Former econometrician here:
Yes. Correct.
Ever since stock buybacks became the bog standard default, and P/E ratios are between ‘significantly elevated’ and ‘completely fucking delusional’…
Yep. None this shit makes any real sense.
Which is actually a huge problem.
Because… the economic ‘point’ of a stock market, in capitalism, is more or less to act as a kind of giant, collective brain, that figures out how to efficiently and rationally allocate capital and investments.
The ‘invisible hand’, and all that.
So when that brain spends a decade or two more or less in a euphoric psychotic break… (“irrational exuberance”)… well… it doesn’t exactly make sound financial choices.
Which translates into about two decades of nonsensical investment of a society’s resources.
Free market fundamentalism kind of requires that you assume capital markets are rational and efficient, always.
… But … they aren’t.
Less ‘theoretically’: Its a giant gambling machine, and if you’re not rigging the game yourself, 99.9999% chance you’re the mark, you’re gonna lose.
And you won’t see it coming, not untill its too late for you to get out intact.
Economists have for a long time referred to state run lotteries as effectively an ‘idiot tax’, because anyone who can do fairly basic statistics also knows they’re very likely to lose money, thus, only idiots gamble.
The stock market as it is now more or less represents a more complex version of the same kind of thing… you’ve got the day traders, and they almost always get their clocks cleaned, they just develop a neurotic-obsessive personality based on ‘no, I’m the one guy that can outsmart the market’.
No, you can’t.
Anyone who wastes 4 years on a commerce degree: explain why TSLA is $480. They will curl up in a fetal position crying.
A… commerce degree?
Forgive my American dialect, but is that… Canadian… for a Business degree?
Uh anyway, myself having degrees in Econ and Poli Sci, here’s my attempt at explaining it, at this late date:
Sunk Cost Fallacy.
IE, its now essentially its own self-perpetuating delusion, its own bubble all in and of itself.
How did it get to this point?
Uh, Elon is a con artist.
See the same part of the Poli Sci textbooks that attempt to answer ‘Why do people who are directly, negatively impacted by Republican policies keep voting for them?’
Though at that point we may need to just delve more into Psychology, groupthink, socially performed identities, cults, etc.
The main issue with all of this is that we still Indeed value companies based on this. It’s totally insane and leads to all the wrong development and ultimately to our downfall.
Ever since stock buybacks became the bog standard default, and P/E ratios are between ‘significantly elevated’ and ‘completely fucking delusional’…
At what point do we start to consider that capitalist economies aren’t broken, but that they never worked in the first place?
Ideally around 150 years ago, but far, far too late is better than never.
You mean 500 p/e for an established company isn’t reasonable just because they scribbled AI on a piece of paper? 😱
Don’t index funds work better than individual stocks?
Index funds work better than 80% of stock analysts.
They do, however a lot of people have known that for a while.
The large index funds have a lot of influence when it comes to voting.
As more and more people just invest in ETFs I do wonder if we are headed for some delightful market crash as a result.
I’m not even close to an expert though… Which is why I use index funds in the first place. Just wondering how I’m going to get screwed before it eventually happens.
Index funds are much better than individual stocks. But Index fund price to earnings ratios (P/E) still reflect their individual component stocks.
When the P/E ratio is 40, a rough way to read that is “it will take 40 years of stability for this purchase to pay off”.
Many people don’t have 40 working years left to wait for a stock purchase today to pay off.
And the supply of “years of stability” isn’t looking amazing, right now, either.
More or less this, yes.
Index funds are generally less risky than trying to pick individual stocks, balance your own long term portfolio, or god help you, be an active day trader…
But, as pinball wizard says… if the blend of stocks the index etf is based on… if all the components are also varying degrees of delusional…
Then everything could break, rather rapidly, if enough small delusions, or one big shared delusion… are revealed as such.
I’m not actually, nor have I ever legally been a financial advisor, but I am giving some advice:
Go make a chart of the DJIA, divided by the USD price of Gold.
… Gold is pretty signifcantly outperforming the stock market, in this 2nd Trump term.
As the Chinese say, we are currently living in ‘interesting’ times.
it’s incredibly easy to beat the market when it a bull market (where do you think all these ratfucks put their illgotten gains…), i’m up 5000%+ ytd, not shorting anything just buying low selling high
Yes, and then the trick is timing your exit or restructuring into countercyclicals … at the right time.
And timing is the part almost everyone fucks up.
Also, if you’re ‘buying low and selling high’, and you’re up 5000%+ ytd?
Then you’re basically daytrading, which basically means this is a full on part time job for you, at least…
… and while did you say you’re not shortselling, you did not say you’re not using any leverage.
