What caught my eye this week.
We all want to believe in magic. Rational citizens of the 21st Century we might be, but we still wish to tilt the universe just enough to catch a glimpse of the future, as it rounds the next bend of space-time.
What insight! Enabling us to dodge a bullet, or jump on the most lucrative gravy train about to depart the station. This is why the contemporary forecaster still has an allure that’s analogous to the ancient oracle offering a Greek king an edge over the fates.
Credibility back then rested upon delivering your prophecy in the form of a riddle from the gods, with a side of cowled performance theatre, cackling, and trance-induced seizure.
Nowadays we prefer our foretellings served as data-led projections, backed by a proprietary model rather than goat entrails, while a dispersion of outcomes substitutes for the riddles of antiquity.
Even a cynic like me can’t resist this stuff, so I always appreciate it when a voice of reason like Joachim Klement skewers the market-prediction trade with a quick fact-check.
In a short and pointed piece of debunkery, Klement shows how three major US equity forecast surveys are not only routinely wide of the mark, but are typically worse than a random guess and would likely have destroyed value (versus simply holding the market) if you’d acted upon their guidance.
To me, articles like this are a necessary inoculation against our very human desire to control our destiny, and the contemporary belief that if we wield the power to wreck a planet, and know the video-viewing habits of almost every person on Earth, then someone, somewhere, must know what the hell is going on.
Sadly they don’t. Not the Pentagon, not Google, not Renaissance Technologies, not OpenAI, not the Chinese.
Take a single decision that’s cascading change upon the world – say the invasion of Ukraine. It wasn’t inevitable. Yes, it was long a possibility but, right up until the eve of war, it could have gone either way.
As an active investor, you could have made an outsized bet on the outcome. Even then would you have bet on a short war or a quagmire?
Or, you could admit that the world is a chaotic system with fundamentally unpredictable outcomes – as chance collides with contingency and ricochets into randomness.
Which means the only sane response is to reject any notion that events are proceeding along a set path. And to hedge your bets so that something in your portfolio or, more broadly, your quiver of personal assets and capabilities, will enable you to ride-out any turbulence that comes your way.
Have a great weekend.
The Accumulator
PS – The Investor is off on a faintly-deserved holiday – living it up in a paradise retreat somewhere the cocktails never run dry. I’m just the temp, and normal service will be resumed next week.
From Monevator
Why commodities belong in your portfolio – Monevator
The rise and fall of the gold standard – Monevator
From the archive-ator: Don’t chase performance – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
What happens when firms pull the plug on remote working – Wall Street Journal
Crypto clampdown – This Is Money
Customers pulling money from Binance – Markets Insider
Estate agents listing houses for more than they’re worth shocker! – This Is Money
Products and services
Quick ways to boost interest on savings – This Is Money
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor
First impressions of the Apple Vision Pro – Daring Fireball
Open an account with low-cost platform InvestEngine via our link and get £25 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine
The news digested – awesome free email newsletter – The Knowledge
Homes near festivals for sale, in pictures – Guardian
Comment and opinion
The odds of a hard landing are increasing – Research Affiliates
Is this a new bull market? – A Wealth of Common Sense
How to negotiate with aging parents – KFF Health News [h/t Abnormal Returns]
When to retire [US but relevant] – Humble Dollar
Tips on the art of listening – Clearer Thinking
Why financial independence types should conduct a life review – Oblivious Investor
Indeedably has done just that in this poignant reflection on the gap between dreams, plans, and reality – Indeedably
Naughty corner The safe place: Anti-active antics
Why the rise of NVIDIA shows you can’t pick winners – A Wealth of Common Sense
Fastest rising asset classes 2023 (how many did you predict?) – Visual Capitalist
Rebalancing bonus latest – A Wealth of Common Sense
Kindle book bargains
A Man for All Markets by Edward O. Thorp – £0.99 on Kindle
The Tetris Effect: The Cold War Battle for the World’s Most Addictive Game by Dan Ackerman – £0.99 on Kindle
Liar’s Poker by Michael Lewis – £0.99 on Kindle
Love, Pain, and Money: The Making of a Billionaire by John Caudwell – £0.99 on Kindle
Environmental factors
Divesting from Big Oil doesn’t work – The Free Press
Too late now to save Arctic summer ice – Guardian
The 20 most air-polluted cities on Earth – Visual Capitalist
Robot overlord roundup
Why no one can control AI – The Free Press
Why AI will save the world – Marc Andreessen [h/t Abnormal Returns]
Hearing out the AI doomers vs the doubters [Podcast] – 80,000 Hours
Can the UK lead the way on AI regulation? – Brexit & Beyond
UFO mini-special
US military has recovered alien spacecraft claims whistleblower – Guardian
But he has no proof – Guardian
“We’re not alone” interview with the whistleblower [Video] – NewsNation, via YouTube
The UFO cover-up playbook – Atlantic
Who is the whistleblower? – Sandboxx
“I don’t want to believe” – why it’s all a media circus – Quillette
And finally…
“You’re not meant to know about tax. It’s kept complex for a reason.”
