Are you holding cash or making investment into progressing sector in 2016?

[brattzz]

Trump become USA President 2017 = black swan?

[specuvestor]

Personally i think "black swan" is overrated. If we base decision making on black swans, the world would stop spinning

I prefer the framework of "known unknowns" and "unknown unknowns". One can only be prepared for the former and the GFC, contrary to many statisticians so-called 4 sigma events, is the former. The bubble is obvious; the unknown is when it will burst.

Trump is a known unknown. He gets a heart attack or equivalent is an unknown unknown. But the structure of a VP system mitigates the unknown unknown, so even the damage of an unknown unknown can be contained.

Ok, but specifically how does the inverse ETF work?
Does it borrow shares and short them? utilise CFDs? or some form of futures?

I ask this because a few years back i shorted natural gas futures using an ETF.
Nat gas tanked, but the ETF was a losing proposition because of contango.
Gas prices dropped but the ETF bought futures and kept rolling over the futures every month, I assume aside from the contango, the transactional fees also killed the unit holders.

So it's not just enough to know so broadly how the ETF supposedly should react, but need to understand the specifics of how it's done.

https://thumbtackinvestor.wordpress.com/

I reckon, the answer has been provided by Behappyalways in his post

http://www.valuebuddies.com/thread-7509-...#pid129510

In my experience the delta of ETF to non-plain equity indices are highly doubtful, and doesn't correspond to what one would expect from a textbook basis

[weijian]

Personally i think "black swan" is overrated. If we base decision making on black swans, the world would stop spinning

I prefer the framework of "known unknowns" and "unknown unknowns". One can only be prepared for the former and the GFC, contrary to many statisticians so-called 4 sigma events, is the former. The bubble is obvious; the unknown is when it will burst.

Trump is a known unknown. He gets a heart attack or equivalent is an unknown unknown. But the structure of a VP system mitigates the unknown unknown, so even the damage of an unknown unknown can be contained.

I guess it is easier for some of our simpler brains, to condense all the 'unknowns' (known or unknown) into Black Swans?
I'm glad we can delegate the hard task of making most of the world work, to those of authorities who plan, think and execute in 'knowns' (or certainty). The individual investor can continue to carry out their little task of hedging against all the 'unknowns'.

[hongonn]

@Temperament : I am probably one of the few hoping for Black Swan to happen. That's when the loaded elephant gun will go to work. If you are buying individual stocks of companies you have been following for a while and know what is going on with management and the industry/sector and what assets are backing the stocks you are buying, there wont be any trepidation at all as prices sink. True value investors thrive on down markets. 

Easy to say, easy to do as well, just so long you have a plan and have had enough experience investing in stocks and gone through crash markets like during AFC and GFC.

Gone through the AFC and GFC does it mean one is invincible? Actually these were very short crisis that recovered in a year or less. We hadn't play out the scenario like the 20s great depression or Japan lost decade or even 70s when stocks going nowhere.

One can say just take out the elephant gun and shoot, but what if whatever you shoot will be underwater or stagnant for the next 10 years, or 15. I believe by then your mentality will be totally changed. Going through AFC and GFC making ones thinks i just anyhow whack and in a year time market bounced back and make great fortune.

During GFC central banks came to rescue, what if this time central banks totally failed. Who will be the next hero to save us?

[gzbkel]

@Temperament : I am probably one of the few hoping for Black Swan to happen. That's when the loaded elephant gun will go to work. If you are buying individual stocks of companies you have been following for a while and know what is going on with management and the industry/sector and what assets are backing the stocks you are buying, there wont be any trepidation at all as prices sink. True value investors thrive on down markets. 

Easy to say, easy to do as well, just so long you have a plan and have had enough experience investing in stocks and gone through crash markets like during AFC and GFC.

Gone through the AFC and GFC does it mean one is invincible? Actually these were very short crisis that recovered in a year or less. We hadn't play out the scenario like the 20s great depression or Japan lost decade or even 70s when stocks going nowhere.

One can say just take out the elephant gun and shoot, but what if whatever you shoot will be underwater or stagnant for the next 10 years, or 15. I believe by then your mentality will be totally changed. Going through AFC and GFC making ones thinks i just anyhow whack and in a year time market bounced back and make great fortune.

