Author Topic: Is it too late [bitcoin]?  (Read 71834 times)

maizeman

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Re: Is it too late [bitcoin]?
« Reply #750 on: January 15, 2018, 07:55:02 PM »
that's my point.  the value of V, the dollar value of the economic activity in a unit of time, is related to the popularity of the currency, not how many units of the currency are being used.  why would the number of times the currency changes hands change (10 becomes 5)?

Okay, this is the disconnect. The velocity of money (V) is NOT a measure of the economic activity in a unit of time. It's a measure of how often the average unit of currency changes hands in a given unit of time. In the equation I wrote above -- U * P * V = T -- the $100k of economic activity would be the value of "T" not of "V."

maizeman

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Re: Is it too late [bitcoin]?
« Reply #751 on: January 15, 2018, 08:02:30 PM »
If it helps to see the units:

U (coins) * P (dollars per coin) * V (transactions per coin per unit time) = T (dollars worth of transactions per unit time)

Indexer

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Re: Is it too late [bitcoin]?
« Reply #752 on: January 15, 2018, 08:14:57 PM »
my point is that most of the market price of stocks is speculation, not intrinsic/fundamental value.

You've misunderstood how stocks are priced.  You're not buying the book value, you're buying a share of future earnings.  You're buying passive income from ongoing corporate profits, not a share of the company's assets.

unless you're a time traveler or have a functioning crystal ball, future earnings are unknown.  therefore you're speculating.

have you read the MMM blog?  perhaps you don't understand index investing and what this board preaches.  index investing is pure speculation.  we are simply banking on the stock market not collapsing for too long while we are retired, not finding individual stocks with a good dividend yield.

You are taking this line of thought way too far. Assuming human civilization will continue past tomorrow is speculation if you want to take it to the extreme. There are rational expectations we can make about the future for planning purposes. 

If I buy a US government bond do I know I'm going to get the next interest payment? Not with 100% certainty. The world could end tomorrow. However, short of a highly unlikely event, I will get my next interest payment. No rational investor would consider t-bills a speculative investment. You can calculate their intrinsic value based on the value of the cash flows, and the market price will be very close to the intrinsic value. Very little of the price is attributed to speculation.

If I buy VTSAX I know that, short of a highly unlikely event, I will see continued dividend payments. There is also a high probability that those dividend payments will increase over the long term. As I pointed out in my previous post, some stocks do trade more on speculation than intrinsic value. Tesla would be an example. However, most stable dividend paying companies tend to trade more on their intrinsic value. Their cash flows are reliable.

As I pointed out in my previous post, stocks and bonds have intrinsic value. Even if that intrinsic value is less than the market price the value exists and the market price is related to the fundamental intrinsic value. Cryptocurrencies don't have an intrinsic value. Their value is 100% speculation.


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i would guess 99%+ of people on this board do not take ANY fundamentals into account when investing in stocks.  we literally pick an asset allocation out of thin air (say 75% stocks) and go with that.  period.  that's pure speculation.  we don't care about future profits or market price or book value or anything about what any company we "invest" in actually does.

The reason most people on this board act in this manner is that they know they can't outsmart the market, which is already very efficient. Have a better model? Try it out.

phil22

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Re: Is it too late [bitcoin]?
« Reply #753 on: January 15, 2018, 08:40:44 PM »
index investing is pure speculation.  we are simply banking on the stock market not collapsing for too long while we are retired, not finding individual stocks with a good dividend yield.

You didn't read slowly enough so I'll repeat myself.

Price is what you pay, value is what you get.  The stock price is a dollar figure paid by the most recent buyer.  The value is the share of corporate earnings you get in return.  VALUE is not created when the market spikes.  VALUE has nothing to do with stock prices.  VALUE is created when corporations become more profitable, by expanding their markets, developing new technologies, reducing their overhead costs, or otherwise generating more profits that they then pass on to shareholders.

Price is what you pay in order to get value.  The price fluctuates minute by minute, in response to speculators, while the value only changes slowly, as corporations evolve over time.  Wealthy people have valuable assets.  Bitcoin millionaires have expensive assets.  There is a difference.

you seem to be trying to comfort yourself with use of terminology.  when you go to put the 4% rule into practice, all you care about is the current market price.  your perceived notion of "value" is meaningless since you are an index investor.  or perhaps you insist on taking a 66% loss on your stocks and you only sell your stocks for book value?

the point is, the stock market is currently 2/3 speculation, and for a FIRE-focused index investor, is pure speculation.  comforting yourself with the notion of "value" doesn't change that because we are FI when we reach a spending level of 4% of the market price of our portfolios, not 4% of the book value of our stocks.

phil22

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Re: Is it too late [bitcoin]?
« Reply #754 on: January 15, 2018, 08:43:49 PM »
If it helps to see the units:

U (coins) * P (dollars per coin) * V (transactions per coin per unit time) = T (dollars worth of transactions per unit time)

yes that does help.

if U and V are not independent, and in fact are strictly inversely proportional, then they should they not be separate variables?

sol

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Re: Is it too late [bitcoin]?
« Reply #755 on: January 15, 2018, 08:44:43 PM »
some stocks do trade more on speculation than intrinsic value. Tesla would be an example.

Even Tesla, the quintessential example of a speculative stock, is expensive solely because people speculate that it will be hugely profitable.  They are speculating on its future VALUE, not on its price.

Price is what you pay, value is what you get.  Repeat it with me and Warren together.  Price is what you pay, value is what you get. 

If you're buying a stock (or a bitcoin) because you think the price will go up, without any expectation of future earnings or profitability or acquisitions or book value (the value), then you are speculating on price.  This is not the same as what people have done with Tesla.  Tesla's price went up because people expected Tesla to make gobs of money. 

Bitcoin does not make anyone money!  Bitcoins have no revenue stream!

phil22

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Re: Is it too late [bitcoin]?
« Reply #756 on: January 15, 2018, 08:56:07 PM »
my point is that most of the market price of stocks is speculation, not intrinsic/fundamental value.

You've misunderstood how stocks are priced.  You're not buying the book value, you're buying a share of future earnings.  You're buying passive income from ongoing corporate profits, not a share of the company's assets.

unless you're a time traveler or have a functioning crystal ball, future earnings are unknown.  therefore you're speculating.

have you read the MMM blog?  perhaps you don't understand index investing and what this board preaches.  index investing is pure speculation.  we are simply banking on the stock market not collapsing for too long while we are retired, not finding individual stocks with a good dividend yield.

You are taking this line of thought way too far. Assuming human civilization will continue past tomorrow is speculation if you want to take it to the extreme. There are rational expectations we can make about the future for planning purposes. 

If I buy a US government bond do I know I'm going to get the next interest payment? Not with 100% certainty. The world could end tomorrow. However, short of a highly unlikely event, I will get my next interest payment. No rational investor would consider t-bills a speculative investment. You can calculate their intrinsic value based on the value of the cash flows, and the market price will be very close to the intrinsic value. Very little of the price is attributed to speculation.

If I buy VTSAX I know that, short of a highly unlikely event, I will see continued dividend payments. There is also a high probability that those dividend payments will increase over the long term. As I pointed out in my previous post, some stocks do trade more on speculation than intrinsic value. Tesla would be an example. However, most stable dividend paying companies tend to trade more on their intrinsic value. Their cash flows are reliable.

the US government literally prints money out of thin air, which is why treasury bonds aren't speculation.

the stock market could lose 2/3+ of its value and stay down for decades if there's war or natural disasters or a epidemic or any other black swan event.  we index investors are speculating that that won't happen and that future buyers will continue to prop up the market price well beyond book value.

As I pointed out in my previous post, stocks and bonds have intrinsic value. Even if that intrinsic value is less than the market price the value exists and the market price is related to the fundamental intrinsic value. Cryptocurrencies don't have an intrinsic value. Their value is 100% speculation.

i agree cryptocurrencies don't have intrinsic value, but my point is that's irrelevant and is comparable to the stock market.

we can reach FIRE when we can live on 4% of the market value of our portfolios, not 4% of the book value.  the intrinsic/book value doesn't matter because it's not high enough (33%) to be meaningful BECAUSE we are all FIRE-focused index investors and we buy both solid blue chip stocks and crazy speculative stocks.

