Any adult in America can buy stock and participate. At Robinhood.com, you can buy fractional shares for as little as $1 and no commission on the trade.
No, I'm not a robinhood user nor do I own stock in robinhood. It's just an example of how it is never been easier for any American to invest in stocks.
Just spitballing here, but I'm thinking the bottom 90% doesn't own much stock due to lack of funds. Not because they don't know how or because transaction fees are too high.
I'm saying that when you are on the edge of being able to feed yourself, investing in anything other than being able to eat is the wrong call. I have actually been in that position.
It also seems kind of silly to play with $1 in the stock market; I'm going to make like 8 cents in a year on average with a high variance, while if I bought food I would be able to work using those calories and maybe earn $8 in the time it took to burn those calories.
It's pretty clear that we're discussing the far greater majority that actually can feed themselves and have money left over to invest.
Also people go through different stages in life, as you claimed in your comment. You might have been too poor before but I assume you can invest now right?
The freeways around here are gridlocked every day with people driving nice cars to work. Nicer cars than is really necessary. They could buy a cheaper can and invest a lot more than a dollar.
My daily driver is 30+ years old. It's probably worth about $500. Repairs, taxes, and insurance on it is cheap, too. For one thing, since the car is pretty much worthless, there's no point in spending money on comprehensive insurance.
But I turn the key and it goes. Except for today, when the battery cable corroded to the point of not passing enough current. I ordered a new cable from Amazon for $10, and will install it tomorrow. It'll probably take about 10 minutes. Did I say it was cheap to repair?
"The poorest third of households buy half of all lotto tickets, according to a Duke University study in the 1980s, in part because lotteries are advertised most aggressively in poorer neighborhoods."
[EDIT] It's not an insignificant amount either: half of $70 billion. From the same article:
"According to the North American Association of State and Provincial Lotteries, lotteries took in $70.1 billion in sales in the 2014 fiscal year. That’s more than Americans in all 50 states spent on sports tickets, books, video games, movie tickets, and recorded music sales."
What is the volume on lotto tickets vs the stock market. Are you really telling me that someone who spends $2 per week (or whatever your lotto price is) on lotto tickets could afford to create a balanced stock portfolio or even buy one stock? Buy ETFs? The buy in price for SPY is US$329. By the time you saved up enough $2/week to buy one unit of that stock it's already too expensive.
Robinhood lets you buy for $1 so yes you can start by investing that little. And $2/week from age 18 to 65 will give you $100k by just following the S&P.
If you can buy lotto tickets then you can invest, and if you're buying lotto tickets then you're probably wasting other money too.
Please tell me what extrapolation you are basing this on? Even if you dump all the money into SP500 today and backtest that I can't get close to your figures unless I backtest against the recent bull market only.
GP is talking about the 90th percentile. If you want to quibble about exactly where that line is, whatever, but it's not the point. It's very clear that the percentage of people who can afford to invest is broader than the top decile.
So the logistics of obtaining stock have been solved. That seems like a great and necessary step in the right direction.
"84% of US stocks are owned by the richest 10%" sounds like it could turn into a really big problem though. What can we do next? Why isn't everyone participating?
Because that number is about public companies. Many people run their own business, which might be not public, but they own "shares". Most Western countries have a wealth of prosperous SMEs. People who invest in someone else's company very likely do so because have no better option, e.g. to invest in her own company for growth.
Btw please define "US stock". US tax resident? Listed on US the stock exchange? Owned solely by US citizens?
You are being downvoted but I think this point is important: increasing stock prices disproportionately benefit the wealthy and widen the gap between rich and poor.
edit: and now I am being downvoted for merely pointing this out.
Much of the wealthy got that way by investing in stocks to begin with. If you don't invest in stocks, you won't benefit from a rising market. Why not do the obvious, and start investing yourself?
Don't invest in lottery tickets, which are mathematically a losing game.
Nonsense, the stock market can (sometimes) help on retirement, but apart from professional traders, I haven't seen anyone who got rich simply by investing in stocks, and I know a lot of people who make good money. This is a myth propagated by the Wall Street.
there's empirical evidence that by using a broad, well diversified index fund, and consistently remained invested in the market, you can get an average return of about 6-7% per annum over the very long run (30+ yrs).