– The Rebel Accountant, Taxtopia: The Injustices, Scams, and Secrets of the Tax Evasion Game
Like these links? Subscribe to get them every Friday. Note this article includes affiliate links, such as from Amazon and Interactive Investor.
What’s an amateur investor to do?
One possible answer
Buy the whole market in equities and bonds(hedged to the pound)
Choose the Asset Allocation that suits your stomach acid and leave well alone and don’t meddle ever
Concentrate on what you can control-ie reduce costs, save as much as you can and live frugally
xxd09
PS keep reading about forecasts and their results-this should maintain your resolve to stay the course
Thanks for covering this week TA, splendid job and love the temporarily more pro passive approach haha.
I think you are bang on about the complexity of everything and us feeling and having the deep need to be able to explain things.
Some good articles, I like the crypto ones and the life review. I did a similar thing with my latest post on stop rushing towards FIRE, similar sentiment in some ways as I take the foot off the pedal and now invest half now that I have reached orbit with my booster rocket of a high savings rate!
The apple vision pro looks I credible from the marketing but let’s see. Apple do have a habit of just doing things others have already done but just better/more slick and then it becomes main stream so who knows.
TFJ
Yes, sorry about the lack of Brexit raging this week 😉 Still, I threw in the UFO special to liven things up.
I do like the brutality of the life review. A friend of mind does it with her partner and calls it “The State of the Nation”.
The Apple Vision looks like the kind of lean-FIRE budget-buster that may become compulsory in the future – fulfilling ZXSpectrum’s dire warnings that it’s not inflation that I need to keep up with but the rise in earnings. Still, shouldn’t be a problem in Sunak’s Britain, am I right? 😉
I’ve long ignored this type of report on what people think will happen.
The particulars of projections are unhelpful since they are either vague to the point of uselessness or specifically wrong.
It’s like trying to predict where the ball will be at any point in time in tonight’s football – when it’s better to understand the grand trends that shape the world of football (in Man City’s or Newcastle Utd’s case petrodollars).
For the temporal world it’s demographics and political trends.
Thank you for the UFO news, enlivened my Sunday morning. I’ve just started using ChatGTP and the other AI tools… it is all starting to make sense.
On @TA’s UFO special: “it’s never aliens” as Matthew O’Dowd (Associate Prof. Astrophysics, Lehman College, City University New York) puts it in the PBS Digital Studio’s “PBS Space Time” podcast on YouTube (who’ve covered the ‘Fermi Paradox’ a few times).
Claims like those made following the US Navy pilot footage should be treated with great skepticism (that footage has been convincingly explained by mundane technical issues, which have nothing to do with ETs). In any event, extraordinary claims require extraordinary evidence, and we certainly don’t have that for ETs.
There is a good chance that we’re the only currently existing technological civilization within the observable (and therefore affectable) part of the universe (even if the whole universe is spatially infinite, as currently seems most likely, and therefore contains an infinite amount of intelligent species).
David Kipping (Prof. Astronomy, Columbia University) has covered this in his ‘Cool Worlds Lab’ series podcast “Why we might be alone in the Universe” (https://youtu.be/PqEmYU8Y_rI) and in his more recent public lecture on the same, also available on YouTube (https://youtu.be/zcInt58juL4).
Of the thousands of academic papers on the Fermi Paradox one of the best, “Dissolving the Fermi Paradox”, takes a similar view (June 2018, by Anders Sandberg, Eric Drexler and Toby Ord of the Future of Humanity Institute, Oxford University: https://arxiv.org/abs/1806.02404).
@Time like Infinity, there is a risk of a circular argument based on a single observation. We only know for sure of one place in the universe capable of developing intelligent life, and that is the one we have used to define what we mean by intelligent life.
If an extraterrestial had surveyed Earth 100,000 years ago they wouldn’t have observed what we call intelligent life – notwithstanding the levels of intelligence of many other species – because we define it in terms of modern humans and in practice are thinking of things like radio communication and interplanetary travel. And we have no idea whether the evolution of organisms on Earth with the necessary brain function and then the cumulative acquisition of knowledge and skill to be using electromagnetic communications is quick, average or slow for planets with similar conditions.
And then physics (speed of light) means that any attempt with telescopes to detect intelligent life in other galaxies is actually looking at their ability to send radio signals tens of thousands of years ago – and if they are making the reciprocal observations they wouldn’t see signs of life here. And detection by actual travel (whether us to them or vice versa) would shift dates much further still.
