Author Topic: Is it too late [bitcoin]?  (Read 81891 times)

eaknet

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Re: Is it too late [bitcoin]?
« Reply #750 on: January 16, 2018, 12:51:58 PM »
It’s interesting to see this thread is so quiet today.


Sent from my iPhone using Tapatalk

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

I guess I was anticipating a flood of "I told you so" and arguments to the contrary. 

KTG

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Re: Is it too late [bitcoin]?
« Reply #751 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 #752 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 #753 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.

phil22

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Re: Is it too late [bitcoin]?
« Reply #754 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 #755 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 #756 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 #757 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 #758 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 #759 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 #760 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 #761 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 #762 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 #763 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 #764 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 #765 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 #766 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 #767 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 #768 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 #769 on: January 17, 2018, 07:31:02 AM »
Bitcoin now down almost 50%, under $10,000.

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Re: Is it too late [bitcoin]?
« Reply #770 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?

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Re: Is it too late [bitcoin]?
« Reply #771 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 #772 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.

Telecaster

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Re: Is it too late [bitcoin]?
« Reply #773 on: January 17, 2018, 11:13:55 AM »
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. 

You're right, in the sense that if you buy a stock, you are betting the price will be higher in the future, and you don't really know if that will be true or not.  But let's look at just buying one, private company for a moment.  There are lots of ways to value a company, but they all boil down to assetts - liabilities * some multiplier for future profits.  Of course, there might not be be future profits, but one hopes.  That's really no different than buying an index.  Those companies all have physical assets (some more than others), liabilities, and hope of future profits.  The market typically assigns a value of 15 times earnings as an average price of the index.   The market can go whacky in either direction for long periods of time, but hope of future earnings seems to be the way stocks are valued.  That's the way bonds are valued too.  And you're right in that you are sort of hoping that things will be valued the same way in the future. 

In the case of Bitcoin, there are no future earnings.  Like gold, the price is set by supply and demand.  With gold, the demand has a minimum floor, which is the amount consumed by industry as well as cosmetic uses balanced by the cost to mine it.  Any demand above that is gold bought on speculation.   And we know for recent years there is lots of speculation in gold.  But there definitely is some minimum value and after the speculators get bored, the price begins to drop down towards that floor.   I'm not sure what the floor is, but I'm guessing it is around $275/oz based simply because it traded around that value for a long time. 

Bitcoin demand also has a minimum floor.  There needs to be enough BTC in circulation to satisfy all the people who want or need to make transactions in BTC.  If there aren't enough, the value will get bid up.  However, we've seen that, relatively speaking, almost no one uses BTC for anything other than buying or selling to other speculators.  At some point, the speculators are going to get bored, and the price will start to drop towards that floor. 

sol

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Re: Is it too late [bitcoin]?
« Reply #774 on: January 17, 2018, 11:25:02 AM »
almost no one uses BTC for anything other than buying or selling to other speculators.  At some point, the speculators are going to get bored, and the price will start to drop towards that floor.

Down approximately 50% in the past month.  I hope that doesn't translate to an annualized return.

Is anyone here willing to admit they bought bitcoin above $9500?

MrThatsDifferent

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Re: Is it too late [bitcoin]?
« Reply #775 on: January 17, 2018, 01:00:11 PM »
almost no one uses BTC for anything other than buying or selling to other speculators.  At some point, the speculators are going to get bored, and the price will start to drop towards that floor.

Down approximately 50% in the past month.  I hope that doesn't translate to an annualized return.

Is anyone here willing to admit they bought bitcoin above $9500?

I’m hoping it goes back to $1, then I can buy some and it won’t be too late finally! ;-)

uwp

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Re: Is it too late [bitcoin]?
« Reply #776 on: January 17, 2018, 01:02:04 PM »
How many times has Bitcoin lost 50% of it's value in the past?

anisotropy

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Re: Is it too late [bitcoin]?
« Reply #777 on: January 17, 2018, 01:12:17 PM »
How many times has Bitcoin lost 50% of it's value in the past?

It is different this time. This time the chart patterns exhibit the classic "GG no re" after each and every burst in the past.
Yes I said charts, what else can you use to gauge the price of something that has no fundamentals (intrinsic)?

H
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Re: Is it too late [bitcoin]?
« Reply #778 on: January 17, 2018, 02:09:35 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.

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.

Stocks have intrinsic value.

Bitcoin doesn't have an intrinsic value.

I don't care what the market price is. If the intrinsic value is zero then I consider any market that gives it significant value to be irrational.