So uh yeah, best of luck, hope you can keep up the perfectly timed dance, and never miss a beat, nor miss an upcoming time signature change.
not day trading, that’s the real beautiful part of actually knowing how all this works. just avoid the obviously overpriced shit, trade with the barest understanding of the actual value of the underlying and don’t short anything and it’s practically impossible to lose $ in a bull market.
more of swing/event trader i guess. the casino is designed to catch your eye daily to keep you playing as much as possible but most movement outside of monthly/quarterly is bullshit algo games, MM’s incentived to “make things exciting”. the real money is made on the slightly longer timescales when you know when to hold/sell (event trades of course going on their own schedule)
point is in a bull market, especially a bubble…there’s shitloads of $ flying around, all these ratfucks getting blank checks from corrupt uncle sam don’t spend their $…they put it into the casino, add in the passive/algo traders, pensioners just mindlessly buying in every paycheck etc… hunting that liquidity down for yourself really isnt all that hard to do once you understand they key differences between US markets and rest of world (especially EU, who like theirs predictable)
i don’t plan on doing it very long, while it’s not day trading it is far more active than I’d care to do longterm, and it kind of puts a bad taste in your mouth when you know how it works and have a working concious. I started out working class nobody, you know what these rich fucks call a job? the labor trap…wages are capped, and politicians they’ve bribed keep it that way. the game is rigged, playing fair only insures you stay poor for life
but when a bubble bursts and everything crashes…anyone with barest understanding of the markets stands to make a shitload. i’ll probably be able to turn this 5000% gain into 10-20x that easy if not more… i’ll cash out a couple million and try to break into some industry that interests me (still not sure yet), then spend rest of my freetime trying to put this blood money to good use fixing this fucked up country/world we’ve built for ourselves
… right.
At no point did you deny that you’re using leverage.
Which means that if your understanding of ‘how it all works’ is… wrong… in any significant way…
Well then your personal situation unwinds in a micro version of how the rest of the economy currently is.
Your strategy relies on never making a significant mistake.
Statistically, you will.
Oh right, also this:
A few million is nothing.
Maybe enough to confidently own a pretty nice home.
Assuming the starving mob doesn’t visit you.
In terms of fixing society?
That’s roughly on the scale of helping hundreds or thousands in your local community, on an ongoing basis.
Nothing, in the grand scheme of things.
… A couple million?
Jeff Bezos makes ~3 million dollars in a single hour.
An hour.
Try and square that, really try and think about that.
That house you wanna get, that non profit you wanna set up?
That you took huge risks for, for multiple years, some how lucky enough to never fuck up?
That’s an hour of Jeff sleeping.
He could see your house, or envision that non profit in a dream, and then on a whim, just buy 8 of them when he wakes up.
The solution to this, to trying to fix society, is not trying to beat them at their own game.
The solution is breaking the rules of the game.
After all… that’s how they got to be where they are.
i said cash out a couple mil, i’ll have double digit millions in port to still work with, just more passively.
i was skeptical at first too, but it really doesn’t take that much risk to print a stupid amount of $ in a market like this, leverage helps you exponentially long as your not completely fucking stupid. don’t short anything (at a price you don’t want to sell/own, atleast, if you want to for whatever reason), don’t trade shit you don’t understand, and cut your losers fast/let your winners run
follow those basic rules and it’s impossible to get margin called (long as you don’t max it like an idiot, top out at 50% or so to give yourself buffer zone)
Yeah ok so you’re levered up, think everyone else doing the same thing are ‘fucking stupid’ ‘idiots’, dumber than you, because you have the secret sauce to doing it slightly differently.
I will now quote my original comment:
… you’ve got the day traders, and they almost always get their clocks cleaned, they just develop a neurotic-obsessive personality based on ‘no, I’m the one guy that can outsmart the market’.
I didn’t expect one to actually appear, but, well hey there ya go.
I guess I should also amend ‘grandiose narcissist’ to my psych profile of the kind of person that does what you’re doing.
Here, lemme throw the ZeroHedge motto at you:
“On a long enough timeline, the survival rate for everyone drops to zero.”
Good luck with your dance.
there’s an old saying that goes pigs and lambs get slaughtered, bulls and bears can always make $.
it really isn’t nearly as risky as everyone makes it out to be if you use a modicum of common sense.
granted, there’s also Buffet’s old saying that everyone is a genius in a bull market…which is precisely why i’m using all the leverage i safely can…all this ratfuckimg is being pumped into the msrkets, might as well take as much for yourself as you can while it lasts because the crash is coming sooner than later (can’t time the top, but you can buy insurance via puts on the blatantly overpriced indices)…that’s the big filter that seperates those that know from those that think they know
The stakes are much higher but yes.
So is the adrenaline rush…
It’s getting pretty close to astrology these days
I will do you one better. The Stockmarket is more like a roulette wheel.
A roulette wheel where a handful of old guys can just stop the wheel and put the glass ball wherever they want.
A roulette wheel gives everyone a fair chance with only the house (stock exchange) taking a cut.
The stock market lets people who make giant bets give themselves an advantage. Also if they are famous or powerful they can announce what they are going to pick which will help make that number win.
Then there are HFT’s which is like if the house let really rich people install a camera tied to a computer and place bets just before the ball lands in the slot.
Then there are HFT’s which is like if the house let really rich people install a camera tied to a computer and place bets just before the ball lands in the slot.
Not only that, but the winnings of camera instabet players are automatically deducted from everyone else’s winnings.
Exhibit 1: https://www.multpl.com/shiller-pe
Exhibit 2: Tesla’s 323 P/E ratio and $1.6 trillion market cap.
With a positive expected value, in theory, so long as we’re able to sustain growth forever.
It’s a casino but the odds have been overwhelmingly stacked toward the house, and they get away with it because the officials overseeing it all cheat.
What are memecoins then?
