The data you have pointed to is pretty limited.
In any event, the future has no obligation to mirror the past.
That's really the key point that you're missing for some strange reason.
Where to put the money safe if you think a crash is coming
- Thread starter Tastebuds
- Start date
In any event, the future has no obligation to mirror the past.
That's really the key point that you're missing for some strange reason.
That's ridiculous Sarenco!! - that's akin to saying that past performance is somehow not a reliable guide to future performance!
Brilliant, Elacsaplau…….note Gordon's desperate attempt to characterise past performance as recent past performance
What Gordon doesn't seem to grasp is that without risk there would be no return , risk is what makes the return , to say investing for 20 years is risk free makes no sense . Return and risk go hand in hand , you are rewarded for taking risk but there is a risk that you will lose some or all of your investment , anyone that doesn't understand this shouldn't be investing at all.
Also looking at 20 year periods over 100 or 200 years is pointless as far as statistical analysis goes , its can never be used to prove a point.
Also looking at 20 year periods over 100 or 200 years is pointless as far as statistical analysis goes , its can never be used to prove a point.
Gordon Gekko
Registered User
- Messages
- 7,849
You boys are gas.
You dismiss data from 1870 or thereabouts to the present day.
You think that it’s unreasonable to assume that things that have never happened won’t happen.
And you dress it up with the bastardised mantra of “past performance”...
It hasn’t rained blood over the last 150 years either...is it wrong to conclude that it won’t rain blood prospectively?
You dismiss data from 1870 or thereabouts to the present day.
You think that it’s unreasonable to assume that things that have never happened won’t happen.
And you dress it up with the bastardised mantra of “past performance”...
It hasn’t rained blood over the last 150 years either...is it wrong to conclude that it won’t rain blood prospectively?
Gordon Gekko
Registered User
- Messages
- 7,849
Why?
An S&P investor with a 20 year time-horizon has never lost over the 150 years of available data (backfilled pre-1926). Even the poor guy who invested the day before every major shock.
Yet you’re disputing that people are safe from permanent loss of capital over 20 years from today.
I would venture that it is you guys who do not understand risk.
Duke of Marmalade
Registered User
- Messages
- 4,596
A typical financial model would posit that equities enjoy an average risk premium over cash of c.3% p.a. but with an annual volatility about this long term trend of c.15% p.a. On this model there is an 18% risk that equities will under perform cash over 20 years and there is a 82% risk that cash will under perform equities over the same time frame. So over 20 years which is the riskier?
As mentioned before, I think the model actually overstates the risk of equities versus cash as there are systemic checks and balances to help equities out of crashes. I don't know whether the criticisms of GG are because of his absolutist statements but putting absolutism aside I think he is substantially correct.
As mentioned before, I think the model actually overstates the risk of equities versus cash as there are systemic checks and balances to help equities out of crashes. I don't know whether the criticisms of GG are because of his absolutist statements but putting absolutism aside I think he is substantially correct.
Agreed
That’s not the argument Duke. Absolutely nobody is arguing about the benefits of equities over cash over a long horizon. The argument is that investing in equities is risk free over 20 years.
Duke of Marmalade
Registered User
- Messages
- 4,596
Okay, the absolutist statement obviously does not hold. I also think we have extremely sparse data on the experience over 20 years. MSCI is going 50 years. That is 2.5 independent 20 year periods. I also think further back is of diminishing relevance in informing us about current geo/socio/economic/financial conditions. We have historically low interest rates especially at the long end. So we are in a historic G.S.E.F scenario; that points to us putting less credence on history as to where we go from here.
20 year blocks out of 150 year data is absolutely tiny .
I’m well aware of what risk is I made a lot of money from understanding risk and return. If there was genuinely no 20 year risk then the stock market return would be much lower , just because the stock market has a positive expected return doesn’t mean it will over any X period , i would argue that its impossible to tell if someone is lucky or clever even Warren Buffet over his career as a lifetime is too short for statistical reasons.
Agreed - makes no sense - still you got to hand it to Gordon for his conviction, however, misguided.
That's the key point here
elacsaplau
Registered User
- Messages
- 892
I've re-read this thread and in fairness to Gordon his key message that a long-term buy and hold approach has been successful in stock market investing history is valid. In saying this, I do not wish to diminish the points made by other posters which I understand and appreciate and I don't agree with everything Gordon has said.
However, on a relative scale his position is certainly far more appropriate than the moon is in the third phase of Shani Sade Sati approach that I derided way back in post 7 of this thread.
However, on a relative scale his position is certainly far more appropriate than the moon is in the third phase of Shani Sade Sati approach that I derided way back in post 7 of this thread.