Quote
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.

Value investing in this topic first came up in reference to the teachings of Benjamin Graham(many would consider the father of value investing and he was Warren Buffet's mentor) regarding value VS speculation. There are degrees to anything. Benjamin Graham talks about this in his book, Intelligent Investor. There are enterprising investors who will go through the process to try and pick out the best value stocks. This is very time intensive. There are also defensive passive investors who will hold passive diversified portfolios of stocks and bonds and rebalance over time. Both of these groups of investors would be following Graham's advice concerning investing VS speculating, just at different levels of intensity.

In the updated copy of Intelligent Investor Jason Zweig adds commentary about how a defensive investor could follow Graham's advice using index funds.

Finallyunderstand

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Re: Is it too late [bitcoin]?
« Reply #779 on: January 17, 2018, 02:22:57 PM »
almost no one uses BTC for anything other than buying or selling to other speculators.  At some point, the speculators are going to get bored, and the price will start to drop towards that floor.

Down approximately 50% in the past month.  I hope that doesn't translate to an annualized return.

Is anyone here willing to admit they bought bitcoin above $9500?

I bought 20% of one bitcoin at that price but I also sold it around $13k*20%.  Plus I was way net positive in other cryptos for the year so it's all good in the hood.

sol

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Re: Is it too late [bitcoin]?
« Reply #780 on: January 17, 2018, 02:34:02 PM »
almost no one uses BTC for anything other than buying or selling to other speculators.  At some point, the speculators are going to get bored, and the price will start to drop towards that floor.

Down approximately 50% in the past month.  I hope that doesn't translate to an annualized return.

Is anyone here willing to admit they bought bitcoin above $9500?

I bought 20% of one bitcoin at that price but I also sold it around $13k*20%.  Plus I was way net positive in other cryptos for the year so it's all good in the hood.

Are you still holding bitcoin?  Would you buy in today?

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Re: Is it too late [bitcoin]?
« Reply #781 on: January 17, 2018, 03:27:00 PM »
For those of you that don’t fully comprehend the depths of market manipulation going on over at Bits & Co, I present to you the Tether printer.

https://mobile.twitter.com/tetherprinter?lang=en

This twitter account is keeping track of every time the company Tether, sister company to Bitfinex (same owners), ‘prints’ (ie creates out of thin air) more of the crypto currency Tether, which is ‘pegged’ to the US dollar (it actually floats around a little bit +/- 10 cents). These Tethers are then injected immediately into the market over at Bitfinex where they are used to buy/sell Bitcoin as if they represented actual US dollars.

There is a fairly complicated history as to their origin but it’s not entirely necessary to know to understand how Tethers now function (although it’s hilarious and I recommend reading up on it). They are used to prop up the price when Bitcoin is crashing. There is, so far, 1.8 Billion Tethers, with zero evidence that they are backed by actual dollars (and in fact a whole lot of circumstantial evidence that they most definitely are not).

They’ve printed 200 million in the past day alone.

sol

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Re: Is it too late [bitcoin]?
« Reply #782 on: January 17, 2018, 03:43:04 PM »
They’ve printed 200 million in the past day alone.

That might help explain the 20% price increase over the past seven hours, after the huge slide over the first part of the day.  When liquidity is low, manipulation is easy.

This is literally the craziest stupidest market I have ever seen.  Does anyone really believe bitcoin created 40 billion dollars worth of value since the workday started this morning?  Because that's how much the market cap has increased since I showed up at work today.  It's insanity.

phil22

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Re: Is it too late [bitcoin]?
« Reply #783 on: January 17, 2018, 05:18:38 PM »
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.

Value investing in this topic first came up in reference to the teachings of Benjamin Graham(many would consider the father of value investing and he was Warren Buffet's mentor) regarding value VS speculation. There are degrees to anything. Benjamin Graham talks about this in his book, Intelligent Investor. There are enterprising investors who will go through the process to try and pick out the best value stocks. This is very time intensive. There are also defensive passive investors who will hold passive diversified portfolios of stocks and bonds and rebalance over time. Both of these groups of investors would be following Graham's advice concerning investing VS speculating, just at different levels of intensity.