I suspect those astronomy experts you refer to are basically saying the same as me: even if intelligent life exists elsewhere we have no idea what the probability is of detecting it over the limited observations on record, and thus whether the failure so far represents meaningful negative evidence. (I am ignoring unevidenced claims by conspiracy theorists).
@Jonathan B. Thank you. Your points are well made and agreed, but with two caveats.
Firstly, on uncertainty: It’s true SETI has, metaphorically speaking, only surveyed a thimble full of options for detection in an ocean of possibilities across different methods of detection, different targets for searches and different periods of time (organised searching only began in 1961, the universe has been around for 13.8 bn years). However, Sandberg/Drexler/Ord make a stronger claim.
Just as @TA illustrated the impossibility of knowledge of an unknowable future, so things related to the Fermi Paradox, like the Drake Equation, are presently no more than statements of our ignorance.
We have reasonable observational bounds for a couple of terms (rates of new star formation and frequency of planets per star), a plausible guess at one or two others (percentage of planets in habitable zones around their star, where liquid water could form), but no idea about the rest (odds of abiogenesis, likelihood of complex eukaryotic life, likelihood of intelligence, likelihood of a technological civilization, duration of communicating civilization).
When a quantity is unknown but could lie anywhere on a very wide range and there is, as yet, no evidence where on the range the quantity actually lies; the principle of indifference should initially apply, with equal weight being given to all possible values along the range until actual observational data is obtained.
For some values of the Drake Equation the plausible range is collosally wide. The chances for abiogenesis could be nearly one per planet or potentially up to a few hundred orders of magnitude less, i.e. far less than one occurrence on average per volume of the observable universe across its current lifetime (Sandberg/Drexler/Ord ‘Supplement I: Biological transitions, alternatives, and uncertainties on paths to complex life’, p. 5 of 18), based upon the chances of the formation of usefully folded proteins (with no pre-biotic ‘funnel’) from amino acid monomers.
If you produce a model giving appropriate equal weight to each possible value on the plausible range for the unknown values in the terms of the Drake Equation, then the overwhelming majority of the resulting scenarios involve those values which make life (and even more so currently communicating intelligence) extremely rare; such that, in most scenarios, we would expect to be alone within the observable universe.
Beyond the cosmological horizon (our past light cone) of the observable universe, there could still be an infinite number of currently communicative civilisations in a truly spatially infinite universe. But they would forever be out of reach to us, and us to them.
Secondly, on the question of inference from an N=1 sample: whilst in one sense we’ve only one sample (Earth), there have been multiple evolutionary transitions with different timings during Earth’s history, the spacing of which may give useful information. In “The Timing of Evolutionary Transitions Suggests Intelligent Life is Rare” (Vol. 21, No. 3, 2021 Astrobiology) Snyder-Beattie, Sandberg, Drexler and Bonsall “use a simplified Bayesian model that combines uninformative priors and the timing of evolutionary transitions” to conclude that, statistically, the spacing in time of those transitions is much more likely to be consistent with a very low likelihood of the emergence of intelligence as the outcome. Spiegel & Turner (“Life might be rare despite its early emergence on Earth: a Bayesian analysis of the probability of abiogenesis” arXiv:1107.3835v1, 19 July 2011) took a similar approach with a less comprehensive, but still compatible, conclusion.
Bringing it back to investing, the point of comparison would be that where we don’t have reliable quantitative data about risks, returns and correlations; or even where the most likely investment outcomes might be situated upon a range; then we should be cautious, and not weight the information that we do have towards a particular prior. Fortunately, we do have quite good market data going back a century or two, but market and economic regimes change, and what happened in the past may not necessarily repeat predictably, or even at all.
For the last 20 years or so a large proportion of the worlds population have carried a stills camera, video camera and audio recorder in their back pockets but there’s still no convincing evidence of UFO activity. The same can be said for ghosts, hauntings, fairies, angels and leprechauns. It’s all in the head, which of course can seem as genuine as the real thing as it’s all down to electrical and chemical signals in the brain (or more likely a desire for self promotion).
@ Time like infinity – thanks for those links, I shall enjoy digging into those later. I agree that the Drake Equation could easily yield an answer of 1 = number of currently communicating intelligent civilisations in the observable cosmos. Thought that doesn’t mean that 1 is the answer (I know you’re not saying this), nor does it answer the question of is the cosmos teeming with less advanced forms of life?
Still, I can’t disagree with your logic: “extraordinary claims require extraordinary evidence”
@ Nimbus – Neil deGrasse Tyson advances exactly that argument but I find it less convincing. It makes sense if you believe in close encounter / abduction / anal probe type scenarios but I agree those are more likely the product of an over-active imagination / attention-seeking.
But check out Avi Loeb’s work on how difficult it is to accurately spot and identify spacecraft-sized objects within our solar system with our current capabilities. It’s worth reading about just to get a sense of the physics.