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i would guess 99%+ of people on this board do not take ANY fundamentals into account when investing in stocks.  we literally pick an asset allocation out of thin air (say 75% stocks) and go with that.  period.  that's pure speculation.  we don't care about future profits or market price or book value or anything about what any company we "invest" in actually does.

The reason most people on this board act in this manner is that they know they can't outsmart the market, which is already very efficient. Have a better model? Try it out.

i'm not disagreeing with the strategy, and i don't think there is a better one.  i'm just saying it's speculation and hoping that past performance indicates future results.

sol

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Re: Is it too late [bitcoin]?
« Reply #757 on: January 15, 2018, 09:07:05 PM »
I disagree with almost every instance of your use of the word "speculation" in that post.  You seem to think that any investment that is not FDIC insured is speculation.  Just allow me to posit that most people don't agree with your definition, and we can move on.

i agree cryptocurrencies don't have intrinsic value, but my point is that's irrelevant and is comparable to the stock market.

At this point I'm no longer sure if you're defending bitcoin as if it were as good as the stock market, or trashing the stock market for being as bad as bitcoin.

And you know what?  It doesn't really matter.  You get to decide what to do with your money.  You're clearly excited about cryptocurrencies, and you are just as free to buy them as you are to buy any other asset class.

But if you keep showing up trying to convince other people to play the part of the greater fool for you, some of us might keep showing up to argue with you.  Just sayin'.  Purely as a public service on behalf of the forum, I will personally voice my disagreement.  I stand to make no money by convincing anyone to agree with me.

Indexer

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Re: Is it too late [bitcoin]?
« Reply #758 on: January 15, 2018, 09:41:15 PM »
I disagree with almost every instance of your use of the word "speculation" in that post.  You seem to think that any investment that is not FDIC insured is speculation.  Just allow me to posit that most people don't agree with your definition, and we can move on.

+1


Quote from: phil22
the stock market could lose 2/3+ of its value and stay down for decades if there's war or natural disasters or a epidemic or any other black swan event.  we index investors are speculating that that won't happen and that future buyers will continue to prop up the market price well beyond book value.

OR you just grossly misunderstand why anyone participates in the market. For starters, people don't buy stocks because they want a companies' assets. You are focused on book value for some reason. Stocks don't trade based on their book value. Investors buy stocks because they want the earnings. Those earnings could pass on to the investor in the form of dividends, stock buybacks, or the company could reinvest the earnings back into the company which implies more earnings later on(future dividends). Keep in mind some companies, like tech companies, have significant cash flow while holding onto very little in tangible assets. Their price to book ratio could look very abnormal, while their price to earnings looks fine. Let's use Apple as an example. Price to book = 6.71. Forward price to earnings = 15.6. If Apple's stock price dropped enough for their P/B to equal 1 then their PE would be 2.32, which would equate to an earnings yield of 43%! That's insane. This is why investors care about cash flows and not assets. If stocks drop by 60% I'll still be happy to own them, because of the earnings!!!

Nate79

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Re: Is it too late [bitcoin]?
« Reply #759 on: January 15, 2018, 10:32:04 PM »
Wow, just wow. I've never heard such ignorance when it comes to stock market investing, fundamental stock valuation and pricing, and index investing. Index and stock market investing is speculation now and basically a Ponzi scheme? I would expect better in the investing section but apparently not in a crypto thread. I mean this is kindergarden level very basic investing knowledge.

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maizeman

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Re: Is it too late [bitcoin]?
« Reply #760 on: January 15, 2018, 11:00:36 PM »
If it helps to see the units:

U (coins) * P (dollars per coin) * V (transactions per coin per unit time) = T (dollars worth of transactions per unit time)

yes that does help.

if U and V are not independent, and in fact are strictly inversely proportional, then they should they not be separate variables?

Happy that helped to clarify things. To answer your question, U and V are strictly inversely proportional only in the special case that you're removing or adding a subset coins with zero transactions per unit of time from U.

If you're removing coins which would otherwise have been used in transactions and holding T constant, either P and/or V could increase.

EscapeVelocity2020

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Re: Is it too late [bitcoin]?
« Reply #761 on: January 16, 2018, 12:57:52 AM »
If it helps to see the units:
U (coins) * P (dollars per coin) * V (transactions per coin per unit time) = T (dollars worth of transactions per unit time)
...
If you're removing coins which would otherwise have been used in transactions and holding T constant, either P and/or V could increase.

That has been a big part of my reasoning behind the speculation, Bitcoin has a fixed limit and get's exponentially harder to create.  The hard fact is that more 'real' resources are being consumed to create the next coin, so either it is worth the expenditure or else the system will tailor / truncate itself.  The fact that nominal resources are cheap enough to perpetuate the system should be an indication as to what Bitcoin is worth to the general population that exchange it.
Transitioning to FIRE'd albeit somewhat cautiously...

L.A.S.

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Re: Is it too late [bitcoin]?
« Reply #762 on: January 16, 2018, 06:36:25 AM »

In the case of cryptocurrencies, I would argue that the value the market will converge upon for a given cryptocurrency once the speculation runs its course is likely dictated by the money supply equation M*V = T where M is the size of the money supply, V is the velocity of money and T is the number of real economic transactions conducted using the currency per unit time (using the same time units for T and V so they cancel out). 

We can expand the equation since M = (U * P) where U is the number of units of the currency, and P is the price per unit of currency and get U * P * V = T, and then solve for P: P = T/(U*V).


Where are these equations from?  Can you provide me an independent source I can read to learn more about them?

I tried looking up the quantity theory of money equation and everywhere else presents it as:

MV = PT  which is different than your equation of MV = T

https://www.investopedia.com/insights/what-is-the-quantity-theory-of-money/

Perhaps you dropped the P?

I'm not sure where  M = U*P comes from, but if you were to substitute it into MV = PT, you would get U * P * V = P * T
In this case, P would cancel and you would have units of currency multiplied by velocity is equal to transactions per unit time.

 
Quote

For most cryptocurrencies either the number of units of the currency is fixed, or the rate of growth in the number of transactions is fixed. So any guess about the long term price people will pay for a unit of some random cryptocurrency is based on their estimate of the probability distribution for both the number of transactions which will ultimately be conducted in that currency, and the velocity of money for that currency.

The problem, of course, is that different people have very different ideas about that the distribution of potential outcomes for T is, and that no one really knows what an appropriate assumption is for a cryptocurrency's velocity of money.

FWIW, the best estimates I've seen today using the variables in this equation put the price of bitcoin justified by the amount of activity conducted using the currency in the dozens to hundreds of dollars per bitcoin (and that was before transaction fees spiked and major merchants started either dropping bitcoin support or switching to other cryptocurrencies), implying the vast majority of the USD price of bitcoin at the moment is driven by either informed speculation that there is a small chance T will increase by a fair number of orders of magnitude in the future or uninformed speculation that things which have gone up in price will continue to go up in price.

Also, from what I've read, the velocity of money itself is usually measured indirectly.  That is to say, V = PT/M.

https://en.wikipedia.org/wiki/Velocity_of_money

I don't know that it would be proper to just throw V on the right side of the equation and solve for a P as you've done, since V itself is apparently dependent on price which would be measured.  However if one assumes a value for V and it is wrong, then it would produce incorrect results when one "plugs-and-chugs" through the equations.  GIGO.

You mention that the estimates you have seen based on the variables in these equations produce prices on the order of $10-100 per bitcoin.  Could you also provide some of these sources where you have seen these estimates in these equations?

L.A.S.

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Re: Is it too late [bitcoin]?
« Reply #763 on: January 16, 2018, 06:49:50 AM »
I disagree with almost every instance of your use of the word "speculation" in that post.  You seem to think that any investment that is not FDIC insured is speculation.  Just allow me to posit that most people don't agree with your definition, and we can move on.

