This is an interesting take. Money makes the market go up. It's true that retirement funds and such can't wait forever to invest their customer's money so they have to buy no matter what the market is doing. Retail investors are the ones that go in out of the market trying to time it. As long as the balance between people retiring is lower that those saving for retirement the market will continue to go up in the long term. The current dip is temporary. I don't know the timeline but I'm betting that within the next 2 years we'll be hitting new highs again.
> It's true that retirement funds and such can't wait forever to invest their customer's money so they have to buy no matter what the market is doing
Couldn’t they just hold it or buy some put options if they really believed that it was a bear market? (“We lost 0% while others lost 12%!”) Or is there some legal obligation I’m not aware of that they have to buy something?
> I'm betting that within the next 2 years we'll be hitting new highs again.
I don’t believe that would happen unless Feds started printing money again like last 5 years. But I don’t know much.
How do you decide when to take money out and when to put it back in such that you come out ahead? I’m guessing they estimate that they will most likely have better outcomes if they keep the money invested.
Basically, you don't. It's called "market timing", and it's widely considered a bad idea.
Market timing is basically trying to estimate the psychology of other people in the market, rather than looking at the underlying value of the assets. People are irrational, and they're not irrational in sufficiently predictable ways to consistently make money off of it. Over a sufficiently long term (perhaps 5 years), you'll do better on average to just let your money sit there through the declines.
That said... it's always really hard when markets get wildly overpriced, like they had been for at least 5 years. Rational analysis would say "Don't be involved with this". Smart people did... but they also had to basically sit on their money for years while the irrationally exuberant market got less irrational.
The saying is that the market can remain irrational longer than you can remain solvent. Trying to out-irrational other people is theoretically profitable but practically impossible.
The index funds have to invest their available money minus the redemptions. Very few funds can invest in options. Most of them can only hold bonds and/or stocks. There are futures, options and whatever else funds but they are the minority by far.
The fed does not have to print money for the market to rise. The economy can/will grow. Inflation itself will impact the market. We all bitch about prices rising but companies are willing to raise prices and we are willing to pay. Plus a lot of hard assets will be rising in price and that will be reflected in their stock price. Things may seem bleak but as long as there's money to spend the market will rise.
It's a guessing game but the best choice for decades has been to stay invested and invest in the market. Nothing says that has changed.
> The index funds have to invest their available money minus the redemptions. Very few funds can invest in options. Most of them can only hold bonds and/or stocks. There are futures, options and whatever else funds but they are the minority by far.
TIL. Thanks for letting me know.
> The fed does not have to print money for the market to rise. The economy can/will grow.
I agree that regardless of printing money, the economy will recover but I disagree that it will recover as fast as you've said (hit the highs in 2 years). This is because I believe the money printing played a big part in the crazy bull run last 5 years. So without that, inflation control and geopolitical uncertainties abound, I just don't think we could hit that high that fast.
That being said, I predicted that the inflation would keep growing but it seemed to have cooled down a little bit - so maybe I'm being too grim
Not the Nikkei but the Nikkei total return has, the index plus the re-investment of dividends into the index. That's how retirement index funds function. They reinvest dividends plus add new money.
It can be comforting to reduce a multi-factor system change to one variable to explain away a time period… it’s probably all the factors mentioned in the blog and more. When it comes to human psychology, we, as market investors, have the tendency to not always be rational and think the worst. It is taking a while for investors to recalibrate to a rising rate environment…something that many have been thinking about in the back of their heads…others not at all, in part due to youth or naivety. The run is prices could be investors realising they overdid it in the sell off..
The author, Josh Brown, hosts some refreshingly fun financial podcasts on YouTube called The Compound. I've been following them for months and highly recommend it. I learned quite a bit about investor psychology and how the markets operate.
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[ 3.0 ms ] story [ 35.6 ms ] threadCouldn’t they just hold it or buy some put options if they really believed that it was a bear market? (“We lost 0% while others lost 12%!”) Or is there some legal obligation I’m not aware of that they have to buy something?
> I'm betting that within the next 2 years we'll be hitting new highs again.
I don’t believe that would happen unless Feds started printing money again like last 5 years. But I don’t know much.
Market timing is basically trying to estimate the psychology of other people in the market, rather than looking at the underlying value of the assets. People are irrational, and they're not irrational in sufficiently predictable ways to consistently make money off of it. Over a sufficiently long term (perhaps 5 years), you'll do better on average to just let your money sit there through the declines.
That said... it's always really hard when markets get wildly overpriced, like they had been for at least 5 years. Rational analysis would say "Don't be involved with this". Smart people did... but they also had to basically sit on their money for years while the irrationally exuberant market got less irrational.
The saying is that the market can remain irrational longer than you can remain solvent. Trying to out-irrational other people is theoretically profitable but practically impossible.
The fed does not have to print money for the market to rise. The economy can/will grow. Inflation itself will impact the market. We all bitch about prices rising but companies are willing to raise prices and we are willing to pay. Plus a lot of hard assets will be rising in price and that will be reflected in their stock price. Things may seem bleak but as long as there's money to spend the market will rise.
It's a guessing game but the best choice for decades has been to stay invested and invest in the market. Nothing says that has changed.
TIL. Thanks for letting me know.
> The fed does not have to print money for the market to rise. The economy can/will grow.
I agree that regardless of printing money, the economy will recover but I disagree that it will recover as fast as you've said (hit the highs in 2 years). This is because I believe the money printing played a big part in the crazy bull run last 5 years. So without that, inflation control and geopolitical uncertainties abound, I just don't think we could hit that high that fast.
That being said, I predicted that the inflation would keep growing but it seemed to have cooled down a little bit - so maybe I'm being too grim
I see your point but I'm still bullish.