Perhaps the whistleblower has lost it, or is a dupe, or hopes to make a living on the UFOlogy circuit, or perhaps not… it’s the few pips of uncertainty – like the chance of a lottery win – that makes this so tantalising.
@Time like Infinity, this is obviously a topic you have thought a lot about. I am not sure the “multiple evolutionary transitions” on Earth are helpful evidence; there isn’t any evidence of life emerging de novo more than once (and thanks for introducing me to the word “abiogenesis”). For me any definition of life is not just about being able to reproduce but being able to evolve, so of course subsequent evolutionary changes have happened multiple times.
One important question then is: if life has occurred anywhere else, is intelligence in our terms likely to develop? But that introduces other questions to which we don’t know the answer. To what extent is what we think of as intelligence dependent on the chemistry of life as found on Earth? Does the accident of the primeval life form that first appears limit the possibilities of subsequent evolution? And how common are likely to be circumstances where intelligence improves the “fitness” of an emerging species, given the energetics pay-off that seems to exist between cognition and physical attributes?
Probably the main point of similarity with investment risk is that in both cases we tend to overemphasis the uncertainties we can identify and put a number on, and discount uncertainties we can’t work out how to include in our calculations.
What makes this whistleblower interesting is that he’s testified under oath in front of Congress / Senate, for c.11 hours, presumably providing a significant amount of detail.
Given its under oath, lying is punishable with jail sentence. This seems to discount a lot of nefarious motivations. He’s also held senior positions in government, so you’d assume he’s not a crackpot (or then again…!)
Its easy to understand people’s scepticism though, there has been decades of hoaxes, misdirection and still no 100% convincing & tangible evidence.
A poster above mentioned the more credible cases get debunked, but you also see the debunking get dubunked! As a non-scientific layman, it’s difficult to draw a conclusion either way.
The scientific papers which say “it’s not aliens” are presumably written under our understanding of the universe/ science. But surely this comes with the caveat that “we may not understand everything”? It strikes me as impossible that we can understand everything in the universe, when we do not understand everything on Earth.
Lastly, it’s also easy for people like myself to fall for confirmation bias, where you want this to be true because it’s so potentially so fascinating! On reflection I’m probably much more likely to get caught out by a UFO hoax than a financial scam!
@Jonathan B (#11): excellent points, all agreed. There’s so much that we don’t know, although in principle we might get better information on the Drake equation parameters (which, to some extent, embed the questions which you pose in your second paragraph) in the foreseeable future; so this is still within the domain of science, rather than metaphysics.
I have no idea whether or not basic forms of life are common in the universe. Lee Cronin, the Regius Chair of Chemistry at the University of Glasgow, thinks they are, as his view is that organic chemistry has a natural pathway to simple life, and he’s all over YouTube saying so. Other scientists take the opposite view. I faintly detect that chemists and astrobiologists seem a bit more inclined than astronomers and physicists to accept the frequent over very rare position.
If we ever find clear and substantial proof of microbiology with a verifiably wholly independent emergence from that on Earth elsewhere within the solar system, then that would be overwhelming evidence that abiogenesis is common in the universe.
To date that hasn’t happened, despite many false dawns from Percival Lovell’s canals on Mars between 1893 and 1908, the (suspect) Martian soil readings from the Viking probe in 1976, through to the (discredited) 1996 announcement of microfossils in the Allen Hills meteorite, and the (now also debunked) detection of phosphine in the atmosphere of Venus in September 2020.
I’m scratching my head wondering how this posted developed into an “is there anybody out there”? navel gaze.
Anyway, I don’t think we need a study to tell us the investment industry’s prognostics are bunk. We can look back 12 months ago to see that the entire global investment community was lending for 15-20 term at 1.5% fixed yields . Go figure as our American cousins would say.
xxd09 Why would you save as much as you can when there is no evidence at all that shows that that works.Every index,every company,gold ( I would never buy gold) and buying a house.Nobody saves up to buy a house.Save the deposit,the rest is leverage.
Buffett shows it perfectly in his letter,BRK has compounded @ 20% for 58 years.The S+P has compounded @10% for the same time. Starting at a base of $10 ( price roughly of a BRK share 58 years ago) then that compounds to $391K on the date the calculations were done.Check the price of BRK on 31/12/22 and see if it is somewhere near $391K.
The S+P 500 turns $10 into $2,516 over the same period
Leverage will make or break you,it is really important to understand and control it.Then do nothing and let compounding work for you.Why do people deny that compounding is real?Why do people deny the sheer simplicity of that one page? Why do they insist it has to be more complicated than that,and dream up so many ways to make it more complicated than that?
Leverage way back when still works exactly the same as today.If $2K was average annual income in the USA back then,then it was a case of leverage up to $2K with the simplicity of I need a job to pay that loan back.Once I pay that back then perhaps leverage up to say $5K ( average wages in year ?).Nothing more to be done.