The problem is only when you don't have enough "spare" wealth to invest because the daily costs have all eaten up your paycheck. That's a problem i dont know how to solve.
There is empirical evidence that people only come up with this "average" on periods when the market is at the top. If you did your calculations around 2008 you would see a very different picture.
It is easy to be bullish on the market when everything seems to be doing well; a wise person needs to look at different periods, and see that the stock market also has produced a lot of disasters. People who lack this perspective are bound to be engulfed by such disasters. Heck, I hear that even professional investors, who are paid to buy stocks, are starting to take their money out of the market fearing of what might come next.
> Heck, I hear that even professional investors, who are paid to buy stocks, are starting to take their money out of the market fearing of what might come next.
I hear that most every day, every year, every decade. There's always plenty of reasons to not invest. There's always an article in the financial news predicting imminent doom.
> Heck, I hear that even professional investors who are paid to buy stocks, are starting to take their money out of the market fearing of what might come next.
and that's why most active managed funds perform worse than most passive index funds. that's why stock picking doesn't work for most (unless you're buffett). That's why timing the market doesn't work.
People are too emotional. If you stick to an algorithmic method (of putting in part of your paycheck every month), ride the ups and the downs (don't sell, don't take on debt to buy extra, unless you can afford the debt easily etc), you will come out ahead more times than behind.
It is very easy to point at a company that is extremely successful today and say that it was "just a matter of investing in AAPL". The difficult is to know which company is the good one at the IPO. Thousands of seemingly great companies have failed during the last decades. Moreover, 30 years ago AAPL was a failing company. I don't think there is anyone with good sense that bought AAPL at the IPO and held that investment in their portfolio during that period. Less so with MSFT, but even MSFT lost 80% of its value in 2001. I don't think anyone wise would keep their fortune on MSFT, unless required by law.
If you read the "millionaire next door", you'll see that they made this money by saving, not by (just) investing in the market.
No, it was 50%. It's up around 400% since the bottom.
> The difficult is to know which company is the good one at the IPO
It's fine if you don't want to invest because of the risk. But to then say it's unfair that others who do take the risk get the rewards is ... unreasonable.
> they made this money by saving, not by (just) investing in the market
Even if you saved $20,000 a year, it would take you 50 years to save a million. But if you invested that instead, at a conservative 7% a year, you'd wind up with $9 million.
Not investing in the stock market doesn't mean that you'll put your money under the mattress. There are several investment vehicles, from fixed income to real state and including your own businesses. These investment are much safer and are not so correlated to the craziness and plain criminality happening on Wall Street.
When people talk about getting rich, beware that they're mostly talking about getting rich quickly in a matter of months or years. That won't happen, but you can definitely retire as a millionaire from modest means.
It's simple math that investing even minor amounts over your life can compound greatly.
So what if the rich are getting richer too? Are you suggesting that the poor would be better off without access to stocks or that we should ban stock trading because the poor can't invest as much? They still see a return on their investments and receive a better return than they would from keeping the money in their bank account.
> increasing stock prices disproportionately benefit the wealthy and widen the gap between rich and poor.
Everything including stock prices disproportionately benefit the wealthy and widen the gap between rich and poor. Not sure what kind of point you are trying to make. When you are much richer than anyone else, you are bound to keep growing your assets at a faster space than anyone else too. It's the nature of compounding.
Sure but capital is the single biggest factor in market returns.
More money means more ways to make more money by taking larger bets, using more leverage, waiting longer to turn losers into winners, and generally absorbing more risk to generate more return.
It's not the same. For example, I have Portfolio Margin [1] which gives me much greater leverage than normal Regulation T accounts, and that's just as a personal trader. You unlock even more access and advanced strategies as you gain capital all the way up to 10s of millions.
I think if you work through the numbers, the risk level to the brokerage is the same. For example:
"But the goal is to align margin requirements with your portfolio's overall risk, based on the net exposure of all positions, and not just on individual positions. Portfolio margin is available to qualified investors who meet our minimum requirements and have $125k or more in total equity."
