A Wealth of Common Sense

For economics: * Noah Smith: fhttps://www.noahpinion.blog * Since he's retired from his NYT column after 25 years, Krugman: https://paulkrugman.substack.com For personal finance / business: * https://awealthofcommonsense.com * https://ofdollarsanddata.com

And before the peak it was the greatest asset bubble of all time! "A $100,000 investment in Japanese large cap stocks in 1970 would have turned into $5.7 million by 1989." [0] [0] https://awealthofcommonsense.com/2016/09/the-greatest-bubble-of-all-ti…

Are you sure you're thinking this through? The Fed is actually about to hit the brakes, people are expecting 7 rate increases this year and more next year. The current 30 year mortgage rate is around 3.5%, the median sale price for a house in the bay area is $1.5 million. With 20% down that's $3500 a month for principal and interest. If the Fed follows through and raises rates say 2%, it turns into $5500 a month. Doesn't do much for affordability. And if you're thinking prices will fall when rates rise, that's not what has happened in the past. Over the last 50 years, every time there has been an environment with rising interest rates, housing prices have gone up, not down: https://awealthofcommonsense.com/2022/01/will-higher-mortgage-rates-de… So you will be paying a much higher rate on a more expensive house.

> People have claimed gold was a hedge against inflation and financial asset bubbles for a long time. Sometimes it is even true. It's hardly ever been true. Erb and Harvey wrote two papers on this and found gold isn't useful: * https://www.nber.org/papers/w18706 * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2639284 Harvey's main claim to fame is his observation of the yield curve inversion occurrence before US recessions. > If there is a big stock market crash, then you just hold on to your stock throughout. Good investing fable that runs the numbers: > Meet Bob. > Bob is the world’s worst market timer. > What follows is Bob’s tale of terrible timing of his stock purchases. * https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/ In the accumulation phase of your financial journey there is only one rule: * https://ofdollarsanddata.com/just-keep-buying/

>A tale of the worlds worst market timer: https://awealthofcommonsense.com/2014/02/worlds-worst-market... I see this posted from time to time, but the assumptions are kind of silly. A huge portion of the "miraculous" returns come from the fact that this fictional person was able to put an entire year's worth of salary into the market in one go, 50 years ago. In 1970 the average salary was about $6,000, but he managed to save one third each year to invest? So, sure it demonstrates the power of compounding. But, to me, an alternative lesson is that you can be an incredibly diligent saver and, through sheer bad luck, have barely enough to retire. I mean, it's not like $1MM in retirement money means "set for life" anymore.

The idea that we've never had a market correction with passive holdings at current levels is accurate. It also was an accurate statement in 2008, and it also applies to foreigners and mutual funds now, both of which have increased their holdings of equities over time and both of which have substantially greater holdings than index funds. https://awealthofcommonsense.com/wp-content/uploads/2019/09/Annotation…

The market is trending will right now we are looking at higher highs. My system suggests it and has been right when everyone was running away from the market in 14/16/18. You should read the worlds worst market timer [1]. For most people the best way is to just put all their money in stocks. Obviously not just SPY, maybe a world index, SPY and bonds. This way you can sell the bonds if the market drops and use that for living expenses, or to average out the downturn. [1] https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

> People tend to put more in the market when times are good (and the market is high), and less when times are bad (because they have less money), which mutes performance. Yes, but even so, it's worth doing: http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

"Home prices look remarkably stable when corrected for inflation. Over the 100 years ending in 1990 — before the recent housing boom — real home prices rose only 0.2 percent a year, on average. The smallness of that increase seems best explained by rising productivity in construction, which offset increasing costs of land and labor." From Nobel Prize winner Robert Shiller https://awealthofcommonsense.com/2013/04/robert-shiller-on-real-estate…

True, past performance is no guarantee for future returns. Worth taking a look at the worst market timer of all time. http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

But do you want to invest or do you want to trade? If what you want is to invest your objective should be to get the average of the market as cheaply as possible not beat it. Here are two articles to help you with that: For the rational part: https://web.stanford.edu/~wfsharpe/art/active/active.htm For the emotional part: http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/ And if you need a good source for knowledge and ongoing support boggleheads is an amazing forum/site: https://www.bogleheads.org/

If you invested only at the peaks, right before crashes? Still works out great. http://awealthofcommonsense.com/worlds-worst-market-timer/

> A Keynesian beauty contest is a metaphorical beauty contest in which judges are rewarded for selecting the most popular choices among all judges, rather than those they may personally find the most attractive. This idea is often applied in financial markets, whereby investors could profit more by buying whichever stocks they think other investors will buy, rather than the stocks that have fundamentally the best value, because when other people buy a stock, they bid up the price, allowing an earlier investor to cash out with a profit, regardless of whether the price increases are supported by its fundamentals and theoretical arguments. * https://en.wikipedia.org/wiki/Keynesian_beauty_contest Plenty of folks may think these companies are garbage but are 'playing along' because it's not necessarily what they themselves think that is important, but what others think. You can make money in a bubble, even when it eventually pops. What we're seeing now is hardly new, either: * https://en.wikipedia.org/wiki/Technological_Revolutions_and_Financial_… This is why I stick with index funds, as I don't really can't be bothered playing the game: * https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street I generally check my portfolio once a year, in January, when I top things up when new contribution room becomes available with the new year. It's 'fun' to follow along with the gyrations and drama as things happen, but I don't sleep over it. If you're reasonably…