That $2K compounds to $503K,and of course changes every day,just as BRK does.Then take off the fees ,charges and whatever else was done over that period.
The ability of the human race to predict the future way back when was exactly the same as today,zero,nix,nothing,but they still want to believe they can.They will still refuse to see the obvious and seek out gods or experts that tell them what they want to hear.
Gold,good hedge against inflation.I agree,so that makes it useless.We know the price of gold in 1970, $35 an ounce.I don’t know what US average wages were.Suppose we say $3500 a year.We must buy gold,it is wonderful,greatest thing since sliced bread.How do we know that gold is so wonderful and great,the gold salesperson said so.
$3500 bought you 100 ounces of gold,and no income.There is a trade in gold where you can lend it to people to short it, or go long on an option.This produces a small income. Look at what 100 ounces of gold are worth today,then compare that to US average wages.To make up numbers 100 X $2000 .The answer $200K.If average US wages are now $65K then gold has been an excellent hedge against inflation,nobody can deny it,it has also been useless.Turning annual average income into roughly 3x average income over 53 years is useless,you may have been better off just putting $3500 into the bank for 53 years.
Each to their own,and each to think for themselves,or blindly follow self appointed gods or experts that tell them want to hear,or show them want they want to see.
The simple and obvious answer will usually be the correct one.
@Mick — I’ve been on holiday and so it has been harder to keep on top of comments than usual, but just to say there is an element of a disruptive feel to yours. Talk of “self appointed cards” and flagging no-brainier stock picks of yore without acknowledging hindsight bias etc. perhaps it is all fine. In context, I’ll take a look when I am back home soon, wanted to flag this up in advance. We are a blog that enjoys constructive and respectful discussion. 🙂 I appreciate the time you’ve put in type in your comments et cetera and look forward to a deeper read soon. Cheers! @themanagement
On the When to Retire article…
A colleague of mine decided to retire in Spring a few years ago. He then proceeded to identify small incremental gains if he delayed his retirement slightly. For example, wait until next month to get another month’s pension, wait two week to pick up a bank holiday, then delay another week to get another two days annual holiday. He managed to repeat this process such that he remained at work all through that (glorious) summer. He eventually retired in November and unexpectedly died in February. I’d say that if you can afford to retire and want to do it, get on with on it.
Of course you are right in theory Mick but…..
Your key remark of understanding and then controlling leverage gives the game away
Most amateur investors can’t master that investment policy
Compounding of course works with savings as well as with leverage
Compounding is truly a remarkably remarkable phenomenon-also badly understood by the average investor especially re fees/costs where real damage can be done to a portfolio
I suggest this is a Active/Passive split again of the type of investor
It’s important to know your personal limitations in the type of investing policy one chooses
xxd09
You’ve lost me.There is nothing there that is disruptive.I go against the consensus of opinion and the accepted wisdom there is no doubt about that.Anybody that invests does that simply by buying a shareholding in a company directly.
Everything in the post is true,it is history.The post points out that nobody can predict the future.If they could predict the future then we would own 2 companies Berkshire and Wal Mart.Wal mart has outperformed BRK over that period without reinvesting dividends.History and a statement of facts.
The experts that predicted that you need to buy these two companies would then contradict themselves and say don’t do that because of concentration risk.Then there is the obvious,we can’t all own those 2 companies because there are not enough shares to go around.
Two people did that that we know of,Buffett with BRK,and Sam Walton with Wal mart.Very rich people,did they get it right,or do we dismiss that as hindsight bias because it goes against the popular opinion.We dismiss history as it does not agree with what we want to see?
The simple facts are if I bought shares in a company and did nothing for 40 years and watched it grow ,where did I go wrong.Where is hindsight bias.I’ll die,if the charity that gets those shares keeps them for a further 40 years it means there is an 80 year history of that company,unbroken.There is no hindsight bias there,I bought the company on the expectation/ probability/ hope that it would perform better than average over a long period of time,it did,I got it right.The 99.999 % of people that did not do that will say,hindsight bias,or any other perceived bias.
I watched a company grow ( Fortescue metals FMG : ASX.).I took a strong interest in it @ $2 a share.I did not buy.I knew the history of the man,and thought debt would force the company into bankruptcy.I watched it grow and still didn’t buy,debt meant the company didn’t pay dividends and it took 8 or 9 years build the infrastructure.Constantly raising more money the company went deeper in debt.Once or twice bonds needed to be rolled over.Bondholders were not happy,when do we get money back.Why the constant we need more money,why the constant news that bankruptcy is nigh from “sources”.
The company started paying dividends,debt had been reduced.I didn’t buy any shares in it.The price of the shares fluctuated,up 20%,down 30%. Up 30%,down 20%.
