003 was well after the crash, and to someone who lived through it and generally aware but not an expert, it really seemed like they would never make money, their stock had cratered, and they were just staggering on a bit longer than other dotcom flameouts. I mean, that was the picture you got from the financial press (remember when Apple was always described as "troubled" or "beleaguered"?)
“crap like Uber doesn't shoot to the moon on opening day”
I think the main reason for this is that all the upside and speculation has already been taken by earlier investors and an IPO is done only when there is basically no upside left. In 1998 Uber would have gone IPO much earlier and retail investors would have driven up the price, not the VCs as it’s done now.
What’s common is that we have a lot of companies who don’t even have the slightest idea how to become profitable other than a miracle happening.
Not sure how this will end but judging from 2002 and following it won’t be pretty for a lot of people that are flying high in the current market.
This is correct. In the 90s you’d do a round or two or private capital and then go public. It was also a lot better for early employees... you can probably hold out 5 years for a liquidity event... 10 seems highly unlikely.
Microsoft famously had a single venture investment for what amounted to less than 10% of the company (but did get a board seat).
It was Bitcoin/ICOs/etc. that really felt like Bubble 1.0 to me with (literally) a Lyft driver I had thinking about getting into it.
And lots of people pretty sure the whole thing was a bubble but almost feeling compelled to jump in anyway.
I'm not saying there won't be a correction at some point but you're mostly not seeing the wild price increases in the absence of any fundamentals and, in fact, the market seems to have mostly said "meh" to the Blue Aprons, WeWorks, and Ubers of the world.
While a bunch of people have thrown their personal wealth into crypto speculation, it hasn’t been what has driven the stock price of the stars of today. Regulators have been somewhat good on locking down obvious frauds including the gazillion ICOs that happened a few years ago.
In summary, smarter investors and better regulation seems to have kept the market in check, for now.
The troubles start when a sizable chunk of the market suddenly goes underwater, disrupting existing supply chains and shaking investor confidence and predictability. Those events have not yet occurred.
I think it’s fair to mention that none of those companies you brought up were tech companies, strictly speaking. They utilized technology, but that wasn’t their main product. Even the MVP of Uber could be made by one programmer over a weekend.
Yeah, I had a strange day off (2018 presidents day?) and went to the local pub and ran into the bartender and 2 customers talking about investing in BTC. I was kinda intrigued, but when I figured out that they didn't even know what a blockchain was, much less how one worked... I got pretty sad. I told them that at least BTC was off its high, but nothing more than a gamble. At least ETH was doing something interesting. I tried describing what a hash was and telling stories about Fred Merkel to distract them.
Uber did not shoot to the moon because all the gains were made in the private instead of public market.
Today's companies , even if they have losses, are cash-flow positive. They are operating at a profit but reinvesting those profits on large capital expenditures, which produce losses. This is similar to Amazon, Tesla, Netflix, and Salesforce.
Because their strategy is massive investment into original content to maintain market positioning now that the market is splintering into IP-driven streaming services.
Investors signal they approve of this strategy by continuing to invest in Netflix, despite not getting juicy dividends.
Netflix could massive reduce spend on OC and payout dividends, but that would be ultimately damaging to the long-term success of the company.
Same with Roku, revenue but no profit [1]. Spotify did turn a profit in 2019 [2], for the first time since inception (16 years). However Spotify is predicting a loss for the next year.
I’m getting this sinking feeling that it’s not the tech companies that are inflated as much as sectors like retail, manufacturing, and perhaps shipping because of the trade war going on.
I think what we are really seeing is a private equity bubble propping up fundamentally unprofitable companies, and its deflating because so much time passes between VC turbocharging of Uber for hamsters and IPO that it is becoming very difficult indeed to locate the greater fool.
It's institutional investors (think pensions) chasing returns because of low interest rates.
PE's played a role in a lot of things we're currently seeing.
I wouldn't characterize its role in tech quite as propping up a bubble. Easy money means companies are trying a winner-take-all approach, loss-making longer, and delaying IPOs. Tech IPO performance has been mostly lackluster because of a lack of profits and private investors already captured gains from most of the growth.
Outside tech, they've been buying up medical companies, raising out-of-network rates, leading to surprise medical bills.
They're also under fire for leveraged buyouts, but turning around distressed assets is what PE's historically been good at, and for all the noise about leveraged buyouts and store closures, these were already sinking ships. PE didn't kill Toys R Us, Amazon did.
I feel this general unease about an impending depression is what keeps it from happening.
Every one remember 2008 and 2000. Beating the drum about a depression being around the corner, makes people takes preemptive decisions that stop such disasters from happening.
The seed of skepticism has been sown, and while I hope it doesn't grow, I am glad it has planted itself among people with power to swing economies.
Certainly todays IPO's are more mature companies. However, "profits" are still no where to be found. Examples include Uber, Lyft, Peloton, Pinterest, GrubHub ... I could go on.
> For one thing, the companies today have actual revenues and profits.
The new wave "tech" companies, like Netflix and Tesla, haven't had a yearly profit yet.
And those are the best examples of "modern tech" (anyone who IPO'd after 2007). If we get into MoviePass, Uber, Lyft, Pelton, WeWork, etc. etc., we're into the "lose $4 Billion PER QUARTER" group.
Tesla "only loses $1 Billion/year" (roughly), making it a far more "profitable" company than these other ones.
I absolutely think we're in a bubble: driven by cheap debt. The problem is that I can't call when it will pop. Without knowing how or why things will pop, its completely useless to speculate. Stocks remain the best investment moving forward: with global bonds entering negative interest rates, and US Debt at record low-interest.
So even if I think there's a bubble, I'm pumping stocks because I don't have any better idea of what to invest into.
Tech companies make money because the cost of scaling a tech service to support more users is pennies on the dollar. Just spin up more servers - most of your expenses are fixed, regardless of whether you serve 2 users, or 2 million. This is why Wall Street fawns over them.
Unless Tesla has built a Star Trek replicator, it's not a tech company. It's a car company, that must spend 95 cents on building a car, to secure 1 dollar of revenue from selling it.
All companies are branding themselves as tech companies, even if they're in established industries.
* Moviepass is a tech company, even though they were only selling subscription movie tickets.
* Peleton is a tech company, even though they sell exercise equipment.
* Tesla is a tech company, even though they just sell cars.
* Uber / Lyft are tech companies, even though they are just a middle-management service for... effectively Taxis.
* WeWork is a tech company, even though its business model is straight up commercial real-estate subleasing.
* Netflix is a tech company, even though it just spent a $Billion on studios, new TV shows, and other entertainment costs.
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Everyone is a "tech" company. Because that's how you siphon off money from investors these days. Even Amazon seems to be turning into a glorified FedEx / Warehousing / logistics company.
When everyone is a tech-company, no one is a tech company. Its the nature of the current bubble IMO.
Amazon retail sales is 10x larger than AWS and subscription services (aka: Prime) combined. By any sane measurement, Amazon is still primarily an online retailer.