Again nobody is arguing against that. The issue is the Gordon thinks that unless you are 100% invested in equities all of the time then that is the same as gambling on horses. Or that if you invest in global equities for 20 years it is a risk free investment. I 100% agree that people should not sell in a falling market out of fear if they have a long term objective. They shouldn’t react to newspaper reports about 10% correction in the Dow like it is some sort of end of world scenario and sell out of all equity holdings. However there might be times when I think other asset classes look attractive versus equities at a particular period of time. I might be looking at the general situation and not be 100% sure which way the market is going to react so yes there are times when I want to move a minority % of my holdings out of equities. I am not claiming I will outperform the market over 20 years. I am not claiming I can generate alpha returns to make hedge funds blush. I can’t manage my pension per se. I am limited to what I can do within the confines of the scheme set up. The fund manager will reallocate my assets based on my age which is considered sensible but sometimes there are other reasons other than age that reallocating assets for a period of time makes sense to me. I don’t do it on the back of daily price movements or Donald trumps tweets. I can read economic news and I work with fund managers every single day. I am comfortable making my decisions. Gordon can question my mental capacity all he likes but he has yet to provide one example of a regulated fund manager publishing marketing material guaranteeing equity investors a positive return after 20 years. I would love to see it because I know a couple of central bankers who would like a look at their risk models. And if it was true, fund managers would be shouting it from the roof tops.
But you are ignoring risk. Over the 20 year period your annual returns fluctuated. Take, for example, a “made up” index that lost 54% in 1998 and its subsequent returns were those of the S&P500 for that period. By the end of 2017 your capital sum has returned to its original amount, but in the period concerned your returns have fluctuated with a standard deviation of about 21%. This is real risk you have taken on and for which you have not been rewarded. If you assume a risk free rate of about 2.75% on a long duration bond, you've a negative Sharpe ratio of about -13%. You have not made a wise investment as you have not been rewarded for the market risk you have taken on. It's not just that you get your capital sum back , it's that you get your capital sum back and also are rewarded for taking on market risk. Otherwise you put your savings directly in government bonds or analogues.
But let's assume what you say is correct, and that investing for 20 periods does not result in a capital loss. This implies long duration investing is equivalent to buying a bond that will deliver a capital sum equal to your original investment after 20 years (or whatever your selected time period). If this were true, it has happened only because at the start of the 20 years period, stocks were priced to deliver returns the sum of which are equal to your initial investment over the period concerned. If the price at purchase is higher you have a longer duration to wait for the accumulated returns equal your initial investment and if the price is lower your duration is shorter. The 'price' of a stock market is its price/dividend ratio. If you assume the dividend rate is constant, the price of the index must also grow at the same rate as dividends over the period concerned. Currently, for the S&P the dividend yield is 1.84% (end 2017) http://www.multpl.com/s-p-500-dividend-yield/table, so the price/dividend is about 42, which implies a holding period of in excess of 40 years as of today. So those starting out investing today, and only these people, should be totally invested in US stocks, as current prices imply a risk free investment, if you hold until you retire. [If the USD is not your functional currency you are, however, also taking on exchange rate risk.]
Last edited:
elacsaplau
Registered User
- Messages
- 892
Is there a risk that EU governments will cancel the 100K deposit guarantee with each big banks?
I rely on such guarantee in case of economic recession...
I was reading FT and it looks like the crisis on the way for next year.
That's why I suggest spreading amounts around in less than 100K-chunks in Banks that are independent from each other. Even if I invest in shares I wouldn't leave more than 100K with the same broker but I would keep diversifying. I would suggest a best buys on shares-brokers if possible. I love my 3: degiro, Interactive Investors and IG.com.
Just to highlight the point again that the majority of Irish people that got wiped out in the financial crash did so because of bad investments in property not in stock markets. Even people who lost out through investing in bank shares are a small proportion of the wealth that was permanently lost through property investment. Yet people are still overly cautious and suspicious of the stock markets and everyone is back gung ho into property investment . You rarely see people on the property investment threads now talking about a risk of a big fall in property prices
I agree. At the same time I pray the guarantee on deposits stays please... When I read the title I panicked... Something I am not aware of?
Anyone who invests wisely in property is not too concerned about price falls. Property is a long term asset, as long as the yield holds up investors make a return.
Who are these people who lost out on property investments. Anyone who bought at the height of the market on a sustainable yield has seen their interest costs fall and their rental income rise.
Can you identify a single property investment, not a speculative development punt, something with a yield purchased at a price commensurate with that yield that lost money.
People like Brendans friends whose repayments were a multiple of his rental income day one were speculating pure and simple, thats not property investing.