A nice article on bubbles and capitalism

[MadeInTaiwan]

But I really did not mean to trumpet my own investment strategy. What is interesting to me about the article is its assertion that bubbles are inevitable cycles of capitalism, and every participant are acting fairly rationally in his/her “irrational exuberance.”

I suppose a crafty investor can (and have) win big by betting against the herd, but for the majority it simply is not possible due to human nature.

Too bad when the next big bubble comes I’ll probably be long dead (or near death) to profit from the knowledge. Do hope to pass it on to my kids though.

[EconProf]

I too long bought into the wall street advice to hold for the long term–rates of return were (until recently) proven to be 9 – 11% on average if you encompass a half century or so into your tracking.
However that advice may not be fully up to date any more. If it doesn’t include the roughly 45% decline from one year ago, then those figures are too high.
In addition, the averages were pulled up by the remarkable, and abnormal, stock market growth of the 80s and 90s, when the averages went up something like eight-fold, trough to peak.
With investors now about even with 10 years ago, one has to ask if America is entering a new slow growth era. We are hobbled by a growing deficit at all levels of government, a dollar only temporarily stronger, a deflationary era not unlike the 1930s, and an incoming administration that favors much more regulation and higher taxes.
It is hard to take a buy and hold position with these trends in place.

[EconProf]

I too long bought into the wall street advice to hold for the long term–rates of return were (until recently) proven to be 9 – 11% on average if you encompass a half century or so into your tracking.
However that advice may not be fully up to date any more. If it doesn’t include the roughly 45% decline from one year ago, then those figures are too high.
In addition, the averages were pulled up by the remarkable, and abnormal, stock market growth of the 80s and 90s, when the averages went up something like eight-fold, trough to peak.
With investors now about even with 10 years ago, one has to ask if America is entering a new slow growth era. We are hobbled by a growing deficit at all levels of government, a dollar only temporarily stronger, a deflationary era not unlike the 1930s, and an incoming administration that favors much more regulation and higher taxes.
It is hard to take a buy and hold position with these trends in place.

[EconProf]

I too long bought into the wall street advice to hold for the long term–rates of return were (until recently) proven to be 9 – 11% on average if you encompass a half century or so into your tracking.
However that advice may not be fully up to date any more. If it doesn’t include the roughly 45% decline from one year ago, then those figures are too high.
In addition, the averages were pulled up by the remarkable, and abnormal, stock market growth of the 80s and 90s, when the averages went up something like eight-fold, trough to peak.
With investors now about even with 10 years ago, one has to ask if America is entering a new slow growth era. We are hobbled by a growing deficit at all levels of government, a dollar only temporarily stronger, a deflationary era not unlike the 1930s, and an incoming administration that favors much more regulation and higher taxes.
It is hard to take a buy and hold position with these trends in place.

[EconProf]

I too long bought into the wall street advice to hold for the long term–rates of return were (until recently) proven to be 9 – 11% on average if you encompass a half century or so into your tracking.
However that advice may not be fully up to date any more. If it doesn’t include the roughly 45% decline from one year ago, then those figures are too high.
In addition, the averages were pulled up by the remarkable, and abnormal, stock market growth of the 80s and 90s, when the averages went up something like eight-fold, trough to peak.
With investors now about even with 10 years ago, one has to ask if America is entering a new slow growth era. We are hobbled by a growing deficit at all levels of government, a dollar only temporarily stronger, a deflationary era not unlike the 1930s, and an incoming administration that favors much more regulation and higher taxes.
It is hard to take a buy and hold position with these trends in place.