In 2018, Amazon made 141 Billion in product net sales. Net means "after" all costs are included. This includes operating costs like warehouses, workers, cost-of-sales, etc. etc.
But only made 90 Billion in "service sales" (AWS and subscription services). Note that Amazon Prime counts as service sales, so plenty of "product revenue" falls under the service boat in practice.
Amazon's storefront makes more than 50% of all of their services combined in profit, and is ~1000%+ more revenue. Yeah, it costs a lot to run the Amazon warehouses, but Amazon is still primarily a warehouse / storefront company by all measurements on their income sheets.
Net sales is not equivalent to profit. I direct you to page 37 of the 2018 annual report [1] where you see cost of sales being deducted from "net sales". When the cost of sales is 93% of net sales it is not much different from topline revenue as a metric.
For 2018 actual operating income was $3.1bln for AWS and $1.078bln for global retail. (page 66).
Top line metrics are popular in tech circles because so many "unicorns" don't actually make any profit. But it will lead you astray if your goal is to actually make money.
Ok, Tycho, Enron, WorldCom, Global Crossing, tell me again how the supposed dot com crash was all about Pets.com and dozens of internet companies that would go on to become some of the largest corporations in history?
Nah, but for those who were too young to remember 98 the crypto bubble in 2017 had a very similar feel. The stock market is 2019 may be overvalued but it’s nothing like that.
Not to mention the current low federal funds rate ˜1.5% Vs ˜5.5% in 1998. That is 3.x the difference.
SP500 companies are also on average holding much more Net cash than in 1998.
Banks are also much more prepared in Asset and Cashflow due to regulation puts into place after the 2008. Not saying they cant financially make go burst, but at least on paper they are better.
So Apart from the Macros, Countries with much higher debt and sociality as a whole with inequalities.. etc. Business on the whole are doing very well.
Better yet, just put away a little every month and get on with life:
> Logically, it seems like Buy the Dip can’t lose. If you know when you are at a bottom, you can always buy at the cheapest price relative to the all-time highs in that period. However, if you actually run this strategy you will see that Buy the Dip underperforms DCA over 70% of the time. This is true despite the fact that you know exactly when the market will hit a bottom. Even God couldn’t beat dollar-cost averaging.
Meet Juergen, actually the world's worst market timer. He invested in the German Stock exchange in 1914. In 2014 he finally broke even.
Over the last 100 years, the US has had a great run and stock market returns have reflected that. By only looking at American returns you're cherry-picking the best results so your model is flawed.
Juergen had a bad time because his country was at the center of two world wars and lost both of them. Which there is reason to believe won't happen again because of MAD.
Moreover, if that sort of thing ever does happen again, your biggest problem is not that your stock portfolio is doing poorly, it's that you're in Nazi Germany in the midst of an all out war.
There are certain scenarios where all bets are off, no clever investing strategy will help. I do wonder if climate change might become one of those events.
Climate change is kind of a wildcard. You look at something like beachfront property in Miami and you can basically expect investors there to lose their money. On the other hand, we all know that already, so shouldn't it already be priced in?
The key factor is that if people are pricing in the expectation that we'll do the work to solve the problem before that happens, that expectation is only valid if we actually do.
From an investment perspective, it probably makes sense to assume the losses will be socialized, because politically it's very bad optics to do nothing after 100,000s of coastal residents have their homes flooded.
Right, and even though today's beachfront property owners aren't the most sympathetic group, they can certainly sell to people better able to monetize our collective sympathy.
given that it lasted 100 years, how much more data does one need in order to be convinced? That is as comprehensive of a data set as one can be expected to find when it comes to market analysis. All the evidence such as economic data, corporate profits, demographics, etc. suggests no reason for America's dominance to lessen. America's superior economic and stock market performance can probably be attributed to an economic climate exceptionally conducive to capitalism, combined with geopolitical stability, good demographics, and the private sector having a lot of autonomy from the public one.
but the share of world's stock market was not, the Tokyo SE total capitalization was higher than NYSE.
EDIT: I see my original comment was misleading, I was thinking of the weight of the US on the world market as that was the context of the thread, not of the whole economy.
There are a bunch of demographic reasons why we should expect America's dominance to end. If all citizens were equally productive, we'd expect the U.S. to be no more than 5% of the global economy, and China and India to be roughly 4x as large. Plus the population pyramid in the U.S. is about to invert, with more dependent seniors than productive wage-earners.
Corporate profits, economic data, geopolitical stability can all flip quite quickly (just look at Germany in 1914, per grandparent poster) - demographics is the one factor that is relatively stable.
Someone who invested in the US stock market at peak in 1929 wouldn’t have broken even until 1960 or so. And that’s assuming they went for some kind of broad index rather than companies that could have went belly up.
And the same is basically true if you bought in 1966. What this tells me is that the Dow Jones (or stock market in general?) is not a good indicator (or even proxy) of wealth. Because GDP obviously grew immensely in both 30 years periods.
DJIA is a pretty bad index. S&P 500 or an even broader market index performs much better.
"Although it is one of the most commonly followed equity indices, since it only includes 30 companies and is not weighted by market capitalization and is not a weighted arithmetic mean,[citation needed] many consider the Dow to not be a good representation of the U.S. stock market and consider the S&P 500 Index, which also includes the 30 components of the Dow, to be a better representation of the U.S. stock market."
- https://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average
There was a lot of anti-market sentiment after the depression that lasted a couple of generations. There are also other ways to make money than speculating in the market, actually, I would say it isn’t even the main way GDP is generated.
The chart shown at macrotrends does not show total return (dividends included and reinvested). The investor would have broken even much earlier. January 1929 to January 1960 shows ~25% real return without dividends reinvested and ~499% real return with dividends reinvested.
Yes, but on the other hand, traditionally the point of dividends is that you don't reinvest them. You should still include them in returns though. But it seems unrealistic for anyone without perfect knowledge of the future to have reinvested every penny over 30 years including the depression, WWII, and the earliest, most paranoid part of the cold war and nuclear age.
The Dow is a pretty bad index -- It's just one of the older ones.
It's literally adding up the prices of 30 stocks and dividing by a divisor that's been adjusted over time as stocks are added and removed from the index. It was easy to calculate early on, and it's continued because it's famous.
Wouldn't the exiting and entering of companies have a negative effect on the index holder over time (as they are selling the exiting companies when they are valued low and buying the entering companies when they are valued high)?
Most people have to "only" worry about 40 years of accumulating wealth (say, ages 25-65), and then 20 years of decumulation after retirement (65-85, on average).
And the DAX has generally given decent results since 1955:
OTOH, most of the very serious drawdowns in the past 200 years have been due to major wars or revolution. Both have been steadily decreasing for millennia.
It's extremely unlikely that the next 100 years will be anywhere near as turbulent as the past 100 years. In particular nuclear weapons increase the variance to the point that it's no longer relevant for stock portfolios. We're not going to have another Great War or WW2. Either we'll have peace between the great powers, or you won't care about your stock portfolio because you'll be vaporized.