Eventually I decided to stop looking at it and buy it.The price had dropped from around $7 to $4.I bought at around $4.50,round it to $5 if you want.The price went up,then down to around $2.
Since then the price has gone up to $24 at top I think,and is around $20 now.
If you think facts are disruptive and not respectful because they do not agree with the consensus of opinion,then delete the posts,all of them.I post very little. Nothing can change the history of that company from around 2016 or 2017 when I bought. Nobody is more surprised than me that it has gone from $4.50 to $20. The growth in dividends has been astounding.The dividends will fall over the coming years.”He” is full on green.Future profits will be diverted to hydrogen,green steel etc etc. Experts will tell him you’ll make a fortune from this.Other experts will tell him the company will go bankrupt if you go down that path .Which expert will be right?
I plan to hold the company,everybody is entitled to their own opinion,they are not entitled to their own facts.If I am proved right by 2030,then I got it right.Every day people will have the choice to buy that company,or not.Again I don’t think it is disruptive to state facts.
My opinion is I expect the share price to halve.On information that will be there on that day if I am correct I can choose to sell after doubling my money,and collecting a tidy income.I can also choose to buy more at a cheap price.I have as much ability to predict the future as experts have,zero ability.
The constant will always be the constant.Very very few people will ever have a direct shareholdings in FMG.By 2030 the company has been there for 27 years,the results over that 27 years may continue to be astonishing,I can’t predict the future.I did take the chance on the company,while 99.999% stand on the sidelines and snipe and deny
If I get 15% CAGR on FMG over 13 or 14 years I am happy,it doesn’t matter in the slightest how many people deny it or refuse to see it.Concentration risk,hindsight bias,survivorship bias,confirmation bias,anything “they” want to see or complain about doesn’t matter.All that matters is I get that 15% CAGR that I want.
Delete all of the posts if you want and I will bid you good day.The facts don’t change because they go against the popular opinion or the consensus of opinion.The facts are extremely disruptive to popular/ consensus of opinion.
Good day.
@ Vic – there are lots of interesting similarities between the SETI debate and investing – the recourse to faith based arguments, the predominance of unknown variables, the importance of keeping an open-mind, the weight attached to credible opinions… sometimes spending time in an unrelated domain can shed new light upon topics we’re more familiar with.
@ Gizzard – agreed, though often I think stratagems like this can help someone feel ‘in control’ enough to make a big change, or to prevaricate…
@ Time like infinity – have watched the Kipping videos now – very entertaining and helpful. Love his emphasis on admitting, “we don’t know.”
Who cares about UFOs! Have you seen UK front end rates? Risk of a wage price spiral. More hikes being priced. Plus those annuity rates are going ever higher. Above 3.4% for an single life RPI linked one. All good fun.
Yep my bond holdings causing me much pain once again. Also I seem to have completely bypassed this 7% wage inflation. Quite a feat I’m managing to pull off here, lose lose as they say..
At least with those annuity rates I won’t have to worry about living off a 3% sustainable withdrawal rate.
As for UFOs, well, they take my mind of it all 🙂
xxd09 I agree with you with trepidation on the word theory,and professional/ amateur investor.Body language is needed.I would be recognised as a professional investor within the limits of corporation acts and the various names for that around the world.
A worth of $X with 000,000 after it.I am a disruptor in the eyes of the vast majority.That number can change up or down by more than average wages in one day.
The income derived from that is shall we say 4% on 1 certain day.After that the %age will rise and fall as the value rises and falls,and dividends rise and fall.
My income is easy to control,keep some cash to one side.My income has risen most years as dividends rise,it may have risen every year,there is no reason to get it exact,it goes in the right direction.The same is true of the capital value,I can be certain that capital value fell during the GFC,that may be the only time it reduced,again there is no reason for spread sheets etc etc,it keeps going in the right direction.
The understanding of leverage and compounding is as you say,it is vital to understand how they work together.Formulate the plan,decide how much you are comfortable to borrow,and stick to that plan until circumstances change.
Use FMG as an example,with decades of experience I am 100% certain I cannot predict the future,and the amateur investor can make me look a fool easily.
Compound FMG for the period of years given. $5K grows to around $31K.The share price needs to be at $31 a share in 2030.That seems very reasonable with recency bias, $5 to $20 growing to $31 would seem to be reasonable it can also be nonsense.The chance that needs to be taken.
The amateur investor can leave me for dead by taking a chance.He/she can think the price has dropped,this is worth the chance, 2000 shares @ $2.50 each means they spent the same amount as me. By 2030 they have 2000 shares worth $62K,and double the dividend income that I have had.They may also have $40K worth of shares.The share price fluctuates,goes up and down,and flatlined on average.
$31 X 2000 because the share price grew slowly and dividends fluctuated but overall grew slowly.