And by "qualified" investors they likely are looking at your other assets to see if they can be used as collateral. Note that if you go negative with your brokerage account, they don't just swallow the loss, they'll come after everything you have.
Risk level to the brokerage is different from margin requirements and leverage, but they do trust you more. They don't look at or even know about any other assets though. It's based on your account size, trading experience and strategy. And of course negative balances are always owed.
But the point is that more capital does give you more leverage. The next step is $5M+ mark when you get even more access to trading vehicles.
> But the point is that more capital does give you more leverage.
I don't believe it. I do believe that if you have a track record of paying your trading debts and paying fat commissions, they'll let you take on more risk. Worst case, if you've got $5M in an account, you likely have other assets the brokerage can seize.
> They don't look at or even know about any other assets though.
I don't believe they're going to let you highly leverage $10m without checking you out one way or another.
I have more leverage. You don't have to believe anything, it's right there in the description of Portfolio Margin, and it requires a certain account size.
What does any of this background check have to do with your claim that more capital doesn't provide more leverage - when it quite literally does?
That's not how it works. You have capital in the account or you don't. That's what the regulations stipulate and brokers can't break them just because you have more assets, nor have they ever run a background check on me.
My 401k is invested in that same stock market, along with the retirement accounts of every other person in the United States. I hope the market continues to rise, especially since my parents will be retiring soon.
Why does this stand in conflict with acknowledging the fact that massive gains for stock prices (or property for that matter) caused by things like QE and alike, have massive social consequences since the ones that were already wealthy profit a lot more than the average Joes's 401k?
You can be a happy investor and still think about the dangers of rising inequality fueled by the market, no?
It doesn't. The wording of the post I replied to was an angry, black and white response condemning a rising stock market since it benefits the wealthy. My point was the stock market affects everyone, not just the super rich.
I wouldn't wish for the stock market to crash so some rich guy suffers. The rich will stay rich, it's the middle and low class who would suffer the most. If the market falls 75% tomorrow, Bezos will be fine, my parents will not.
How many Americans have a 401k, retirement accounts, or pension funds? I'm having trouble finding concrete numbers, but it seems to be around 40-60% averaging the sources I came across. In addition, most people reading Hacker News probably work at large public tech companies and own stock in them, so this news is relevant to them.
> The sharp fall in median net worth and the rise in overall wealth inequality over these years are largely traceable to the high leverage of middle class families and the high share of homes in their portfolio.
I.e., the middle portion (affluent or frugal enough to save, but not so extremely wealthy as to be set for life) largely invested in real estate in preference to the stock market, and the real estate market tanked.
>who is buying these stocks? It’s not individuals. It’s not even pension funds. It’s not the private sector. Almost all the stock purchases are being bought back by corporations in share buyback programs. In other words, companies are buying their own stocks in order to push up the price
Do buybacks actually increase stock price? If a company buys back $1M in stock, that means it has $1M less in its bank account (meaning the company is now worth $1M less), but also $1M less stock is in circulation. Mathematically I would expect the price to stay the same.
Hmm, so the reasons given for the price going up seem to be:
1. It signals to investors that the company is confident and low risk. (Research and development is considered high risk.)
2. It makes the company more purely itself, it doesn't have shares backed by cash that drag back its price growth. If people expect future growth this means that growth per share will be higher, so they would start buying now to get some of that future higher growth. (Of course in addition to magnifying growth it also magnifies decline.)
An interesting thing is that this article says
> Stock buybacks can have a mildly positive effect on the economy overall.
Which seems to contradict what that previous article said. This article also says that stock buybacks will cause other companies to do more research and development.
I’m the short-term, yes. The assumption is that the company cannot invest the cash into its operations at a larger rate of return than an individual investor could therefore the company (whose sole purpose is to enrich the shareholders) should return the cash.
In a way, the company has an earnings yield of EPS/stock price (or inverse PE). If the company cannot invest the money in its operations that makes a larger return that the earnings yield then the stock is actually a better investment. The huge issue is that when markets crash is when technically a company should be buying back tons of its stock but rarely do companies ever do this and instead elect to hoard cash when buybacks are best & spend money on buybacks when it’s the worst ROI (when the market is hot & earnings yield is minimal).
