Wednesday assorted links


3. From the link:

The Dow gained 38 points in the 1970s. [Timing is everything.]

Since 1916, the Dow has made new all-time highs less than 5% of all days, but over that time it’s up 25,568%. 95% of the time you’re underwater. [Timing is everything.]

At the low in 2009, U.S. stocks were back to where they were in 1996.
Stocks for the long-run. The very long-run. Usually. Sometimes. {Timing is everything.]

At the bottom in 2009, long-term U.S. government bonds outperformed the stock market over the previous 40 years. [Timing is everything.]

If you had invested from 1960-1980 and beaten the market by 5% each year, you would have made less money than if you had invested from 1980-2000 and underperformed the market by 5% a year (A Nicky Numbers Special). When you were born > almost everything else. [Timing is everything.]

Of course, it's when the market is down that the small investor is most likely to sell because of the need for cash. Let's see: buy high and sell low, or sell high and buy low? It's a joke, but not to typical small investors. Cyclical and counter-cyclical economic polices are often consider at this blog, but the reality is that many small investors don't have a choice. I commented at another blog that ordinary individuals should be able to make deposits at the Fed and earn a reasonable return. The host ridiculed my comment like I was a fool. Why is it that economists worship data except when it counters everything they believe.

" I was a fool"

Well, I mean, we don't always see ourselves as others do.

Yes, you are exactly right, the blogger who treated me as a fool has a large retirement (401(k)) account and can ride out swings in the market and doesn't have to sell in a down market and assumes everyone else is just like him.

Is your view evidence-based? Are there really small investors out there in the stock market who have to sell when stocks decline- to what, pay for groceries?

In the early 90s I was a small investor not far removed from being a starving student when my car was totaled in an accident. To avoid paying interest on a loan I would've had to sell some stock -- just at the time when the stock market had entered a bear market.

I've actually forgotten what I did, I think my parents gave me a few thousand and I borrowed a few thousand, and the rest came from the insurance company reimbursing my claim for my totaled car.

If an investor, small or large, is investing funds they need to spend in the near term (next 1-3 years) in the stock market they are a bigger fool than you are. That's not some evil conspiracy of the elites, that's just common sense.

"that's just common sense."

One would hope.

"suicide of the hands. there are so many varieties." An investor today is better off looking at companies that have distribution channels setup instead of start ups. The growth industry of technology in the 21st century has had a fig leaf effect: the creature recipe for time came from the same earth. the same earth, a perfect sense. for this midwesterner, there is great agony. what the hell, i'm sorry but follow the drift wood until you reach photograph.

I have a minor quibble here that, at the high end where your expenses are a small fraction of your portfolio, people commonly eschew the traditional cash emergency fund.

If my expenses are $200k per year and my portfolio is $20m, does it really make sense for me to keep $100k in cash as an anchor on my portfolio? Or should I just commit to the fact that it's always better in terms of expectations to have a dollar invested rather than sitting in cash and tolerate that sometimes that means I'll be selling in a down market.

It's market timing to expect you can use cash to ride out down markets anyway, and we're supposed to believe (and I agree) that it's not possible to do that well in general. Larger scale versions of this strategy like "five years in cash" for a retiree can lead to weird things happening to asset allocation in certain sequences of returns if you aren't really attentive and thinking about the portfolio in total. You don't want to accidentally become really conservative at the bottom of a bear market.

Here's a thread on a Bogleheads forum where many people, not all, talk about minimizing the cash they hold:

Stock market declines often coincide with or presage a declining economy. With index funds, that's even more likely the case. When the economy declines, a lots of folks earnings decline or even lose their jobs. I'm pleased that many of the commenters at this blog have sufficient savings or earnings that they aren't subject to the vicissitudes of the market, but lots of folks are. Why else would so many sell in a down market? Because they enjoy the pain of financial losses?

Again, if you invest all of your savings including your safety fund and your liquidity fund in the market, you are an idiot. That's not what the market is for. And there's no one to blame but the investor.

Rayward, You know I love you, man.

This year, the year-end down market (the wife was about to jump all over that lovely young man) was favorable for those of us that need to take required minimum distributions from 401K's/IRA's; and the market since 1/1/2019 is largely recovered from the Christmas Eve debacle. I trade out of my 401K, so I don't worry about RMD. But, the wife is in a managed account with 60/40 equities/debt securities.

I have notes on a WSJ article on how to bullet-proof retirement accounts. They said to spread it over three main venues: cash/checking/short governments; medium term low-risk, investment quality debt; and equities. You set the proportions based on risk tolerance, capabilities to monitor and react, etc.

Today, I was honored to provide tax accounting advice to a real American hero.

I'm not the only one who has questioned the investment options of the small investor. The small investor can invest in the typical fund with high fees or in an index fund. The problem with the former is that the financial industry sucks the life out of the returns, while in the latter, huge swings in the market are actually exaggerated because so many are invested in index funds so the small investor's losses are amplified when she has to sell in a down market. Depositing funds with the Fed would be a safe alternative, the alternative only available to banks. Why is it limited to banks? Some thoughtful folks have questioned that, and have suggested than anybody be allowed to make deposits with the Fed. msgkings I am confident has insightful views on these issues.