The same blog has a post that tries to tackle that issue. You are right, looking at the US isn't a complete picture.
This post examines that issue from IMO a more holistic standpoint that DCA isn't just a strategy, it's closer to everyone's "real" experience.
I think what I took from it is there's a level at which I sort of don't take the criticism I guess seriously (more like harsly?) of DCA, because like, after much gnashing and grinding of teeth, life looks a lot like dollar cost averaging for most folks.
So okay, then we can talk about diversification, which is important, and this and that and blah.
But like, unless you hit it big and sell your business or something and suddenly have to figure out what to do with 7-8 figures, you don't quite experience the same problem.
It just feels like as tempting as the standard deviation on potential performance looks like, and as convincing as the anecdotes feel, how real is any of this?
There's more important factors that are definitely in your control, vs things that questionably or I suppose reasonably aren't.
(basically, the Russian Empire borrowed a lot of money (several billions of Gold Francs), specially in France, and the Soviets, when they came to power, defaulted on these debts).
When Emptying the house of my late grand-mother after she died we actually found a few of these bonds.
I got one and, now, it's in a frame as part of my home decoration (I didn't feal like asking Mr. Putin for my ancestors' money back).
The thing is, most people don't invest by making one large lump-sum payment, and then sitting on their ass for thirty years.
Most people (who do invest) invest by cutting off a slice of every paycheck. This strategy will happily let you weather crashes.
Combined with a guaranteed-payment pension (Social security, employer pension, government pension, etc), it's a pretty good way of securing your retirement (Even if you have to take a haircut on the payout of the guaranteed-payment pension.)
That Buy-the-dip vs DCA article you posted is a lot more equivocal about the comparison than the excerpt you quoted. It shows that the winning strategy actually depends a huge amount on the size and timing of the dips. If you did in fact know when big dips were coming, you would absolutely trounce dollar cost averaging.
Only if you are dollar cost averaging over long periods of time. People use market timing as a strawman.
IMO, you invest strategically. Build cash positions over time as you ride the business cycle. Don't get greedy -- pigs get slaughtered, if you're investing in high-flying times, you should take profits and have some cash. I was just getting started in the 90s, and rode stocks like Amazon and Red Hat up to stratospheric heights. But when like 90% of Amazon's value vaporized, I had cashed out enough of my position that I was able to hold on and invest in other areas.
The same strategy served me well in 2008. I was able to get onboard high-quality investments at ridiculously cheap prices, which would not have happened if I was 100% invested.
The cost of this type of strategy is that you lose compounding. From my POV, I value having access to liquidity and the abilty to take advantage of market opportunities.
> Only if you are dollar cost averaging over long periods of time.
The primary reason most people save/invest is for retirement. So if you start saving at the age of 25, after schooling, that's forty years until the 'traditional' retirement age of 65.
> IMO, you invest strategically. Build cash positions over time as you ride the business cycle.
The odds are stacked against you when buying the dip:
> Why is this true? Because buying the dip only works when you know that a severe decline is coming and you can time it perfectly. Since dips, especially big ones, haven’t happened too often in U.S. market history (i.e. 1930s, 1970s, 2000s), this strategy rarely beats DCA. And the times where it does beat DCA require impeccable timing. Missing the bottom by just 2 months lowers the chance of outperforming DCA from 30% to 3%.
There are other reasons to invest besides piling cash for retirement. I specifically mentioned that liquidity was important for my objectives.
Your example doesn't fit as perfect timing isn’t required, I just realize gains and invest a proportion of them when opportunity presents itself.
I’m not selling investment advice, just sharing my experience. This portion of my portfolio performs better than the more bogle-ish 401k fund from circa 1996 through 6/2019.
> Your example doesn't fit as perfect timing isn’t required, I just realize gains and invest a proportion of them when opportunity presents itself.
If someone's equity-fixed portfolio allocation (given a individual's risk/volatility tolerance) becomes unbalanced, then liquidating one asset class to purchase another is standard practice:
Though, per Vanguard/Bogle, it does not have to be done too often: either once a year, or even every few years once the allocations get more that ±5% out seems to be sufficient.
He mentioned the business cycle, did he? Valuation matters.
The worst 40-year period in that chart starts in the late seventies and at that time valuation was the cheapest since the depression. That was around the bottom, no need to wait 10 years.
Forget sage phrases, just look at the SPY graph. Doesn't matter where you enter, the market always goes up over all.
If you buy today and the economy crashes tomorrow, it's only going to be a problem for you if you sell. Wait 2 years and you are back where you were today, wait another 2 years and you've made money. Recessions only really affect people about to retire or on the chopping block for layoffs.
Not true. DCA beats holding onto cash and waiting for “the bottom,” but if you have a lump sum to invest, investing it all immediately beats DCA about 2/3 of the time. Hence the saying “time in the market beats timing the market.”
It should be noted that "DCA" is often used as a colloquial synonym for "continuous, automatic investing":
> But most individual investors, especially in the context of retirement investing, never face a choice between lump sum investing and DCA investing with a significant amount of money. The disservice arises when these investors take the criticisms of DCA to mean that timing the market is better than continuously and automatically investing a portion of their income as they earn it.
This assumes that the world will continue on a “growth at all cost” model. Despite growing social inequality, and climate change, which seem to be at odds with a greed is good ethos that expands corporate profits at the cost of the environment and social stability.
This isn’t even mentioning the current market manipulation that central banks are engaging in around the globe to artificially inflate the value of stocks. What happens when we can no longer prop up equities? The consequences may be far worst as we’ve been effectively kicking the can down the road. Eventually the tab arrives and the people left with it will be those who hardly benefited from this historic run-up.
Also “past performance does not indicate future performance”
I don't see a reason why it should stop. If environmental problems cause issues making tons of stuff, costs for those items will increase, dropping demand for them and increasing demand for more sustainable things. That's the way the economy goes, and it's bad for business to have a lot of unemployed people.
I see no reason to be bearish on equities long term, but I do know that certain industries will run into serious problems, I just don't know which ones that will be necessarily. I buy broad index funds because I'm bullish on the market in general, but not on any particular sector.
I dropped out of college in 1998 to work in tech. The common knowledge at the time was that you got a job at a startup, and then in four years you retired, because they would IPO while you worked there and you'd coast your last two years while you vested in millions in stock options.
That obviously didn't happen for me, or most anyone else that started working in 1998.
But today doesn't feel like that. I don't see college kids being encouraged to drop out and make a fortune in tech. In fact what I do see are people being encouraged to graduate at the top of their class so they can get jobs at highly profitable FAANG companies.
It does feel a little frothy, especially with all of the non-profitable tech companies that are doing IPOs this year and next, but it feels more reserved this time.
Also, it feels like the VCs are the one taking the majority of the damage this time, not retail investors.