The price of a stock has only an indirect relationship to the abstract value of a company. The current price of a stock is simply the highest buy order that is not yet fulfilled by a sell order.
So if a company just keeps offering to buy stock at a high enough price to match existing sell orders it'll push the price of a stock up.
Whether that's sustainable in the long run is a different story, but there's no ironclad mathematical relationship.
Yes, but investors who see that the company's coffers keep shrinking might sell exactly enough to counteract the buys. My question is whether there's any logical reason for investors not to exactly counter the buys with matching sells.
> Almost all the stock purchases are being bought back by corporations in share buyback programs
Buyback volume is comparable to dividend volume [1]. Both return cash to investors. From a macro perspective, focussing on one over the other is misleading.
Buyback and dividend cash can be consumed or re-invested. Given corporate buybacks pale in comparison to broader funds flows, it looks like it's being reinvested.
Even if every investor selling into a buyback consumed the cash, those buybacks are largely being funded by debt. On the net, that translates to investors hopping up the capital structure. Not exiting the capital markets.
> From a macro perspective, focussing on one over the other is misleading.
from a societal perspective, it's a tax "refund" for the wealthy to enable stock buybacks over dividends, since capital gains are taxed less, and can be tactically spread out by in time to minimize the effective rate. At the same time, a company's spending on stock buybacks are considered an expense (rather than a capital expenditure), therefore decreasing the tax bill on a company's balancesheet.
I think stock buybacks should cost the company the same as dividends - that is, they should be taxed at the same rate, and also not be considered an expense that they can offset taxes from.
That's from the summer of 2017 and misses the entirety of what happened over the last 2 years. Millions of people are very happy and benefiting greatly from their new wealth and large retirement accounts.
If you can't benefit from the S&P going up 30% in a year, I'm not sure what anyone can do for you.
Never talk about stocks on HN. You will be downvoted by people who missed out on the 10 year bull market and desperately trying to justify their mistake by saying its a rigged scam that is akin to playing roulette at a casino.
Why so? I admit to being a novice in that area, but unless you are worried things are going to get drastically worse (civil war, etc) won't most stocks get better as the economy leaves the recession?
My point is that people have not been thinking “this is the top” for 40 years straight, not that people wouldn’t make money if they bought and hold through recessions.
> My point is that people have not been thinking “this is the top” for 40 years straight
My point is the people who don't invest do think that way, and so don't invest. Most investors also think that way, which is why they sell their winners, and hence have below-market returns.
Me, I never sell my winners. This seems to be a highly unusual strategy. I'm still holding stock I bought 40 years ago.
> I recommend investing after 3 years of a sustained market direction from an inflection point
Defining an inflection point is subjective, particularly a few years after it. Late 2008 was a crash; 2011 featured lots of hand-wringing around QE, "green shoots" and the like.
It's pretty clear 2008 was the inflection point and it went up for three years afterward. You'll find endless reasons to stay out of the market so I was offering at least one simple rule to follow.
It's clear now. But (a) there are lots of starts that stall and (b) it's impossible to differentiate them 3 years afterwards.
At the end of the day, timing the market is incredibly difficult. When one decomposes returns of the world's top investors, timing is pretty much random.
Time in the market beats timing the market. You're describing all the rationalizations people use to stay out.
2008 was the bottom and it went up for 3 years. You would see that by 2012 so buy in. That's it. That's the entire rule/suggestion. There's no "timing the market" needed.
Inflection points aren't timing, you recognize them after the fact. Literally when was the last time the market changed direction and what did it do for 3 years after.
It doesn't matter if it goes down again, once you invest you stay invested. The rule was a simple guide on when to get in. Or you can just stay out forever.
> Inflection points aren't timing, you recognize them after the fact
“Timing the market” means incorporating timing and/or peak-to-trough measures in investment decisions. When you’re not asking “which assets should I buy” and instead “when should I buy them,” you’re trying to time the market.
Research is pretty consistent in showing almost all timing strategies are inferior to consistent investment, e.g. investing $X per month, regardless of your views on where the market is relative to what you believe to be an inflection point.