+1


Quote from: phil22
the stock market could lose 2/3+ of its value and stay down for decades if there's war or natural disasters or a epidemic or any other black swan event.  we index investors are speculating that that won't happen and that future buyers will continue to prop up the market price well beyond book value.

OR you just grossly misunderstand why anyone participates in the market. For starters, people don't buy stocks because they want a companies' assets. You are focused on book value for some reason. Stocks don't trade based on their book value. Investors buy stocks because they want the earnings. Those earnings could pass on to the investor in the form of dividends, stock buybacks, or the company could reinvest the earnings back into the company which implies more earnings later on(future dividends). Keep in mind some companies, like tech companies, have significant cash flow while holding onto very little in tangible assets. Their price to book ratio could look very abnormal, while their price to earnings looks fine. Let's use Apple as an example. Price to book = 6.71. Forward price to earnings = 15.6. If Apple's stock price dropped enough for their P/B to equal 1 then their PE would be 2.32, which would equate to an earnings yield of 43%! That's insane. This is why investors care about cash flows and not assets. If stocks drop by 60% I'll still be happy to own them, because of the earnings!!!

phill22, you do not seem to have a clear understanding of what intrinsic value and speculation mean.  You seem to be using the terms wrong in your analysis.

sol and Indexer are right, here.  Price is what you pay, value is what you get.  Price, in an ordinary market is often known to 2 or 3 decimal places since the exact agreed price is usually published to other market participants.  Whereas intrinsic value, when it exists, is always approximate. 

so and Indexer have clearly read some Ben Graham or other value investors and are using the terms intrinsic value and speculation in the value investing context.  I highly recommend picking up some literature by true value investors.  Even if you don't end up subscribing to the value investing philosophy it can be helpful to fully understand it, especially when trying to debate with a value investor.  "The Intelligent Investor" by Benjamin Graham comes to mind.  However, I personally got more out of "Security Analysis" by Benjamin Graham and David Dodd, since SA goes into much more detail and helped things click for me a bit more. 

Mr. Green

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Re: Is it too late [bitcoin]?
« Reply #764 on: January 16, 2018, 08:19:44 AM »
Sure looks like the speculation party is over. bitcoin is now down 40%. Feels like 2008 for BTC right now.
« Last Edit: January 16, 2018, 08:21:52 AM by Mr. Green »
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Acastus

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Re: Is it too late [bitcoin]?
« Reply #765 on: January 16, 2018, 08:24:09 AM »
No, it is not too late to lose everything by "investing" in Bitcoin.

maizeman

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Re: Is it too late [bitcoin]?
« Reply #766 on: January 16, 2018, 09:20:03 AM »
I tried looking up the quantity theory of money equation and everywhere else presents it as:

MV = PT  which is different than your equation of MV = T

https://www.investopedia.com/insights/what-is-the-quantity-theory-of-money/

Perhaps you dropped the P?

I'm not sure where  M = U*P comes from, but if you were to substitute it into MV = PT, you would get U * P * V = P * T
In this case, P would cancel and you would have units of currency multiplied by velocity is equal to transactions per unit time.

It's useful to list the definitions of variables, not just the letter used to represent them. Otherwise you run into the problem that different people use the same letters to represent different things in different equations. It looks like there are two cases of this in the example you gave.

The first example is T:

MV = total economic value of all transactions.

I wrote that as a single variable (T). In the link you found they're defining the total economic value of all transactions as the product of the total number of transactions (which they're also calling T), and the average dollar value of those economic transactions or the price index (P).* If you multiple the total number of something by the average value of that thing you get the total value of all the things put together. So (total value) = (average value) * (total number).

The second example is P. I define the money supply (M, both our sources agree on that abbreviation) as the number of currency units (U) * the price of each of those currency units in dollars (P). The reason to include this is that we were discussing economic activity (T or T * P depending on which equation you use) in dollars, but the units (U) were some other currency. If the units were dollars and the economic activity was in dollars than the price of dollars per dollar would always be 1, so the term can be safely omitted.

Quote
I don't know that it would be proper to just throw V on the right side of the equation and solve for a P as you've done, since V itself is apparently dependent on price which would be measured.  However if one assumes a value for V and it is wrong, then it would produce incorrect results when one "plugs-and-chugs" through the equations.  GIGO.

Yup. Measuring financial velocities is hard. That's part of why people can come up with such a wide range of estimates for what the price of bitcoin would need to be today to facilitate the amount of actual economic activity conducted using the currency. (The other half being that measuring total economic activity conducted in a given currency is also hard). Add in the third source of uncertainty (guessing the distribution of likely outcomes for both the velocity of money for bitcoin and the total economic activity for bitcoin years in the future), and you can see why people have so much trouble agreeing on what a reasonable price for it today is.

All in all, I'm very happy I don't have to try to outguess the market.

sol

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Re: Is it too late [bitcoin]?
« Reply #767 on: January 16, 2018, 09:47:17 AM »
Sure looks like the speculation party is over. bitcoin is now down 40%. Feels like 2008 for BTC right now.

I think the bitcoin community will rejoice if their losses are only 40% from the peak.

L.A.S.

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Re: Is it too late [bitcoin]?
« Reply #768 on: January 16, 2018, 10:04:51 AM »
I tried looking up the quantity theory of money equation and everywhere else presents it as:

MV = PT  which is different than your equation of MV = T

https://www.investopedia.com/insights/what-is-the-quantity-theory-of-money/

Perhaps you dropped the P?

I'm not sure where  M = U*P comes from, but if you were to substitute it into MV = PT, you would get U * P * V = P * T
In this case, P would cancel and you would have units of currency multiplied by velocity is equal to transactions per unit time.

It's useful to list the definitions of variables, not just the letter used to represent them. Otherwise you run into the problem that different people use the same letters to represent different things in different equations. It looks like there are two cases of this in the example you gave.

The first example is T:

MV = total economic value of all transactions.

I wrote that as a single variable (T). In the link you found they're defining the total economic value of all transactions as the product of the total number of transactions (which they're also calling T), and the average dollar value of those economic transactions or the price index (P).* If you multiple the total number of something by the average value of that thing you get the total value of all the things put together. So (total value) = (average value) * (total number).

The second example is P. I define the money supply (M, both our sources agree on that abbreviation) as the number of currency units (U) * the price of each of those currency units in dollars (P). The reason to include this is that we were discussing economic activity (T or T * P depending on which equation you use) in dollars, but the units (U) were some other currency. If the units were dollars and the economic activity was in dollars than the price of dollars per dollar would always be 1, so the term can be safely omitted.

Quote
I don't know that it would be proper to just throw V on the right side of the equation and solve for a P as you've done, since V itself is apparently dependent on price which would be measured.  However if one assumes a value for V and it is wrong, then it would produce incorrect results when one "plugs-and-chugs" through the equations.  GIGO.

Yup. Measuring financial velocities is hard. That's part of why people can come up with such a wide range of estimates for what the price of bitcoin would need to be today to facilitate the amount of actual economic activity conducted using the currency. (The other half being that measuring total economic activity conducted in a given currency is also hard). Add in the third source of uncertainty (guessing the distribution of likely outcomes for both the velocity of money for bitcoin and the total economic activity for bitcoin years in the future), and you can see why people have so much trouble agreeing on what a reasonable price for it today is.

All in all, I'm very happy I don't have to try to outguess the market.

Okay.

I linked to a source discussing the Irving Fisher's quantitative theory of money equation: MV = PT.  I am lead to believe, from goin' a-googlin', that MV = PT is a fairly well known equation amongst economists. 

I did not find the formulas that you propounded though.  So, to be clear, the formulas you propound are yours (?) or do you have an independent source(s)? I ask because,  you refer to your source as bolded above.  When you get the chance, please provide them.

maizeman

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Re: Is it too late [bitcoin]?
« Reply #769 on: January 16, 2018, 11:34:15 AM »
Yup. If you are using only one currency in the equation, there is no need to separate the money supply until units and price per unit, since if your economic activity is measured in dollars per unit time, and your money supply is measured in dollars, the price per dollar of a dollar is always 1. Did I forgot to write that above? If so, I apologies as I am writing this from a smartphone.