In the updated copy of Intelligent Investor Jason Zweig adds commentary about how a defensive investor could follow Graham's advice using index funds.

so you're willing to bend the definitions of some investing terms but not others?  defining an investment strategy and actually following it are two different things.  here, i'll define it (and note i do not follow it, since i too am index investor):

Quote
Value investing is an investment strategy where stocks are selected that trade for less than their intrinsic values. Value investors actively seek stocks they believe the market has undervalued.
Quote
Value investing is an investment paradigm which generally involves buying securities that appear underpriced by some form of fundamental analysis.
Quote
Value investing is about finding diamonds in the rough -- companies whose stock prices don’t necessarily reflect their fundamental worth. Value investors seek businesses trading at a share price that’s considered a bargain, and as time goes on the market will properly recognize the company’s value and the price will rise.

you are not a value investor.  you are an index investor.  if you gave a percentage weight to the "level of intensity" at which you follow the value investing strategy vs other strategies, that weight would be 0%.  you do not consider a stock's value before buying it because you buy every stock regardless of value.  you buy stocks proportionally according to how non-index investors (you are not among this group) value stocks relative to each other in the index you're tracking.

when you sell stocks as part of rebalancing or for SWR withdrawals, again you do not sell the most overvalued companies.  you sell all stocks proportionally according to how non-index investors have priced all stocks relative to each other.

the very fact of being an index investor means you have REJECTED the idea of value investing.  you (and most/all of the rest of us) have decided to be an index investor, not a value investor.

Indexer

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Re: Is it too late [bitcoin]?
« Reply #784 on: January 17, 2018, 06:26:40 PM »
Phil22:

Have you read any of Graham's books? I'm using the exact definitions from his book. I think you are limiting a value investor to someone who picks out individual value stocks. The way Benjamin Graham, the father of value investing, saw it was that value investing was investing in things that had value as opposed to speculating.

His books do include instructions for picking individual value stocks. This is the strategy you follow if you want to be an enterprising investor(term from his book). If you want to be a defensive investor(term from his book) you would build a balanced portfolio of stocks and bonds and rebalance. When you rebalance you are selling the thing that has performed very well to buy the thing that is currently out of favor. It isn't about chasing returns. It's about buying things with an underlying value preferably when they are out of favor. This strategy is taken from The Intelligent Investor, The Definitive Book on Value Investing, written by Bejamin Graham. The preface is written by Warren Buffet and commentary is added by Jason Zweig. I'm following a strategy outlined by the father of value investing. I consider that to be value investing. Yes, I'm following the defensive approach to value investing instead of the enterprising approach, but it's still a value based strategy.

The very fact that I'm avoiding bitcoin because it has no value is why L.A.S described me as a value investor. I only invest in things that have an underlying value.

Here is a quote from chapter 9, Investing in investment funds, page 249. "Hold an index fund for 20 years or more, adding new money every month, and you are all but certain to outperform the vast majority of professional and individual investors alike. Late in his life, Graham praised index funds as the best choice for individual investors, as does Warren Buffett."



EDIT:  Back to the topic. Phil22, I assume you want to be able to label all stock investors as speculators so that you can compare it to bitcoin speculation. Whether you want to call it value investing or something else, the point is that I am not speculating. I'm buying businesses because I want to share their profits. I don't need the market to act exuberant to achieve my goals. Actually, I would prefer the market act more rationally. If stocks drop 50% I will rebalance... I will buy more since they are cheap.

We can debate how much of a stock's price is based on it's fundamental value VS speculation, but we can agree there is a fundamental intrinsic value there. That is what I want when I buy a stock. Yes, there will be periods where I have to pay extra for that. What's the alternative, sit in cash earning nothing? I imagine stocks will average less than 10% over the coming decade, but I still expect them to earn more than cash. Since I expect lower returns I save more.

Bitcoin on the other hand doesn't have any value. It's pure speculation. I won't touch it.
« Last Edit: January 17, 2018, 06:49:11 PM by Indexer »

anisotropy

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Re: Is it too late [bitcoin]?
« Reply #785 on: January 17, 2018, 06:55:45 PM »
For those of you that don’t fully comprehend the depths of market manipulation going on over at Bits & Co, I present to you the Tether printer.

https://mobile.twitter.com/tetherprinter?lang=en

This twitter account is keeping track of every time the company Tether, sister company to Bitfinex (same owners), ‘prints’ (ie creates out of thin air) more of the crypto currency Tether, which is ‘pegged’ to the US dollar (it actually floats around a little bit +/- 10 cents). These Tethers are then injected immediately into the market over at Bitfinex where they are used to buy/sell Bitcoin as if they represented actual US dollars.

There is a fairly complicated history as to their origin but it’s not entirely necessary to know to understand how Tethers now function (although it’s hilarious and I recommend reading up on it). They are used to prop up the price when Bitcoin is crashing. There is, so far, 1.8 Billion Tethers, with zero evidence that they are backed by actual dollars (and in fact a whole lot of circumstantial evidence that they most definitely are not).

