The wealth-building thread

[ahofer]

That same spread was inverted for many years until recently. These inversions "almost always lead to a recession" and people were wringing their hands hoping for a return of a "normal" yield curve. The recession never happened. Now that we have what they wanted they are wringing their hands again. Maybe they will be right this time but trying to trade off stuff like this has a poor track record.

Indeed it does. I’m a fixed income portfolio manager and the only manager who ever showed any possibly durable skill for interest rate anticipation bets (of which this is one) was Van Hoisington. I know a lot of my competitors get on TV and say where rates are going and predict recessions, but if you look at their portfolios, they aren’t putting a lot of their chips on those predictions.

I have steadfastly refused to do that sort of thing - which makes me boring to journalists (there could be other reasons). Years ago I was being interviewed on TV by Sue Herrera on CNBC, and she kept trying to get me to predict rates. She asked if the 10yr *could* go to zero. Somewhat exasperated, I pointed out that the real 10yr rate (the coupon on inflation-indexed bonds) was already negative. The chyron immediately flashed that I had predicted the 10yr was going to zero.

Much like audio press, financial journalism can be pretty short-term and shallow. But with investing, watch what investors DO not what they say. They often aren’t the same, and deliberately so.

 

[Tom C]

I can remember reading where one clever fellow would invite the Fed chairman to dinner, and trade currencies based on their conversations, with some success. I expect that’s as close as anybody can get to knowing what interest rates will do in the future. The FOMC reports are available on the official web site (as I’m sure you know).

 

[ahofer]

I can remember reading where one clever fellow would invite the Fed chairman to dinner, and trade currencies based on their conversations, with some success. I expect that’s as close as anybody can get to knowing what interest rates will do in the future. The FOMC reports are available on the official web site (as I’m sure you know).

Fed-watching actually worked until the Greenspan years. Although some of the best Fed-watchers still blew up under Volcker's hikes.

 

[dtaylo1066]

A good amount of chaos and uncertainty, and some developing unkind data points, point to a potentially volatile future. As always, all is speculation, and data driven decisions and Fed speculation only benefit one to a certain degree.

I am in the camp that we are in an irrational exhuberance moment. But, on the flip side, Fortune 500 companies have become more and more adept at managing profits to try and hit EBITA and growth expectations.

Historically, tariffs and isolationism policies highly corrletate to econcomic downturns, if not disasters.

I am in a mode of portfolio preservation, being overly conservative, and taking only a few chances here or there. But I am age 69. Up 6% for the year is just fine with me, and I have lots of downside protection.

People look at stocks, and only a few select stocks, far too much. And most do not pay enough attention to activity in the bond market, which is larger than the stock market.

But it is all very much a factor of one's age and risk tolerance. Roll dice when you are below age 55. Be less greedy after that, unless you have a lot of chips with which to play the game.

Historically massive amounts of investment are goint into AI, which will produce some huge winners and also a bunch of losers.

Silver is so boring, until you look at YTD returns.

 

[JeffS7444]

I "invested" $2 in a single Powerball ticket yesterday, figuring that it was the best buy as these things go, raising my odds of winning from nil to infinitesimal. As expected, I won nothing, save for some pleasant daydreams of what I might do with an $800M payout, even after taxes.

 

[levimax]

A good amount of chaos and uncertainty, and some developing unkind data points, point to a potentially volatile future. As always, all is speculation, and data driven decisions and Fed speculation only benefit one to a certain degree.

I am in the camp that we are in an irrational exhuberance moment. But, on the flip side, Fortune 500 companies have become more and more adept at managing profits to try and hit EBITA and growth expectations.

Historically, tariffs and isolationism policies highly corrletate to econcomic downturns, if not disasters.

I am in a mode of portfolio preservation, being overly conservative, and taking only a few chances here or there. But I am age 69. Up 6% for the year is just fine with me, and I have lots of downside protection.

People look at stocks, and only a few select stocks, far too much. And most do not pay enough attention to activity in the bond market, which is larger than the stock market.

But it is all very much a factor of one's age and risk tolerance. Roll dice when you are below age 55. Be less greedy after that, unless you have a lot of chips with which to play the game.

Historically massive amounts of investment are goint into AI, which will produce some huge winners and also a bunch of losers.

Silver is so boring, until you look at YTD returns.

The problem with "trying to be conservative", which I agree is a good idea in many cases, is that cash and bonds have become the riskiest and worst performing asset for many decades now when evaluated by purchasing power. Fiat currencies in the long run have only gone down in purchasing power over time. Stocks, precious metals, crypto, and real estate have all outperformed cash and bonds by huge margins for decades on end. There is a time and a place for cash and bonds but they should not be viewed as "low risk", rather they are one of many risky alternatives. Any way you look at it diversification is and always has been the best way to build wealth.

 

[dtaylo1066]

The problem with "trying to be conservative", which I agree is a good idea in many cases, is that cash and bonds have become the riskiest and worst performing asset for many decades now when evaluated by purchasing power. Fiat currencies in the long run have only gone down in purchasing power over time. Stocks, precious metals, crypto, and real estate have all outperformed cash and bonds by huge margins for decades on end. There is a time and a place for cash and bonds but they should not be viewed as "low risk", rather they are one of many risky alternatives. Any way you look at it diversification is and always has been the best way to build wealth.

