Hi Pezz, I have a position.
I hope you agree with me that every person’s financial circumstance and risk preference determines their reasonable range of ‘freedom of action’ in financial investment and speculation.
For example, hypothetically, if I make an active income of US$ 150k per year and I require an annual living expense of US$ 100k, I can then save US$ 50k every year. Suppose I have a total net worth of US$ 250k with no debt, then a 10% decrease of NAV can be made good within six months out of active income. Under such financial circumstance, I can easily afford to wager the entire NAV on any mix of assets that will not likely go down 10-20% in value, and even if I wager the whole NAV on one stock called AMZN, I can still recover from a total absolute disaster by working diligently for 5-6 years.
If, however, on the same income, expense and savings numbers, I have a net worth of US$ 10 mm, I then would not want to position the assets in any way that will likely expose the mix of assets to a 10-20% downside, as it would take me many years of active income to make good the passive loss.
Why do I not count on passive portfolio income when considering how to make up a loss? Because I know passive portfolio income is uncertain.
All of a sudden, 12.5% is looking pretty good, as opposed to
<< get 12.5% return … seems pretty boring to me>>.
As you wrote …
<<predict 10 years out is crazy>>
I agree, and therefore making a decision that would materially impact me for 10 years would require a certain amount of care, as opposed to
<<I would play the "great Game" for match sticks if necessary>>
I would in fact do the unthinkable by you, and diversify within reason, because what you wrote
<<Diversification is for folks that want to be on a par with the market.>>
is not reasonable and not prudent.
You would be right if I bet my entire NAV on the (equity?) market and then only diversify within that (equity?) market, and diversify broadly, in line with weighting of market capitalization.
You would be wrong if I am diversifying across all asset classes, and do so not in line with market weighting of these same assets. In this case, I would be trying to (a) beat the market, but (b) and more importantly, preserve my purchasing power.
To put in another way, I would be trying to save for a specific goal requiring a specific purchasing power.
However, I do appreciate your basic premise …
<<I expect to beat the averages soundly ... my ego needs … stimulation … clash of risk vs reward …>>
and I can even agree with the underlying sentiment and say I need to win, just as gloriously, but, differing from you, I want to do so with as little dramatic fireworks as possible. I prefer to do without the clash of risk vs. reward.
Many folks on this thread, as judged by the very interesting discussion, probably feel the same way.
From the last few days of discussions on this thread, many folks are (a) explicitly disagreeing on the market outlook, but (b) implicitly agreeing on what we ought to do in light of the differing market outlooks.
Some of us are saying the market will likely go up at some point in the near, intermediate, and/or long term, but are not making any speculative or investment moves. MeDroogies says ORCL is going up, and he owns 200 shares of the treasure, far down from his peak holdings.
Some are saying the market is going down for the foreseeable future, but is similarly not making any material moves in portfolio shuffling. I say ORCL is going down, and I own 200 shares of the junk, far down from my peak holdings.
What now troubles me most is that the FED actions promises the only cure that is ‘easy’ for the authorities to deliver, namely, debasement of purchasing power. I am in a game where I must lose, unless I start speculating a bit, wagering on the unlikely, or rather more accurately, the unthinkable rise of precious metals. I do not know of one major popular publication (other than the FED and CBs own less read reports) that even treats the metals as an investment asset class. I think the authorities has done an excellent job of education …
“Paper is money, more is better than less, now is better than later. Stocks always go up,
so buy all dips. In order to keep the party going, let us invest our social security in stocks. Oh, but a detail, the social security pot is full of government paper and devoid of value, so let us figure out how to privatize the system. I guess for the greater good, we need to tax you some more, so that we can privatize the system that we bankrupted. In the meantime, let me cut the FED rate, and reward you with a tax cut, sufficient to allow you painlessly paying off exactly one month of electricity rate increase, provided to you by a utility company I had the determining role in bankrupting. No excuses, no tears, and do your duty and buy another SUV, maybe from our Japanese friends, who is really supplying me with cash we need, thus we need to keep up the strength of our paper vs. their paper.
Gold?
What’s that? Don’t think about it, because Maestro already indicated he stands ready to loan as much of it out as necessary, to presumably keep prices down.
Platinum? Never heard of it. Besides, the trade is denominated in our paper, and there is no inflation”.
My position is that we have long entered uncharted never-never land, and are about to be showered by the full splendor of New Ec Tech gooey stuff spun off the proverbial spinning fan.
A perfectly reasonable position to take given that there is 1 chance in 10 that a bunch of, to put it kindly, spinners, may be trying to manipulate the odds that I will take a hit on the NAV, to the tune of 10-15% if I am careful, more if I am not.
I have always believed that a clean escape from the carnage is not possible, because it will take a chunk out of us via job loss, client loss, equity market loss, purchasing value loss, and the old fashion way, gambling loss.
Chugs, Jay
A question
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A second question
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