Obviously, if you're investing consistently then this thread doesn't apply. I don't know how to make it any clearer - some people will always have a reason to stay out and I offered a rule to follow to get in. That's all it was.
That sounds smart, but the numbers say otherwise. "Invest it all now" is the best strategy. In your case, you just lost 3 years of nice recovery percentages.
It's all pretty straight forward math, but the problem is that people are not rational. I think it's really a personality trait that you can emotionally distantiate yourself from the numbers.
On the buying side, you could spread out the buying over several chucks to "spread the risk", but again numbers show that the optimal strategy is to buy in 1 go, right now.
> I think it's really a personality trait that you can emotionally distantiate yourself from the numbers.
It's a conscious decision. What I do is think "what would my strategy be if I was investing Monopoly money". When there's a large divergence with what I do with real money, I then try to reconcile the two.
The more you can deal with your cognitive biases (such as the sunk cost fallacy) the better your investment decisions will be.
Again, this is a conscious choice. You're not a slave to your emotions - that's what makes people different from animals.
Or maybe you're being downvoted because "I did great and you're dumb lolol" is never a good look, or a useful helpful contribution? (or because you're whining about downvotes and attacking the downvoters based on imaginary reasons, which is against the site guidelines).
Thanks to the Fed and quantitative easing, many entrepreneurs and investors who became super rich thanks to this scheme are now spamming my youtube and twitter homepage about their wisdom in everything in life from artificial intelligence to history just because they think they are geniuses and entitled to teaching the poor souls with mental deficiencies (everyone who isn't worth at least tens of millions of dollars) about everything and anything.
It's amazing that once you become super rich, everything you say becomes a wisdom quote unless you're Trump of course.
Sometimes, I think there should be a law on how much money, wealth, assets, equities, and properties that people can have.
Say, lock it down at $10 million USD, or to some ratio of the national minimum wage.
Once you get that much, then you must tap out. Live the rest of your life in the sunset, but you can no longer accrue any more money or wealth.
And if you want to accrue more, then you must be in some non-profit business where your mission is to spread the wealth, and to create a better society for all. Then, your maximum level can be bumped up to $100 million (or to some higher ratio of the national minimum wage).
This concept of unbridled and unbounded capitalism has severely gone too far. The rich and the wealthy are seriously misbehaving, and they need to self-regulate and reign in their excesses, before the public gets fed up with their misbehavior, and vote in politicians that will force a policy change on them.
LOL. I say that, and I laugh, because we all know that the politicians are just the fox guarding the hen house, and they’ll never let this happen.
As John McCain said, the people are waging class warfare on the rich. The thing he forgot to mention, is that the rich are slaughtering the rest of us.
What do you think of Warren Buffet, Bill Gates or Elon Musk? It seems to me, that relative to their wealth they spend a negligible amount on themselves. I don't see them filling garages with luxury cars, building empty palaces, buying frivolous expensive watches etc. In other words, they're not binding up economic resources such that everybody else is materially impoverished. In no way do I see that they are slaughtering us and to the contrary, it seems that they are effectively stewards of the wealth that they have accrued. I don't think it's a horrible system for those that have proven themselves in the past to be good stewards, to continue to be allowed to do so.
Even if I'm wrong about my judgement of any individual or even if these people are not representative, could you think about modifying your position to at least focus on the principle I'm trying to get at: A billionaire who lives like a pauper, should not be treated the same as one who lives like a spoiled prince. You could for example advocate for luxury consumption taxes on mansions, yachts, cars, jewelry etc. rather than taxes on capital.
I only got interested in investing at the start of 2018, and I was very nervous at the time about getting into a bull market that had been going so long. But at the same time, I was also nervous about inflation and not putting money to work.
So I went for an all-weather portfolio. This has allowed me to sleep well at night while staying invested (and even adding to my investments).
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[ 4.6 ms ] story [ 177 ms ] threadNews like this is a horrific display of wealth inequality, rent-seeking and late stage capitalism. Suffering of the many, for the benefit of the few.
No, I'm not a robinhood user nor do I own stock in robinhood. It's just an example of how it is never been easier for any American to invest in stocks.