They’ve printed 200 million in the past day alone.

Could you explain a little more? This is what I think you are saying:

1. Company prints Tether, which is "pegged" to USD.
2. Tether is sold/converted into USD (to whom??)
or
2. Tether is converted into BTC?? (but who would trade BTC for Tether?)

Do you mean they are buying their own BTC with the Tether they print?

sol

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Re: Is it too late [bitcoin]?
« Reply #786 on: January 17, 2018, 07:33:20 PM »
Do you mean they are buying their own BTC with the Tether they print?

Yes.  They are printing tether, then using tether to buy bitcoins (thus lowering the supply, and increasing the price of bitcoins).

anisotropy

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Re: Is it too late [bitcoin]?
« Reply #787 on: January 17, 2018, 07:37:29 PM »
But who were they buying from? I find it hard to believe someone would give them BTC for tether.

phil22

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Re: Is it too late [bitcoin]?
« Reply #788 on: January 17, 2018, 07:44:14 PM »
Phil22:

Have you read any of Graham's books? I'm using the exact definitions from his book. I think you are limiting a value investor to someone who picks out individual value stocks. The way Benjamin Graham, the father of value investing, saw it was that value investing was investing in things that had value as opposed to speculating.

have you ever read a single definition of "value investing?"  perhaps the ones i copied above?  do you disagree with those above standard definitions of "value investing?"  if hypothetically you were to read another book that agreed with the standard definition of value investing, would you disregard that book?

i've placed a hold on this book at my library, but i strongly suspect you are misinterpreting the book and applying the label of "value investing" as described in the book to the concept of "index investing" which is also apparently described in the book.  i'm not going to ask you to copy the exact definition from the book so i'll wait and do that myself.

His books do include instructions for picking individual value stocks. This is the strategy you follow if you want to be an enterprising investor(term from his book). If you want to be a defensive investor(term from his book) you would build a balanced portfolio of stocks and bonds and rebalance. When you rebalance you are selling the thing that has performed very well to buy the thing that is currently out of favor. It isn't about chasing returns. It's about buying things with an underlying value preferably when they are out of favor. This strategy is taken from The Intelligent Investor, The Definitive Book on Value Investing, written by Bejamin Graham. The preface is written by Warren Buffet and commentary is added by Jason Zweig. I'm following a strategy outlined by the father of value investing. I consider that to be value investing. Yes, I'm following the defensive approach to value investing instead of the enterprising approach, but it's still a value based strategy.

ah, there we go.  no, you are following the strategy you describe there, and it's called "asset allocation."  the strategy called "value investing" is not that same strategy.  this is basic stuff.

i fully appreciate that many big names advocate for index investing.  and i agree with them and that's why i also am an index investor.  but i'm not going to call myself a value investor because i reject value investing in favor of asset allocation and index investing.

The very fact that I'm avoiding bitcoin because it has no value is why L.A.S described me as a value investor. I only invest in things that have an underlying value.

ok, in that case i am disagreeing with both you and L.A.S.. you're both using the term "value investor" wrong in applying it to yourself.  again, i say you are not using the standard definition of "value investor."

Here is a quote from chapter 9, Investing in investment funds, page 249. "Hold an index fund for 20 years or more, adding new money every month, and you are all but certain to outperform the vast majority of professional and individual investors alike. Late in his life, Graham praised index funds as the best choice for individual investors, as does Warren Buffett."

i fully agree with that passage, but it describes "index investing," not "value investing."

EDIT:  Back to the topic. Phil22, I assume you want to be able to label all stock investors as speculators so that you can compare it to bitcoin speculation. Whether you want to call it value investing or something else, the point is that I am not speculating. I'm buying businesses because I want to share their profits. I don't need the market to act exuberant to achieve my goals. Actually, I would prefer the market act more rationally. If stocks drop 50% I will rebalance... I will buy more since they are cheap.

again you are exhibiting cognitive dissonance.  you are fine with a 50% crash because you'll get a few percent return in profits?  no!  you are fine with a 50% drop because you are speculating that the market price will more than fully recover in a few years, because it has done so in the past.