If you disagree with the above way of describing the bitcoin money supply in dollar terms, do you have an alternative measure of the bitcoin money supply youíd like to propose? Or even if you donít have an alternative, would your mind describing in a little more detail what your specific ideas are for when this approach might produce an incorrect result?

maizeman

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Re: Is it too late [bitcoin]?
« Reply #770 on: January 16, 2018, 11:42:25 AM »
To simply a bit more. There are essentially three points:

1) Whether the velocity of money equation as writing on the investopedia website you linked to is correct.

2) The idea that total economic activity is the product of the number of economic transactions * the average value of each transaction.

3) The idea that if we're looking at the money supply for a non-dollar currency in dollar terms, we need to correct for the price/exchange rate between that currency and the US dollar.

Feel free to disagree with any one, two, or all three, or point out some other assertion from my previous post which I didn't realize I was making. Either way, I'd appreciate it as it'll make it a lot easier for me to understand where our point of disagreement is.

ChpBstrd

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Re: Is it too late [bitcoin]?
« Reply #771 on: January 16, 2018, 11:45:19 AM »
Sure looks like the speculation party is over. bitcoin is now down 40%. Feels like 2008 for BTC right now.

I think the bitcoin community will rejoice if their losses are only 40% from the peak.

For all the insightful philosophy of money talk on this thread, it would appear the answer was explainable in one word: bubble.

I wonder... when cryptocoin losses exceed the losses suffered by dot-com speculators in 2000 or housing speculators in 2007, will fans admit there once was a bubble? I know arguing on the internet means never having to admit you're wrong, but part of me wonders...

sol

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Re: Is it too late [bitcoin]?
« Reply #772 on: January 16, 2018, 11:59:24 AM »
Sure looks like the speculation party is over. bitcoin is now down 40%. Feels like 2008 for BTC right now.

I think the bitcoin community will rejoice if their losses are only 40% from the peak.

For all the insightful philosophy of money talk on this thread, it would appear the answer was explainable in one word: bubble.

I doubt it.  It's always been super volatile.  I suspect this is not the first 40% price drop for bitcoin, and so far it has always recovered.

L.A.S.

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Re: Is it too late [bitcoin]?
« Reply #773 on: January 16, 2018, 12:04:25 PM »
To simply a bit more. There are essentially three points:

1) Whether the velocity of money equation as writing on the investopedia website you linked to is correct.

2) The idea that total economic activity is the product of the number of economic transactions * the average value of each transaction.

3) The idea that if we're looking at the money supply for a non-dollar currency in dollar terms, we need to correct for the price/exchange rate between that currency and the US dollar.

Feel free to disagree with any one, two, or all three, or point out some other assertion from my previous post which I didn't realize I was making. Either way, I'd appreciate it as it'll make it a lot easier for me to understand where our point of disagreement is.


maizeman, Do you have any sources for your equations MV=T and M = P*U or not?  As I have pointed to in a previous post, I think it's fair to say that you have implied that you have some sources.  You indicate in your initial post regarding these equations that you have "seen estimates using the variables" in the equations, and at another point you allege that your "source" agrees with my source for M.  If so, then I see no harm in sharing these sources with the rest of us, unless that is they are embargoed for some reason  -- perhaps you are working on a paper? (and if that is the case, why spill the beans here?) 

I think you have been given a fair opportunity to provide some sources... If you would rather not provide them, or can't provide them, then that is okay.  I will simply assume that your formulas are not mainstream, established economic formulas (like the Fisher equation, which is  discussed on sites like Investopedia), that one could comfortably derive from.

 And to be clear: Even if they are your own and you have no sources, I still think you are entitled to propound them, argue them, support them, elucidate them, massage them, invert them, modify them, clarify them, or withdraw them.  However, I don't think it is entirely fair to propound them as if they are supported by sources, fail to provide sources, and then try to put the burden of proof on others...

« Last Edit: January 16, 2018, 12:06:42 PM by L.A.S. »

eaknet

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Re: Is it too late [bitcoin]?
« Reply #774 on: January 16, 2018, 12:16:52 PM »
It’s interesting to see this thread is so quiet today.


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Optimiser

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Re: Is it too late [bitcoin]?
« Reply #775 on: January 16, 2018, 12:32:03 PM »
Itís interesting to see this thread is so quiet today.


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It's not even noon on the west coast and there are over a dozen posts

EscapeVelocity2020

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Re: Is it too late [bitcoin]?
« Reply #776 on: January 16, 2018, 12:42:51 PM »
Itís interesting to see this thread is so quiet today.

Did you expect some informed commentary about how to best play today's volatility?  This kind of thing makes for great books and movies (a.k.a. The Big Short) after the house of cards falls or goes up a few more levels after faltering, but no-one really knows where Bitcoin is going to go day to day.  Pete predicted lots of things (herehere), and here), recommended Betterment and LendingClub, and suggested that Bitcoin was overvalued - looks like he might've been right for once :).
Transitioning to FIRE'd albeit somewhat cautiously...

eaknet

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Re: Is it too late [bitcoin]?
« Reply #777 on: January 16, 2018, 12:51:58 PM »
Itís interesting to see this thread is so quiet today.


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I guess I was anticipating a flood of "I told you so" and arguments to the contrary. 
If you'd like a free stock (and I'd receive one as well), use this link to sign up for the Robinhood app.  Robinhood provides free trades, and is a pretty nifty interface. 
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KTG

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Re: Is it too late [bitcoin]?
« Reply #778 on: January 16, 2018, 01:00:34 PM »
GUYS! BITCOIN IS DOWN TO 11733 AT THE MOMENT! WHAT IS THE PROBLEM?!?!

PEOPLE DON'T UNDERSTAND THE TECHNOLOGY!

I love hearing that argument. Apparently all the peeps dumping bitcoin don't get it either.

From 19k to 11k in one month and we're still arguing over whether this is a good place to put your money. Its unreal.


maizeman

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Re: Is it too late [bitcoin]?
« Reply #779 on: January 16, 2018, 02:54:58 PM »
I think you have been given a fair opportunity to provide some sources... If you would rather not provide them, or can't provide them, then that is okay.  I will simply assume that your formulas are not mainstream, established economic formulas (like the Fisher equation, which is  discussed on sites like Investopedia), that one could comfortably derive from.

*shrug* I though I was very explicit about describing what was the original equation, what were my assertions, and what was just basic algebra so that people can decide for themselves if the ideas make sense or not.

If you or other people on this thread felt that my post came across as trying to make an argument from authority not open to intelligent debate, rather than describing ideas and the reasoning behind those ideas which they are free to evaluate and point out flaws with, I apologize for creating that impression and if you can point out what I said which created that impression I will endeavor to avoid doing so in the future. I completely agree with you that, in the absence of links to either reviews or the primary literature, you should actually think critically about any ideas I present and given references to "data not shown" no more weight than the electrons needed to display those words on the screen. Heck, honestly even if I did pepper my post with links to published papers, you should still think critically about the ideas and ask questions, raise concerns, and propose counter examples or tests.

....try to put the burden of proof on others...

I take concerns about shifting the burden of proof quite seriously. So in this case I want to point out I wasn't asking you to prove or disprove anything. I was simply asking you to explain what your views were -- not why you held them -- so we could have a more efficient discussion about where and why we actually disagreed. At this point I've asked you multiple times to point out which ideas or assertions you actually disagree with or have any thoughts of any kind about beyond "who says?"

Would it be fair to conclude you don't actually have any specific concerns you'd like to discuss beyond your feeling that I was trying to use a cloak of scientific authority to keep people from thinking and discussing ideas critically?* If so, I hope my first paragraph alleviates those concerns. If not, I usually like discussing people's concerns or different ideas. I've learned a lot from such discussions, both on this thread and elsewhere on the forum, and I'm happy to change my own views when presented with convincing new ideas/theories/datasets...

... but in this particular case, I think our frames of reference for how to actually have a conversation are so far apart that further discussion is likely to just be frustrating for both of us. Good luck to ya.

