12-03-2014, 04:40 PM
Great post, and great thread -- thanks.
My crystal ball is STILL not back from the shop, if you can believe that, so I've got no idea where things are headed. They say they are still waiting on parts from Korea, but I'm becoming skeptical they will ever arrive.
The ability to "tune out the noise" is important, I agree. And though I can easily dismiss it, I actually enjoy the noise. I especially love reading separate articles about a company on SA, released on the same day, arriving at completely different conclusions about the company's future. It helps me to keep in mind that nobody -- absolutely NOBODY -- knows what is going to happen in either the near-term or long-term. Nobody. Period.* And anyone that suggests otherwise is just blowing steam or trying to sell you something.
Not to get metaphysical here, but investing is an act of faith. Those dollars that you are saving? You could consume them right now in a million different ways that would increase your standard of living right now. A new TV, new shoes, theater tickets, a trip to Paris, gifts for your loved ones, charitable donations. Instead, though, you decide to "save" them, so that you can consume them later, when you will be too tired or uninterested in working.
But those "saved" dollars are just IOUs, really. And it is possible that society will not be willing or able to pay back those debts to you when you want to cash them in. If society collapses, you'll have been a sucker to curtail your current consumption in hopes of a comfortable retirement.
For the last couple hundred years, though, things have been (from a historical, relative perspective) stable. And the stock market has generally gone up. This has coincided with an era of economic prosperity. So we are left with the general notion that investing is a somewhat "safe" way to store your IOUs until you want to cash them in, and maybe to even beat inflation while doing it, so that you can consume even more later (in adjusted terms) than you could now.
But it is an extremely imprecise science. Every now and again, things get so out of line with both recent history and common sense that there are relatively safe bets to be made. The 2008-2009 crisis was one such example. Investing in great companies at fire sale prices then was a no-brainer. If the world was about to end, then your dollars were worthless anyway, so why not trade 'em in for shares of MO at $15 per share and yielding 8 percent (just in case the world didn't end and people kept smoking)?
But those are very rare circumstances. Most of the time, you are squinting at charts and buying stocks that are more or less somewhere in the "fairly valued" range and hoping that society keeps chugging along and that the market will continue -- generally -- to keep going up. That feels like a relatively safe long-term bet, but it could be completely wrong. And in the short and medium term, you might as well throw darts about where the economy or indexes or commodity prices will go.
All you can do is formulate a plan, stick to it as best you can, and hope for the best. My version of rapidacid's formula:
*Except maybe in the case of an insider with important and actionable information that has yet to become public about a specific company, and you don't want to get involved in that!
My crystal ball is STILL not back from the shop, if you can believe that, so I've got no idea where things are headed. They say they are still waiting on parts from Korea, but I'm becoming skeptical they will ever arrive.
The ability to "tune out the noise" is important, I agree. And though I can easily dismiss it, I actually enjoy the noise. I especially love reading separate articles about a company on SA, released on the same day, arriving at completely different conclusions about the company's future. It helps me to keep in mind that nobody -- absolutely NOBODY -- knows what is going to happen in either the near-term or long-term. Nobody. Period.* And anyone that suggests otherwise is just blowing steam or trying to sell you something.
Not to get metaphysical here, but investing is an act of faith. Those dollars that you are saving? You could consume them right now in a million different ways that would increase your standard of living right now. A new TV, new shoes, theater tickets, a trip to Paris, gifts for your loved ones, charitable donations. Instead, though, you decide to "save" them, so that you can consume them later, when you will be too tired or uninterested in working.
But those "saved" dollars are just IOUs, really. And it is possible that society will not be willing or able to pay back those debts to you when you want to cash them in. If society collapses, you'll have been a sucker to curtail your current consumption in hopes of a comfortable retirement.
For the last couple hundred years, though, things have been (from a historical, relative perspective) stable. And the stock market has generally gone up. This has coincided with an era of economic prosperity. So we are left with the general notion that investing is a somewhat "safe" way to store your IOUs until you want to cash them in, and maybe to even beat inflation while doing it, so that you can consume even more later (in adjusted terms) than you could now.
But it is an extremely imprecise science. Every now and again, things get so out of line with both recent history and common sense that there are relatively safe bets to be made. The 2008-2009 crisis was one such example. Investing in great companies at fire sale prices then was a no-brainer. If the world was about to end, then your dollars were worthless anyway, so why not trade 'em in for shares of MO at $15 per share and yielding 8 percent (just in case the world didn't end and people kept smoking)?
But those are very rare circumstances. Most of the time, you are squinting at charts and buying stocks that are more or less somewhere in the "fairly valued" range and hoping that society keeps chugging along and that the market will continue -- generally -- to keep going up. That feels like a relatively safe long-term bet, but it could be completely wrong. And in the short and medium term, you might as well throw darts about where the economy or indexes or commodity prices will go.
All you can do is formulate a plan, stick to it as best you can, and hope for the best. My version of rapidacid's formula:
- Accumulate capital however you can (income from work and accumulated dividends).
- Invest regularly, in the companies that present the best mix of quality and value at the time.
- Keep some powder dry for those rare times where there are real bargains aplenty.
- Hope society does not collapse and that one day you get to cash in those IOUs you've been accumulating.
*Except maybe in the case of an insider with important and actionable information that has yet to become public about a specific company, and you don't want to get involved in that!