Maybe people aren’t expecting riches, but I will say that all of my peers (late 20’s) looking for a career change are looking at coding boot camps as a way of achieving stability. Not that there’s anything wrong with that, but there’s no free lunch in the long term.
Ain't that the truth! I guess where I'm trying to draw the parallel is that it's becoming somewhat of a "default" where people aren't critically thinking about whether it's right for them, they just see dollar signs. Maybe that is what strikes me as a little bubble-ish. (I'm young though and have not been through a downturn in my career, so what do I know)
I finished secondary school in 2004. So it's been a while. Most people from my school are on LinkedIn,so it's easy to see how's everyone doing. The ones that went to tech are doing fine,the rest are more or less fucked, regardless of how intelligent they were.
> ...what I do see are people being encouraged to graduate at the top of their class so they can get jobs at highly profitable FAANG companies.
This has been true for India for a long time but the trend has been reversing since 2014 with the explosion of VC and in particular Angel investments that followed the Indian unicorn boom. Surprised that Europe is on a different trajectory.
> Also, it feels like the VCs are the one taking the majority of the damage this time, not retail investors.
Are majority investors who would have usually invested in the public markets now channeling capital to growth stage funds or are they calling bluff when these unicorns do float IPOs? If the former, not really sure if it's bad or good and for whom, but kind of makes for a very different proposition to the dot-com bubble of 2000s.
For instance, just today, paytm which long lost its market leader position in B2C/ P2P payments in India to Walmart's PhonePe, GooglePay, and WhatsApp, announced $1 billion in Series G funding that takes the total to $4.3 billion raised so far [0] with $500 million in losses just this past year. I really fail to understand the economics behind growth stage fund at all if it is clear that public markets aren't going to bail these investors out if the companies aren't making profits to justify valuation. Google India has openly complained abt the current P2P/B2C payments market as a loss leader with no path forward on generating revenue.
Either that, or like patio11 says, the amt of capital flowing through the markets is astounding [1]; and so I wonder if I am missing some key insights to be able to grasp the economics of it all, as an outsider?
"I don't see college kids being encouraged to drop out and make a fortune in tech. In fact what I do see are people being encouraged to graduate at the top of their class so they can get jobs at highly profitable FAANG companies."
Except for those encouraged to skip college entirely...
I would say that's a less than 1% of the college aged population.
My alma mater, a small midwestern college in the last five years has had record enrollment. My two nieces just graduated and had to apply to close to a dozen schools. On all of their visits, the tour guide consistently reported enrollment numbers were at all time highs and how competitive it had become to get accepted.
These were not huge Big 10 or Ivy League schools. Most of them were small liberal arts colleges on the west coast and a handful of smaller midwestern state universities.
Despite the narrative that kids should opt out of college, it would appear the trend is more than likely kids are continuing to go to college and in record numbers.
> Despite the narrative that kids should opt out of college, it would appear the trend is more than likely kids are continuing to go to college and in record numbers.
It's very difficult to drag yourself out of the 'no credentials, no good job' hole, if you are 18 years old, don't have useful connections, luck, an incredible work ethic, or all of the above.
Most people don't have one or all of the above, and college solves this problem for the vast majority of enrolling students.
>consistently reported enrollment numbers were at all time highs and how competitive it had become to get accepted.
Sounds like a Ponzi scheme, but I don't deny it is true. Whoever can differentiate from the 99% i.e plumbers will be able to name their price when dealing with these sheeples, there will simply be too much demand and nearly no supply.
That's no surprise. More people are going on to college than ever before. Educating our population is a good thing, and you can easily angle your college experience to shake out opportunities that would have otherwise been impossible given your circumstances in life.
> I don't see college kids being encouraged to drop out and make a fortune in tech.
I consider this a common theme of this very site and its owner: Y Combinator. They encourage people to drop out of school for their companies, and celebrate their stories of success. At least investors are pushing this narrative.
This feels like the japanification of the whole western world plus China.
I don't even follow the valuations of the stock markets, I've been told they are high, but for tech I'm sure they are nowhere near those of 1998, so I don't think that tech will burst the bubble of everything.
I am however sure the party cannot go on for much longer, the negative interest rates and permanent increase of balance sheets of the FED and other central banks will either cause a stockmarket prolongued downturn, or fuck the whole financial system so profoundly that in 20 years time we won't be able to recognise it, nor be able to call our economies market-based or capitalistic.
What no one seems to be able to explain is why the rest of the world won't turn into Japan. Stagflation and QE by any means necessary (Bank of Japan propping up the Nikkei [1]). Unfortunately, interests are misaligned and it's unlikely we'll see true price discovery in assets instead of central bank "help" artificially inflating values.
Valuations are improbably high for a lot of companies. Look at the price for netflix 5 years ago. $50 stock. Today, it's $300 and change. In the same time range, AMD went from a $2 stock to close to $40 these days.
You hardly see that anywhere else in the market, like you'd never see Ford go up 2000% in 5 years without people screaming the sky is falling in every economic publication, but here we are with these tech evaluations. It's almost as if smart money dictating these headline narratives doesn't want retail to stop buying one off shares of FAANGs, and that is worrysome.
> I don't see college kids being encouraged to drop out and make a fortune in tech. In fact what I do see are people being encouraged to graduate at the top of their class so they can get jobs at highly profitable FAANG companies.
I've only worked at one FAANG company, but they actively encourage every good intern to drop out and start working full time.
Why is everything a Tech company? How does anyone justify WeWork as a tech company? I heard about some tools WeWork engineering built and thought, why didnt they just buy off the shelf products and invest in more office space or acquire the competition?
Slack is a true tech company, Uber/Lyft and AirBnB are app tech companies but not WeWork. Peloton is not a tech company. Zoom, Crowdstrike, and Pager Duty are tech companies.
"Tech" is a proxy for low marginal production cost per customer, i.e. moon potential. If you want to get risk-tolerant investors excited, first convince them you're Tech. The rest of the investors will jump on board when it looks like you're winning.
> How does anyone justify WeWork as a tech company?
Straight from the horse's mouth (We Co's S-1 Filing, pg.2):
"Technology is at the foundation of our global platform. Our purpose-built technology and operational expertise has allowed us to scale our core WeWork space-as-a-service offering quickly, while improving the quality of our solutions and decreasing the cost to find, build, fill and run our spaces. We have approximately 1,000 engineers, product designers and machine learning scientists that are dedicated to building, integrating and automating the complex systems we use to operate our business. As a result, we are able to deliver a premium experience to our members at a lower price relative to traditional alternatives."
Of course their filings make them sound like a unicorn. Their engineering was a marketing point not a core product. I’ve got a bridge to sell you...based on something something machine learning scientists and engineering. Did we mentioned we are losing 2 billion and making our founder enormously rich?
Yup, precisely right. They marketed the business as a tech company, hoping that future investors would overlook years of unprofitability to get in on the next rapidly-growing tech company.