*While freely acknowledging that I am not able to provide an argument from authority for whether it is an accepted algebraic practice to substitute in Z for (X*Y) in an equation when X * Y = Z, nor am I able to cite any mathematician, economist or other source of authority for the idea that if one person represents a variable with Q and another people uses R, you don't actually need a citation for them being the same equation as long you make sure that Q and R are defined to mean the same thing.

sol

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Re: Is it too late [bitcoin]?
« Reply #780 on: January 16, 2018, 03:19:10 PM »
*shrug* I though I was very explicit about describing what was the original equation, what were my assertions, and what was just basic algebra so that people can decide for themselves if the ideas make sense or not.

Don't take it personally, mm.  Most people are unaccustomed to dealing with principal investigators.  There is a common perception that original ideas cannot have merit, and all discussions should be based on references to external sources.

Critical evaluation of new ideas is hard, and the tiny little text entry box on the forum is not the easiest place to practice.

I welcome your contributions as some of the most cogent and relevant on the forum, even in cases where I have nothing meaningful to contribute in return.  You keep doing you.

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Re: Is it too late [bitcoin]?
« Reply #781 on: January 16, 2018, 04:52:25 PM »
I disagree with almost every instance of your use of the word "speculation" in that post.  You seem to think that any investment that is not FDIC insured is speculation.  Just allow me to posit that most people don't agree with your definition, and we can move on.

+1


Quote from: phil22
the stock market could lose 2/3+ of its value and stay down for decades if there's war or natural disasters or a epidemic or any other black swan event.  we index investors are speculating that that won't happen and that future buyers will continue to prop up the market price well beyond book value.

OR you just grossly misunderstand why anyone participates in the market. For starters, people don't buy stocks because they want a companies' assets. You are focused on book value for some reason. Stocks don't trade based on their book value. Investors buy stocks because they want the earnings. Those earnings could pass on to the investor in the form of dividends, stock buybacks, or the company could reinvest the earnings back into the company which implies more earnings later on(future dividends). Keep in mind some companies, like tech companies, have significant cash flow while holding onto very little in tangible assets. Their price to book ratio could look very abnormal, while their price to earnings looks fine. Let's use Apple as an example. Price to book = 6.71. Forward price to earnings = 15.6. If Apple's stock price dropped enough for their P/B to equal 1 then their PE would be 2.32, which would equate to an earnings yield of 43%! That's insane. This is why investors care about cash flows and not assets. If stocks drop by 60% I'll still be happy to own them, because of the earnings!!!

phill22, you do not seem to have a clear understanding of what intrinsic value and speculation mean.  You seem to be using the terms wrong in your analysis.

sol and Indexer are right, here.  Price is what you pay, value is what you get.  Price, in an ordinary market is often known to 2 or 3 decimal places since the exact agreed price is usually published to other market participants.  Whereas intrinsic value, when it exists, is always approximate.

"value is what you get"  can someone clarify what that actually means beyond giving you the warm fuzzies?  please explain this from the perspective of someone that for stocks owns only VTSAX with a set-in-stone asset allocation.

so and Indexer have clearly read some Ben Graham or other value investors and are using the terms intrinsic value and speculation in the value investing context.  I highly recommend picking up some literature by true value investors.  Even if you don't end up subscribing to the value investing philosophy it can be helpful to fully understand it, especially when trying to debate with a value investor.  "The Intelligent Investor" by Benjamin Graham comes to mind.  However, I personally got more out of "Security Analysis" by Benjamin Graham and David Dodd, since SA goes into much more detail and helped things click for me a bit more.

who that has replied to these comments is a "value investor"?  i thought we all own VTSAX or similar?

Indexer

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Re: Is it too late [bitcoin]?
« Reply #782 on: January 16, 2018, 05:29:21 PM »
I disagree with almost every instance of your use of the word "speculation" in that post.  You seem to think that any investment that is not FDIC insured is speculation.  Just allow me to posit that most people don't agree with your definition, and we can move on.

+1


Quote from: phil22
the stock market could lose 2/3+ of its value and stay down for decades if there's war or natural disasters or a epidemic or any other black swan event.  we index investors are speculating that that won't happen and that future buyers will continue to prop up the market price well beyond book value.

OR you just grossly misunderstand why anyone participates in the market. For starters, people don't buy stocks because they want a companies' assets. You are focused on book value for some reason. Stocks don't trade based on their book value. Investors buy stocks because they want the earnings. Those earnings could pass on to the investor in the form of dividends, stock buybacks, or the company could reinvest the earnings back into the company which implies more earnings later on(future dividends). Keep in mind some companies, like tech companies, have significant cash flow while holding onto very little in tangible assets. Their price to book ratio could look very abnormal, while their price to earnings looks fine. Let's use Apple as an example. Price to book = 6.71. Forward price to earnings = 15.6. If Apple's stock price dropped enough for their P/B to equal 1 then their PE would be 2.32, which would equate to an earnings yield of 43%! That's insane. This is why investors care about cash flows and not assets. If stocks drop by 60% I'll still be happy to own them, because of the earnings!!!

phill22, you do not seem to have a clear understanding of what intrinsic value and speculation mean.  You seem to be using the terms wrong in your analysis.

sol and Indexer are right, here.  Price is what you pay, value is what you get.  Price, in an ordinary market is often known to 2 or 3 decimal places since the exact agreed price is usually published to other market participants.  Whereas intrinsic value, when it exists, is always approximate.

"value is what you get"  can someone clarify what that actually means beyond giving you the warm fuzzies?  please explain this from the perspective of someone that for stocks owns only VTSAX with a set-in-stone asset allocation.

so and Indexer have clearly read some Ben Graham or other value investors and are using the terms intrinsic value and speculation in the value investing context.  I highly recommend picking up some literature by true value investors.  Even if you don't end up subscribing to the value investing philosophy it can be helpful to fully understand it, especially when trying to debate with a value investor.  "The Intelligent Investor" by Benjamin Graham comes to mind.  However, I personally got more out of "Security Analysis" by Benjamin Graham and David Dodd, since SA goes into much more detail and helped things click for me a bit more.

who that has replied to these comments is a "value investor"?  i thought we all own VTSAX or similar?


I consider myself a value investor. I have read the books that LAS assumed I've read. I own VTSAX and it is my primary investment. In case all of my recent posts haven't made it really clear, I care about intrinsic value and know how to calculate it. If something doesn't have intrinsic value or if the price has no relation to the value, I'm not buying it.

I don't own VTSAX because I expect it to double in value. That would be nice... I own it because I want to own all of those companies. I want the earnings they represent. Those earnings come to me in the form of dividends or stock buy backs. I don't think owning every publicly traded stock in the world(I also own VTIAX) makes me a speculator. I own businesses. Those businesses share their profits with me. When I buy those index funds my expected holding period = forever.

phil22

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Re: Is it too late [bitcoin]?
« Reply #783 on: January 16, 2018, 06:04:35 PM »
I consider myself a value investor. I have read the books that LAS assumed I've read. I own VTSAX and it is my primary investment. In case all of my recent posts haven't made it really clear, I care about intrinsic value and know how to calculate it. If something doesn't have intrinsic value or if the price has no relation to the value, I'm not buying it.

first off, i agree that owning VTSAX is a good strategy and it's the majority of my portfolio as well.  but it own VTSAX because i am speculating that the market price to continue to rise over the long term, not because i've researched 3,000+ companies and want a share of their profits.

that being said, the above doesn't make any sense.  you own shares of all publicly-traded companies.  or do you mean VTSAX itself?  VTSAX itself has a yield of 1.75%, which doesn't even beat inflation.  if you're looking at getting a share of profits then VTSAX is a bad investment.  if you're mainly concerned with market price, then VTSAX is a good investment but you can't claim you like it because of dividends yields rather than market price.

also, as the price/book ratio keeps increasing, that yield figure will keep dropping.

