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Stock market and cryptocurrency
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Richard Jernigan
Posts: 3437
Joined: Jan. 20 2004
From: Austin, Texas USA
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 RE: Stock market and cryptocurrency (in reply to rombsix)
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With your timeline, the conventional stock market wisdom of index funds would appear to make sense. A good inoculation against widely held but invalid beliefs is "Fooled by Randomness" by Nassim Nicholas Taleb.
In 2007 I was 70 years old. House prices started to level off from their climb into the bubble zone. Thanks to discussions with sophisticated friends, a market downturn was foreseeable, though trying to "time the market" is not wise. I was completely out of the stock market by mid-2008. This makes it sound like a cool calculated decision, but the fact is, I was getting cold feet.
The crash occurred, not too long after I fled. The financial carnage of late 2008 exceeded everything that just about anybody had anticipated.
I have not owned a publicly traded share since mid-2008.
The stock market was good to me while i was in it. By sitting it out since then I have left a substantial sum of money on the table. But I have enough to be comfortable, and I sleep well at night.
If at your age someone had predicted I would have as much money as I do now, I wouldn't have believed it. If they had predicted how much, but that I wouldn't feel any richer than I do, I wouldn't have believed it either.
Good luck...
RNJ
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Date Feb. 22 2021 20:12:17
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BarkellWH
Posts: 3464
Joined: Jul. 12 2009
From: Washington, DC
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RE: Stock market and cryptocurrency (in reply to rombsix)
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Ramzi,
In my opinion, you cannot go wrong by investing long-term in the stock market or in mutual funds that deal in growth stocks. Find a reputable financial adviser to guide you in choice of stocks or mutual funds to invest in. When you think you have a good mix, stick with it. Do not try and "play" the market. Invest for the long-term. And don't lose your nerve during the inevitable downturn of the market. It is bound to happen, but the worst thing you can do is "buy high and sell low." Historically, stocks and stock mutual funds have always bounced back from a downturn and reached even greater heights.
Regarding cryptocurrency, my advice would be don't touch it. Cryptocurrency is a relatively new concept and is totally "on line" so to speak. Bitcoin is at an astronomical height right now, but it and other cryptocurrencies are extremely volatile. they can lose hundreds, even thousands, of dollars in a very short time. And there is no regulation, government or otherwise, of cryptocurrencies. Apparently some businesses are beginning to think about accepting cryptocurrency. I saw where Elon Musk and Tesla may be thinking of accepting cryptocurrency as payment. I wouldn't touch cryptocurrency until and unless it achieves a long, stable record and there is regulation of the market.
Just my thoughts.
Bill
_____________________________
And the end of the fight is a tombstone white,
With the name of the late deceased,
And the epitaph drear, "A fool lies here,
Who tried to hustle the East."
--Rudyard Kipling
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Date Feb. 22 2021 20:19:42
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Richard Jernigan
Posts: 3437
Joined: Jan. 20 2004
From: Austin, Texas USA
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RE: Stock market and cryptocurrency (in reply to Ricardo)
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quote:
ORIGINAL: Ricardo
Can someone explain to me why it’s not all just called “gambling”?
If you play the games in a casino, you are very likely to lose money over the long run. The odds are stacked against you. If you shoot craps with your friends, you are likely to break even in the long run, if you don't go broke first. If you play poker with your friends, the outcome hinges on the distribution of skill among the group. Poker is called gambling, but it is in fact a game of skill.
Why would the stock market not just be called "gambling"? Because in the stock market, in the long run you will make money if you play it right. Here's a chart the illustrates that.
https://www.macrotrends.net/1324/s-p-500-earnings-history
The S&P 500 is a list of publicly traded stocks selected to cover a wide number of industrial areas. The blue line is the S&P 500 price (vertical axis on the left). The orange line is the average earnings per share for the S&P (axis on the right). The price of the S&P closely parallels the earnings per share.
OK, so they went up. Why did they do that, and why are they likely to continue?
I'm no expert, but Warren Buffett, who is an expert, says the answer is increasing productivity. I read this to mean that he thinks increasing productivity is the main driver of the stock market's upward trend.
There are a lot of different measures of productivity, but let's look at one, non-farm productivity. To calculate this you survey non-farm industries. You record the value O of its outputs and the cost of its inputs I. O-I is the added value. You divide this by the number H of hours worked. Productivity P = (O-I)/H. P is a measure of the efficiency of the industry. The more money you make per hour worked, the higher the value of P.