It also seems kind of silly to play with $1 in the stock market; I'm going to make like 8 cents in a year on average with a high variance, while if I bought food I would be able to work using those calories and maybe earn $8 in the time it took to burn those calories.
Also people go through different stages in life, as you claimed in your comment. You might have been too poor before but I assume you can invest now right?
My daily driver is 30+ years old. It's probably worth about $500. Repairs, taxes, and insurance on it is cheap, too. For one thing, since the car is pretty much worthless, there's no point in spending money on comprehensive insurance.
But I turn the key and it goes. Except for today, when the battery cable corroded to the point of not passing enough current. I ordered a new cable from Amazon for $10, and will install it tomorrow. It'll probably take about 10 minutes. Did I say it was cheap to repair?
https://www.theatlantic.com/business/archive/2015/05/lotteri...
[EDIT] It's not an insignificant amount either: half of $70 billion. From the same article:
"According to the North American Association of State and Provincial Lotteries, lotteries took in $70.1 billion in sales in the 2014 fiscal year. That’s more than Americans in all 50 states spent on sports tickets, books, video games, movie tickets, and recorded music sales."
If you can buy lotto tickets then you can invest, and if you're buying lotto tickets then you're probably wasting other money too.
$8/month x 47 years @ 10% = 100k roughly.
Try this: https://www.daveramsey.com/smartvestor/investment-calculator
> People making $180k a year lack funds to buy stocks? Yeah, that’s a no from me.
An individual person making $180K a year is in the 92nd percentile. Parent is talking about the other roughly 300 million people.
"84% of US stocks are owned by the richest 10%" sounds like it could turn into a really big problem though. What can we do next? Why isn't everyone participating?
The quote does not state that not everyone is participating (though it's true). Just that the least wealthy 90% own 16% of the (huge) US stock market.
Btw please define "US stock". US tax resident? Listed on US the stock exchange? Owned solely by US citizens?
edit: and now I am being downvoted for merely pointing this out.
Don't invest in lottery tickets, which are mathematically a losing game.
The problem is only when you don't have enough "spare" wealth to invest because the daily costs have all eaten up your paycheck. That's a problem i dont know how to solve.
It is easy to be bullish on the market when everything seems to be doing well; a wise person needs to look at different periods, and see that the stock market also has produced a lot of disasters. People who lack this perspective are bound to be engulfed by such disasters. Heck, I hear that even professional investors, who are paid to buy stocks, are starting to take their money out of the market fearing of what might come next.
I hear that most every day, every year, every decade. There's always plenty of reasons to not invest. There's always an article in the financial news predicting imminent doom.
I ride them up, down, and back up again.
and that's why most active managed funds perform worse than most passive index funds. that's why stock picking doesn't work for most (unless you're buffett). That's why timing the market doesn't work.
People are too emotional. If you stick to an algorithmic method (of putting in part of your paycheck every month), ride the ups and the downs (don't sell, don't take on debt to buy extra, unless you can afford the debt easily etc), you will come out ahead more times than behind.
I know quite a few. You can read about more in the book "The Millionaire Next Door" by Stanley.
Heck, anyone who bought AMZN, MSFT, AAPL at the opening price, and held, is a wealthy person today.
If you read the "millionaire next door", you'll see that they made this money by saving, not by (just) investing in the market.
No, it was 50%. It's up around 400% since the bottom.
> The difficult is to know which company is the good one at the IPO
It's fine if you don't want to invest because of the risk. But to then say it's unfair that others who do take the risk get the rewards is ... unreasonable.
Even if you saved $20,000 a year, it would take you 50 years to save a million. But if you invested that instead, at a conservative 7% a year, you'd wind up with $9 million.
You'd pass a million after 22 years.
https://www.daveramsey.com/smartvestor/investment-calculator
These often don't even beat inflation. The provider can also go bust like any company.
> real estate
I am the poster boy for losing pots of money on "can't lose" real estate.
> your own business
The failure rate for your own business is 80-90% in the first 5 years.
Stocks are far safer.
It's simple math that investing even minor amounts over your life can compound greatly.
