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The Same Mistakes - Reflation Thread Addendum


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Given some of the discussion on the reflation thread I felt moved to share the following. DYOR and not advice, but listening to the uber-experienced may well save someone like me from making stoo

Amazon is interesting because it is the fusion of a tech (i.e. information-processing) company with a retail company, and that fusion turns out to trump traditional retail. I can see the logic of extr

Its more fun mining gold - proper man stuff, no soy-lattes and server farms involved.

I am not yet seeing my 'shoeshine contacts' talking about the stock market.

My in-laws and non financial friends are a very good indicator of bubble tops.  They were talking about how to buy gold when it hit 1900 a few years back, and then bitcoin when it hit 10k the first time.  Now it's all Apple and Tesla.

None of them are talking about bitcoin or gold.  None of them are talking about oil, or commodities.

Meanwhile I just sold half my holdings in a small Australian uranium miner at 75% up in 3 weeks.  Effectively still got the original stake in there and the free money will sit on the sidelines waiting for the BK.

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5 hours ago, Harley said:

Nicely written.  Sage advice.  What's the purpose/scope of this thread?  Why is it an addendum?

I wanted it as a reminder to settle myself (and maybe others) when considering buying crazy modern shit over actual real shit hence making the same historic mistakes as others.

It spoke to me as a 'despite numerous previous times when people think they've found the next guaranteed pay-off that puts old-school investments in the tomb they haven't' experience. I was thinking of all the modern, fashionable, expensive but nearly profit-less companies and crypto. This was prompted by recent comments on the other thread.

I didn't want to potentially derail the other thread because crypto especially stinks like previous tech booms, to me. People appear to be as convinced by it and heavily sold on it as previous new stuff that turned out to be shit.

Having said that, sure people will make some money from it and I think the tech is useful. I won't be sad that I'm sitting it out, though. Only time I start to strain the brain over investing is when I start looking at what I consider to be crazy modern shit like the BTC graph. Investing in real stuff settles me. So did this article.

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19 hours ago, Noallegiance said:

Right now, we’re at a major top in both stocks and bonds. 

Are we  ?? or perhaps stocks are now being used as a pure scarcity play, a pseudo cash for savings purposes, and P/E no longer matter at all, and never will again until such time as the money printing ceases. By bidding up e.g. tesla to these ridiculous levels the market is signalling that is no longer cares about nominal yield.

From this it follows that bitcoin is the next big thing as its pure scarcity play without the clutter of a nominal yield and/or intrinsic value which noone cares about anymore.

What we both agree on though is that FOMO out of fiat is in full flight.

The problem is that the markets are completely determined by government and central bank policy and not related to actual performance of any company so any investment heuristics which are predicated on underlying performance or value of a company dont apply any more.

Edited by goldbug9999
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1 hour ago, goldbug9999 said:

The problem is that the markets are completely determined by government and central bank policy and not related to actual performance of any company so any investment heuristics which are predicated on underlying performance or value of a company dont apply any more.

Which, I believe, has also happened before.

As far as I see it, we humans seem to think that the introduction of new policies or technology changes our behaviours enough to make things different.

It doesn't. And I would conclude that the more I read of times gone by, the cutting edge of our innovative species has always fallen prey to the 'it's different this time because look at how much better XYZ is'.

It isn't. It never has been. But every so often, up it pops again.

Amongst fashions that come and go both quick and slow, we humans do not change. We may think we do. Much energy is spent on convincing ourselves that we do. I believe this is why the same mistakes are made again and again in all areas of life once the experienced generation is dead. If we did properly learn, I think we'd be beyond Star Trek levels of humanity by now.

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29 minutes ago, Noallegiance said:

I would conclude that the more I read of times gone by, the cutting edge of our innovative species has always fallen prey to the 'it's different this time because look at how much better XYZ is'.

It is different this time - there has never been such a rapid expansion of the money supply in developed countries (at least post WW2). This is what will drive all the markets, everything else is noise. This is why there is a dash for scarcity and scarcity is far more important than whether something is "real" or not.

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2 hours ago, goldbug9999 said:

Are we  ?? or perhaps stocks are now being used as a pure scarcity play, a pseudo cash for savings purposes, and P/E no longer matter at all, and never will again until such time as the money printing ceases. By bidding up e.g. tesla to these ridiculous levels the market is signalling that is no longer cares about nominal yield.

From this it follows that bitcoin is the next big thing as its pure scarcity play without the clutter of a nominal yield and/or intrinsic value which noone cares about anymore.

What we both agree on though is that FOMO out of fiat is in full flight.

The problem is that the markets are completely determined by government and central bank policy and not related to actual performance of any company so any investment heuristics which are predicated on underlying performance or value of a company dont apply any more.

Bidding up TSLA is probaby now a lot to do with the rumours of Elon buying BTC with his 100 Bill cash hoard.

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Given the current situation, one of my stock screens is price to tangible book value.  So minimal goodwill and intangible assets.  That filters out a lot of froth.  Maybe too much but that's where I prefer to be - real assets, bar any material naughty accounting, but then that applies across the board.