I don't own VTSAX because I expect it to double in value. That would be nice... I own it because I want to own all of those companies. I want the earnings they represent. Those earnings come to me in the form of dividends or stock buy backs.

so if the market price goes up 100% that's great but you actually own it for the 1.75% in returns?  that's cognitive dissonance.

as i've said before, VTSAX has a dividend yield of 1.75%.  based on historic data it perhaps had a yield of double that at the bottom of the crash in 2008.  i agree that you could feel fine with your stocks while they are in free fall, losing 60% of their market price.  but you'd be lying if you said that was because of the 3-4% dividend yields.  you can't be comfortable with even 4% yields after losing 50%+ in market price because your SWR is toast at that point.

you'd be fine with your stocks because you're confident buyers will soon return to bid the market price back up.  again, that's speculation on future market price, not investing for profits.

I don't think owning every publicly traded stock in the world(I also own VTIAX) makes me a speculator. I own businesses. Those businesses share their profits with me. When I buy those index funds my expected holding period = forever.

since you literally buy shares of every company without the intention of ever selling, then you actually do not care about the profits of those companies.  you only care about the future market price.

hypothetically, if you only bought stocks with a high dividend yield, or VDIGX or similar, then fine.  you would then be an investor buying stocks for the share of profits.  but you don't own VDIGX.  you own VTSAX.

it's just interesting to me that none of the "value is what you get" posters here can admit that you own stock index funds purely for the speculative market value they will have in the future.  again, if VTSAX starts to crash down toward book value, then you are in deep trouble WRT the 4% rule and you'd be waiting hoping the market price bounces back after a year or two.


sherr

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Re: Is it too late [bitcoin]?
« Reply #784 on: January 16, 2018, 06:20:42 PM »
...
as i've said before, VTSAX has a dividend yield of 1.75%.
...

Dividend yield, sure. But as several other people have already explained to you, that is only one way that shares increase in value. Another is that companies might buy back shares, reducing the total amount in the market and therefore making each one a more valuable slice of the company. Another is that the company itself increases in value. None of those three are "speculation" on future market price, they are all three rooted in rational and fiscally sound mathematics.

Is there speculation in the stock market on top of that? Sure. But you seem to be very obstinately refusing to understand what everyone else is telling you in order to vastly overstate the situation.

phil22

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Re: Is it too late [bitcoin]?
« Reply #785 on: January 16, 2018, 06:26:27 PM »
...
as i've said before, VTSAX has a dividend yield of 1.75%.
...

Dividend yield, sure. But as several other people have already explained to you, that is only one way that shares increase in value. Another is that companies might buy back shares, reducing the total amount in the market and therefore making each one a more valuable slice of the company. Another is that the company itself increases in value. None of those three are "speculation" on future market price, they are all three rooted in rational and fiscally sound mathematics.

Is there speculation in the stock market on top of that? Sure. But you seem to be very obstinately refusing to understand what everyone else is telling you in order to vastly overstate the situation.

sorry but that's not true.  i am not overstating anything.  i'm using data in my responses, and i find it telling that none of the responses on this topic have included numbers.

buybacks are yes another way to share profits, but that doesn't change the fact that the average price/book ratio has been going UP since 2009*.  all the stock buybacks that have occurred since 2009 therefore have had much less of an impact than speculators driving up the market price.

* https://www.quandl.com/data/MULTPL/SP500_PBV_RATIO_QUARTER-S-P-500-Price-to-Book-Value-by-Quarter

sol

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Re: Is it too late [bitcoin]?
« Reply #786 on: January 16, 2018, 06:27:07 PM »
also, as the price/book ratio keeps increasing, that yield figure will keep dropping.

You keep saying this over and over again, and we keep correcting you over and over again, and you're just not listening.

Yield is determined by profits and sale prices.  Book value does not appear in the equation  Price/book ratio doesn't matter, except as one tool that some investors use to determine their price points.  Usually, a less significant tool than price/earnings.

Price/book can go up or down totally independently from dividends.  Dividends are profits.  Profits are not a function of book value, or of the stock price.

Price/book can increase while prices drop, if book value drops more.  Book value is kind of irrelevant in many modern industries, though.  Investors are buying earnings, not book value.  I feel like I might have said that before.

I understand what you're trying to say.  You are counting on future stock market appreciation.  That's all well and good, but it does not mean the stock market is speculation.  Unfortunately, you are using these terms in very confusing ways that suggests you're not really up to speed on the way the rest of this forum discusses these topics.

Indexer

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Re: Is it too late [bitcoin]?
« Reply #787 on: January 16, 2018, 06:37:03 PM »
Phil22: 

No where did I say I bought VTSAX and VTIAX just because I wanted the current low dividend. I have been consistent that I want to share in the earnings.


Here are my thoughts on earnings...

Quote from: Indexer
Investors buy stocks because they want the earnings. Those earnings could pass on to the investor in the form of dividends, stock buybacks, or the company could reinvest the earnings back into the company which implies more earnings later on(future dividends).



Quote from: phil22
since you literally buy shares of every company without the intention of ever selling, then you actually do not care about the profits of those companies.  you only care about the future market price.

Please reread what you said... slowly. If I never sell the holding, ever, then how would I benefit from the future market price?


Let's compare value to speculation.

Intrinsic value= what something is worth even if no one wanted to buy it from you. What's it worth for you to hold it forever(or until maturity)?

Speculation= buying something with the intention of selling it at a higher value(or lower value when shorting) in the future.

Note the difference.

Edit: fixing a typo.
« Last Edit: January 16, 2018, 06:50:38 PM by Indexer »

Ben Hogan

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Re: Is it too late [bitcoin]?
« Reply #788 on: January 16, 2018, 06:48:28 PM »
Just adding a few facts about what we are seeing here:

1. Blockchain tech has not been adopted by a single large product.
2. None of the major crypto can compete with existing tech on speed of transaction, fees or reliability.
3. If Bitcoin and Eth are ver 1.0, would not it be wise to speculate on a newer crypto product since the improvements would more likely allow those to be adopted?

Carry on the speculating. :)

phil22

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Re: Is it too late [bitcoin]?
« Reply #789 on: January 16, 2018, 07:14:57 PM »
also, as the price/book ratio keeps increasing, that yield figure will keep dropping.

You keep saying this over and over again, and we keep correcting you over and over again, and you're just not listening.

Yield is determined by profits and sale prices.  Book value does not appear in the equation  Price/book ratio doesn't matter, except as one tool that some investors use to determine their price points.  Usually, a less significant tool than price/earnings.

Price/book can go up or down totally independently from dividends.  Dividends are profits.  Profits are not a function of book value, or of the stock price.

Price/book can increase while prices drop, if book value drops more.  Book value is kind of irrelevant in many modern industries, though.  Investors are buying earnings, not book value.  I feel like I might have said that before.

saying that profits are not related book value proves my point!  if you're looking at cash flow / profits / dividends without regard for the actual value of the company, then you are speculating.  what happened to repeating over and over again about "intrinsic value"?

again, if you're going to argue that you care about profits as (revenue - expenses), then that proves my point that you don't actually care about intrinsic value of a company.  that shows you're speculating on future profits without regard for the assets and debts the company is accumulating.  this is especially troubling considering the low (1.75% annualized) actual profits you are getting.  if you would just admit you are speculating on future market price, then it would all make sense.

I understand what you're trying to say.  You are counting on future stock market appreciation.  That's all well and good, but it does not mean the stock market is speculation.  Unfortunately, you are using these terms in very confusing ways that suggests you're not really up to speed on the way the rest of this forum discusses these topics.

funny you say "you" there, and not "we."  yes i am hoping the market price keeps soaring higher and higher, and so are you.  if stocks fell toward a 1.0 price/book ratio your SWR would be toast and you won't admit that.  if stocks fell 66% and you suddenly were getting nice 4% yields, your SWR would still be toast and you won't admit that.

you are speculating that the market price will increase at 7%+ returns, not that your yields will be 7%+, and you won't admit that.




phil22

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Re: Is it too late [bitcoin]?
« Reply #790 on: January 16, 2018, 07:25:16 PM »
Phil22: 

No where did I say I bought VTSAX and VTIAX just because I wanted the current low dividend. I have been consistent that I want to share in the earnings.

explain to me the difference in "dividend" and "earnings" as you used them there.