Everything including stock prices disproportionately benefit the wealthy and widen the gap between rich and poor. Not sure what kind of point you are trying to make. When you are much richer than anyone else, you are bound to keep growing your assets at a faster space than anyone else too. It's the nature of compounding.
More money means more ways to make more money by taking larger bets, using more leverage, waiting longer to turn losers into winners, and generally absorbing more risk to generate more return.
1. https://www.tdameritrade.com/investment-products/margin-trad...
"But the goal is to align margin requirements with your portfolio's overall risk, based on the net exposure of all positions, and not just on individual positions. Portfolio margin is available to qualified investors who meet our minimum requirements and have $125k or more in total equity."
And by "qualified" investors they likely are looking at your other assets to see if they can be used as collateral. Note that if you go negative with your brokerage account, they don't just swallow the loss, they'll come after everything you have.
But the point is that more capital does give you more leverage. The next step is $5M+ mark when you get even more access to trading vehicles.
I don't believe it. I do believe that if you have a track record of paying your trading debts and paying fat commissions, they'll let you take on more risk. Worst case, if you've got $5M in an account, you likely have other assets the brokerage can seize.
> They don't look at or even know about any other assets though.
I don't believe they're going to let you highly leverage $10m without checking you out one way or another.
What does any of this background check have to do with your claim that more capital doesn't provide more leverage - when it quite literally does?
You can be a happy investor and still think about the dangers of rising inequality fueled by the market, no?
I wouldn't wish for the stock market to crash so some rich guy suffers. The rich will stay rich, it's the middle and low class who would suffer the most. If the market falls 75% tomorrow, Bezos will be fine, my parents will not.
(It's value.)
Here's an excerpt:
> The sharp fall in median net worth and the rise in overall wealth inequality over these years are largely traceable to the high leverage of middle class families and the high share of homes in their portfolio.
I.e., the middle portion (affluent or frugal enough to save, but not so extremely wealthy as to be set for life) largely invested in real estate in preference to the stock market, and the real estate market tanked.
1. maintenance costs
2. insurance costs
3. heavy and ever-increasing property taxes
4. 6% real estate commissions when you sell (contrast that with stock broker commissions on a trade)
5. you never have a clear idea what it is worth
6. it can take months to sell, meaning your money is not available to invest elsewhere
The only good thing about it is it's usually the cheapest way to borrow money.
stocks keep going up while only a minority benefits and not much is returned into actual growth http://michael-hudson.com/2017/08/stock-on-trumponomics/
I wouldn’t consider the text very accurate in hindsight.
1. It signals to investors that the company is confident and low risk. (Research and development is considered high risk.)
2. It makes the company more purely itself, it doesn't have shares backed by cash that drag back its price growth. If people expect future growth this means that growth per share will be higher, so they would start buying now to get some of that future higher growth. (Of course in addition to magnifying growth it also magnifies decline.)
An interesting thing is that this article says
> Stock buybacks can have a mildly positive effect on the economy overall.
Which seems to contradict what that previous article said. This article also says that stock buybacks will cause other companies to do more research and development.
In a way, the company has an earnings yield of EPS/stock price (or inverse PE). If the company cannot invest the money in its operations that makes a larger return that the earnings yield then the stock is actually a better investment. The huge issue is that when markets crash is when technically a company should be buying back tons of its stock but rarely do companies ever do this and instead elect to hoard cash when buybacks are best & spend money on buybacks when it’s the worst ROI (when the market is hot & earnings yield is minimal).
So if a company just keeps offering to buy stock at a high enough price to match existing sell orders it'll push the price of a stock up.
Whether that's sustainable in the long run is a different story, but there's no ironclad mathematical relationship.
Buyback volume is comparable to dividend volume [1]. Both return cash to investors. From a macro perspective, focussing on one over the other is misleading.
Buyback and dividend cash can be consumed or re-invested. Given corporate buybacks pale in comparison to broader funds flows, it looks like it's being reinvested.
Even if every investor selling into a buyback consumed the cash, those buybacks are largely being funded by debt. On the net, that translates to investors hopping up the capital structure. Not exiting the capital markets.