During GFC central banks came to rescue, what if this time central banks totally failed. Who will be the next hero to save us?

Well, he did say "If you are buying individual stocks of companies you have been following for a while and know what is going on with management and the industry/sector and what assets are backing the stocks you are buying, there wont be any trepidation at all as prices sink."

During Japan's bubble times, the Nikkei P/E went as high as the 70s, while just before the great depression, Dow P/E was in the 30s.
The type of people who come to valuebuddies are probably smart enough not to be heavily vested during such bubbly times.

[BlueKelah]

@hongonn

Gone through the AFC and GFC does it mean one is invincible? 
-> no not invincible, just that if you gone through it you will gain some experience and insight about stock market gyrations and psychology, which will help a lot in positioning your portfolio.

Actually these were very short crisis that recovered in a year or less. We hadn't play out the scenario like the 20s great depression or Japan lost decade or even 70s when stocks going nowhere.
Before I comment on this we need to get some facts in order....
-> The great depression happened in the 1930s not the 1920s. The depression in 1920 was post world war 1 and lasted for only around 18months and was then followed by a period of economic boom which ultimately ended in the great depression of the 1930s, which to be accurate, began with falling stock prices in the USA from September 1929.
https://en.wikipedia.org/wiki/Great_Depression

-> Japan actually has actually had 2 lost decades now. Its called Lost 20 Years (失われた20年, Ushinawareta Nijūnen)
https://en.wikipedia.org/wiki/Lost_Decade_(Japan)

-> In the 1970s there was stagnation in economic growth and inflation brought about by energy crisis. Namely 1973 Arab-Isreali war and later the Iranian Revolution which both caused oil prices to shoot up.

-> Firstly Japan has been and still is in a funk, they have not had much economic growth at all even with abenomics. But Japan economy in the doldrums has not prevented the rest of the world to experience booming economies these past 2 decades. So even if China or some other major economy goes into a funk, in the longer term >5years its not gonna affect other countries that much.

-> If they have another disruption to oil supply in middle east, high oil prices might not have such a big impact anymore. Nowadays we have many alternative sources of energy which will pick up the slack and are getting cheaper to use. Not to forget the shale technology that will boom again and bring abundant supply should prices go up. 

-> With most countries in severe debt and abundant credit still sloshing around, I would not rule out another great depression happening this is a possibility. There is indeed a lot of deleveraging that needs to be done.


One can say just take out the elephant gun and shoot, but what if whatever you shoot will be underwater or stagnant for the next 10 years, or 15. I believe by then your mentality will be totally changed. Going through AFC and GFC making ones thinks i just anyhow whack and in a year time market bounced back and make great fortune.

-> Firstly its not shoot all at one shot. There will always be cash in the portfolio all the way to the bottom. For my cash holdings will be sufficient for up to 60% drop in STI at least. Currently only around 50% vested. But if market crashed to bottom like in GFC time, cash holdings will be sufficient for buying all the way down to 80% drop. Secondly, as gzbkel has pointed out, will only be buying companies i know will easily survive a 10 year down and sideways market. And as my stocks will have dividend income, even during prolonged bad times, that dividend may be cut but some will still be coming through. That's why net cash rich company is high on my list. For example, if company has 60% Mcap in cash no debt and trading below NAV, they could technically close shop during bad times and even payout 5% dividend for 10 years and still have some cash left. If they cut dividend in half to 2.5%, they could pay out for 20 years and still have some cash left. Not to forget their undervalued hard assets like property are still sitting around and could be monetized. 

During GFC central banks came to rescue, what if this time central banks totally failed. Who will be the next hero to save us?
-> I do not think singapore with its surplus foreign reserves and well capitalised and regulated banks will "totally failed" in another crisis. Though in the event that it happens the next hero will probably be GOLD. It seems the current consensus is that if central banks fail to sustain the world economy and another crisis comes, gold will be the thing to be holding. That's the reason quoted by articles on why gold price seems to be going up so much recently Make America Gold Again: Calls for Everyone's Favorite Standard Are Back



This BBC documentary on gold is one of my favourites. ENjoy