Or $40K or less because it didn’t work out,but we both had the chance to sell at any point.
13 or 14 years is not enough time.$5K is not enough to spend.I can( could) spend $50K cash and buy 10,000 shares.I could also have used leverage and bought 100,000 of them.The dividends would have been more than enough to pay the interest and reduce the debt on that loan.
The fear that is large for most people is very small for me,but still there.
I’ll leave it there,and in 2030 hopefully we are both still alive and we will know exactly how it worked out.To juice the returns a lot,reinvest the dividends
@TA (#20+21): Thanks. Recognising the inherent limitations to knowledge, identifying whether we’re were having to rely upon faith or evidence, and thinking about the implications of uncertainties in the most useful ways that we can are, I hope, 3 crossovers between the subjects of investing and ETIs here.
@ZXSpectrum48k (#22) & @Rhino (#23): it’s looking tough out there in fixed income land. 10 year gilt trading at a yield above the Truss fiasco. Hopefully the pension and insurance sectors took the opportunity to fix the LDI doom loop.
For those that can remember (before my time), did the unravelling of the Barber boom and the first (1972-4) spike of prices feel like this, and does this one now feel better or worse than what you can recall from back then?
@all — Just back from my genuine holiday / almost total screen break (first for years) to see the five-year swap rate chart has gone near-vertical. Busy catch-up morning ahead! (And Westminster finally got rid of the political arsonist formerly known as the PM in my absence. I should leave the country more often!)
When Thomas Hardy wrote the words “Though a good deal is too strange to be believed, nothing is too strange to have happened” he could have had BoJo in mind if only he’d been writing later. Let’s hope that the ‘greased piglet’ of UK politics (as he was so memorably described by his predecessor but one as PM) has had his final comeuppance, and won’t be coming back.
The investor. Opportunity knocks.How people see completely different things on the same information.
A report on the news one hour into trading,live and factual.CSL : ASX is down 8% today.I own CSL,one of the very few people that does.I’m not interested, that is normal. Down from shall we say $304 to $280,I expect it to rise across the day but still be down.I don’t day trade,I have tried it and won,over a period of 10 days,it was great fun.After the 10 days I stopped,looking at share prices was hard work.Buy and sell orders on a cross trade ( put a buy order in at market,and a sell order at say $1 higher straight after that buy).Highly rewarding for a small effort,but I don’t want to look at computer screens and share prices, I never did it again,it goes against my normal life .Once or twice I have been tempted to
go again,that doesn’t last long,I don’t want to do that.
Back to CSL,way out of normal expectations ( a disruptor ).I can buy 1000 of them using $280K of leverage without any problem.I am not doing that.If it falls to $270 I will take an interest and be 99% certain I will not buy.By next week it may be back to $300,I don’t expect that to happen,but it can.By the end of the year it may be back to $300,and it may not,I can’t predict the future.The interest payment on $280K for 6 months is small to my income.The gain over say one week or 6 months could be $20K,loose change in the grand scheme so why bother with the one minute.Looks ridiculous doesn’t it,yet perfectly feasible and real.
For the disruptive people that bought CSL it has a shareholder base of 234,500.A version of JnJ.Started in a war,( 1915) to work out how to treat wounds and ease pain .Sold by the govt in 1993 or 1994.Wonderful financial management in the eyes of that govt.Look we sold an asset to pay off debt,now we have no debt,aren’t we clever.Sold @ $2.50 on IPO,I didn’t buy any but had a look once in a while,every 5 years or so,it was performing well but I didn’t buy any.Then it ramped up and hit $100,I’ll wait until the price goes down,it didn’t.
The —- hit the fan,either stop looking at it,or buy it,an expensive buy at around $150 a share.What I didn’t know was they had a 3 for one split early in the journey.The cost base for my $150 share was approx 85 cents.The $2.50 share had grown to 3x $150 in 15 to 20 years.
R+D in a medical company is expensive,a lot of money goes there,the dividend yield is rubbish,perhaps A$1.80 yearly,the profit is inUS$ and converted to A$for me.Most of the profit is made o/seas.Most of the research is done in Australia,China and the USA.
The disruptors are the 234,500 shareholders. Of that number 208,000 hold less than 1000 shares,they have an average of around 175 shares,still a reasonable sum 175 X $280.
The holders of 1000 shares to 5000 shares number 21,500.
The number of shareholders that own 5000 to over 100,000 is 4,750,the real disruptors,or the rich disruptors that must be cursed at every opportunity,take your pick.
Now to the point,I am very difficult to annoy,you have slightly annoyed me,but you but your point over fairly I thought.
Now to the joke,do you want your board ( it seems) to be a local shop ( board) for local people.Or do we expand horizons and realise the limitations of the human race and how people can see completely different things on exactly the same info
@Mick — Your style of commenting — talking in detail about specific share trades that you have apparently made a lot of money on in the past, and added to your great wealth — is not really the style of this board. You must see that they are completely different from the way that everyone else is posting.
