What Has the Stock Market Taught Us Since 2010?

[weijian]

These are maxims for the last N years that I can remember. They are probably accepted as "conventional wisdom" by many now. Conventional wisdom works most of the time, until it doesn't. Not having conventional wisdom means one is probably a fool 99% of the time.

It is all about the middle path.

What Has the Stock Market Taught Us Since 2010?

What makes investing exceedingly difficult when trying to handicap the future is there is always some truth to both lines of thinking. It is both always and never different this time.

International diversification doesn’t work
Market corrections don’t last long
You should only invest in tech stocks
Energy stocks stink
High returns in U.S. stocks are a given
Interest rates only go down

https://awealthofcommonsense.com/2021/09...ince-2010/

[Wildreamz]

Of course Ben is being tongue-in-cheek here. As these are the (oddly?) specific things that worked in the last 10 years but (of course, being too specific) may not be what's going to work in the next 10 (or 50).

My personal lessons:
Buy great companies instead of arbitrary distinction such as "sectors" (Tech, Energy or otherwise; note that Amazon and Tesla aren't even in the tech sector, it's categorized under "Consumer Discretionary"; Netflix is in "Communication Services"), and country domiciled (unless it could make a material difference, such as Russia or China).

Have a business partner mindset, instead of an portfolio manager mindset.

Ignore macroeconomics predictions (such as direction of interest rates, inflation etc.) unless in extreme situations. 

Do not assume past (long-term past or short-term past) statistical patterns will repeat, in exactly the same way; unless there are well-reasoned, first-principle-based reasons they will.

Peace.

[karlmarx]

Tech in the early noughties soared then stunk because it was easy to imagine the possibilities of the internet but access to (and speed of) the internet was still in its infancy at the time. Many new tech today have enabled greater participation in the internet -- such as affordable smart phones and data -- and that has allowed for what was imagined to become reality. So I don't think it is a good argument that just because tech stunk back then, it means we might see it again. Yes, tech lose popularity again, but if so it will be for different reasons. This applies to every other industries as well.

Companies go through decades-long cycles but industries in their growth phase often last longer than a couple of decades. A good question to ask when prospecting is probably where it lies in its cycle. Is it growing in a growing industry, growing in a stagnating industry, stagnating in a growing industry, or stagnating in a stagnating industry? By looking at valuations of 'old energy,' 'old media,' and cigarette stocks, the market has voted/weighed that the time for these century-long industries has passed. Of course, nobody can really say for sure. So investors can have their own opinion (and bets) on whether the market is right or wrong in such instances.

What is certain is that the fortunes of most companies resemble a distribution curve; growth, peak, then decline. History has demonstrated that very very few companies grow indefinitely. And stock prices often reflect the excitement (or despair) generated by the growth (or decline) of a company. Didn't some smart guy say the stock market is a beauty contest where the market's definition of beauty mattered more than yours?

The tech industry will probably still grow for the next 20-30 years. But tech is broad so even within itself, there will be winners and losers in the respective spaces. So the future large cap tech stocks could be very different from the ones we know today. Yahoo and Blackberry are good cases to keep in mind.

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Most developed economies had landline telephones in all homes by the 1990s. This was not the case in developing countries like Philippines, where developing a landline network for a vast nation with many islands was not something the government or private companies were able or willing to fund. So most of the rural population had to live with poor/no telecommunication until affordable mobile phones were introduced into the market in the 2000s. The country leapfrogged an entire technology.

The same happened in China with the introduction of digital payment and e-commerce, so investors betting on credit cards and shopping malls will be disappointed that these sectors will never have the chance to be as developed. And it looks like this will also take place in Indonesia. Or at least that's what the Lazada, Shopee, and Grab think. There are many other less developed countries apart from PP and Indonesia that are huge markets for tech, such as those in Africa.

[BlackCat]

These are maxims for the last N years that I can remember. They are probably accepted as "conventional wisdom" by many now. 

Another one: 
   Inflation will always be low, no matter what

[Wildreamz]

Not a macroeconomics expert but this article might be interesting to some: https://www.strategy-business.com/blog/H...-Deflation

How Amazon Fuels Deflation (2017)

“Inflation is everywhere and always a monetary phenomenon,” as the influential economist Milton Friedman famously said. Put another way, generations of economists and central bankers have been raised to believe that the interest rates, money supply, and balance sheets controlled by the world’s central banks determine the rate of inflation.

But we’re learning in this decade that there are vast deflationary forces afoot in the world that can counteract the efforts of central banks to spur inflation. These include, but are not limited to, international trade, the weakness of labor unions, shell-shocked and insecure workers being afraid to ask for raises, corporations relentlessly managing costs, greater transparency in pricing, gains in technology and productivity, and…the immensely powerful surge of e-commerce and supply chain optimization.

[weijian]

Time in the market - It is probably another fallacy if we look closer....

Yes it is important but it ain't 1st priority to someone who is in their 80s anymore. Talking about long term on paper, without handling the very real short term distractions in practice, is totally meaningless.

Also try asking the Japanese about time in the market!

How the Worst Market Timer in History Built a Fortune

Wally, the worst market timer in history, had amassed a fortune of $18.6 million. This was a 143x increase from the initial $130,000 and a 10.5% dollar-weighted annualized return.

But there was no mistake, the numbers were real. Wally was just the living embodiment of the old adage that time in the market is vastly more important than timing the market. By diversifying, reinvesting dividends, and never selling, Wally had reaped the enormous rewards of long-term compounding.

https://compoundadvisors.com/2022/how-th...-a-fortune

[Wildreamz]

Time in the market - It is probably another fallacy if we look closer....

Yes it is important but it ain't 1st priority to someone who is in their 80s anymore. Talking about long term on paper, without handling the very real short term distractions in practice, is totally meaningless.

Also try asking the Japanese about time in the market!

..

True. There are nuances in "time in the market".

Not everyone's circumstances is the same (to your point), not every company is going to come back, not every index is made the same.

[BRT]

"Time in the market - It is probably another fallacy if we look closer.... Yes it is important but it ain't 1st priority to someone who is in their 80s anymore."

i completely appreciate the above point. just as a simple counter, if i look at munger and warren and their recent investments, time in the market would still be an important (but far from the only or major) reason for investment.

[weijian]

As usual, the middle path is key. How does maxims fit into one's temperament to be able to extract the essence of that particular piece of "wisdom"?

In the coming year, I hope I can be less foolish (maybe be an economist on the way up and an investor on the way down? )

Investment Maxims Are Not One-Size-Fits-All
Caveats to Conventional Investing Wisdoms

→ To a fool, there is one reason to explain why a stock goes up and thousands of reasons to explain why they fall.

→ On the way up, they are investors. On the way down, they become economists.

https://investmenttalk.substack.com/p/in...t-one-size