We can debate how much of a stock's price is based on it's fundamental value VS speculation, but we can agree there is a fundamental intrinsic value there. That is what I want when I buy a stock. Yes, there will be periods where I have to pay extra for that. What's the alternative, sit in cash earning nothing? I imagine stocks will average less than 10% over the coming decade, but I still expect them to earn more than cash. Since I expect lower returns I save more.

you make zero decisions about whether to buy an individual stock.  you buy both poorly-performing stocks and well-performing stocks.  you always buy every stock, and you even buy them in proportion to their market cap so that you don't even favor undervalued stocks.  similarly, when you sell to rebalance or for SWR withdrawals you sell both poorly-performing stocks but also well-performing stocks, and again when you sell you don't even lean toward selling overvalued stocks more because you sell in the exact proportion to their weight in the index.

i fully agree that stock market returns look to be the best long-term investment.  there aren't better options out there for investing large amounts of capital.  that's why i own lots of VTSAX.  but i'm not going to pretend to myself that i own it for the future earnings of the companies that i know nothing about.  i buy VTSAX because i'm speculating that many people will also be looking to safely invest large amounts of money, mainly by buying VTSAX and other index funds, and driving up the market price at around 7%+ per year on average, 10% ignoring inflation.

Bitcoin on the other hand doesn't have any value. It's pure speculation. I won't touch it.

agreed.  if in your analysis you don't see any "value" in bitcoin, then you shouldn't buy any.

BattlaP

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Re: Is it too late [bitcoin]?
« Reply #789 on: January 17, 2018, 08:27:38 PM »
But who were they buying from? I find it hard to believe someone would give them BTC for tether.

All USD/BTC trades on Bitfinex, the company owned by the same people, are actually USDT/BTC trades. In other words they give you tethers (USDT) instead of dollars. Then you go and trade these tethers for dollars to some other sucker on a different exchange, because it's literally written into their terms of service that neither Tether or Bitfinex are ever obligated to actually redeem any tethers for dollars. Apparently there's other 'tether' exchanges that also deal in USDT instead of USD, there's probably a list somewhere.

Yes, it's insane.

Indexer

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Re: Is it too late [bitcoin]?
« Reply #790 on: January 17, 2018, 08:31:45 PM »
have you ever read a single definition of "value investing?"  perhaps the ones i copied above?

Yes I have read those definitions. And...  your point? Your arguing over the word 'value' and ignoring the point. I consider following the defensive investing style described by Graham to be a form of value investing. If you don't think that meets the definition of value investing it doesn't matter at all in the context of this discussion. 


Quote
again you are exhibiting cognitive dissonance.  you are fine with a 50% crash because you'll get a few percent return in profits?  no!  you are fine with a 50% drop because you are speculating that the market price will more than fully recover in a few years, because it has done so in the past.

I can't do this anymore. We are going in circles. You are a speculator so that's all you see. You are focused on the market price and ignoring the underlying intrinsic value. If the market price drops 50% I can buy stocks for half the price. That's a GOOD THING!!!! I can buy the same businesses with the same earnings at HALF the price. Holy cow, that's amazing! If you don't see that as a good thing it's because you are speculating. You need the future price to keep going higher than the intrinsic value because you are speculating. I'm not buying stocks with the intention of selling them at a price higher than their intrinsic value(which again, is NOT the book value). I am buying them with the intention of holding them and sharing in the earnings. Again, those earnings could come as dividends or they could be reinvested increasing the intrinsic value of the company over time. Either way, I get to share in the earnings. Anyone who follows Graham and Buffett, whether they call themselves value investors or not, would agree that stocks dropping in price is a great thing. Graham nicknamed the markets, Mr. Market, and Mr. Market is bipolar. If Mr. Market is depressed and says your business is now worth half you laugh at him. Clearly Mr. Market is an irrational idiot and you aren't going to sell your businesses to him at half the price. However, if he is willing to sell his businesses to you at half the price then you will gladly buy from him.


Please read Intelligent Investor, especially Chapter 8. Warning: in that chapter the word "speculator" would be an insult. Buy it right now. It will be worth the price. I'm sure you will lose all interest in bitcoin after reading it and it will make you a far more disciplined investor.
« Last Edit: January 17, 2018, 08:45:06 PM by Indexer »

anisotropy

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Re: Is it too late [bitcoin]?
« Reply #791 on: January 17, 2018, 08:33:41 PM »
But who were they buying from? I find it hard to believe someone would give them BTC for tether.

All USD/BTC trades on Bitfinex, the company owned by the same people, are actually USDT/BTC trades. In other words they give you tethers (USDT) instead of dollars. Then you go and trade these tethers for dollars to some other sucker on a different exchange, because it's literally written into their terms of service that neither Tether or Bitfinex are ever obligated to actually redeem any tethers for dollars. Apparently there's other 'tether' exchanges that also deal in USDT instead of USD, there's probably a list somewhere.