Another is total debt to equity.  I'm not interested in companies majority "owned" by creditors with their demands.  Some flexibility according to industry but I have my limits.

Another, I just look at cash flow as it's harder to game.  Cash versus talking trash!

Overall, I try to stick to a balanced portfolio but even now that's hard given everything is bid up. 

Finally, the hardest, to use technicals to determine buy points which atm means not much.  

And even then it's still hard not to chase...

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It's certainly an interesting time to be investing.

On the one hand, we have a big fat macro setup as already discussed on the reflation thread, seemingly signposting a period where we can expect PMs/commodities/energy/de-complex to lead the way. For me, these are the tangibles, also the things we're reasonably certain of. Easy call to allocate there, thanks to this community 

On the other hand, technologies continue to emerge and progress, mostly unpredictably. Where next for social networks? How will IoT develop? What about robotics and automation? What about crypto? What does the future of transportation look like? These are the intangibles, also the the things we're mostly uncertain of.

Me personally, I'm not much interested in tech investing because you can be 100% right about the macro trends in tech, and still lose the shirt off your back. Dotcom bubble is a good example - the market was 100% right about investing the internet, but it was "right" before many of the eventual winners emerged, or even existed. Facebook, YouTube, Twitter didn't exist; Google, Amazon, Netflix were only a few years old and indistinguishable from the likes of, say, Yahoo at that stage; Steve Jobs had only just returned to Apple.

None of that is to say that technological change doesn't happen. It undoubtedly and undeniably happens. It's just very hard to invest, usually.

This is why I make an exception for crypto - leaving aside the chances of total failure (which is always a possibility with new tech i.e. allocate accordingly), it's otherwise a tech unicorn. Future value is entirely predictable, and the winner has already emerged.

Or to put it another way: "nothing's ever that simple" is also a cognitive trap.

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7 hours ago, jamtomorrow said:

This is why I make an exception for crypto - leaving aside the chances of total failure (which is always a possibility with new tech i.e. allocate accordingly), it's otherwise a tech unicorn. Future value is entirely predictable, and the winner has already emerged.

The new-kind-of-money aspect of crypto/bitcoin is way more important than the technology so viewing it through the technology race lens will lead to flawed insights.

The question is: will the world except a grass roots currency rather than a state backed currency as (at a minimum) a durable store of value.

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4 hours ago, goldbug9999 said:

The question is: will the world except a grass roots currency rather than a state backed currency as (at a minimum) a durable store of value.

Aside from the double unproven statuses of 'durable' and 'store of value' both of which can only be measured firstly over a substantial length of time (i.e. greater than the 11 years cryptos have been here) and secondly across multiple fluctuating environments, there are two far more relevant questions:

1. Will the authorities who have controlled money and the beneficiaries thereof for hundreds of years simply roll over and allow a completely detached currency to succeed them?

2. With a billion people on earth still without electricity and the vast proportion of the 7.7 billion population wedded and programmed to a system they feel they understand, would 'the world' would accept a completely new currency that doesn't have state backing or the media machine behind it able to weave it into the fabric of society?

If we're honest twice a) we all know the answer to both of those questions and b) that makes cryptos a bog-standard greater fool speculation whether or not 'investors' in it realise it or not. Odds are it will follow all previous new tech bubble speculation patterns. Which is why, for me, no more than a flutter wouldn't affect my sleep.

But I'm uber risk-averse and inexperienced hence prefer tried and tested over anything that appears identical to the repetitive bubbly hyped situations described in my original post.

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3 hours ago, Noallegiance said:

Aside from the double unproven statuses of 'durable' and 'store of value' both of which can only be measured firstly over a substantial length of time (i.e. greater than the 11 years cryptos have been here) and secondly across multiple fluctuating environments, there are two far more relevant questions:

1. Will the authorities who have controlled money and the beneficiaries thereof for hundreds of years simply roll over and allow a completely detached currency to succeed them?

2. With a billion people on earth still without electricity and the vast proportion of the 7.7 billion population wedded and programmed to a system they feel they understand, would 'the world' would accept a completely new currency that doesn't have state backing or the media machine behind it able to weave it into the fabric of society?

If we're honest twice a) we all know the answer to both of those questions and b) that makes cryptos a bog-standard greater fool speculation whether or not 'investors' in it realise it or not. Odds are it will follow all previous new tech bubble speculation patterns. Which is why, for me, no more than a flutter wouldn't affect my sleep.

But I'm uber risk-averse and inexperienced hence prefer tried and tested over anything that appears identical to the repetitive bubbly hyped situations described in my original post.

No.  They will not.

But - as we have seen in Venezuala, China, etc, Bitcoin can be an excellent way of preserving wealth and having a store of value waiting for you if you escape.  But if you want to stay in the country with no real rule of law, the risk is that an official turns up and give you a choice - your bitcoin keys or your life.  I think we are a while away from that being the case in the UK or USA.