Here's a chart of the history of P.
https://tradingeconomics.com/united-states/productivity
Joint stock companies sell shares of stock to raise money. When you buy a share, you own a piece of the company. The company uses the money to pay for facilities, research...things to make money with. When the company makes more money per hour worked, you get more bang for your buck. Companies become more efficient in a variety of ways. Big ways include advances in technology and more efficient organization. Warren Buffett (him again) points out that people today aren't smarter than they were in 1920, nor do they work harder per hour. But the accumulated value of the advancement of business culture-including technology and organization-has driven the rise in productivity.
Playing the stock market short term is gambling. Trying to pick stocks or timing the market short term are losing games, relative to the S&P 500. But if you invest in a broadly diverse portfolio and hold for years, you are betting on the continued advance of at least one element of civilization.
You can buy exchange traded funds whose investment strategy is for each share to parallel the S&P 500, or other market indicators.
So far, so good.
But, as I said, once I had made my stake, I got out. I don't regret the money I have passed up over the last 10 or 12 years. I have enough. I sleep well at night.
RNJ
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Date Feb. 24 2021 4:27:04
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RobF
Posts: 1624
Joined: Aug. 24 2017
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RE: Stock market and cryptocurrency (in reply to rombsix)
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A lot of the headiness associated with crypto-currency reminds of the “new economy” talk that went on towards the end of the high tech boom about twenty years ago. Companies were placing ads on prime time television talking about “bandwidth” and “services”, but really just with an eye towards pumping themselves to investors, rather than pushing their fundamentals. In many cases, they weren’t pushing the fundamentals because they didn’t have any, their fundamentals had been replaced by market value and I’m talking about some pretty big companies at the time.
I went to a “futures” conference in Washington D.C. back then and attended a week’s worth of lectures on the latest telecommunications strategies. Many of the lectures were hosted by smug presenters, newly rich from having had their companies acquired by larger corporations, who seemed to be more interested in pumping their latest scheme than informing. When one lecturer, who had been instrumental in the development of TCP/IP and now stinking rich, started talking about “Cisco gift certificates” I knew it was time to get out. Only one or two of the presenters encouraged planning based on firm engineering principals rather than Pie in the Sky catch phrases and they were almost openly scorned for it.
When I got home I started paying more attention to the ads and economic talk shows, and all I seemed to be hearing was talk about the “bubble” being fueled by this wonderful high-tech, high bandwidth, Information Age “new economy”.
I mean, seriously?? But that’s what was going on. Sound familiar?
Half my co-workers in telecom ASIC design had bought into the BS so fully that they spent more of their time day-trading than doing any actual development work. Co-workers were asking for/demanding incredible perks and selling their services to the highest bidder. I had one co-worker who took a new job elsewhere, honoured his two week notice, and was a millionaire on paper from the options he had been given by his new employer before he even walked out the door. Managers started pushing a ‘Start-up’ mentality. Dumb move. You couldn’t manage a project because you couldn’t expect or plan on half the team sticking it through to the end. It was a BS-fueled mess and within the year the bubble popped. Quite a bit of money invested in the “new economy” disappeared into thin air. It was a con.
I’m just cautioning that when something starts to get heavily pushed by the mainstream as a “can’t lose” proposition one should be very careful. It doesn’t work that way and believing that investing in any trend, including crypto currency, can be an automatic road to riches is a mugs game, IMO.
I’m not saying don’t do it, but be careful. Just as with gambling, don’t play with money you can’t afford to lose.
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Date Feb. 27 2021 11:59:46
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BarkellWH
Posts: 3464
Joined: Jul. 12 2009
From: Washington, DC
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RE: Stock market and cryptocurrency (in reply to rombsix)
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quote:
Seems like crypto is no more... thoughts? My sense is this was all a game (pump and dump) by billionaires who made their money and are now moving on to the next trick to get wealthier.
I wouldn't say it is "no more." It has demonstrated that it is extremely volatile, however, and as I and others have commented previously in this thread, it's value at any given time is entirely based on the faith of those who hold it. Even that charlatan Elon Musk, who a few months ago said he would accept cryptocurrency to purchase the Tesla, has disowned that idea.
Cryptocurrency has no basis for value, other than the hopes and faith of its holders. It does not have the backing of a nation's economic strength, such as the good faith and credit of the US government backing the dollar. It is not backed by productivity of any sort. It is a bit like a pyramid scheme, which depends on the "greater fool" theory, i.e., you will gain if a "greater fool" comes along to buy into it and therefore maintain or increase its value after you have already bought into it.