In short, we are now an army of proofreaders, in addition to readers, interpreters and users/implementers of written material. > At work I was sent a long design document and asked for my thoughts on it. As I read, I had a really hard time following it. Eventually I guessed correctly > Parts of it sounded like a decent design document, but there was just way too much fluff that served only to confuse me. > Intent is the core thing: the lack of intent is what makes reading AI-slop so revolting. There needs to be a human intent—human will and human care—behind everything that is demanded of our care and attention. I am reminded of the "writing lesson" scene in "A River Runs Through it", pretty obviously reflecting the author's education as a writer.[0] > Norman is at his desk hard at work writing a paper which he then turns into his father for review. His father marks it up with a red pen and simply says, “Half as long.” > Norman goes back to work, cuts the length of the paper in half and turns it in for further review. His father marks it up once more and says, “Again, half as long.” > Following a final round of edits, his father looks over the finished product and says, “Good, now throw it away.” Well, we don't throw away polished work on the job. The scene is about education. LLM's are uneducated in communicating to readers, compared to skilled writers, and technical writing, especially, is not like summer reading, where nothing really matters but some vague plot…

> Regardless if it fits to FT’s thesis or not, note that the S&P recent gains can be attributed to 7 tech companies Exxon Mobil (XON) was the #3 company in 2001, but not even in the top twenty in 2021: * https://www.bespokepremium.com/think-big-blog/largest-25-stocks-in-the… <5% of companies have driven most of the returns of equities: This is important because most stocks suck: > We study long-run shareholder outcomes for over 64,000 global common stocks during the January 1990 to December 2020 period. We document that the majority, 55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, we find that the top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the US, 1.41% of firms account for the $US 30.7 trillion in net wealth creation. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251 > Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important…

Could you please substantiate your claims? This is what I mean and what I do, by always allocating the same amount of savings per year, in good or bad times [1]. You can see how in 2008 such portfolio had a drawdown of more than -50%. Despite that, it performed well above the 8% IRR I mentioned. Another interesting data point, by investing lump sums of money at the very peak of every market cycle, immediately followed by a massive crash [2]. I believe the IRR in this case is still above 7%, which is absolutely phenomenal considering the horrible investing timing. If you don't agree, please tell me exactly why I am wrong and why you are right, so I might learn something. I come to HN to read HN-quality comments, not Reddit-quality content. Thank you. [1] https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=… [2] https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

Typically, no. It's been shown time and time again that people cannot reliably time the market. If they could, with leverage you could become the richest person on the planet in a short time. You have to understand that if indeed people could in general know that the market was going to crash, then people would have already sold, and the impending crash would already have been priced in. It follows from that, that the current price essentially is our collective best guess at what the future will bring, including any expectations of recessions. Selling beyond that point means you're seeing something that nobody else does, which either makes you a genius (or lucky), or wrong, and the odds are typically not in your favour. You can find articles on recession indicators flaring up every month for the past decade. Suppose we had no sense of time, and just a sense of the daily weather to track the seasons. A few warm days in a row may indicate summer has landed, or it's just a normal fluctuation, a few weird days as winter turns to spring. And vice versa with cold days. There'll always be some indicators which may signal something bigger, and it could be just noise, or it could be truly indicative. You don't really know until after the fact. And if you could predict it, then it's likely everyone else could, too, and it'd have already been priced in so trying to time the market tends not to work. This simplifies things a bit, but unless you're close to retirement (at which point…

See Ben Clarson's post introducing the topic - http://awealthofcommonsense.com/2018/07/something-i-changed-my-mind-ab… Highlights from the article: - More people in the 18-25 years old age group regularly watch and play esports than any other traditional sport. - A small town in Poland hosted an event this year that was watched live by people from 180 different countries. The audience was 3x as large as it was for the most recent MLB World Series. More people attended this event in person than the last 3 Super Bowls combined. - The esports audience in Asia is 4x larger than it is in the U.S., so this is truly a global phenomenon. - One event in a tournament called the League of Legends was viewed by 80 million fans. - Twitch is one of the streaming services that allows people to view these events. The service already has a bigger audience than CNN or MSNBC. They get more than 15 million daily unique viewers. They’re owned by Amazon (because of course, Bezos was on top of this trend before anyone else). - The video gaming audience is 5x the size of Netflix subscribers. - There’s a league called Overwatch which has teams owned by people who already own a professional sports team. This list includes Robert Kraft (New England Patriots), Jeff Wilpon (New York Mets), Stan Kroenke (LA Rams and Denver Nuggets) and Dave Scott (Philadelphia Flyers). The teams cost them $20 million a piece.