Here are my thoughts on earnings...

Quote from: Indexer
Investors buy stocks because they want the earnings. Those earnings could pass on to the investor in the form of dividends, stock buybacks, or the company could reinvest the earnings back into the company which implies more earnings later on(future dividends).

with all dividends and buybacks and everything else factored in, the market price has increased faster than the intrinsic value of the companies.  that means over time you will NEED the market price to stay up in order to maintain your SWR.  you may WANT the earnings, but the earnings won't allow you to maintain your SWR.  you NEED the market price to stay pushed upwards from speculation.

Quote from: phil22
since you literally buy shares of every company without the intention of ever selling, then you actually do not care about the profits of those companies.  you only care about the future market price.

Please reread what you said... slowly. If I never sell the holding, ever, then how would I benefit from the future market price?

you said "When I buy those index funds my expected holding period = forever. "  i assume "forever" actually means "until i decide to sell to replenish my checking account at my SWR".  note that selling a share of VTSAX doesn't mean you are selling the poorly-performing companies.  when you sell a share of VTSAX you're heavily weighted toward selling companies performing well.

Let's compare value to speculation.

Intrinsic value= what something is worth even if no one wanted to buy it from you. What's it worth for you to hold it forever(or until maturity)?

Speculation= buying something with the intention of selling it at a higher value(or lower value when shorting) in the future.

Note the difference.

Edit: fixing a typo.

again going to back to SWR from a FIRE perspective, if no one wants to buy your shares then your SWR is toast and you have to go back to work.

you absolutely do intend to sell your shares of VTSAX to someone else at a later date for a higher price (avg 7% higher per year) in order to fund your lifestyle via your SWR.  do absolutely do not intend for your shares to appreciate at 7% on yields alone.


phil22

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Re: Is it too late [bitcoin]?
« Reply #791 on: January 16, 2018, 07:37:07 PM »
by the way i want to say thank you all for challenging my beliefs and making me think. 

obviously speculating on the entire US/Earth is safer than speculating on a handful of cryptos, which is why i've cashed out a good chuck of my cryptos...  but i haven't been convinced FIRE-focused index investing isn't speculation yet though.

sol

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Re: Is it too late [bitcoin]?
« Reply #792 on: January 16, 2018, 07:46:26 PM »
saying that profits are not related book value proves my point!  if you're looking at cash flow / profits / dividends without regard for the actual value of the company, then you are speculating.  what happened to repeating over and over again about "intrinsic value"?

You're still not using these terms correctly.  Intrinsic value includes revenue streams.  Future revenue (usually discounted for time) is an intrinsic value.  The value of the company is (almost entirely) based on it's future profitability, not its book value.

And more to the point at hand, and the reason we are here, bitcoins do not have a revenue stream.

Quote
again, if you're going to argue that you care about profits as (revenue - expenses), then that proves my point that you don't actually care about intrinsic value of a company.  that shows you're speculating on future profits

I'm just shaking my head now. 

Allow me to give you an analogy.  Bitcoin is worthless.  The reason bitcoin is worthless is that the blockchain implementation is too centralized on the hash network.  Private keys will never be competitive with p2p permission ledgers as long as block rewards underperfom fiat currency.  It's so obvious I can't believe you don't see it!  When EVM finally hardforks your wallet will be stored in the cloud anyway, so your concerns about 51% attacks are moot.  HODL or die!

See?  Nonsense.  You can't argue with it because the words don't mean what the words mean.

This conversation is not going to be fruitful.  You've apparently abandoned all discussion of bitcoin and are not just randomly attacking the concept of investing.

phil22

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Re: Is it too late [bitcoin]?
« Reply #793 on: January 16, 2018, 09:03:42 PM »
saying that profits are not related book value proves my point!  if you're looking at cash flow / profits / dividends without regard for the actual value of the company, then you are speculating.  what happened to repeating over and over again about "intrinsic value"?

You're still not using these terms correctly.  Intrinsic value includes revenue streams.  Future revenue (usually discounted for time) is an intrinsic value.  The value of the company is (almost entirely) based on it's future profitability, not its book value.

yes, this is what i'm arguing.  that's the whole point of my argument.  my entire argument is that FIRE-focused index investors on this board have been misusing these terms in an attempt to comfort themselves into thinking that they are not "speculating."

my point is that yes in traditional stock investing theory, "intrinsic value" includes future earnings.  but you're not a traditional stock investor.  you're an index investor.  you have no idea what the future profits for all companies are, yet you buy them anyway, pushing up their price regardless of their performance.  if you actually cared about "intrinsic value" you wouldn't be buying VTSAX, which is way overpriced by any metric.  but you buy it anyway because you are speculating that the future market price of VTSAX will be higher in the future when you go to sell your shares according to your SWR.

you (rightly so) agree that traditional stock picking, which includes calculating "intrinsic value" and "price to earnings" and whatever else is a foolish way to invest!  instead of applying these precious investing principals you refer to, you throw them all out the window and just buy the whole damn stock market.  and rightly so because for that last 100+ years that's been the best strategy.  but that doesn't mean it's not speculating.

And more to the point at hand, and the reason we are here, bitcoins do not have a revenue stream.

fully agreed

Quote
again, if you're going to argue that you care about profits as (revenue - expenses), then that proves my point that you don't actually care about intrinsic value of a company.  that shows you're speculating on future profits

I'm just shaking my head now. 

Allow me to give you an analogy.  Bitcoin is worthless.  The reason bitcoin is worthless is that the blockchain implementation is too centralized on the hash network.  Private keys will never be competitive with p2p permission ledgers as long as block rewards underperfom fiat currency.  It's so obvious I can't believe you don't see it!  When EVM finally hardforks your wallet will be stored in the cloud anyway, so your concerns about 51% attacks are moot.  HODL or die!

See?  Nonsense.  You can't argue with it because the words don't mean what the words mean.

This conversation is not going to be fruitful.  You've apparently abandoned all discussion of bitcoin and are not just randomly attacking the concept of investing.

again i'm not arguing against investing or the mustachian/FIRE investing principals.  i'm just admitting it's speculating on future market price, whereas you are not able to admit this.  i'll move my arguments to a separate thread so i don't keep derailing this thread.

Indexer

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Re: Is it too late [bitcoin]?
« Reply #794 on: January 16, 2018, 10:11:32 PM »
Quote from: phill22
explain to me the difference in "dividend" and "earnings" as you used them there.

I'm using the words as they are defined. How else would I be using them?

Earnings = corporate earnings. After tax net income. Also referred to as profits.  https://www.investopedia.com/terms/e/earnings.asp
Dividends= earnings that have been passed on to shareholders. https://www.investopedia.com/terms/d/dividend.asp


Quote from: phil22
saying that profits are not related book value proves my point!  if you're looking at cash flow / profits / dividends without regard for the actual value of the company, then you are speculating.  what happened to repeating over and over again about "intrinsic value"?

Go back to my definitions for speculation and intrinsic value. Intrinsic value is what you get if you never sold the holding. With a stock what you get is your share of earnings. If the company has earnings that is what you are going to look at. You would only look at book value if you thought the company was going to go bankrupt.

Calculating stock intrinsic value: https://www.investopedia.com/articles/basics/12/intrinsic-value.asp
Notice the models focus on dividends and cash flows.

Quote from: phil22
again going to back to SWR from a FIRE perspective, if no one wants to buy your shares then your SWR is toast and you have to go back to work.

you absolutely do intend to sell your shares of VTSAX to someone else at a later date for a higher price (avg 7% higher per year) in order to fund your lifestyle via your SWR.  do absolutely do not intend for your shares to appreciate at 7% on yields alone.

Now that we have covered book value, dividends, and intrinsic value this should be easier to understand. If a company has earnings those earnings have to go somewhere. 1. Dividends. 2. buy backs, which decreases the number of shares so your ownership rights increase. 3. reinvest back into the company which should increase future earnings. If intrinsic value is determined from earnings and if 2&3 both increase earnings per share then 2&3 increase the intrinsic value of the stock. A profitable company's intrinsic value will likely increase over time without the need for speculation.

