I was asked this question by a reader in an email and it is one I think about quite often. Rather than just answer it in private I thought I'd do it here.
I just don't know how to value stocks these days. There seems to be two things driving them and I'm not a fan of either.
1. I'm not a believer in debt based stock markets. It reminds me too much of the Great Depression. We're pumping so much new unsustainable government debt into the system as an attempt to simply prop things up. That does not comfort me.
2. I'm not a believer in commodity based stock markets. It reminds me too much of the 1970s. I was tempted to buy stocks when the prices were lower, but I was even more tempted to buy things like oil and palladium. In hindsight, as impressive as the stock market rally was from the bottom, the rally in oil and palladium was even greater. That does not comfort me.
In my opinion, we're combining the deflationary Great Depression and the inflationary 1970s to form a relatively tame inflationary enviornment. Unfortunately, two wrongs are not going to make a right. Both eras were known for their high unemployment and that's exactly what we've been getting.
If you could show me a relatively sustainable US debt path and relatively stable commodity markets then I do think I could own stocks again. We seem to be further away from that environment now than when I turned bearish in 2004 though.
Here are two things we know for sure.
1. The rate of recovery from this current recession has been anemic at best. At the pace we are currently on, it could be many years before we fully recover.
2. If we slip into another recession before we've fully recovered from this one, things are going to get really ugly.
The DJIA was roughly 10,150 when I exited in 2004. It sits at roughly that level now. It's been 6 years of nothing. We could easily get 10 more years of nothing. I'm not saying we will. I'm simply saying that we could.
Krugman: Lost Decade Looming?
Despite a chorus of voices claiming otherwise, we aren’t Greece. We are, however, looking more and more like Japan.
I will end this on one of my favorite quotes. I use it often.
It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong. - George Soros
If I buy stocks and I am right to do it then I will be better off in the future than I am now. I don't really need to be better off though. I live a modest lifestyle and I have no great material wants. Having twice as much money will not double my happiness.
If I buy stocks and I am wrong to do it then I will probably need to go back to work at some point. Further, if I am wrong to buy stocks now then unemployment could be even higher in the future than it is now. That would not be an ideal environment for me to find a job that I may desperately need.
All things considered, owning stocks is just not worth the risk to me.
"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." - George Soros
ReplyDeleteThis works in playing poker as well, great quote.
Ideally I would love to buy an S&P 500 index fund and let it run. No muss, no fuss. Of course the last 10 years have not been kind to that idea. Wild swings of down 50% then up 80% then down 10% does not appeal to my investment style, which is protect the bankroll at all costs. I would rather miss gaining 20% than lose 5%, thats the way I am; I HATE losses.
At the bottom a while back had we really curtailed the banking industry and owned up to our debt issues I could have been swayed that an overall investment in the broad markets was a solid idea. That did not happen.
As is, single stock picking works in spots but as an overall plan I am staying away.
GYSC,
ReplyDeleteI retired a few years before I planned to retire simply because work conditions were affecting my health. Corporate fraud combined with layoff after layoff made morale extremely low for all of us.
I do not have the means to safely take on extra risk. I probably would have some of my money in the stock market if I could afford to lose that money, but I don't.
I don't think the vast majority of people have the means to safely take on that extra risk either of course. At least some are taking on the extra risk because they already know they don't have enough to retire comfortably.
It's like the poor who hope that the next lottery ticket will pay off. It just ends up being a "voluntary" tax on those who can least afford it.
OK, what if you were from a small country with a fairly thin capital base and a tendency for everyone to bugger off to Australia, and you had some children and you wanted them to TAKE AN INTEREST in the making and doing of their country?
ReplyDeleteAnd you didn't particularly need the money for yourself?
Would you buy stocks then? (NZ and Aus?)
I do hope so.
You probably wouldn't have bought in 2007/2008, though. Ouch.
Otepoti,
ReplyDeleteIf I had children then I'd probably try to invest the money in my children directly.
For some reason, my parents decided to buy the World Book Encyclopedia set the year I was born. I probably read it cover to cover by the time I graduated high school, not that much of it stuck, lol.
Yes, I remember reading that and laughing a bit. Here it was "buy it in 52 weekly parts" - we got a lot of stuff that way. The rest of my education came off the back of vinyl record covers.
ReplyDeleteI take your point. However, there comes a time when infusions of money into your child no longer yield a marginal return in terms of adult character - in fact they can be counter-productive. Time is the thing. Wodges and wodges of time. That explains almost all of my parenting philosophy.
Hope your long-running chestiness is getting better.
Cheers
Otepoti,
ReplyDeleteInfusions of money don't seem to help anyone all that much. It's just a claim on future productivity.
Just take a look at me. I'm very unproductive. All I really do to contribute to society is done here on my blog. I'm not sure heckling society is helping society though, lol.
In other news...
You could probably set the atomic clock based on my lungs. He's coughing up green again, right on schedule! ;)
And lastly...
You might find this amusing. It's the kind of thing I might let my children play if I had children.
Lemonade Stand
It is a great humbling tool. I lost it all on the first playthrough. I had a nice fortune built up after the first few days and then things went to you know where in a you know what.
I had no idea there would be a day when nobody would want ANY of my lemonade! I was fully invested. D'oh!
Thanks, that lemonade stand does look like fun.
ReplyDeleteFor your chest -
a nurse friend says that medicine today is fixated on providing cures when sometimes palliation plus time is the effective therapy. Have you tried a daily steam inhalation (bowl of hot water, towel over your head) with some Vicks or Friar's Balsam or your American equivalent? It's old-fashioned but it's comforting, and it seems to help.
Best wishes
Otepoti
Otepoti,
ReplyDeleteI tried using a personal steamer for several weeks but it didn't seem to help much.
I also tried a lot of saline nasal spray but the problem doesn't seem to be in my nose (other than the allergies I always have that is).
Oh dear, in that case I am all out of helpful suggestions.
ReplyDeleteUnless - unless - you want to try getting married?
(It worked for Adelaide.)
"The average unmarried female
Basically insecure
Due to some long frustration may react
With psychosomatic symptoms
Difficult to endure
Affecting the upper respiratory tract.
In other words, just from waiting around for that plain little band of gold
A person can develop a cold."
Mazel tov!
Otepoti,
ReplyDeleteNice, lol.
I was married once. It ended with her coming over to my/our house on my birthday to pick up the last of her stuff.
She didn't know it was my birthday and I figured no good could come from me pointing it out. I guess that was pretty much my last gift to her. All she would have done was cry.
I can say that I did not have any respiratory tract problems. You might be onto something!
That said, back then I could have probably used a gastrointestinal problems poem though. Between the divorce, front page of the Wall Street Journal level fraud at my company, and falling into a large lump sum investment payoff (even positive change is stressful), I was definitely popping my fair share of antacids. ;)