Oh don't worry about those losses, we're the next Amazon. Except bigger than Amazon, because we're not just a company, but a "state of consciousness." btw did I tell you our CEO is going to become the world's first trillionaire? It's all amazing news and I hope you join our family
Interest rates are at just 2%, versus in the late '90s, in 2006, and the late 80s , when the were at 5-6% or higher. It may be at least 5 years before rate bump against the upper-end of the cycle, around 5%, and then another 3 years for the market to finally crest.
> The obvious similarities are that, now as then, a U.S. president faces the threat of impeachment against the backdrop of a strong economy and surging stock market. Even “Friends” is still popular today, just as it was then.
What? I guess "Friends" mention was intended as a joke here, but it surely does not look funny considering previous sentence.
They can write such articles every year:
- stocks are surging and there are wildfires in California, just like 20 years ago
- market is down today and Schwarzenegger is making new Terminator, just like 30 years ago
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[ 3.0 ms ] story [ 245 ms ] threadIf you find your Thanksgiving table descending into a fight about whether President Donald Trump’s Ukraine scandal rises to an impeachable offense, put down the mashed potatoes, tap your wine glass, gather your family’s attention, and tell them that this holiday is reserved for gratitude. If they doubt that American public life offers anything to be thankful for, ask them to consider this: The American people are finally back to work.
This year, the rate of employment for people between the ages of 25 and 54 — those who are mostly too old to be in school and too young to be retired — has finally recovered from the Great Recession.
At the peak in employment in April 2000, nearly 82 people out of every 100 in this age range had jobs. In January 2008, one month after the recession began, 80% of prime-age adults were employed. The rate cratered as employers shed workers, bottoming out at 74.8% in December 2009, six months after the recession officially ended. Prime-age employment showed no signs of recovery for several years thereafter, and only began a sustained upward climb in 2014.
Three months ago, in August, the rate finally hit 80% again. In September, it climbed to 80.1%, officially exceeding the post-crisis peak for the first time, over a decade after the downturn began. Last month, the climb continued, to 80.3%.
In the years since the recession ended, the stagnating prime-age employment rate provoked gloomy predictions that there would never be a full recovery. Many commentators and economists argued that structural factors were holding back employment — that people who were out of work simply didn’t have the skills that businesses needed. These were reasonable concerns in theory, but the evidence for them was always scant.
This period also witnessed theories that were less reasonable, including some by professional economists — for example, that young men weren’t working because video games had become so much more entertaining. (Are we to conclude that the recovery of prime-age employment was driven by a reduction in the quality of video games?)
The argument that employment wouldn’t fully recover also related to cyclical factors. The concern was that falling unemployment and a tightening labor market would spark consumer price inflation before the rate of employment would reach its January 2008 level.
Here, the skeptics were on stronger ground. It was reasonable (though incorrect) to conclude — based on historical experience, among other things — that the labor market was nearing full employment when the unemployment rate fell below 6% in 2014. It was even more reasonable (though still ultimately incorrect) to argue this in the spring of 2017, when the unemployment rate fell below 4.5%.
The unemployment rate is now 3.6%, lower than it has been in five decades. By letting the labor market aggressively tighten, the Federal Reserve has allowed the prime-age employment rate to recover fully. (Though it hasn’t fully recovered for male workers. The rate for men still has about 1 percentage point to go to reach its pre-crisis level.)
The lesson here for the Fed is to continue allowing the hot economy — the best jobs program there is — to increase employment. The Fed should always be concerned about inflation, of course. But if anything, inflation has slightly decelerated over the last year or two, and expectations about future inflation — a key driver of actual inflation — are flat. The experiment in very-low unemployment should be allowed to continue until the Fed can see the whites of inflation’s eyes. Another reason to be thankful: the Fed seems to be planning on exactly this. Rate increases in 2020 are (currently) unlikely.
And here’s yet another reason to be grateful this Thanksgiving: the economy in 2020 is set to have a better year. In 2019, the housing market had to absorb the effects of two years of rising interest rates and businesses had to deal with tariffs and uncertainty from Trump’s ill-conceived and badly executed trade war, global eco...
The angle where something like this could happen would be the advertising bubble, if there is one, collapsing. Then there are many companies who are currently quite solvent and profitable that suddenly wouldn't be.
SQ, SHOP, TWLO, WDAY, NOW, OKTA, TEAM, MRVL, SPOT, SPLK, PANW, DOCU, TSLA, ROKU, DXCM.
These are all $10+ billion market cap and negative earnings. There are tons more in the 5-10 billion range.
1999 was full of companies where even if they had captured 100% of the relevant market at the time, would still not be turning a profit or be viable businesses. They were fundamentally built on the presumption that 2015-levels of internet penetration and hardware capabilities in the first world would be obtained in 2001 or so. It wasn't just a matter of "they were investing what could have been profits into further growth", it was a lot more like "they were taking VC money and setting it on fire and calling that a business model". It is not the same today. (Modulo my caveat about advertiser money above.) It may be bad. But 1999 was insane.
I can easily see a correction, even one we'd consider large. But I would bet the "correction" doesn't undo more than two years of stock market growth when it happens, and it may not even manage to cause a recession, or if it does, a very minimal one.
But you're not wrong, there is a difference: crap like Uber doesn't shoot to the moon on opening day. Or, as you put it, people aren't throwing money at them, hence Uber (et. al) still sitting under IPO price. That's what I think might save us from a repeat of early 2000s. Hair stylists aren't giving me stock advice these days, either.
Zoom and Pager Duty. To your point, everything else has been meh.
And of course there are a number of stable self-sufficient businesses who never report profits; in fact they are called nonprofits. The Sierra Club was founded in 1892, for example.
Call it what you want, revenue, profits, whatever, you are not sustainable if you don't bring in more than you spend.
If you spend more on marketing than the customer lifetime value, or if you have high churn, then yes, you have a failed business. But if you have reasonable marketing, high growth, low churn, then you will have a fairly incredible money printing machine in the future. And there are many people willing to give you $10 now if you promise a portion of this future profit machine!
This matters a lot for software businesses with recurring revenue (i.e. most SaaS businesses). With software, you build the software once and then you have an asset that you can sell a potentially infinite number of times, for many years into the future. The engineering salaries for building the software count as R&D, and get deducted from the current year's income statement. Then you sell the software, which may take an expensive consultative sales process but signs up a customer who will continue paying monthly for several years. The sales expense is recorded in the current year, but the revenue is booked over several years.
The metric you're looking for is unit economic profitability, and specifically for B2B software businesses, LTV - CAC. If this is positive, then you are making more for each customer you sign up than it cost to sign them up, and you have a sustainable business (at least until the competitive landscape changes, which is a risk every business faces). This is not the same thing as GAAP profitability: if you know that you have a product that makes $5 in revenue for every $1 in sales you put in, it makes sense to raise as much capital as possible, hire as many salespeople as possible, and get every possible user using the software before a competitor comes out. That will look like a money-losing business under GAAP, because for every dollar that comes in this year you might be spending $2 in sales. But the part that's missing from the GAAP statement is that next year you have 4x as many customers who will continue paying you money at no additional cost to you. At some point, when the growth curve flattens, you just lay off the salespeople and milk the existing customers for everything they're worth. This is the story of Oracle, Microsoft, Cisco, and now Facebook and Google.