Indeed. I moved into bonds basically after their rates increased, as one was losing to inflation prior to that. I essentially have a laddered 4.6% - 6% bond portfolio, as I bought at the high point on new issues, which are actual bonds, not bond funds, some which I will hold to maturity unless they are called. I also have some alternative very short-term investments that are not guaranteed but historically the company has always paid out at 100%. Those are 5.5% to 7.5%.

Yes, diversification is key, as is an ample reserve for down times. I have all that covered, and am fortunate to be in such a position, though I suspect the average net worth of ASR members to be far above the national average. I have plenty of money in the S&P 500 as well as chip stocks, which has rewarded me well in the last 3 years. But given the current times, I have lowered my risk tolerance. On the other hand, if and when there is a pronounced correction or downturn, I will pounce. I view greed and opportunity as two different animals. And even when things are ******, there is always some opportunity to be had.

 

[JeffS7444]

The wisdom of Bill & Ted works surprisingly well when it comes to investing.

 

[ahofer]

I won nothing, save for some pleasant daydreams of what I might do with an $800M payout, even after taxes.

Utility is a funny thing. I bought a fair amount of audio equipment that got me nothing, except the illusion of my music being brought to me over some allegedly refined electronic channels.

 

[JeffS7444]

Utility is a funny thing. I bought a fair amount of audio equipment that got me nothing, except the illusion of my music being brought to me over some allegedly refined electronic channels.

Shhh! That kind of utility-think can crash global economies

 

[blueone]

The problem with "trying to be conservative", which I agree is a good idea in many cases, is that cash and bonds have become the riskiest and worst performing asset for many decades now when evaluated by purchasing power. Fiat currencies in the long run have only gone down in purchasing power over time. Stocks, precious metals, crypto, and real estate have all outperformed cash and bonds by huge margins for decades on end. There is a time and a place for cash and bonds but they should not be viewed as "low risk", rather they are one of many risky alternatives. Any way you look at it diversification is and always has been the best way to build wealth.

I strongly agree. Cash and equivalents allow you (well, me at least) to sleep better at night when the equity markets are in convulsions, which we all know will happen from time to time. Lately the real BS story is the US government's measure of inflation versus what many of us see in real life. Homeowners insurance and auto insurance premiums are not going up by 2-4% annually, more like 10% or more annually, depending on where you live. My previous insurer tried to double the premium on my home last year. Even my umbrella policy is up by about 15% since last year. And, non-intuitively, premiums for higher coverages are going up faster than smaller policies. Trades people, like plumbers and electricians, are raising their rates by far more than a few percent too. Property taxes in many areas are going up faster than 2-4% because assessments are rising. Anything to do with car repair is more expensive than the official inflation rate would lead you to think.

It's easy to look at the interest payouts from high yield savings accounts or CDs and think you're ahead of the game, but after taxes and the reality checks above it's not even close. Cash has sucked as a savings vehicle for pretty much my entire life.

 

[Noske]

I just finished reading a book on the late Jim Simons, who created Renaissance Technologies. Since 1988 his Medallion hedge fund generated documented average returns of 66% per annum.

He eschewed finance type people. He employed all manner of highly regarded PhD mathematicians including computer scientists and of course electrical engineers. Very little of substance is provided about their actual analysis, except that it focused on exploiting statistically predictable market inefficiencies. Which is saying nothing, of course.

What became apparent was that as time went on, it had nothing to do with investing. Hundreds of thousands of transactions a day, many lasting only a minute or so. I think that they were correct only 50.6% of the time, but as one bloke said, they are right 100% 50.6% of the time. A casino, of sorts.

About zero human judgement involved, except on the very odd occasion when something obviously wasn't coded correctly and things melted down quickly.

Water tight non-disclosure agreements were/are enforced, so really, what they discovered is not explored, but rather just the shenanigans, successes and failures and mistakes along the way, both professionally and personally.

What struck me was the utter lack of emotional intelligence a lot of these people often displayed. I don't think I'd like to work with the main protagonists, although Simons was something of a gentle patriarchal figurehead.

 

[ahofer]

He eschewed finance type people. He employed all manner of highly regarded PhD mathematicians including computer scientists and of course electrical engineers. Very little of substance is provided about their actual analysis, except that it focused on exploiting statistically predictable market inefficiencies. Which is saying nothing, of course.

What became apparent was that as time went on, it had nothing to do with investing. Hundreds of thousands of transactions a day, many lasting only a minute or so. I think that they were correct only 50.6% of the time, but as one bloke said, they are right 100% 50.6% of the time. A casino, of sorts.

If you are going to run an algo, you have to trust the algo. In order to really trust the algo, you might have to understand it (or you are just naive). Investing is always a test of convictions.

 

[dtaylo1066]

I just finished reading a book on the late Jim Simons, who created Renaissance Technologies. Since 1988 his Medallion hedge fund generated documented average returns of 66% per annum.