"msgkings I am confident has insightful views on these issues."

Smartest thing you've said in a while. Any funds you need liquid, that you might need in a down market, should not be in the market at all. The stock market is for assets you don't need for a while.

Also, do you expect the Fed deposit account would get anywhere near stock market returns? That's apples and oranges. A Fed deposit would be a good place to stash the funds a small investor (or large one) would need to spend. But the returns are far less than what you get in stocks, with your long term money. Banks get 2.4% on their reserves, that's not a stock market substitute for small or large investors.

Finance and tech are not your game. Stick to Episcopalianism and small-town lawyering.

I think in ray's mind the Fed could just give people who are struggling a nice 4% return...'cause they deserve it or whatever and it would be a nice thing to do.

Money markets and high yield savings accounts yield about the same amount. CDs return more.

Pops, anyone who invests in a fund with fees is an idiot. There are multitudes of ETFs one can buy and hold.

Small investors have almost limitless options. The only thing by law they’re prevented from investing in is PE and hedge funds.

What, may I ask, is wrong with depositing money in a regular bank or a credit union, rather than the Federal Reserve Bank?

Because the fed doesn’t pay interest on reserves (IOR) for small investors. [Timing is everything.]. Checkmate, Sumner.

And AirBnB and DropBox and Netflix are just advertising, waiting to melt down in the coming bubble. America used to make things, now we sell ads to the Chinese and bundle them in securitized loans. [Timing is everything.]

When’s the last time an American company made something useful, like steel? Now it’s all advertising firms like MySQL, or JSON. Just meaningless combinations of letters!


Not rayward.

The responses to my comment are avoidance of the data in Cowen's link. How many comments to my comment actually respond to the data in Cowen's link? That's right, none.

That's because, and this is obvious to even a toddler, that we are responding to what you said after you cut and pasted some of the data from the link. Your comment had nothing to do with the data. Your comment was about how market volatility is a problem for small investors who need liquidity in down markets, and also how people should be aloowed to earn 2.4% like the banks do at the Fed.

So we were replying to that nonsense. How much sense is in your comments about finance? That's right, none.

4. Grumbles by the juniors. Big deal, at least they have a shot at a nice trip. They're not required to take part in the scam. Operated as designed the juniors wouldn't necessarily ever get a layover in Paris.

#6.."Finally, as an application of the model, we compute optimal minimum wage policy. We find that a minimum wage which binds for 5% of workers in the pre-minimum wage equilibrium is welfare maximizing. The welfare gains from implementing this policy are worth .07% of lifetime consumption. What limits the efficacy of the minimum wage is that since the minimum wage binds mostly for smaller low-wage firms, concentration rises as the minimum wage rises. In many markets, households face lower perceived wages, and eventually, employment begins to fall if the minimum wage rises too much."

Interesting. BTW, here is a sensible Oped from Alan Kreuger a few years back...The Minimum Wage: How Much Is Too Much? By Alan B. Krueger
Oct. 9, 2015

#2. Plain English?

"In plain English, the former colleague was said to be intentionally exercising the meat nozzle directly on to Hingst in what he believed was a campaign of harassment."

Whatever else can be said about Aussies, their slang game is unparalleled. Lots of great terms for farting I hadn't heard in that article.

He appears to be from the west of England.

#1: The Melbourne engineer claimed that his supervisor "thrusted his bum" [sic] at him as part of a "complex conspiracy" to "marginalise him and terminate his employment"

I dunno, guy, farting at someone doesn't strike me as a particularly complex conspiracy. Seems rather simple, actually.

I wonder if the boss is related to the French knight from Monty Python and the Holy Grail: "I fart in your general direction. Your mother was a hamster, and your father smelt of elderberries.”

Normal male sibling behavior. Eat some cabbage and onions and fight back.

#5...Just read the following excellent book which helped me understand this a bit..."Blueprint: How DNA Makes Us Who We Are" by Robert Plomin

#3-20 seems like a misinterpretation: "In 1949 the stock market was trading at 6.8x earnings and had a 7.5% dividend yield. 50 years later it reached a high of 30x earnings and carried just a 1% dividend yield.
You can calculate everything yet still not know how investors are going to feel"

The former was in the midst of a recession and expectations for more trouble given post-war deflation. The latter was at the tail end of a recession, facing expectations of a typical (as of 2009) rapid rebound in economic activity.

2. More on weaponized interdependence.


I interpreted the sanction cancellation as a smooth trick to hand the dim kim son a break in dealing with NK hardliners. Like Trump himself was over ruling his own hardliners for the dim one.

I take a harsher view, that Trump is just a random old Fox News viewer, second-guessing a government he doesn't have the motivation or capacity to lead.

Still, try to make that work for me .. do we have any real indication that Kim Jong Un is captive of "hardliners" and isn't doing just whatever the f' he wants?

No direct evidence, none. But his demands for withdrawal of American troops from various places around Asia sounded like a Chinese demand.