Yes, it's insane.

WTF?? Then wtf are we doing here? why are we sitting here talking about this?? We should make it a priority to come up with a similar service/exchange and rake in the cash. I would have called it mustachforumfinex but we should probably cut MMM out of the profit train.
« Last Edit: January 17, 2018, 08:37:23 PM by anisotropy »

ILikeDividends

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Re: Is it too late [bitcoin]?
« Reply #792 on: January 17, 2018, 09:09:56 PM »

i fully appreciate that many big names advocate for index investing.  and i agree with them and that's why i also am an index investor.  but i'm not going to call myself a value investor because i reject value investing in favor of asset allocation and index investing.


I don't honestly expect to sway any opinions here, but value investing and index investing need not be considered mutually exclusive terms.

Here's the summary description of Schwab's U.S. Large-Cap Value ETF; SCHV:
Quote
Fund Strategy

The investment seeks to track as closely as possible- before fees and expenses- the total return of the Dow Jones U.S. Large-Cap Value Total Stock Market Index. To pursue its goal- the fund generally invests in stocks that are included in the Dow Jones U.S. Large-Cap Value Total Stock Market Index. The index includes the large-cap value portion of the Dow Jones U.S. Total Stock Market Index actually available to investors in the marketplace. The Dow Jones U.S. Large-Cap Value Total Stock Market Index includes the components ranked 1-750 by full market capitalization and that are classified as "value" based on a number of factors

If you prefer a growth strategy over a value strategy, Schwab has an ETF for that, too; SCHG.
« Last Edit: January 17, 2018, 09:11:58 PM by ILikeDividends »

phil22

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Re: Is it too late [bitcoin]?
« Reply #793 on: January 17, 2018, 09:19:42 PM »
have you ever read a single definition of "value investing?"  perhaps the ones i copied above?

Yes I have read those definitions. And...  your point? Your arguing over the word 'value' and ignoring the point. I consider following the defensive investing style described by Graham to be a form of value investing. If you don't think that meets the definition of value investing it doesn't matter at all in the context of this discussion. 

you still didn't answer the question.  you either agree with those definitions or you don't.

my point is that are you hyper vigilant about sticking to one definition of "speculation" yet you are very willy nilly in things you eagerly label "value investing" because it makes you feel better about your investments.  we can't have a discussion if you insist on using terms incorrectly.

Quote
again you are exhibiting cognitive dissonance.  you are fine with a 50% crash because you'll get a few percent return in profits?  no!  you are fine with a 50% drop because you are speculating that the market price will more than fully recover in a few years, because it has done so in the past.

I can't do this anymore. We are going in circles. You are a speculator so that's all you see. You are focused on the market price and ignoring the underlying intrinsic value. If the market price drops 50% I can buy stocks for half the price. That's a GOOD THING!!!! I can buy the same businesses with the same earnings at HALF the price. Holy cow, that's amazing! If you don't see that as a good thing it's because you are speculating.

again, if your stocks crash 50% in value, and you're comforted by your newfound 3-4% yields, then good for you.  that's cognitive dissonance.  you are refusing to admit that you are actually comforted by the fact that the market price has historically come roaring back after only a few years.  you can't admit this so perhaps this is as far as we can go on this topic.

You need the future price to keep going higher than the intrinsic value because you are speculating.

correct.  you and i both need the market price to be higher than we bought in order to maintain our SWR.  that's it.

I'm not buying stocks with the intention of selling them at a price higher than their intrinsic value(which again, is NOT the book value). I am buying them with the intention of holding them and sharing in the earnings.

sure, you don't intend to sell at any particular price/earnings ratio or price/book ratio or anything.  you will sell IF AND ONLY IF the market price is higher than you bought it.  if the market price is lower, then you will not sell.  you will buy more because that's how an asset allocation works.