> Their rates have gone negative, from time to time. Nobody disputes that occasionally, real rates have turned negative (Great depression, 1970's, or after the GFC 2011-2013 in the USA, with some countries in Europe even having negative nominal rates). However, predominantly real rates are positive [1, 2, 3 or even your 1], and some of the earlier episodes were arguably caused by the gold standard. > non-bank institutions who couldn't find a buyer for their Treasuries fast enough to avoid default on short-term debt. That's a liquidity problem, as you say yourself, unrelated to rates, no? EDIT: ah, you're refuting the notion that treasuries are safer than cash. Again, though, you could call that a liquidity problem - if you have loads of cash deposited with a local bank, you might not be able to withdraw it all at once, either. [1] https://data.worldbank.org/indicator/FR.INR.RINR?end=2016&location… [2] https://www.treasury.gov/resource-center/data-chart-center/interest-ra… [3] http://awealthofcommonsense.com/2015/12/a-history-of-real-interest-rat…

I think this.... > Mr. Dalio returned to run Bridgewater earlier this year after stepping back to a mentor role six years ago. Is what's driving almost all of his new found desire for a unified AI to run everything. Here you have a man who by any measure has been wildly successful, he tried stepping back and letting other take over but ended up finding that the team he left in charge didn't make the exact decisions he would have. If the story ended there it wouldn't be in any way surprising, who hasn't left a team and second guessed the decisions that the new leaders have made. It turns out that when you are worth 15 Billion one of the things you can do is hire a shit load of AI experts, like one of the heads of IBM's Watson team, to build an AI to make decisions based on WWRDD, "What would Ray Dalio Do"? Since his first retirement failed, this is his new take on how to have his second retirement go smoother. Just build an AI that bases all decisions on the Bridge water principles that he wrote down years ago. see: https://www.principles.com/ As an aside, he recently let Tony Robbins publish his ideal portfolio, the all weather portfolio. It's actually a pretty strong portfolio for the average person. http://awealthofcommonsense.com/2014/11/back-testing-tony-robbins-weat… http://www.moneysense.ca/invest/raining-on-the-all-seasons-portfolio/

Because they got cheaper for quite a while. Meanwhile vs Canada (turn on your ad blocker): https://awealthofcommonsense.com/2023/09/the-u-s-housing-market-vs-the…

Reminds me of this [1] article, quoting Seinfeld, "In the seventies, this is the tragic turn of American culture. And this was explained to me by Mario Joiner who cracked this puzzle that I could not figure out what the hell happened. That money became everything. What happened because it was not like that in the seventies. In the seventies, it’s how cool is your job? How cool is what you’re doing? If your job’s cooler than my job, you beat me." I too wanna work on cooler stuff. Sooner rather than later. [1]: https://awealthofcommonsense.com/2024/05/seinfeld-on-when-money-became…

Data is proving otherwise. While locally shortages do happen, in general there more resources available than ever: http://awealthofcommonsense.com/2023/04/50-ways-the-world-is-getting-b…

Meet Bob. Bob is the world’s worst market timer. https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

Top 10% is actually a lot of people! Wealth equality is not really a goal, it better to ask if the bottom 50% got wealthier in absolute terms, which the author answers in another post: https://awealthofcommonsense.com/2024/06/the-bottom-50/

I read this[1] a while back and it has stuck with me. There is a huge economy of doomers trying to convince you everything is just about to fall apart and they have some solution that will save you from the uninformed masses. [1] https://awealthofcommonsense.com/2023/12/rich-author-poor-readers/

As I understand it, the Canada housing market is significantly more broken than the US one overall: https://awealthofcommonsense.com/2023/09/the-u-s-housing-market-vs-the… Also, isn't there now a massive concern about large scale loan defaults and bankruptcies the next time mortgage rates reset in Canada?

Are you saying the average american doesn't have a disposable monthly $100? That is demonstrably false - the statistics about current income and life costs paint the opposite picture: not only Americans but average people all over world are wealthier than they've ever been. There are inequalities, of course, (like Europeans falling behind) but the Americans are doing very well indeed. So please stop with your propaganda. https://awealthofcommonsense.com/2023/10/americans-have-never-been-wea… Americans have that disposable $100. Now they may very well be deciding to throw it away on cigarettes, alcohol, weed, various entertainment (tv) or all sorts of crap - but that is a whole other discussion altogether.

The losses are over twice as big as those seen in 1981 when 10-year yields neared 16%. https://markets.businessinsider.com/news/bonds/treasury-bond-yields-ma… A little more detail: https://awealthofcommonsense.com/2023/10/the-worst-bond-bear-market-in…

i would like to see the "mortgage origination by credit score" chart show number of homes in the y axis instead of billions of dollars. of course that chart will be more drastic in the past two years with inflated home prices. in it's current state, that chart doesn't convincingly make the argument he's trying to make with it. link: https://awealthofcommonsense.com/wp-content/uploads/2022/12/Screenshot…