Author Topic: Is it too late [bitcoin]?  (Read 71900 times)

Telecaster

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Re: Is it too late [bitcoin]?
« Reply #800 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 #801 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 #802 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 #803 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 #804 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)?

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Indexer

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Re: Is it too late [bitcoin]?
« Reply #805 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 #806 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 #807 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?

BattlaP

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Re: Is it too late [bitcoin]?
« Reply #808 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 #809 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 #810 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):

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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.

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Re: Is it too late [bitcoin]?
« Reply #811 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 #812 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 #813 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 #814 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 #815 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.

L.A.S.

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Re: Is it too late [bitcoin]?
« Reply #816 on: January 17, 2018, 08:19:20 PM »
phil22-

Simple question: Have you read "The Intelligent Investor" by Ben Graham?

If not, I highly recommend you pick up a copy. 


BattlaP

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Re: Is it too late [bitcoin]?
« Reply #817 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 #818 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 #819 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 #820 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 #821 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 #822 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.

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Re: Is it too late [bitcoin]?
« Reply #823 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.

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Re: Is it too late [bitcoin]?
« Reply #824 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.

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Re: Is it too late [bitcoin]?
« Reply #825 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.

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Re: Is it too late [bitcoin]?
« Reply #826 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 »

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Re: Is it too late [bitcoin]?
« Reply #827 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.

Finallyunderstand

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Re: Is it too late [bitcoin]?
« Reply #828 on: January 18, 2018, 01:12:51 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.


sort of like this situation...

https://cointelegraph.com/news/just-one-person-found-to-have-caused-bitcoins-jump-from-150-to-1000-in-2013

That's an interesting read from the last time bitcoin went up quickly and then crashed 5 years ago.

phil22

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Re: Is it too late [bitcoin]?
« Reply #829 on: January 18, 2018, 05:16:10 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.

ah there's our problem.  you're not even reading my posts.  perhaps you're skimming them.  i said before and i'll say it again i am getting that glorious book from the library.  you can stop plugging the book now.

since you won't even spend the time to actually read my posts and respond to them point by point, as i have yours, then yes we are done here on this subject.

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Re: Is it too late [bitcoin]?
« Reply #830 on: January 20, 2018, 10:37:08 AM »
Phil22: 

I read your posts including the part that you would read the book. I don't think you read mine, that's why I stopped bothering.

You keep talking about dividend yields after I explained over and over that I was looking at earnings, not dividends.
You keep talking about how your 4% SWR would be ruined if the market dropped 50%, even after I pointed out that the trinity study assumed you retired in the worst market and that is where the 4% rule came from.
You keep telling me that I'm speculating after explaining ad nauseum the rational behind investing based on intrinsic value, not speculation.
You are throwing around insults based on your own lack of understanding. Saying that I have cognitive dissonance because I see a market drop as an opportunity? I'm still in the accumulation phase, I'm not FIRE yet. Mathematically a market drop is an opportunity to me. If prices drop 50% I can buy twice as manner shares with the same contribution. Regardless of what prices are in 10 or 20 years, being able to buy at half the price would be a benefit to me now. Companies have profits, whether I get those profits through dividends, buy backs, or reinvestment I believe over a 20... or 50 year time horizon it will be beneficial to me. If I can buy at an even cheaper price today that's a good thing.


I came to the conclusion that saying the same thing over and over is a complete waste of my time.
« Last Edit: January 20, 2018, 01:04:38 PM by Indexer »

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Re: Is it too late [bitcoin]?
« Reply #831 on: January 20, 2018, 10:41:59 AM »
I came to the conclusion that saying the same thing over and over is a complete waste of my time.

Don't feel bad, we don't all learn these things at the same speed.  That's okay.