[EconProf]

I too long bought into the wall street advice to hold for the long term–rates of return were (until recently) proven to be 9 – 11% on average if you encompass a half century or so into your tracking.
However that advice may not be fully up to date any more. If it doesn’t include the roughly 45% decline from one year ago, then those figures are too high.
In addition, the averages were pulled up by the remarkable, and abnormal, stock market growth of the 80s and 90s, when the averages went up something like eight-fold, trough to peak.
With investors now about even with 10 years ago, one has to ask if America is entering a new slow growth era. We are hobbled by a growing deficit at all levels of government, a dollar only temporarily stronger, a deflationary era not unlike the 1930s, and an incoming administration that favors much more regulation and higher taxes.
It is hard to take a buy and hold position with these trends in place.

[4plexowner]

The 7-9% return is figured over a 50 to 70 year time period (Wall Street doesn’t mention this when they are touting “Buy and Hold”)

Most investors have an investment window of 30 to 40 years max so the 7-9% is really deceptive and mostly irrelevant

“The article reinforces my personal financial strategy” – I think this is called confirmation bias in psychological circles – there is actually a part of our brain that searches for input to validate our thinking – it is called the reticular activating system (RAS) – the RAS is a filter mechanism – filter out the things we don’t want to be aware of and filter in (or alert us to) things we do want to be aware of

I am guilty of confirmation bias as well but my RAS alerts me to data that confirms the negative things happening in our economy right now

If the Dow rallies back over 10K, you might want to re-think your Buy and Hold strategy and lighten up a little (or a lot) on your equity holdings

[4plexowner]

The 7-9% return is figured over a 50 to 70 year time period (Wall Street doesn’t mention this when they are touting “Buy and Hold”)

Most investors have an investment window of 30 to 40 years max so the 7-9% is really deceptive and mostly irrelevant

“The article reinforces my personal financial strategy” – I think this is called confirmation bias in psychological circles – there is actually a part of our brain that searches for input to validate our thinking – it is called the reticular activating system (RAS) – the RAS is a filter mechanism – filter out the things we don’t want to be aware of and filter in (or alert us to) things we do want to be aware of

I am guilty of confirmation bias as well but my RAS alerts me to data that confirms the negative things happening in our economy right now

If the Dow rallies back over 10K, you might want to re-think your Buy and Hold strategy and lighten up a little (or a lot) on your equity holdings

[4plexowner]

The 7-9% return is figured over a 50 to 70 year time period (Wall Street doesn’t mention this when they are touting “Buy and Hold”)

Most investors have an investment window of 30 to 40 years max so the 7-9% is really deceptive and mostly irrelevant

“The article reinforces my personal financial strategy” – I think this is called confirmation bias in psychological circles – there is actually a part of our brain that searches for input to validate our thinking – it is called the reticular activating system (RAS) – the RAS is a filter mechanism – filter out the things we don’t want to be aware of and filter in (or alert us to) things we do want to be aware of

I am guilty of confirmation bias as well but my RAS alerts me to data that confirms the negative things happening in our economy right now

If the Dow rallies back over 10K, you might want to re-think your Buy and Hold strategy and lighten up a little (or a lot) on your equity holdings

[4plexowner]

The 7-9% return is figured over a 50 to 70 year time period (Wall Street doesn’t mention this when they are touting “Buy and Hold”)

Most investors have an investment window of 30 to 40 years max so the 7-9% is really deceptive and mostly irrelevant

“The article reinforces my personal financial strategy” – I think this is called confirmation bias in psychological circles – there is actually a part of our brain that searches for input to validate our thinking – it is called the reticular activating system (RAS) – the RAS is a filter mechanism – filter out the things we don’t want to be aware of and filter in (or alert us to) things we do want to be aware of

I am guilty of confirmation bias as well but my RAS alerts me to data that confirms the negative things happening in our economy right now

If the Dow rallies back over 10K, you might want to re-think your Buy and Hold strategy and lighten up a little (or a lot) on your equity holdings

[4plexowner]

The 7-9% return is figured over a 50 to 70 year time period (Wall Street doesn’t mention this when they are touting “Buy and Hold”)

Most investors have an investment window of 30 to 40 years max so the 7-9% is really deceptive and mostly irrelevant