You are correct that speculation could drive the price higher than the intrinsic value. That brings us to the SWR. The 4% SWR assumes poor market performance. If you bought stocks that were inflated due to speculation and then had to sell them in retirement, that is the type of scenario the 4% rule was based on.


Quote from: phil22
my point is that yes in traditional stock investing theory, "intrinsic value" includes future earnings.  but you're not a traditional stock investor.  you're an index investor.  you have no idea what the future profits for all companies are, yet you buy them anyway, pushing up their price regardless of their performance.  if you actually cared about "intrinsic value" you wouldn't be buying VTSAX, which is way overpriced by any metric.  but you buy it anyway because you are speculating that the future market price of VTSAX will be higher in the future when you go to sell your shares according to your SWR.

How do you think the prices of the stocks within VTSAX were determined? They were determined by the markets. Investors, from novice investors to hedge fund managers, are buying and selling individual securities. They determined the prices of the stocks within VTSAX. Buying VTSAX is what you do if you assume you aren't smarter than the markets. Who are you to say what the intrinsic value of VTSAX is? I actually agree that it's on the pricey side, but so far your argument has been that its price to book value is too high, which doesn't build a lot of confidence in your assessment.

Ben Hogan

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Re: Is it too late [bitcoin]?
« Reply #795 on: January 17, 2018, 06:39:41 AM »
I wonder anyone knows what BlockChain tech will be good for.

Block Chain is a specified set of data, that is hashed and confirmed to the block before it, making it an integrity model. Which really limits it's use since most data models are based off speed and structure, which is why SQL is so prevalent.

So you really cant use this as a public banking transaction platform, if people can openly view your bank account and who you sent money to, thats not legal or smart. You cant use it for most data like Social media, as integrity would not be one of that type of data's primary concerns. Nor is it good for storage of data like files, as retrieval through blocks would be slow compared to a structured data system.

The only uses for the tech would be what? Online gambling where the token is used to hide cash flow? Of course all the illegal online purchases. maybe a use for currency in countries of destabilization, venezuela and some small asian island countries comes to mind. But how would anyone cash out if the government bans exchange transactions with their banks.

Mr. Green

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Re: Is it too late [bitcoin]?
« Reply #796 on: January 17, 2018, 07:31:02 AM »
Bitcoin now down almost 50%, under $10,000.
RE in June 2016. Wife is joining me at the end of June!

Cycling Stache

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Re: Is it too late [bitcoin]?
« Reply #797 on: January 17, 2018, 07:48:27 AM »
This thread has gotten so weird with the battle over terminology happening at the same time as the math formulas and the occasional updates on bitcoin price sprinkled in.

There seems to be a disconnect between @sol and @Indexer and @phil22 that I think matters, and this quote seemed as good as any to try to capture it.

I consider myself a value investor. I have read the books that LAS assumed I've read. I own VTSAX and it is my primary investment. In case all of my recent posts haven't made it really clear, I care about intrinsic value and know how to calculate it. If something doesn't have intrinsic value or if the price has no relation to the value, I'm not buying it.

I still don't understand what informational advantage anyone here has over the bitcoin market.  I say that not to advocate for bitcoin investing, but to understand how we claim to have an informational advantage or to "know" that bitcoin is incorrectly priced.

I don't understand a "value" investor and an index investor to be the same.  Indeed, I think they are often functionally the opposite.  My understanding of a value investor is one who believes that a company's value (as measured by future earnings stream, etc.) has been incorrectly assessed by the market, and thus the current market price is too low.  That presupposes that someone "knows" more than the market, and can act on that information.

Generally, an index investor is one who claims not to know more than the market, and thus is confident to let the market follow its general upward trend.  Sure, the market price is set in the way that @sol and @Indexer describe, but the more important point is that the index investor believes he/she does not have any additional information or advantage over the market to determine whether the price is correct, and therefore just buys the market.  Thus the top-is-in thread, where everyone points out the fallacy of trying to call out the over-valued nature of the market, and by extension, the companies that make it up.

I included a quote from the OED earlier in this thread about speculation that defines it as pretty much any investment where there is hope of gain and risk of loss, contrary to the common use of the term to suggest high-stakes gambles, and that might be adding to the confusion.

At a basic level, do people here believe that: (1) bitcoin has no value, and therefore any market price for it is too high; or (2) they have information that allows them to know that bitcoin's value is something different than the market price?

I know @sol provided an explanation above of why he believes gold has no value (other than industrial uses), but I think the fact that there's a consistent, developed market for it contradicts that position.  Gold might have no inherent value (other than industrial uses, etc.) but in the long run assuming an efficient market, shouldn't value and price converge?

Also, someone else mentioned the tech bubble and how price greatly outstripped the value of the companies, thus creating a bubble.  That is true, but the one more step in the analysis is that the prices were determined by the future prospects of the companies, and there was a chance that the companies would be worth gazillions of dollars.  It turned out not to be true (mostly), but the money being bet on it wasn't entirely "speculation" (in the take-a-flyer sense of the word) insofar as there was a possible outcome that tech would completely displace retail as we knew it, and those companies would capture the retail market.

All of which is to say that bitcoin certainly looks like a bubble, but I'm not sure what information I have or anyone here has to say that definitively in a way that we cannot say about other markets.  @maizeman provided what appears to be a fantastic mathematical analysis of bitcoin's value (although I didn't understand any of it!), but are we suggesting that if the Winkelvoss twins just joined an MMM forum and applied @maizeman's math, they would immediately pull out and the market would move towards an efficient price?

brooklynguy

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Re: Is it too late [bitcoin]?
« Reply #798 on: January 17, 2018, 07:50:00 AM »
again i'm not arguing against investing or the mustachian/FIRE investing principals.  i'm just admitting it's speculating on future market price, whereas you are not able to admit this.  i'll move my arguments to a separate thread so i don't keep derailing this thread.

You're not derailing the thread.  The topic of investment (as distinguished from speculation) is the road on which the rails of the thread's nominal topic travel, so this discussion couldn't be more on point.

As Indexer has noted several times above, you are correct that stock trading could in theory (and often does in practice) involve an element of speculation.  Stock traders could (and often do) buy and sell shares of stock (and thereby contribute to the establishment of the market price of those shares) solely on the basis of their speculation about what price others will be willing to transact in the future.  But, as you have already conceded, stock traders also could (and often do) buy and sell shares of stock (and thereby contribute to the establishment of the market price of those shares) on the basis of their evaluation of the intrinsic value of those shares.  In my view, you are grossly overstating the extent to which stock traders (including, indirectly, index investors, who are relying entirely on active traders to set the relative market prices of the constituent stocks that make up the index) do the former rather than the latter, but let's assume for the sake of argument that that doesn't matter.  The real point is that because bitcoin has no intrinsic value the trading of bitcoins for the purpose of making money is, unlike stock trading, necessarily and entirely an enterprise in speculation and not investment.

brooklynguy

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Re: Is it too late [bitcoin]?
« Reply #799 on: January 17, 2018, 08:06:44 AM »
I know @sol provided an explanation above of why he believes gold has no value (other than industrial uses), but I think the fact that there's a consistent, developed market for it contradicts that position.  Gold might have no inherent value (other than industrial uses, etc.) but in the long run assuming an efficient market, shouldn't value and price converge?

We're going back in circles.  Neither bitcoin nor gold (putting aside its limited physical uses) has any intrinsic value towards which their market price can converge.  The same is true of U.S. dollars.  That's why none of those assets are suitable vehicles for investment.  You can trade them on the expectation that their market price will fluctuate in a favorable direction, but that would be speculation, precisely because they trade in efficient markets and you therefore have no information advantage regarding their future price movements.  But if inefficiencies in any of these markets do exist--say, you were able to find a seller willing to sell a bitcoin, an ounce of gold, or a U.S. banknote, for a small fraction of its current market price--then you could exploit that information advantage to turn a profit without needing to speculate about future price movements.