[1] https://www.yardeni.com/pub/buybackdiv.pdf
from a societal perspective, it's a tax "refund" for the wealthy to enable stock buybacks over dividends, since capital gains are taxed less, and can be tactically spread out by in time to minimize the effective rate. At the same time, a company's spending on stock buybacks are considered an expense (rather than a capital expenditure), therefore decreasing the tax bill on a company's balancesheet.
I think stock buybacks should cost the company the same as dividends - that is, they should be taxed at the same rate, and also not be considered an expense that they can offset taxes from.
If you can't benefit from the S&P going up 30% in a year, I'm not sure what anyone can do for you.
Fast forward a few years, there's regret one didn't invest, but now the market is as high as it will ever go, so not investing again.
Rinse, repeat. A lifetime of missed opportunity.
Dot com bubble, 9/11, 2008 recession
My point is the people who don't invest do think that way, and so don't invest. Most investors also think that way, which is why they sell their winners, and hence have below-market returns.
Me, I never sell my winners. This seems to be a highly unusual strategy. I'm still holding stock I bought 40 years ago.
For them, I recommend investing after 3 years of a sustained market direction from an inflection point.
Defining an inflection point is subjective, particularly a few years after it. Late 2008 was a crash; 2011 featured lots of hand-wringing around QE, "green shoots" and the like.
It's clear now. But (a) there are lots of starts that stall and (b) it's impossible to differentiate them 3 years afterwards.
At the end of the day, timing the market is incredibly difficult. When one decomposes returns of the world's top investors, timing is pretty much random.
2008 was the bottom and it went up for 3 years. You would see that by 2012 so buy in. That's it. That's the entire rule/suggestion. There's no "timing the market" needed.
“Invest 3 years after an inflection point” is an attempt at timing the market.
For every 2008, there are ‘54 and ‘57; ‘70 and ‘73; ‘80 and ‘81; et cetera.
It doesn't matter if it goes down again, once you invest you stay invested. The rule was a simple guide on when to get in. Or you can just stay out forever.
“Timing the market” means incorporating timing and/or peak-to-trough measures in investment decisions. When you’re not asking “which assets should I buy” and instead “when should I buy them,” you’re trying to time the market.
Research is pretty consistent in showing almost all timing strategies are inferior to consistent investment, e.g. investing $X per month, regardless of your views on where the market is relative to what you believe to be an inflection point.
On the buying side, you could spread out the buying over several chucks to "spread the risk", but again numbers show that the optimal strategy is to buy in 1 go, right now.
It's a conscious decision. What I do is think "what would my strategy be if I was investing Monopoly money". When there's a large divergence with what I do with real money, I then try to reconcile the two.
The more you can deal with your cognitive biases (such as the sunk cost fallacy) the better your investment decisions will be.
Again, this is a conscious choice. You're not a slave to your emotions - that's what makes people different from animals.
It's amazing that once you become super rich, everything you say becomes a wisdom quote unless you're Trump of course.
Say, lock it down at $10 million USD, or to some ratio of the national minimum wage.
Once you get that much, then you must tap out. Live the rest of your life in the sunset, but you can no longer accrue any more money or wealth.
And if you want to accrue more, then you must be in some non-profit business where your mission is to spread the wealth, and to create a better society for all. Then, your maximum level can be bumped up to $100 million (or to some higher ratio of the national minimum wage).
This concept of unbridled and unbounded capitalism has severely gone too far. The rich and the wealthy are seriously misbehaving, and they need to self-regulate and reign in their excesses, before the public gets fed up with their misbehavior, and vote in politicians that will force a policy change on them.
LOL. I say that, and I laugh, because we all know that the politicians are just the fox guarding the hen house, and they’ll never let this happen.
As John McCain said, the people are waging class warfare on the rich. The thing he forgot to mention, is that the rich are slaughtering the rest of us.
Even if I'm wrong about my judgement of any individual or even if these people are not representative, could you think about modifying your position to at least focus on the principle I'm trying to get at: A billionaire who lives like a pauper, should not be treated the same as one who lives like a spoiled prince. You could for example advocate for luxury consumption taxes on mansions, yachts, cars, jewelry etc. rather than taxes on capital.
So I went for an all-weather portfolio. This has allowed me to sleep well at night while staying invested (and even adding to my investments).