“The article reinforces my personal financial strategy” – I think this is called confirmation bias in psychological circles – there is actually a part of our brain that searches for input to validate our thinking – it is called the reticular activating system (RAS) – the RAS is a filter mechanism – filter out the things we don’t want to be aware of and filter in (or alert us to) things we do want to be aware of

I am guilty of confirmation bias as well but my RAS alerts me to data that confirms the negative things happening in our economy right now

If the Dow rallies back over 10K, you might want to re-think your Buy and Hold strategy and lighten up a little (or a lot) on your equity holdings

[MadeInTaiwan]

[quote=4plexowner]The 7-9% return is figured over a 50 to 70 year time period (Wall Street doesn’t mention this when they are touting “Buy and Hold”)

Most investors have an investment window of 30 to 40 years max so the 7-9% is really deceptive and mostly irrelevant

“The article reinforces my personal financial strategy” – I think this is called confirmation bias …

I am guilty of confirmation bias as well but my RAS alerts me to data that confirms the negative things happening in our economy right now

…[/quote]

I was under the impression that the 7-9% was average return over any given 15year period.
In any event, regardless of my confirmation bias, with family, job that is not finance related, community involvements, I don’t have the time or mental capacity to absorb the market news and adjust my portfolio with the latest developments.

Case in point. Most of us realized that the housing was overprices three/four years ago. Some of us saw a danger of overall economy and stock market being dragged down by a housing collapse, but I’d venture that very few actually predicted when the bubble burst, when the overall market collapsed, and the extent of the downturn. Who actually predicted the current deflationary pressure on the global economy? Piggy hedgers who bought commodities, foreign stocks, currencies all suffered some nasty surprises (not to say they are not good strategies). I am listening to a Paul Krugman interview right now, and he’s commenting on his updated book “Return of Depression Economics and the Crisis of 2008”, which was first published in the 90s. One of his points is that there are these connections and unintended consequences that we don’t understand. For example, by lowering interest rates, the “normal” model expects devalued currency, inflationary pressure, and export expansion. However, when companies are highly in debt, as was the case in Mexico in their recent crisis, foreign capital flight actually caused more contraction.

We all think that national and personal debt will lead to inflation or hyper inflation in the future, but how far is that future, how long will the current deflationary trend last? a year, five, longer? How confident are you at predicting the transition? For all other investment vehicles, how confident are you of identifying how other financial connections bellow the surface might affect your investment choice? WallStreet collapse causing devaluation of Euro is but one example. How come the Japanese Yen continue to gain against the dollar? I might be wrong but I don’t think this is like housing where we can easily calculate buying price vs. rent.

Even when we know the long term trend, we may not know how to invest properly to gain. Most of us think that oil will go up once the recession/depression ends (when?), but as I pointed out in a different thread, buying oil stock may not be that wise.

What I do know is that I have little confidence in my ability decipher all of this myself, and I know I will drive myself mad trying to do so.

As far as I can see, U.S. still has one of the best combination of open society, democracy, stability, relative social and economic mobility, education, market friendly environment, large integrated market, can do attitude myth, and trust in capitalism. Therefore long term I still bet on the U.S. economy, and index cost average is the easiest way to make that bet. Again, it is what Warren Buffet advices for long term investment, and for me it is the best combination or low effort, low risk, sleep at night strategy. Your mileage may very.

MadeInTaiwan

[MadeInTaiwan]

[quote=4plexowner]The 7-9% return is figured over a 50 to 70 year time period (Wall Street doesn’t mention this when they are touting “Buy and Hold”)

Most investors have an investment window of 30 to 40 years max so the 7-9% is really deceptive and mostly irrelevant

“The article reinforces my personal financial strategy” – I think this is called confirmation bias …

I am guilty of confirmation bias as well but my RAS alerts me to data that confirms the negative things happening in our economy right now

…[/quote]

I was under the impression that the 7-9% was average return over any given 15year period.
In any event, regardless of my confirmation bias, with family, job that is not finance related, community involvements, I don’t have the time or mental capacity to absorb the market news and adjust my portfolio with the latest developments.