VCs know to look for these metrics (along with growth rate, net promoter score, engagement, and churn, which are proxies for CAC and LTV). The general public does not, and they're not required in SEC disclosures or normal accounting statements (which generally predate the SaaS business model).
A business is either fundamentally profitable and sustainable, or it isn't.
Amazon has reported profits almost every year since 2003 (the only exceptions are 2012 and 2014). The loss accumulated in 1994/2002 was $3bn ($4.3bn adjusted for inflation). Uber has been losing over $3bn per year since 2016 ($15bn so far).
I think the main reason for this is that all the upside and speculation has already been taken by earlier investors and an IPO is done only when there is basically no upside left. In 1998 Uber would have gone IPO much earlier and retail investors would have driven up the price, not the VCs as it’s done now.
What’s common is that we have a lot of companies who don’t even have the slightest idea how to become profitable other than a miracle happening.
Not sure how this will end but judging from 2002 and following it won’t be pretty for a lot of people that are flying high in the current market.
Microsoft famously had a single venture investment for what amounted to less than 10% of the company (but did get a board seat).
Zoom and Twillio.
And lots of people pretty sure the whole thing was a bubble but almost feeling compelled to jump in anyway.
I'm not saying there won't be a correction at some point but you're mostly not seeing the wild price increases in the absence of any fundamentals and, in fact, the market seems to have mostly said "meh" to the Blue Aprons, WeWorks, and Ubers of the world.
In summary, smarter investors and better regulation seems to have kept the market in check, for now.
The troubles start when a sizable chunk of the market suddenly goes underwater, disrupting existing supply chains and shaking investor confidence and predictability. Those events have not yet occurred.
Today's companies , even if they have losses, are cash-flow positive. They are operating at a profit but reinvesting those profits on large capital expenditures, which produce losses. This is similar to Amazon, Tesla, Netflix, and Salesforce.
But they are going to coding bootcamps.
Investors signal they approve of this strategy by continuing to invest in Netflix, despite not getting juicy dividends.
Netflix could massive reduce spend on OC and payout dividends, but that would be ultimately damaging to the long-term success of the company.
[1] https://www.macrotrends.net/stocks/charts/ROKU/roku/net-inco...
[2] https://www.theverge.com/2019/2/6/18214331/spotify-earnings-...
But that doesn't give me comfort because from what I've seen before every crash people said to themselves: "this time it's different."
It's institutional investors (think pensions) chasing returns because of low interest rates.
PE's played a role in a lot of things we're currently seeing.
I wouldn't characterize its role in tech quite as propping up a bubble. Easy money means companies are trying a winner-take-all approach, loss-making longer, and delaying IPOs. Tech IPO performance has been mostly lackluster because of a lack of profits and private investors already captured gains from most of the growth.
Outside tech, they've been buying up medical companies, raising out-of-network rates, leading to surprise medical bills.
They're also under fire for leveraged buyouts, but turning around distressed assets is what PE's historically been good at, and for all the noise about leveraged buyouts and store closures, these were already sinking ships. PE didn't kill Toys R Us, Amazon did.
Every one remember 2008 and 2000. Beating the drum about a depression being around the corner, makes people takes preemptive decisions that stop such disasters from happening.
The seed of skepticism has been sown, and while I hope it doesn't grow, I am glad it has planted itself among people with power to swing economies.
Now it's ICOs...
The new wave "tech" companies, like Netflix and Tesla, haven't had a yearly profit yet.
And those are the best examples of "modern tech" (anyone who IPO'd after 2007). If we get into MoviePass, Uber, Lyft, Pelton, WeWork, etc. etc., we're into the "lose $4 Billion PER QUARTER" group.
Tesla "only loses $1 Billion/year" (roughly), making it a far more "profitable" company than these other ones.
I absolutely think we're in a bubble: driven by cheap debt. The problem is that I can't call when it will pop. Without knowing how or why things will pop, its completely useless to speculate. Stocks remain the best investment moving forward: with global bonds entering negative interest rates, and US Debt at record low-interest.
So even if I think there's a bubble, I'm pumping stocks because I don't have any better idea of what to invest into.
Tech companies make money because the cost of scaling a tech service to support more users is pennies on the dollar. Just spin up more servers - most of your expenses are fixed, regardless of whether you serve 2 users, or 2 million. This is why Wall Street fawns over them.
Unless Tesla has built a Star Trek replicator, it's not a tech company. It's a car company, that must spend 95 cents on building a car, to secure 1 dollar of revenue from selling it.
* Moviepass is a tech company, even though they were only selling subscription movie tickets.
* Peleton is a tech company, even though they sell exercise equipment.
* Tesla is a tech company, even though they just sell cars.
* Uber / Lyft are tech companies, even though they are just a middle-management service for... effectively Taxis.
* WeWork is a tech company, even though its business model is straight up commercial real-estate subleasing.
* Netflix is a tech company, even though it just spent a $Billion on studios, new TV shows, and other entertainment costs.
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Everyone is a "tech" company. Because that's how you siphon off money from investors these days. Even Amazon seems to be turning into a glorified FedEx / Warehousing / logistics company.
When everyone is a tech-company, no one is a tech company. Its the nature of the current bubble IMO.
They just so happen to have a boring low margin retail business attached to it for legacy reasons.
But only made 90 Billion in "service sales" (AWS and subscription services). Note that Amazon Prime counts as service sales, so plenty of "product revenue" falls under the service boat in practice.
https://ir.aboutamazon.com/node/32656/html#sB4CED683083F59A8...
Amazon's storefront makes more than 50% of all of their services combined in profit, and is ~1000%+ more revenue. Yeah, it costs a lot to run the Amazon warehouses, but Amazon is still primarily a warehouse / storefront company by all measurements on their income sheets.
For 2018 actual operating income was $3.1bln for AWS and $1.078bln for global retail. (page 66).
Top line metrics are popular in tech circles because so many "unicorns" don't actually make any profit. But it will lead you astray if your goal is to actually make money.
[1] https://ir.aboutamazon.com/static-files/0f9e36b1-7e1e-4b52-b...
SP500 companies are also on average holding much more Net cash than in 1998.
Banks are also much more prepared in Asset and Cashflow due to regulation puts into place after the 2008. Not saying they cant financially make go burst, but at least on paper they are better.
So Apart from the Macros, Countries with much higher debt and sociality as a whole with inequalities.. etc. Business on the whole are doing very well.
> Meet Bob.
> Bob is the world’s worst market timer.
> What follows is Bob’s tale of terrible timing of his stock purchases.
* https://awealthofcommonsense.com/2014/02/worlds-worst-market...
