How to do your own research?

sebtomato

masonic wrote: »

You may be gambling on shares for all I know. As alluded to by Linton above and me in my previous post, if you understood a little more about what drives markets you'd be able to invest without taking risks akin to gambling.

Please enlighten us on what's going to drive markets in the next few years then, as you seem to be in the know. Which countries will do well? Which types of assets will do well?
Can you tell us where money can be invested now so that it has positive returns and retains capital value over the next few years? Please do let us know how to make investments "without taking risks"?

Unfortunately, you most probably can't answer those questions, and I think I understand probably better than you do what drives markets. The main factor is...sentiment, and not completely rational. On that basis, will the sentiment continue to be positive in the US and the UK in 2020?

Apodemus

Seb, to be fair, Masonic didn’t say “without taking risks” he said “without taking risks akin to gambling”. There is a big difference!

masonic

sebtomato wrote: »

Please enlighten us on what's going to drive markets in the next few years then, as you seem to be in the know. Which countries will do well? Which types of assets will do well?
Can you tell us where money can be invested now so that it has positive returns and retains capital value over the next few years?

As I've pointed out already, short term fluctuations in the markets are largely irrelevant for an investor. Those things are important to traders and speculators (aka gamblers), which I am not.

Please do let us know how to make investments "without taking risks"?

It's impossible to save or invest without taking risks and at no point did I suggest otherwise. As has already been pointed out, the difference between investing and gambling isn't the absence vs presence of risk, it's that the odds are highly stacked in your favour when investing, vs stacked against you when gambling.

Unfortunately, you most probably can't answer those questions, and I think I understand probably better than you do what drives markets. The main factor is...sentiment, and not completely rational. On that basis, will the sentiment continue to be positive in the US and the UK in 2020?

In the short-term, which seems to be where you are focused, it's really not much better than random. Hence you could gamble on markets going up or down in 2020 and that would be a gamble. An investor wouldn't do that. If the success of your investment strategy is contingent on you making the right call as to whether sentiment will continue to be positive this year in those two countries, it isn't a very good investment strategy. I agree with you that nvesting over such short time periods is tantamount to gambling. That's why it is generally recommended that you invest in equities for a minimum period of 10-15 years.

The famous quote by Benjamin Graham sums it up: "In the short run, the market is a voting machine but in the long run, it is a weighing machine."

itwasntme001

There is a lot of nonsense debate on this thread which appears it will go round in circles. I tend to agree with sebtomato however.


Gambling in it's strictest definition according to wiki is "wagering of money or something of value on an event with an uncertain outcome, with the primary intent of winning money or material goods".


By this definition, anything you "invest" in is a gamble, even cash where you are gambling on opportunity cost although its a hell of a lot less riskier then stocks and should be considered as a proxy for risk-free. Widening your time horizon for your stock investments may reduce shorter term price volatility but you are still taking risk and a lot of risk.


Stocks by their structure are simply way too unpredictable whether short term or long term as they depend on a confluence of variables that no one can ever consistently forecast accurately. Both economic and business variables. You of course may get rewarded for taking this risk, but it is by no mean certain over a long time horizon. Of course no one said anything about a certain reward but people on this forum tend to think a very high certainty of a good reward at the end of the long enough horizon. There is no basis for this high certainty except for past performance and I would certainly not place a gamble on past performance alone.


I also tend to find people being encouraged on this forum from time to time if they are young to be "all-in" in equities except for some emergency cash reserve. I think this is bad advice and not optimal at all. People should think in terms of the efficient frontier, broadly speaking.



Japan is a good example that debunks the "stocks for the long run" nonsense. I do not see anything similar between Japan's stock market to the US stock market given Japan was clearly in a bubble with rising inflation and overheating economy. US is not close. But that does not mean US stocks will not be a bad investment for the next decade. Far from it.


What is going to drive earnings growth going forward? When there is potential for labour costs to rise (and therefore margins fall), increasing competition perhaps due to tech reforms (and therefore margins fall in aggregate), even slower growth or recession (and therefore earnings falling) and so on and so forth.


Of course we could start booming again and stocks rally much more even from here.


So lets just all agree that it is all a gamble really.

itwasntme001

Some thoughts on the comparison between lottery and stocks:


- There is a known probability distribution of payoffs for the lottery but not for stocks.
- The expected payoff for the lottery is less than the cost of entering the lottery. For stocks it is completely unknown whether for short or long term.
- Lower entry costs for lottery - for the same amount it is completely useless to invest in stocks given upfront trade costs.
- You have to look at utility whether a gamble (whether stocks or lottery) is worthwhile - you could argue more people prefer the excitement of the lottery (especially when done in groups) then investing in stocks, despite the guaranteed loss in the lottery on an expected basis. This means that adjusting for utility the expected payoff can be more than the cost.
- With stocks you can have time to recover losses but by no means is this guaranteed. With the lottery, if you lose the money is lost forever.


The good news is you get to pick your gamble. The bad news is it is still a gamble whether short or long term.

itwasntme001

On the argument that you might as well be heavily invested in stocks because if it does not turn out well then the economy is screwed anyway so it wont matter:


You could have stocks losing in real terms over the next 10 or 20 years with the economy just doing fine and you would be kicking yourself for having more in stocks then bonds, property, cash etc.


The argument is only valid if and only if a real economic collapse happens AND we do not come out of it. You have many more possibilities of a collapse but you come out of it (e.g. GFC) in which case you may not want to be heavily invested just prior to the crash as there is a decent chance of not having a decent return in real terms (perhaps ever) whilst the economy recovers and then does just fine.


I am shocked by the complacency of those who post on here, some who otherwise appear to be pretty intelligent posters.

Linton

itwasntme001 wrote: »

On the argument that you might as well be heavily invested in stocks because if it does not turn out well then the economy is screwed anyway so it wont matter:


You could have stocks losing in real terms over the next 10 or 20 years with the economy just doing fine and you would be kicking yourself for having more in stocks then bonds, property, cash etc.

1) You should be investing world wide. So you are talking about a long term world wide collapse in asset values.

2) If the economy is doing well then companies are growing, making profits, and paying out dividends. As a share holder you own these companies. How can companies be doing well and the owners not benefit? You and your fellow shareholders have the power to sack the directors should that be happening.


You receive dividends, and if shares are cheap you get a lot of dividends for your money. Other people will want a to get the same benefits and will want to buy those shares. If many people want to buy something the price goes up.



3) No one is suggesting you put all your money into shares. You also need to hold cash, maybe property, and fixed interest investments such as government and corporate bonds. The investment skill is to hold the right %s of each to match your objectives.

The argument is only valid if and only if a real economic collapse happens AND we do not come out of it. You have many more possibilities of a collapse but you come out of it (e.g. GFC) in which case you may not want to be heavily invested just prior to the crash as there is a decent chance of not having a decent return in real terms (perhaps ever) whilst the economy recovers and then does just fine.

If there is a collapse and we do come out of it then share prices will recover, that is part of what a recovery means. One of the reasons why you hold a range of different types of investments is that if one type falls in value reducing its % in your portfolio you should rebalance by selling some of the relatively expensive assets and buying more of the unusually cheap ones. You will therefore get extra benefit when prices recover. This is an example of selling high and buying low, a well proven way of making money.

I am shocked by the complacency of those who post on here, some who otherwise appear to be pretty intelligent posters.

What is your alternative strategy?