Again, those earnings could come as dividends or they could be reinvested increasing the intrinsic value of the company over time. Either way, I get to share in the earnings. Anyone who follows Graham and Buffett, whether they call themselves value investors or not, would agree that stocks dropping in price is a great thing.

we actually have discussions on this board about "sequence of returns risk" and "glide paths" and "bond tents" and such.  stocks dropping in price is not a good thing.  you are taking a little healthy cognitive dissonance too far.  it's a self-defense measure you're practicing to make yourself feel better about your stock investments, which may crash at any time.

price/earnings ratio and price/book ratios are both going up.  this is a challenge to your personal illusions but this is a good thing in terms of the market value of your VTSAX shares.  that means you're getting richer, and your SWR is intact and you can stay FI.  if stock prices crash, returning price/earnings ratio and price/book ratios back down, that's actually a bad thing for you.  that means you've lost money.  at that point you're buying more VTSAX speculating that the market price will soon bounce back.  if you're hemorrhaging multiple 10s of percent of market value in a year that means you are losing money despite the earnings.  earnings are pissing into the wind at that point.  and if the market price doesn't bounce back as it always has, your SWR is toast and you're potentially no longer FI.  this is a bad thing for you.

Graham nicknamed the markets, Mr. Market, and Mr. Market is bipolar. If Mr. Market is depressed and says your business is now worth half you laugh at him. Clearly Mr. Market is an irrational idiot and you aren't going to sell your businesses to him at half the price. However, if he is willing to sell his businesses to you at half the price then you will gladly buy from him. On the other hand, if Mr. Market turns manic and is willing to pay more for your businesses, that's when you sell to him. A defensive investor, per Graham's definition, would achieve this buying low and selling high via rebalancing.

Please read Intelligent Investor, especially Chapter 8. Warning: in that chapter the word "speculator" would be an insult. Buy it right now. It will be worth the price. I'm sure you will lose all interest in bitcoin after reading it and it will make you a far more disciplined investor.

again, i am fully on board with the concept of an asset allocation and index investing.  i will not buy a book that explains asset allocations and index investing to me, but i will check it out from the library.

i don't need to become a more disciplined investor.  i plan on sticking to my IPS and i have never sold stocks or bonds to buy cryptocurrencies.  but that doesn't mean i don't also see value in new technologies.

phil22

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Re: Is it too late [bitcoin]?
« Reply #794 on: January 17, 2018, 09:21:22 PM »

i fully appreciate that many big names advocate for index investing.  and i agree with them and that's why i also am an index investor.  but i'm not going to call myself a value investor because i reject value investing in favor of asset allocation and index investing.


I don't honestly expect to sway any opinions here, but value investing and index investing need not be considered mutually exclusive terms.

Here's the summary description of Schwab's U.S. Large-Cap Value ETF; SCHV:
Quote
Fund Strategy

The investment seeks to track as closely as possible- before fees and expenses- the total return of the Dow Jones U.S. Large-Cap Value Total Stock Market Index. To pursue its goal- the fund generally invests in stocks that are included in the Dow Jones U.S. Large-Cap Value Total Stock Market Index. The index includes the large-cap value portion of the Dow Jones U.S. Total Stock Market Index actually available to investors in the marketplace. The Dow Jones U.S. Large-Cap Value Total Stock Market Index includes the components ranked 1-750 by full market capitalization and that are classified as "value" based on a number of factors

If you prefer a growth strategy over a value strategy, Schwab has an ETF for that, too; SCHG.

an index that selectively picks stocks that it deems "value" stocks "based on a number of factors" is a completely different thing than a total stock market index.

Indexer

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Re: Is it too late [bitcoin]?
« Reply #795 on: January 17, 2018, 10:33:05 PM »
Phil22: 

I typed up a response and realized that everything I was saying, I had already said in previous posts. There is nothing to gain by repeating myself yet again. Let me just put in one more plug for Intelligent Investor. I think reading that will help you understand what I haven't been able to get across.

Quote from: phil22
again, i am fully on board with the concept of an asset allocation and index investing.  i will not buy a book that explains asset allocations and index investing to me, but i will check it out from the library.

It doesn't explain index investing. The original book actually predates Vanguard and the first index fund by decades. The notes about indexing were added in the 4th edition. The book explains how to be an intelligent investor. It's not a short book... It changes how you think about investments. You stop thinking of them as these little numbers that go up and down, and you think of them as businesses you are purchasing. After reading it you will look at a 50% drop and think, "Oh goodie, Mr. Market is being stupid again, and everything is on sale!"

If that thought seems strange to you, then read the book. The 4th edition starts with a preface from Warren Buffet about how he read the book in 1950 when he was a teenager, and how it changed his life. If this books helps you make one better decision in your entire life, it will pay for itself many times over again.

sherr

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Re: Is it too late [bitcoin]?
« Reply #796 on: January 18, 2018, 06:16:09 AM »
But who were they buying from? I find it hard to believe someone would give them BTC for tether.