Case in point. Most of us realized that the housing was overprices three/four years ago. Some of us saw a danger of overall economy and stock market being dragged down by a housing collapse, but I’d venture that very few actually predicted when the bubble burst, when the overall market collapsed, and the extent of the downturn. Who actually predicted the current deflationary pressure on the global economy? Piggy hedgers who bought commodities, foreign stocks, currencies all suffered some nasty surprises (not to say they are not good strategies). I am listening to a Paul Krugman interview right now, and he’s commenting on his updated book “Return of Depression Economics and the Crisis of 2008”, which was first published in the 90s. One of his points is that there are these connections and unintended consequences that we don’t understand. For example, by lowering interest rates, the “normal” model expects devalued currency, inflationary pressure, and export expansion. However, when companies are highly in debt, as was the case in Mexico in their recent crisis, foreign capital flight actually caused more contraction.

We all think that national and personal debt will lead to inflation or hyper inflation in the future, but how far is that future, how long will the current deflationary trend last? a year, five, longer? How confident are you at predicting the transition? For all other investment vehicles, how confident are you of identifying how other financial connections bellow the surface might affect your investment choice? WallStreet collapse causing devaluation of Euro is but one example. How come the Japanese Yen continue to gain against the dollar? I might be wrong but I don’t think this is like housing where we can easily calculate buying price vs. rent.

Even when we know the long term trend, we may not know how to invest properly to gain. Most of us think that oil will go up once the recession/depression ends (when?), but as I pointed out in a different thread, buying oil stock may not be that wise.

What I do know is that I have little confidence in my ability decipher all of this myself, and I know I will drive myself mad trying to do so.

As far as I can see, U.S. still has one of the best combination of open society, democracy, stability, relative social and economic mobility, education, market friendly environment, large integrated market, can do attitude myth, and trust in capitalism. Therefore long term I still bet on the U.S. economy, and index cost average is the easiest way to make that bet. Again, it is what Warren Buffet advices for long term investment, and for me it is the best combination or low effort, low risk, sleep at night strategy. Your mileage may very.

MadeInTaiwan

[MadeInTaiwan]

[quote=4plexowner]The 7-9% return is figured over a 50 to 70 year time period (Wall Street doesn’t mention this when they are touting “Buy and Hold”)

Most investors have an investment window of 30 to 40 years max so the 7-9% is really deceptive and mostly irrelevant

“The article reinforces my personal financial strategy” – I think this is called confirmation bias …

I am guilty of confirmation bias as well but my RAS alerts me to data that confirms the negative things happening in our economy right now

…[/quote]

I was under the impression that the 7-9% was average return over any given 15year period.
In any event, regardless of my confirmation bias, with family, job that is not finance related, community involvements, I don’t have the time or mental capacity to absorb the market news and adjust my portfolio with the latest developments.

Case in point. Most of us realized that the housing was overprices three/four years ago. Some of us saw a danger of overall economy and stock market being dragged down by a housing collapse, but I’d venture that very few actually predicted when the bubble burst, when the overall market collapsed, and the extent of the downturn. Who actually predicted the current deflationary pressure on the global economy? Piggy hedgers who bought commodities, foreign stocks, currencies all suffered some nasty surprises (not to say they are not good strategies). I am listening to a Paul Krugman interview right now, and he’s commenting on his updated book “Return of Depression Economics and the Crisis of 2008”, which was first published in the 90s. One of his points is that there are these connections and unintended consequences that we don’t understand. For example, by lowering interest rates, the “normal” model expects devalued currency, inflationary pressure, and export expansion. However, when companies are highly in debt, as was the case in Mexico in their recent crisis, foreign capital flight actually caused more contraction.