“I take a harsher view”. We gathered that, mousy, because you are predictable. Howsabout you spend thinking about Kim and why one might want to be obsequious to him. a) he’s really got a “personal rule” thing happening, so flattering him might repeat might work for us, OR b) he’s got hardliners to worry about in which case he may need some support. TBH I lean towards the former interpretation of Kim’s predicament. But at least my position isn’t knee jerk anti Trump.

Why shouldn't I trust the State Department on that? With input from the national intelligence services?

I think it is a strength of my argument that I don't rely on anyone being a "special" genius.

By the way, watching the pushback from Republicans on Trump's sudden "plan" to kill Obamacare and become "the party of healthcare?"

If that too is "special" genius, feel free to describe this new better health system!

It looks to me like more delirium from the mad king.

Why not trust the state Department w.r.t North Korea? Because after decades of trusting the establishment we have nothing to show for it?

Seriously your bashing of trumps North Korean policy might have more validity if our previous policies were anything but a failure

Sometimes deadlock is the best achievable outcome.

And in that time our ally South Korea has certainly excelled.

Is Kim really the dim one here? Seems he gets more out of these exchanges than the master dealmaker Himself can muster.

The correlation between the y/y change in the S&P 500 and the y/y change in the S&P earnings per share is essentially zero.

No doubt, it measures a trend, low pass filtering of any index changes. In other words, gathering and maintaining the index happens slower than changes in EPS, specifically to partially cancel out short term EPS from the mix.

3. Sure. Mandelbrot's book is still one of the best on mechanisms. And I think it's clear that the Dow guys aren't dumb, and decided to be a synthetic S&P 500 long ago. They probably have a list of replacements for any one stock to maintain the overall proxy. Of course when one is dropped, the replacement is back-tested against that standard.

5. What's that imply, that anyone's genome could be improved by removing rare variants? Perhaps, at a cost to future adaption ..

Maybe, but who wants to take the gamble on "Maybe we'll be able to adapt to a new disease in 50,000 years" over "Large gains to higher fitness, and ideally and in all likelihood ability, right now"?

Homo Sapiens is likely to be obsolete by the time most rare variants become relevant, and if we really need more, we can always sideload specifically useful stuff from other species (if CRISPR-like techniques work well enough to remove rare variants in the first place!).

"1. Since 1916, the Dow has made new all-time highs less than 5% of all days, but over that time it’s up 25,568%. 95% of the time you’re underwater. The less you look the better off you’ll be."

This doesn't appear to be very numerate or literate, and most of all, realistic. For example, if I bought the Dow in 1916 and held until today, I would not have been underwater 95 percent of the time. Far from it! Or, If for another example, I bought at 100 on day 1 and the Dow hit 150 on day two and then traded between 100 and 150 for, say, 100 days, and then hit another "all-time high" on day 103, "new all-time highs" would have been reached on less than 5 percent of the holding days, but I would not have been "underwater" 95 percent of the time. Also, Dow stocks pay dividends, you know. Why should I consider myself underwater if, dividends included, I've made money?

Many of the other "facts" suffer from similar mistakes and misleading notions. And, no Rayward, this has nothing to do with "timing". Most people don't buy stocks at the open of every trading day and sell at the close of the same day. And, even if you are a professional trader and not an investor, there are intra-day fluctuations. They trade in order to make money from rubes like Rayward who think they can time the market!

Yeah, if you spend a career investing in stocks, it's probably closer to the truth that 95% of the time you're above water, and all the below water stuff happens in early years. The suggestion that a shoe box is better than stocks 95% of the time is insane and unhelpful.

I believe he’s saying that 95% of days the index is lower than the previous high. Not the usual meaning of “under water”, certainly.

6. That paper reminds me of Danny Meyer the prominent NYC restauranteur and owner of shake shack, who also happens to be a prominent member of the Democratic Party. On the face of it, you would assume that he would be anti min wage legislation. However, because his market position is already established, a rising min wage can be a powerful anti competitive tool against smaller rivals and new market entrants.

It also reminds me of the scholarship of Gabriel Kolko and why large firms can grow to embrace regulation, especially at the federal level.

5 - 47.1 million was a lot lower than I would have guessed as a useful number. Only by one order of magnitude (half a billion would have been my guess), but still.

We will see if my intuition is right or if the b-xiv paper was more successful and truthful than I would have guessed . right.

ten twenty thirty forty fifty sixty seventy eighty ninety one hundred (one ssffttt), "theory over practice, serendipity over forethought, and texture over craft"

'The culture that is Australia?'... a bit harsh...
I am not sure how you understand this article to be a reflection of Australian culture. I personally think that suing your boss over something so unusual is much more common in the states than in Australia.
Australia is currently having some very interesting and important debates about culture and our national identity. Much of this, has come as our nation reacts to the news of an Australian terrorist and an Australian white-extremist politician doing an enormous amount of harm in this world.
When I read the title, I assumed it would be related. Instead, I felt the intention was more around ridiculing Australia. Which I am not saying we don't deserve, just that I would have hoped the conversation under the banner: "Australia's culture" on a website like, during this time, would be more considerate and relevant.

Btw, I absolutely love this website. Just a bit disappointed.

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