All USD/BTC trades on Bitfinex, the company owned by the same people, are actually USDT/BTC trades. In other words they give you tethers (USDT) instead of dollars. Then you go and trade these tethers for dollars to some other sucker on a different exchange, because it's literally written into their terms of service that neither Tether or Bitfinex are ever obligated to actually redeem any tethers for dollars. Apparently there's other 'tether' exchanges that also deal in USDT instead of USD, there's probably a list somewhere.

Yes, it's insane.

WTF?? Then wtf are we doing here? why are we sitting here talking about this?? We should make it a priority to come up with a similar service/exchange and rake in the cash. I would have called it mustachforumfinex but we should probably cut MMM out of the profit train.

Except that you can't print Tether, only the owners of the Tether company can. That's where the free money is, so you'd have to invent your own Tether replacement and get other exchanges to accept it for the plan to work. Oh, and also it's fraud.

Finallyunderstand

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Re: Is it too late [bitcoin]?
« Reply #797 on: January 18, 2018, 07:09:02 AM »
almost no one uses BTC for anything other than buying or selling to other speculators.  At some point, the speculators are going to get bored, and the price will start to drop towards that floor.

Down approximately 50% in the past month.  I hope that doesn't translate to an annualized return.

Is anyone here willing to admit they bought bitcoin above $9500?

I bought 20% of one bitcoin at that price but I also sold it around $13k*20%.  Plus I was way net positive in other cryptos for the year so it's all good in the hood.

Are you still holding bitcoin?  Would you buy in today?

No I’m not holding anything significant anymore.  I sold all positions a  few weeks ago and mentioned it in another thread that I started about being “embarrassed” by crypto gains on this forum.  I made a decent amount of money IMO.  I left $1000 in an exchange just to toy around with but pulled out enough to buy a nice brand new car if I wanted to.  Of course I wouldn’t because I’m mustachian. Haha

To answer your other question about whether I would buy again...  maybe but with the caveat that what I would invest is an insignificant amount of my NW.  also, it wouldn’t necessarily be bitcoin that I would get back into.  My biggest $ gains were ether, litecoin, and ripple.  I got out because when I zoomed out on the crypto charts and saw straight lines up it didn’t take a genius to realize it’s not rational.  I’ll wait for a crash and then see if there is any good tech that survives.  If I miss the boat and people still make a ton of money then oh well.  I made tens of thousands with a small risk and it was fun.

KTG

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Re: Is it too late [bitcoin]?
« Reply #798 on: January 18, 2018, 11:19:08 AM »
I feel like Bitcoin is a lot like those coins you get from gaming machines at places like Dave and Busters. There is only a limited supply, and you can get more by playing, and the only place they have any value is the place you bought them from. Sure you can buy a few useless trinkets with them, which is nice I guess, but you wont be using them at the grocery store or gas station.

And that is how I look at all this. Maybe one day if the world can agree on 'A' cryto to use, and everyone accepts it as payment, then fine, I might use it. But until then I just think this is all ridiculous. And I bet if there is ever a single one peeps agree to, it wont be any of the ones we see now.
« Last Edit: January 18, 2018, 11:22:12 AM by KTG »

runbikerun

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Re: Is it too late [bitcoin]?
« Reply #799 on: January 18, 2018, 12:13:09 PM »
From looking at the Tether printer, it appears as though 400m has been issued in four days. Four. Hundred. Million. Dollars. In a cryptocurrency tethered to the US dollar, except with no evidence that it's backed by any money at all, which is immediately transferred to the exchange owned by the same people and used to purchase and bid up Bitcoins right as it's losing almost half its value. On an exchange which has no banking facilities and will implode spectacularly if there's a rush for the exit from the cryptocurrency market, and therefore would be extremely motivated to keep the market afloat, for example by inventing four hundred million dollars out of thin air when Bitcoin's price is dropping in order to reinflate the bubble and keep the wolves from the door.

If it is the case that Bitfinex's owners are creating Tethers out of nothing, claiming they're backed by dollars, and using them to bid up Bitcoin...well, that's Nick Leeson territory. That implies that prices at the moment are even more fragile than people may have imagined - what we're seeing isn't the result of a speculative bubble alone, but one repeatedly manipulated into continued inflation by the people who conduct a full third of all Bitcoin transactions. If this is the case, it would take even less to collapse the bubble (a leak of financial statements showing that Bitfinex and Tether aren't actually flush with dollars might be enough by itself) and the collapse would be even more vicious, as a third of the market place vanishes, people stampede for the exits, and the fall in prices, instead of being arrested by hundreds of millions of dollars of possibly fictional money, simply keeps going.