We all think that national and personal debt will lead to inflation or hyper inflation in the future, but how far is that future, how long will the current deflationary trend last? a year, five, longer? How confident are you at predicting the transition? For all other investment vehicles, how confident are you of identifying how other financial connections bellow the surface might affect your investment choice? WallStreet collapse causing devaluation of Euro is but one example. How come the Japanese Yen continue to gain against the dollar? I might be wrong but I don’t think this is like housing where we can easily calculate buying price vs. rent.

Even when we know the long term trend, we may not know how to invest properly to gain. Most of us think that oil will go up once the recession/depression ends (when?), but as I pointed out in a different thread, buying oil stock may not be that wise.

What I do know is that I have little confidence in my ability decipher all of this myself, and I know I will drive myself mad trying to do so.

As far as I can see, U.S. still has one of the best combination of open society, democracy, stability, relative social and economic mobility, education, market friendly environment, large integrated market, can do attitude myth, and trust in capitalism. Therefore long term I still bet on the U.S. economy, and index cost average is the easiest way to make that bet. Again, it is what Warren Buffet advices for long term investment, and for me it is the best combination or low effort, low risk, sleep at night strategy. Your mileage may very.

MadeInTaiwan

[MadeInTaiwan]

[quote=4plexowner]The 7-9% return is figured over a 50 to 70 year time period (Wall Street doesn’t mention this when they are touting “Buy and Hold”)

Most investors have an investment window of 30 to 40 years max so the 7-9% is really deceptive and mostly irrelevant

“The article reinforces my personal financial strategy” – I think this is called confirmation bias …

I am guilty of confirmation bias as well but my RAS alerts me to data that confirms the negative things happening in our economy right now

…[/quote]

I was under the impression that the 7-9% was average return over any given 15year period.
In any event, regardless of my confirmation bias, with family, job that is not finance related, community involvements, I don’t have the time or mental capacity to absorb the market news and adjust my portfolio with the latest developments.

Case in point. Most of us realized that the housing was overprices three/four years ago. Some of us saw a danger of overall economy and stock market being dragged down by a housing collapse, but I’d venture that very few actually predicted when the bubble burst, when the overall market collapsed, and the extent of the downturn. Who actually predicted the current deflationary pressure on the global economy? Piggy hedgers who bought commodities, foreign stocks, currencies all suffered some nasty surprises (not to say they are not good strategies). I am listening to a Paul Krugman interview right now, and he’s commenting on his updated book “Return of Depression Economics and the Crisis of 2008”, which was first published in the 90s. One of his points is that there are these connections and unintended consequences that we don’t understand. For example, by lowering interest rates, the “normal” model expects devalued currency, inflationary pressure, and export expansion. However, when companies are highly in debt, as was the case in Mexico in their recent crisis, foreign capital flight actually caused more contraction.

We all think that national and personal debt will lead to inflation or hyper inflation in the future, but how far is that future, how long will the current deflationary trend last? a year, five, longer? How confident are you at predicting the transition? For all other investment vehicles, how confident are you of identifying how other financial connections bellow the surface might affect your investment choice? WallStreet collapse causing devaluation of Euro is but one example. How come the Japanese Yen continue to gain against the dollar? I might be wrong but I don’t think this is like housing where we can easily calculate buying price vs. rent.

Even when we know the long term trend, we may not know how to invest properly to gain. Most of us think that oil will go up once the recession/depression ends (when?), but as I pointed out in a different thread, buying oil stock may not be that wise.

What I do know is that I have little confidence in my ability decipher all of this myself, and I know I will drive myself mad trying to do so.

As far as I can see, U.S. still has one of the best combination of open society, democracy, stability, relative social and economic mobility, education, market friendly environment, large integrated market, can do attitude myth, and trust in capitalism. Therefore long term I still bet on the U.S. economy, and index cost average is the easiest way to make that bet. Again, it is what Warren Buffet advices for long term investment, and for me it is the best combination or low effort, low risk, sleep at night strategy. Your mileage may very.

MadeInTaiwan

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