He eschewed finance type people. He employed all manner of highly regarded PhD mathematicians including computer scientists and of course electrical engineers. Very little of substance is provided about their actual analysis, except that it focused on exploiting statistically predictable market inefficiencies. Which is saying nothing, of course.

What became apparent was that as time went on, it had nothing to do with investing. Hundreds of thousands of transactions a day, many lasting only a minute or so. I think that they were correct only 50.6% of the time, but as one bloke said, they are right 100% 50.6% of the time. A casino, of sorts.

About zero human judgement involved, except on the very odd occasion when something obviously wasn't coded correctly and things melted down quickly.

Water tight non-disclosure agreements were/are enforced, so really, what they discovered is not explored, but rather just the shenanigans, successes and failures and mistakes along the way, both professionally and personally.

What struck me was the utter lack of emotional intelligence a lot of these people often displayed. I don't think I'd like to work with the main protagonists, although Simons was something of a gentle patriarchal figurehead.

And low fees, too, at Medallion. Said no one ever. A blanket 4% plus 40% of your gains.

So, where will AI in 5 years take trading and funds?

 

[EJ3]

And low fees, too, at Medallion. Said no one ever. A blanket 4% plus 40% of your gains.

So, where will AI in 5 years take trading and funds?

So far, the AI pipedream leaves a lot to be desired.
It's about whom (& what) it learns from.
There doesn't take much bad information to be around for AI to be spewing out the same.

 

[JeffS7444]

This is a new one to me, spotted in today's WSJ.

On the Fence About a Spending Decision? Try the 0.01% Rule.
https://www.msn.com/en-us/money/new...pending-decision-try-the-001-rule/ar-AA1Mv6Ky

The upshot: If you are waffling over a minor purchase, and it amounts to no more than 0.01% of your net worth, don't sweat it. So if your net worth is $500K, go ahead and splurge on that $50 lunch.

 

[EJ3]

This is a new one to me, spotted in today's WSJ.

On the Fence About a Spending Decision? Try the 0.01% Rule.
https://www.msn.com/en-us/money/new...pending-decision-try-the-001-rule/ar-AA1Mv6Ky

The upshot: If you are waffling over a minor purchase, and it amounts to no more than 0.01% of your net worth, don't sweat it. So if your net worth is $500K, go ahead and splurge on that $50 lunch.

That is a new one on me, too.
My wife & I (sleep 4:00 am-10 AM):
3-4 days a week, breakfast (a banana, oatmeal with craisins, walnuts), other times about $12 on breakfast (sort of)
For $35: We can eat supper at the pizza joint a garlic & oil sauce, fresh mozzarella, spinach, grilled onions, double Italian sausage, portabella mushroom 16" pizza (8 large slices, 2 each [we drink water, good for you & free]).
Then take the other half of it home. It will serve (1 slice each per day) as part of our home cooked meals for 2 days.
So we average about $75 a week eating out for 2 people.
At the moment, only I have SS but she will start in Dec with early SS.
Everything is paid for (home, vehicles, etc [& I pay the utilities & insurances up a year ahead of time]).
I guess that the vehicle I drive could be an investment (2004 Chevy Silverado 1500 HD SS [it's kind of rare]).
Maybe the fact that everything is paid off is the investment. (including the credit cards).

 

[dtaylo1066]

That is a new one on me, too.
My wife & I (sleep 4:00 am-10 AM):
3-4 days a week, breakfast (a banana, oatmeal with craisins, walnuts), other times about $12 on breakfast (sort of)
For $35: We can eat supper at the pizza joint a garlic & oil sauce, fresh mozzarella, spinach, grilled onions, double Italian sausage, portabella mushroom 16" pizza (8 large slices, 2 each [we drink water, good for you & free]).
Then take the other half of it home. It will serve (1 slice each per day) as part of our home cooked meals for 2 days.
So we average about $75 a week eating out for 2 people.
At the moment, only I have SS but she will start in Dec with early SS.
Everything is paid for (home, vehicles, etc [& I pay the utilities & insurances up a year ahead of time]).
I guess that the vehicle I drive could be an investment (2004 Chevy Silverado 1500 HD SS [it's kind of rare]).
Maybe the fact that everything is paid off is the investment. (including the credit cards).

But you paid $63,000 for your DAC, right?

 

[EJ3]

But you paid $63,000 for your DAC, right?

I once had $76,000 in credit card debt (being single until I was 48, making good money & traveling a LOT [14 trips through the Panama canal going to all sorts of places in the Indian Ocean & Western Pacific, mostly between +- 15 degrees of the equator {yep, I prefer warmer weather}]). I will say that I had a lot of fun but pretty much had nothing tangible for what I spent. Not a waste of money to me but many people look at it as a waste of money.
The 1 DAC that I have is part of my oPPo 205 UDP.

 

[Oddball]

Moody’s: US recession could be avoided if the wealthy keep spending

Moody’s says America can dodge a downturn if high earners keep shopping. What about Indonesia?

www.idnfinancials.com

Interesting perspective.