Better yet, just put away a little every month and get on with life:
> Logically, it seems like Buy the Dip can’t lose. If you know when you are at a bottom, you can always buy at the cheapest price relative to the all-time highs in that period. However, if you actually run this strategy you will see that Buy the Dip underperforms DCA over 70% of the time. This is true despite the fact that you know exactly when the market will hit a bottom. Even God couldn’t beat dollar-cost averaging.
* https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...
Over the last 100 years, the US has had a great run and stock market returns have reflected that. By only looking at American returns you're cherry-picking the best results so your model is flawed.
Moreover, if that sort of thing ever does happen again, your biggest problem is not that your stock portfolio is doing poorly, it's that you're in Nazi Germany in the midst of an all out war.
The key factor is that if people are pricing in the expectation that we'll do the work to solve the problem before that happens, that expectation is only valid if we actually do.
Everyone lost, it's just a question of how badly.
https://www.visualcapitalist.com/2000-years-economic-history...
From about 1900 to 2015 America was totally dominant. It's only in the last few years that China has overtaken us.
EDIT: I see my original comment was misleading, I was thinking of the weight of the US on the world market as that was the context of the thread, not of the whole economy.
Corporate profits, economic data, geopolitical stability can all flip quite quickly (just look at Germany in 1914, per grandparent poster) - demographics is the one factor that is relatively stable.
And the same is basically true if you bought in 1966. What this tells me is that the Dow Jones (or stock market in general?) is not a good indicator (or even proxy) of wealth. Because GDP obviously grew immensely in both 30 years periods.
"Although it is one of the most commonly followed equity indices, since it only includes 30 companies and is not weighted by market capitalization and is not a weighted arithmetic mean,[citation needed] many consider the Dow to not be a good representation of the U.S. stock market and consider the S&P 500 Index, which also includes the 30 components of the Dow, to be a better representation of the U.S. stock market." - https://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average
* https://www.inquirer.com/philly/business/vanguard-sp-500-ret...
* https://www.marketwatch.com/story/vanguard-employees-wont-ha...
https://dqydj.com/dow-jones-return-calculator/
Based on this [1] calculator, you'd break event by 1940.
[1]https://dqydj.com/dow-jones-return-calculator/
It's literally adding up the prices of 30 stocks and dividing by a divisor that's been adjusted over time as stocks are added and removed from the index. It was easy to calculate early on, and it's continued because it's famous.
And the DAX has generally given decent results since 1955:
* https://topforeignstocks.com/2014/01/09/dax-index-returns-by...
Meta: interesting paper called "The Rate of Return on Everything, 1870–2015":
* https://economics.harvard.edu/files/economics/files/ms28533....
It's extremely unlikely that the next 100 years will be anywhere near as turbulent as the past 100 years. In particular nuclear weapons increase the variance to the point that it's no longer relevant for stock portfolios. We're not going to have another Great War or WW2. Either we'll have peace between the great powers, or you won't care about your stock portfolio because you'll be vaporized.
https://en.wikipedia.org/wiki/William_Thomson,_1st_Baron_Kel...
http://rinkworks.com/said/predictions.shtml
https://ofdollarsanddata.com/realistic-investment-results/
I think what I took from it is there's a level at which I sort of don't take the criticism I guess seriously (more like harsly?) of DCA, because like, after much gnashing and grinding of teeth, life looks a lot like dollar cost averaging for most folks.
So okay, then we can talk about diversification, which is important, and this and that and blah. But like, unless you hit it big and sell your business or something and suddenly have to figure out what to do with 7-8 figures, you don't quite experience the same problem.
It just feels like as tempting as the standard deviation on potential performance looks like, and as convincing as the anecdotes feel, how real is any of this? There's more important factors that are definitely in your control, vs things that questionably or I suppose reasonably aren't.
https://www.cadtm.org/Russian-bonds-never-die
(basically, the Russian Empire borrowed a lot of money (several billions of Gold Francs), specially in France, and the Soviets, when they came to power, defaulted on these debts).
When Emptying the house of my late grand-mother after she died we actually found a few of these bonds.
I got one and, now, it's in a frame as part of my home decoration (I didn't feal like asking Mr. Putin for my ancestors' money back).
Most people (who do invest) invest by cutting off a slice of every paycheck. This strategy will happily let you weather crashes.
Combined with a guaranteed-payment pension (Social security, employer pension, government pension, etc), it's a pretty good way of securing your retirement (Even if you have to take a haircut on the payout of the guaranteed-payment pension.)
If. /Sparta
IMO, you invest strategically. Build cash positions over time as you ride the business cycle. Don't get greedy -- pigs get slaughtered, if you're investing in high-flying times, you should take profits and have some cash. I was just getting started in the 90s, and rode stocks like Amazon and Red Hat up to stratospheric heights. But when like 90% of Amazon's value vaporized, I had cashed out enough of my position that I was able to hold on and invest in other areas.
The same strategy served me well in 2008. I was able to get onboard high-quality investments at ridiculously cheap prices, which would not have happened if I was 100% invested.
The cost of this type of strategy is that you lose compounding. From my POV, I value having access to liquidity and the abilty to take advantage of market opportunities.
The primary reason most people save/invest is for retirement. So if you start saving at the age of 25, after schooling, that's forty years until the 'traditional' retirement age of 65.
> IMO, you invest strategically. Build cash positions over time as you ride the business cycle.
The odds are stacked against you when buying the dip:
> Why is this true? Because buying the dip only works when you know that a severe decline is coming and you can time it perfectly. Since dips, especially big ones, haven’t happened too often in U.S. market history (i.e. 1930s, 1970s, 2000s), this strategy rarely beats DCA. And the times where it does beat DCA require impeccable timing. Missing the bottom by just 2 months lowers the chance of outperforming DCA from 30% to 3%.
* https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...
Your example doesn't fit as perfect timing isn’t required, I just realize gains and invest a proportion of them when opportunity presents itself.
I’m not selling investment advice, just sharing my experience. This portion of my portfolio performs better than the more bogle-ish 401k fund from circa 1996 through 6/2019.
If someone's equity-fixed portfolio allocation (given a individual's risk/volatility tolerance) becomes unbalanced, then liquidating one asset class to purchase another is standard practice:
* https://www.investopedia.com/terms/r/rebalancing.asp
Though, per Vanguard/Bogle, it does not have to be done too often: either once a year, or even every few years once the allocations get more that ±5% out seems to be sufficient.
The worst 40-year period in that chart starts in the late seventies and at that time valuation was the cheapest since the depression. That was around the bottom, no need to wait 10 years.
https://www.google.com/search?client=firefox-b-1-d&biw=1536&...
Oh, yeah, when it went from 100 to about 7 in 1999-2001. It's currently about 1700.
If you buy today and the economy crashes tomorrow, it's only going to be a problem for you if you sell. Wait 2 years and you are back where you were today, wait another 2 years and you've made money. Recessions only really affect people about to retire or on the chopping block for layoffs.