So I’ll be deleting further posts in this vein. Perhaps this seems (and maybe it is) an over-reaction, but I am extremely protective of the quality/tone of discussion we have on this site.
Your posts would be very appropriate on, say, ADVFN, say; they are ‘disruptive’ here because they are adding nothing to the kind of conversations we have.
Nothing personal. Good luck and all the best with your investing!
Dear Mr Investor.
I would like you to think of this as two friends having a beer.I am pointing out where you have gone wrong as a very general point,and in my opinion.The maths is all roughly correct,that is all you need.
1003 people in a room.1000 including you.
3 people alone having a laugh and a chat. Me ,Mick called M to save me typing with one finger. Xxd09 that seems to grasp the idea,now he is D,save me typing,and Buffett ( B)
M to D hiya D how did it go I heard you borrowed ( or had ) 10 in sterling or $ doesn’t matter and bought a fish and chip shop.
D to M ,I did after 60 years I’m selling it .Selling it in 2025,it compounded at 12.5% over that 60 period.I expect to sell it for 11,700.How did your widget making business go ,I heard you borrowed 10,you understand leverage.
M to D ,it went great mate,I paid the loan off as fast as I could and it cost me $£12. That 10 plus the interest of 2. I am selling it too after 60 years, I did what you did D,kept plugging away through the good and bad years. I’ve worked out it has been compounding at 15% so I expect to sell it for $£43,800 in 2025.
D to M,meet this bloke B,I was chatting to him for 5 minutes before you came.One of those office types,they all wear a suit,not like us grafters in the dirty jobs.
B’s story.I had 10,bought a company called Berkshire Hathaway,it made suit linings.Everybody wears a suit.That was a dumb idea but I really understand insurance companies.I stopped making linings and bought shares in Geico for the float.Then I bought the whole company.That compounded @ 20%,I’m also selling it in 2025.I’m struggling to compound that with mental arithmetic. So you’ll be selling it for 100 or 150K then ? B smiles and says you understand compounding obviously.I expect to sell it for $£563 ,000. WOW.
B smiles again and says it is surprising isn’t it .Compounding is the 8th wonder of the world.
Make of the 3 disruptors what you will. B and D and M,they refuse to see hindsight bias.
The 1000 people all had an index fund the S + P 500. Same $£10 compounded @ 10%. They think B and D and M are disruptive ( expletive deleted ) they are that full of shhh they have brown eyes.
They turned 10 into 3,000 in 60 years,wonderful.Local shop for local people.No disruptors allowed.
The door opens,a flash bloke steps out of a Rolls Royce.The 1,000 rush over,thank you so much flash bloke .We are glad we gave you $£10 for your wonderful expertise at making money,flash bloke says shucks,I am so glad I was able to help you.
The simple maths 10 x 1000 is 10,000.Flash bloke made 11% compounding over 60 years,he took 1% as his fee for being a financial genius.
$£ 10K compounded at 11% for 60 years is $5.24 million.
10K compounded @ 10% for 60 years is 3 million,the 1,000 people have 3000 each.How did flash bloke get the Rolls Royce.
Thankyou for your patience.I would like you to disable my e- mail or whatever it is that is done to prevent me posting.I would appreciate it if you left the posts up.Somebody may learn from them.
Make of it what you will,or see what you want to see,same thing.Please disable my ability to post,on the off chance I post again to point out things.
Cheers and Good day.
Back with a red face.The well known Buffett saying.
If they don,t see the simplicity of the concept in the first 30 seconds,they never see it in their entire lives .
Cheers
@Mick — You seem to think I don’t understand the potential power of leverage. I do:
https://monevator.com/pay-off-mortgage-or-invest/
As a new reader, you also may not be aware that I invest actively, unlike my passive investing purist co-blogger:
https://monevator.com/passive-vs-active-investing-episode-1/
The issue is not the idea that leverage can enhance returns, or that some people believe they have a good chance (and a minority a track record) of doing better than an index fund. Both those things are true for me.
It’s the way you’re posting, as I said in my previous comment.
E.g. Now you’re painting your 1,000 ‘local people’ as some sort of closed-minded dunces, when the overwhelming evidence is that most of them will actually do better than those who invest actively (including the vast majority of any who happen to be professional investors) .
I’m sorry but to talk about active investing on this site requires more awareness than what you’re bringing to your comments, rather than us needing more understanding, IMHO.
To reach a compromise and a truce, I’ll take your offer of leaving your posts up for any who found them useful, but I really will be deleting from here.
Many many years of moderating experience have taught me it’s better to nip this sort of thing in the bud. Nothing personal, and have a great weekend!