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Re: Is it too late [bitcoin]?
« Reply #832 on: January 20, 2018, 01:59:53 PM »
I came to the conclusion that saying the same thing over and over is a complete waste of my time.

sorry you feel that way.  this back-and-forth is helping to refine exactly what my point is.  it seems to me now that as an "index investor with an asset allocation" that it's about your current investing GOAL:

  • if your goal is to NOT maintain an SWR but instead accumulate, and become more and more wealthy, then perhaps you are not speculating and can appreciate the earnings of your stocks and the economy as a whole
  • if your goal IS to maintain an SWR, then are you speculating because following a stock crash you need very high market price returns over the short term.  rebalancing is used to create more dependable market price returns over the long term via an assumed pattern of short-term market price volatility.

we on this board have looked at tons of data and evidence and have concluded that a ~4% rule SWR with index investing and a stock-heavy asset allocation is the safest way to get returns over the long term.  my point is that's speculating on market price and that's OK, because we agree that's the best investing strategy to achieve FIRE.

Phil22: 

I read your posts including the part that you would read the book. I don't think you read mine, that's why I stopped bothering.

i replied to individual sentences/paragraphs in many cases.  i am reading and considering your posts carefully.

You keep talking about dividend yields after I explained over and over that I was looking at earnings, not dividends.

as an index fund owner, you get returns in two ways:  dividends, and market price.  you're either reinvesting dividends or spending them to put your SWR into practice.  either way, my point is that for an SWR it boils down to market price.

You keep talking about how your 4% SWR would be ruined if the market dropped 50%, even after I pointed out that the trinity study assumed you retired in the worst market and that is where the 4% rule came from.

assuming your SWR is safe after a 50% crash PERFECTLY fits many definitions of "speculation." at that point you are expecting to get a 50%+ market price return after a year or three.  after a crash, earnings/intrinsic value are a separate concern from your SWR goal.

and how do i know you are "expecting" big returns after a crash?  that's the whole idea behind the 4% rule and rebalancing stock-heavy asset allocations .

You are throwing around insults based on your own lack of understanding. Saying that I have cognitive dissonance because I see a market drop as an opportunity? I'm still in the accumulation phase, I'm not FIRE yet. Mathematically a market drop is an opportunity to me. If prices drop 50% I can buy twice as manner shares for the same price.

i concede that during the accumulation phase your goal is not to maintain an SWR, but to accumulate.  i agree with you there.
« Last Edit: January 20, 2018, 02:02:58 PM by phil22 »

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Re: Is it too late [bitcoin]?
« Reply #833 on: January 21, 2018, 07:30:53 AM »
Phil22:

Quote
we on this board have looked at tons of data and evidence and have concluded that a ~4% rule SWR with index investing and a stock-heavy asset allocation is the safest way to get returns over the long term.

We on this board? What are you talking about? We on this board haven't concluded anything. The 4% SWR and index investing were both established ideas before Pete retired at 30.

Quote
as an index fund owner, you get returns in two ways:  dividends, and market price.

Yes, and dividends tend to increase over time. Future dividends are likely to be higher than current dividends. Earnings can go to dividends, buy backs, or reinvestment. Both buy backs and reinvestment drive future earnings per share which could be used for higher future dividends. They also both increase the intrinsic value of the company. Now, due to speculation, the market price could be higher or lower than the intrinsic value. If you are betting on speculation to achieve your goals you are essentially gambling. I'm not betting on speculation to keep prices high. I don't assume PE ratios will remain where they are, yet alone imagine they will continue to increase. Speculation could disappear, PE rations could fall back down to 15 or lower and they could remain there for decades. If that happens my returns would be lower. My FIRE plans assume a lower future rate of return specifically because current valuations are high. However, those returns are still higher than the returns on cash so my AA is still stock heavy. (I look at more metrics than just PE ratios. I'm trying to keep it simple.)

Quote
assuming your SWR is safe after a 50% crash PERFECTLY fits many definitions of "speculation." at that point you are expecting to get a 50%+ market price return after a year or three.  after a crash, earnings/intrinsic value are a separate concern from your SWR goal.