See this study by Vanguard: https://personal.vanguard.com/pdf/ISGDCA.pdf
It should be noted that "DCA" is often used as a colloquial synonym for "continuous, automatic investing":
> But most individual investors, especially in the context of retirement investing, never face a choice between lump sum investing and DCA investing with a significant amount of money. The disservice arises when these investors take the criticisms of DCA to mean that timing the market is better than continuously and automatically investing a portion of their income as they earn it.
* https://en.wikipedia.org/wiki/Dollar_cost_averaging#Confusio...
It seems to refer to periodically re-balancing the distribution of one's holdings based on target proportions of total dollar value.
https://awealthofcommonsense.com/2018/05/the-lump-sum-vs-dol...
This isn’t even mentioning the current market manipulation that central banks are engaging in around the globe to artificially inflate the value of stocks. What happens when we can no longer prop up equities? The consequences may be far worst as we’ve been effectively kicking the can down the road. Eventually the tab arrives and the people left with it will be those who hardly benefited from this historic run-up.
Also “past performance does not indicate future performance”
I see no reason to be bearish on equities long term, but I do know that certain industries will run into serious problems, I just don't know which ones that will be necessarily. I buy broad index funds because I'm bullish on the market in general, but not on any particular sector.
Two. Now that Bloomberg is running for president, I am suspect of any doom-and-gloom articles published by his media properties.
After this if anyone still thinks that MSM is honest about Trump, they're either deluded or dishonest.
CMD+SHIFT+R
That obviously didn't happen for me, or most anyone else that started working in 1998.
But today doesn't feel like that. I don't see college kids being encouraged to drop out and make a fortune in tech. In fact what I do see are people being encouraged to graduate at the top of their class so they can get jobs at highly profitable FAANG companies.
It does feel a little frothy, especially with all of the non-profitable tech companies that are doing IPOs this year and next, but it feels more reserved this time.
Also, it feels like the VCs are the one taking the majority of the damage this time, not retail investors.
This has been true for India for a long time but the trend has been reversing since 2014 with the explosion of VC and in particular Angel investments that followed the Indian unicorn boom. Surprised that Europe is on a different trajectory.
> Also, it feels like the VCs are the one taking the majority of the damage this time, not retail investors.
Are majority investors who would have usually invested in the public markets now channeling capital to growth stage funds or are they calling bluff when these unicorns do float IPOs? If the former, not really sure if it's bad or good and for whom, but kind of makes for a very different proposition to the dot-com bubble of 2000s.
For instance, just today, paytm which long lost its market leader position in B2C/ P2P payments in India to Walmart's PhonePe, GooglePay, and WhatsApp, announced $1 billion in Series G funding that takes the total to $4.3 billion raised so far [0] with $500 million in losses just this past year. I really fail to understand the economics behind growth stage fund at all if it is clear that public markets aren't going to bail these investors out if the companies aren't making profits to justify valuation. Google India has openly complained abt the current P2P/B2C payments market as a loss leader with no path forward on generating revenue.
Either that, or like patio11 says, the amt of capital flowing through the markets is astounding [1]; and so I wonder if I am missing some key insights to be able to grasp the economics of it all, as an outsider?
[0] https://techcrunch.com/2019/11/24/paytm-1-billion/
[1] https://news.ycombinator.com/item?id=19210703
Except for those encouraged to skip college entirely...
Thiel and co. don't have the resources to fund that dream for so many individuals.
My alma mater, a small midwestern college in the last five years has had record enrollment. My two nieces just graduated and had to apply to close to a dozen schools. On all of their visits, the tour guide consistently reported enrollment numbers were at all time highs and how competitive it had become to get accepted.
These were not huge Big 10 or Ivy League schools. Most of them were small liberal arts colleges on the west coast and a handful of smaller midwestern state universities.
Despite the narrative that kids should opt out of college, it would appear the trend is more than likely kids are continuing to go to college and in record numbers.
It's very difficult to drag yourself out of the 'no credentials, no good job' hole, if you are 18 years old, don't have useful connections, luck, an incredible work ethic, or all of the above.
Most people don't have one or all of the above, and college solves this problem for the vast majority of enrolling students.
Sounds like a Ponzi scheme, but I don't deny it is true. Whoever can differentiate from the 99% i.e plumbers will be able to name their price when dealing with these sheeples, there will simply be too much demand and nearly no supply.
Maybe consider college is not a universal good.
I consider this a common theme of this very site and its owner: Y Combinator. They encourage people to drop out of school for their companies, and celebrate their stories of success. At least investors are pushing this narrative.
I don't even follow the valuations of the stock markets, I've been told they are high, but for tech I'm sure they are nowhere near those of 1998, so I don't think that tech will burst the bubble of everything.
I am however sure the party cannot go on for much longer, the negative interest rates and permanent increase of balance sheets of the FED and other central banks will either cause a stockmarket prolongued downturn, or fuck the whole financial system so profoundly that in 20 years time we won't be able to recognise it, nor be able to call our economies market-based or capitalistic.
[1] https://asia.nikkei.com/Business/Markets/Bank-of-Japan-to-be... (Bank of Japan to be top shareholder of Japan stocks)
You hardly see that anywhere else in the market, like you'd never see Ford go up 2000% in 5 years without people screaming the sky is falling in every economic publication, but here we are with these tech evaluations. It's almost as if smart money dictating these headline narratives doesn't want retail to stop buying one off shares of FAANGs, and that is worrysome.
I've only worked at one FAANG company, but they actively encourage every good intern to drop out and start working full time.
Slack is a true tech company, Uber/Lyft and AirBnB are app tech companies but not WeWork. Peloton is not a tech company. Zoom, Crowdstrike, and Pager Duty are tech companies.
Straight from the horse's mouth (We Co's S-1 Filing, pg.2):
"Technology is at the foundation of our global platform. Our purpose-built technology and operational expertise has allowed us to scale our core WeWork space-as-a-service offering quickly, while improving the quality of our solutions and decreasing the cost to find, build, fill and run our spaces. We have approximately 1,000 engineers, product designers and machine learning scientists that are dedicated to building, integrating and automating the complex systems we use to operate our business. As a result, we are able to deliver a premium experience to our members at a lower price relative to traditional alternatives."
Oh don't worry about those losses, we're the next Amazon. Except bigger than Amazon, because we're not just a company, but a "state of consciousness." btw did I tell you our CEO is going to become the world's first trillionaire? It's all amazing news and I hope you join our family
Interest rates are at just 2%, versus in the late '90s, in 2006, and the late 80s , when the were at 5-6% or higher. It may be at least 5 years before rate bump against the upper-end of the cycle, around 5%, and then another 3 years for the market to finally crest.
What? I guess "Friends" mention was intended as a joke here, but it surely does not look funny considering previous sentence.
They can write such articles every year:
- stocks are surging and there are wildfires in California, just like 20 years ago
- market is down today and Schwarzenegger is making new Terminator, just like 30 years ago