At your age, Ramzi, my advice is to invest long-term in the stock market, either via solid stocks or mutual funds. The market always goes up over the long term. It sometimes tanks, and when that happens it can be scary. I remember Monday, October 13, 1987, when the Dow jones plummeted 23 percent in one day. I was at the American Embassy in Santiago, Chile at the time. Some of my colleagues were scrambling to contact their brokers to get out of the market. I was practically the lone dissenter, advising them to stay in. The market regained all its losses within three years and continued climbing. The same thing happened after the crash of 2008, although it took a bit longer to regain losses.
The key in your case is your age. You can afford to absorb temporary losses in order to reap long-term gains. Keep the interest and capital gains reinvested in the stocks or mutual funds. The power of compound interest cannot be overstated. And hold for the long-term. Trying to "time" the market short-term is as foolish as buying into cryptocurrency.
Bill
_____________________________
And the end of the fight is a tombstone white,
With the name of the late deceased,
And the epitaph drear, "A fool lies here,
Who tried to hustle the East."
--Rudyard Kipling
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Date May 25 2021 19:09:28
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Mark2
Posts: 1928
Joined: Jul. 12 2004
From: San Francisco
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RE: Stock market and cryptocurrency (in reply to rombsix)
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Buy land-they aren't making anymore!!HAHA. I thought the market was high under Obama when the dow was 16k. I have money in the market but more on the sidelines since the Obama administration. Clearly that was a mistake, but over the years I've made money in the market, and taken it out to buy real estate, then saved more and put it back in the market. That has worked well, and I sleep better than if I had a large percentage of my assets in the market.
Mutual funds, ETF's, and index funds are a good way to get diversification, but then you miss out on stuff like Apple, assuming you make the right decision to buy it in the first place.
At this point I'd be happy to get 5%-8% on my dough, but it's not out there right now unless you take risks.
If I was a young doctor, I'd buy a house before investing in the market. Heck I did that and I wasn't a doctor. I've done business with many wealthy people over the last forty years, and one thing they had in common was property ownership, residential and commercial. When you get a rent check, it's real money. When bitcoin goes back to 60k, you don't get anything unless you sell. Then uncle sam lines up for his cut....
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Date May 25 2021 20:45:15
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Pgh_flamenco
Posts: 1506
Joined: Dec. 5 2007
From: Pittsburgh, Pennsylvania
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RE: Stock market and cryptocurrency (in reply to rombsix)
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Ramzi, you should include these two books in your self-guided MBA curriculum: The first is, “The Intelligent Investor,” by Benjamin Graham. Graham was Warren Buffet’s mentor. The other is, “The Battle for Investment Survival,” by Gerald Loeb. Both of these authors lived through the great depression as young adults and died in the 1970s. They were considered experts in investing and each had about 50 years of experience in the stock market when the final versions of their books were published. Interestingly, although Graham is known for value investing he made a large part of his fortune using a speculative investment approach similar to what Loeb advocated.
You should find a reputable, licensed investment firm to help you execute whatever strategy you adopt. They can help you deal with the constant legislative changes that affect investment options and outcomes as well as issues related to taxation. Also, find a long-established firm that survived the crash of 2008.
Rental property is tricky these days. If you decide to own residential or commercial real estate you should hire an attorney. If you want to invest in cryptocurrency only put as much money in as you are willing to lose. Even with your income I wouldn’t put more than $1,000 in cryptocurrency.
_____________________________
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Date May 26 2021 5:13:15
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Richard Jernigan
Posts: 3437
Joined: Jan. 20 2004
From: Austin, Texas USA
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RE: Stock market and cryptocurrency (in reply to estebanana)
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quote:
ORIGINAL: estebanana
None of them are giving you the best advice, marry a rich woman.
I moved to Santa Barbara in 1989. I was 51, single, still had all my hair, ran 5 or 6 miles a day. I took a stake in a small employee owned defense business. Salary was tops for the defense business, benefits were literally all the law would allow. Had some investment income besides the dividends from the business.
In most places I would have been well off. In Santa Barbara I was just relatively solid middle class.
Several people, both male and female, seriously advised me to find a wealthy Montecito widow. Just flat out said that's what I ought to do, and meant it.
It didn't accord with my self image. I told my advisors, honestly, that I was very poor at taking orders.
Besides, I was still in love with my girlfriend in San Francisco.
But apparently finding a rich Montecito widow was seen as a legit financial move.
One of a few explicitly discussed social customs I encountered only in Santa Barbara.
RNJ
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Date May 28 2021 6:25:04
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