Here is an example that PERFECTLY fits the definition of you ignoring what I said. I just said the trinity study's conclusion was that a 4% SWR would survive the worst markets. Where do you get the idea that markets always recover in a few years? From peak to recovery it took about 5 years to get back to 2007 numbers. The bottom of the market in 2009 was lower than markets in 1999(tech bubble), giving us negative returns over 10 year. Those were less than ideal markets. The worst would have been the crash in 1929.

After the crash in 1929 it took 26 years for markets to recover! How did someone with a 4% SWR survive? It sure wasn't by selling appreciated stocks! They would generate income from dividends, bond income, and selling bonds. Let's talk about those dividends, because this was a real life example of what I've been getting at with earnings. In 1929 prices were driven up by speculation. By 1931 prices had dropped significantly, the speculation was gone, but dividend yields doubled! You see, companies with earnings continued to pay their dividends. If dividend payments remain the same and prices drop by 50%, then the dividend yield doubles.

I'll agree, assuming markets will quickly recover after a crash is speculation. You assume it will occur so you are speculating. I'm not assuming it will occur so I'm not speculating.
« Last Edit: January 21, 2018, 07:44:47 AM by Indexer »

phil22

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Re: Is it too late [bitcoin]?
« Reply #834 on: January 21, 2018, 01:01:24 PM »
Phil22:

Quote
we on this board have looked at tons of data and evidence and have concluded that a ~4% rule SWR with index investing and a stock-heavy asset allocation is the safest way to get returns over the long term.

We on this board? What are you talking about? We on this board haven't concluded anything. The 4% SWR and index investing were both established ideas before Pete retired at 30.

when you pick an investing strategy, you look at the options and eventually come to some conclusion.  i didn't say this board invented the strategy.  jesus christ.

Quote
as an index fund owner, you get returns in two ways:  dividends, and market price.

Yes, and dividends tend to increase over time. Future dividends are likely to be higher than current dividends. Earnings can go to dividends, buy backs, or reinvestment. Both buy backs and reinvestment drive future earnings per share which could be used for higher future dividends. They also both increase the intrinsic value of the company. Now, due to speculation, the market price could be higher or lower than the intrinsic value. If you are betting on speculation to achieve your goals you are essentially gambling. I'm not betting on speculation to keep prices high.

i agree that during the accumulation phase you are not speculating on market price.  if you are also saying that after the accumulation phase, when your goal is to maintain your initial SWR, that you don't need the stock market price to follow an assumed pattern of short-term (<5 years) changes, then i don't believe you.

I don't assume PE ratios will remain where they are, yet alone imagine they will continue to increase. Speculation could disappear, PE rations could fall back down to 15 or lower and they could remain there for decades. If that happens my returns would be lower. My FIRE plans assume a lower future rate of return specifically because current valuations are high. However, those returns are still higher than the returns on cash so my AA is still stock heavy. (I look at more metrics than just PE ratios. I'm trying to keep it simple.)

ah.  is your target SWR lower than 4%?

Quote
assuming your SWR is safe after a 50% crash PERFECTLY fits many definitions of "speculation." at that point you are expecting to get a 50%+ market price return after a year or three.  after a crash, earnings/intrinsic value are a separate concern from your SWR goal.

Here is an example that PERFECTLY fits the definition of you ignoring what I said. I just said the trinity study's conclusion was that a 4% SWR would survive the worst markets. Where do you get the idea that markets always recover in a few years?

obviously they don't always recover in a few years.  as a FIRE investor with an SWR you are speculating that it WILL recover.  risk of failure is part of the definition of speculation.

From peak to recovery it took about 5 years to get back to 2007 numbers. The bottom of the market in 2009 was lower than markets in 1999(tech bubble), giving us negative returns over 10 year. Those were less than ideal markets.

since you're rebalancing into stocks during a crash, recovery to exactly market peak levels doesn't need to occur.  again, rebalancing assumes short-term price patterns, or else you wouldn't be selling winners to buy losers.  the current huge, long bull run that started in 2009 immediately following the crash.  you're arguing for my point.

