I\u2019m going to indulge in a common fallacy for a moment here \u2013 and write a little bit of opinion that is 100% outside my area of expertise. This is a common way for even clever people to wind up looking like idiots \u2013 but hey \u2013 so are blogs:<\/p>\n\n\n\n
technolope<\/a> shared an article recently: http:\/\/www.hussman.net\/wmc\/wmc100308.htm <\/a>, by a fellow with a \u201clong memory.\u201d The core of that article is the observation that sometime in the 1990s the American stock market completed a transition from what might be called \u201cfundamentals based\u201d trading to, perhaps \u201ctechnical\u201d trading. Rather than trying to predict the behavior and profitability of companies \u2013 people took to trading against pure patterns in the market itself. This has led to increased volatility, wildly inaccurate pricing, and bubble after bubble.<\/p>\n\n\n\n Note that bubbles are nothing new \u2013 they just come much, much faster in the new world.<\/p>\n\n\n\n My opinion: He doesn\u2019t take it far enough. The old model might be summed up as: \u201cInvesting is putting my money to work. I will buy into the American growth engine. As the (piece of the) economy (that I own) grows, so does my wealth.\u201d People would buy pieces of corporations based on business fundamentals, expecting \u201ctheir\u201d companies to use the money wisely and to make a profit over the long haul based on long term growth and dividends.<\/p>\n\n\n\n The new school might be, by contrast: \u201cInvesting is a fast paced, high stakes game. I will go to the poker table to fleece these other rubes out of their coin.\u201d The thought that a shareholder might -actually- own a piece of a real company is far from most investors minds. In fact, the person who wants to buy and hold \u2013 hoping for either dividends or (snort!) long term growth is just an old fashioned sucker in this new world. He\u2019s the guy who dumps some money on the table and then flirts with the cocktail waitress all night \u2013 assuming that his pile of chips will take care of themselves.<\/p>\n\n\n\n That guy? That\u2019s you and me and our 401k plans.<\/p>\n\n\n\n The core difference, to me, is that in the old model it was explicitly possible for \u201ceveryone\u201d to win. Sure, some companies would not grow as fast as others \u2013 but since the overall economy was the basic mechanism of profit \u2013 the game was non-zero-sum. Interestingly, the old system actually reinforced that economic growth because companies who looked likely to succeed in the long haul got valued more highly \u2013 and had more capital to work with.<\/p>\n\n\n\n In the new model \u2013 there is no time for that sort of thing to work. I\u2019m counting my profits by the day and by the week. Therefore, my profits cannot come from the business or the economy at a whole. They must come from your losses \u2013 and vice versa.<\/p>\n\n\n\n The new system *explicitly* removes the most important good feature of the old fashioned stock market \u2013 putting capital to work in the economy. Because profits are instantly removed and redistributed \u2013 it actually removes money day-to-day and punishes companies who focus on business fundamentals.<\/p>\n\n\n\n What does this do for me as a guy in my 30s, trying to save enough money that I don\u2019t have to be a Wal-Mart greeter in my 70s? Well, it means that my answer to that old question \u201cwhat\u2019s your tolerance for risk\u201d is \u201cI have no stomach for it.\u201d Don\u2019t put my chips on the table at all. I\u2019m an old fashioned, utilities, T-bills, and specific companies kind of investor. You want my money, mr. company? Pay regular dividends and show me the math about how you\u2019re going to grow steadily over the next 20 years.<\/p>\n\n\n\n I have no interest in contributing to wall street bonuses \u2013 so I\u2019m getting out of the street.<\/p>\n\n\n\n See ya \u2013 suckers. True, there\u2019s no free drinks from the cocktail waitress \u2013 but at least I\u2019m not destroying America.<\/p>\n","protected":false},"excerpt":{"rendered":" I\u2019m going to indulge in a common fallacy for a moment here \u2013 and write a little bit of opinion that is 100% outside my area of expertise. This is a common way for even clever people to wind up looking like idiots \u2013 but…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[50],"tags":[],"class_list":["post-1712","post","type-post","status-publish","format-standard","hentry","category-economics"],"_links":{"self":[{"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/posts\/1712","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/comments?post=1712"}],"version-history":[{"count":1,"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/posts\/1712\/revisions"}],"predecessor-version":[{"id":1713,"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/posts\/1712\/revisions\/1713"}],"wp:attachment":[{"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/media?parent=1712"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/categories?post=1712"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dwan.org\/index.php\/wp-json\/wp\/v2\/tags?post=1712"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}