We have already seen in the USA the IRS go hard against users of any exchanges based in the US.  They subpoenaed lists of members and users in, I think, 2018, to start sending tax demands to US based users.  I can see more of the same.

However, I think organised action against bitcoin holders will be simpler, and along the lines of the FCA's recent action banning any retail products being linked to e-coins.  They'll just make it harder and harder to use for the masses.  For example, it would be relatively simple to make it a mandatory reporting requirement for any business where bitcoin is offered as payment for a good or service.  That exists in the USA right now with cash transactions over a set amount.  They'll dress it up as anti-terrorism or something.

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I agree with you @wherebee and @Noallegiance - failure to achieve escape velocity and/or regulatory "attention" are the chief risks for BTC (in particular).

Generally speaking, it's straightforward to find good reasons why BTC might fail, if you go looking. But that misses the point - with BTC, the difference between "I am 100% certain it will fail" and "I think it is highly likely to fail" is very important indeed, because of how "success" looks.

For asset allocation purposes I'm actually assigning quite a high "total failure" probability (in excess of 90%), but I can still justify an allocation on that basis. Why? Because in the success case, it won't be as benign as BTC mooning in some sense: a couple of my other non-yielding "permanent potfolio" asset classes could very well collapse completely - cash/fiat is effectively gone, and who knows what my PMs would do.

In that sense, I suppose I see it less as an investment, more as insurance for what I still think is an unlikely but catastrophically disruptive outcome. And I'm quite prepared for my BTC allocation to erode to zero as the price of that insurance.

So to me, the important question is: what probability do you attach to success/failure of BTC?

Edited by jamtomorrow
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1 hour ago, jamtomorrow said:

I agree with you @wherebee and @Noallegiance - failure to achieve escape velocity and/or regulatory "attention" are the chief risks for BTC (in particular).

Generally speaking, it's straightforward to find good reasons why BTC might fail, if you go looking. But that misses the point - with BTC, the difference between "I am 100% certain it will fail" and "I think it is highly likely to fail" is very important indeed, because of how "success" looks.

For asset allocation purposes I'm actually assigning quite a high "total failure" probability (in excess of 90%), but I can still justify an allocation on that basis. Why? Because in the success case, it won't be as benign as BTC mooning in some sense: a couple of my other non-yielding "permanent potfolio" asset classes could very well collapse completely - cash/fiat is effectively gone, and who knows what my PMs would do.

In that sense, I suppose I see it less as an investment, more as insurance for what I still think is an unlikely but catastrophically disruptive outcome. And I'm quite prepared for my BTC allocation to erode to zero as the price of that insurance.

So to me, the important question is: what probability do you attach to success/failure of BTC?

That's a very clever way of looking at it.

Have 1% of wealth in BTC as insurance.

I had not thought of it like that.  I have 1% of my wealth in spam.

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5 hours ago, jamtomorrow said:

Generally speaking, it's straightforward to find good reasons why BTC might fail, if you go looking.

It the counter arguments is that all of those reasons have existed since its inception and none have so far materialised - why is that ?

 

Quote

But that misses the point -

Its an asymmetric bet so long as you view the risk of failure less than about 95%.

Personally I put the total failure risk as < 1%.

Edited by goldbug9999
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5 hours ago, jamtomorrow said:

I agree with you @wherebee and @Noallegiance - failure to achieve escape velocity and/or regulatory "attention" are the chief risks for BTC (in particular).

The highest risk bitcoin faces is that central banks issue a non inflationary currency and/or stop printing £/$EUR hand over fist (i.e. minuscule).

Edited by goldbug9999
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16 hours ago, Noallegiance said:

Aside from the double unproven statuses of 'durable' and 'store of value' both of which can only be measured firstly over a substantial length of time (i.e. greater than the 11 years cryptos have been here) and secondly across multiple fluctuating environments, there are two far more relevant questions:

1. Will the authorities who have controlled money and the beneficiaries thereof for hundreds of years simply roll over and allow a completely detached currency to succeed them?

2. With a billion people on earth still without electricity and the vast proportion of the 7.7 billion population wedded and programmed to a system they feel they understand, would 'the world' would accept a completely new currency that doesn't have state backing or the media machine behind it able to weave it into the fabric of society?

If we're honest twice a) we all know the answer to both of those questions and b) that makes cryptos a bog-standard greater fool speculation whether or not 'investors' in it realise it or not. Odds are it will follow all previous new tech bubble speculation patterns. Which is why, for me, no more than a flutter wouldn't affect my sleep.

But I'm uber risk-averse and inexperienced hence prefer tried and tested over anything that appears identical to the repetitive bubbly hyped situations described in my original post.

Personally the crypto thing seems like a greater fool thing. I admit I understand them very little but it seems like an epic bubble. Back in the dotcom days there were loads of multi billion dollar valued companies that were just as ephemeral that simply disappeared.

Equally I also understand the concept of allocating circa 1% portfolio as a hedge.

I just can't see tptb allowing bitcoin to flourish longterm

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