The worst would have been the crash in 1929.

After the crash in 1929 it took 26 years for markets to recover! How did someone with a 4% SWR survive? It sure wasn't by selling appreciated stocks!

there was a huge bull run from 1932-1937.  that's how the a hypothetical 1929 investor with 4% SWR survived.  no, it didn't reach 1929 levels but 1929 was a bubble and after rebalancing from 1929-1932 they would have been well on their way toward recovery.  again, these are all short-term price movements that an SWR/rebalancing assumes happens, and it did in that case.

buying an asset, where you risk losing principal, and where you're hoping for a short-term return, is speculating.  that's what an SWR and rebalancing is.

They would generate income from dividends, bond income, and selling bonds. Let's talk about those dividends, because this was a real life example of what I've been getting at with earnings. In 1929 prices were driven up by speculation. By 1931 prices had dropped significantly, the speculation was gone, but dividend yields doubled! You see, companies with earnings continued to pay their dividends. If dividend payments remain the same and prices drop by 50%, then the dividend yield doubles.

higher dividend yields don't mean higher dividends.  of course the dividend yields were higher -- the market price was much lower.  a FIRE investor with an SWR around 4% cannot survive on dividends.

(according to this article, dividend yield reached 14% at the market low in 1932: http://www.nytimes.com/2009/04/26/your-money/stocks-and-bonds/26stra.html)

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Re: Is it too late [bitcoin]?
« Reply #835 on: January 21, 2018, 07:28:40 PM »
Quote from: phil22
as a FIRE investor with an SWR you are speculating that it WILL recover.

If my previous posts about intrinsic value haven't covered this then there isn't anything new I can say.

Quote from: phil22
if you are also saying that after the accumulation phase, when your goal is to maintain your initial SWR, that you don't need the stock market price to follow an assumed pattern of short-term (<5 years) changes, then i don't believe you.

I don't need the stock market price to follow an assumed pattern of short term changes during FIRE. You don't believe me. At this point continuing this conversation really seems like a waste of time.


EDIT: Decided to add more detail to this. Phil22, I have no clue where you are going with this but it feels like we are just going in the same circles. Some of your thoughts seem contradictory. In the same post you said I am speculating because I need markets to recover after a crash and then you agreed that a portfolio could survive a 1929 style crash where prices took decades to recover and then you even said, "recovery to exactly market peak levels doesn't need to occur." Yes, you would be rebalancing, but that is not the same thing as saying prices WILL recover. You are admitting prices don't have to recover at the same time you are telling me I need them to recover.

On the topic of speculation, technically making any guess or assumption about the future is speculation. Assuming the world won't end tomorrow is speculation. I believe that is how you are using the definition. However, "speculation in regards to investing is the purchase of an asset (a commodity, goods, or real estate) with the hope that it will become more valuable at a future date. In finance, speculation is also the practice of engaging in risky financial transactions in an attempt to profit from short term fluctuations in the market value of a tradable financial instrument—rather than attempting to profit from the underlying financial attributes embodied in the instrument such as capital gains, dividends, or interest."

source: https://en.wikipedia.org/wiki/Speculation

I'm not investing in VTSAX because I expect to profit off price increases. Actually, I wouldn't be surprised if US stocks had negative returns over the next 10 years... I'm investing because I want the future earnings. Speculation driving up prices just means I have to pay more today for those future earnings. Like Sol said, price is what you pay, value is what you get. I don't know how many ways I can say that.

BTW, yes you could sustain a SWR of 4% on dividends and/or bond income, especially in any period where the yield was greater than 4%. I assume that is self explanatory. In addition, a 4% SWR doesn't require 4% returns. It requires returns sufficient to keep the portfolio positive over the given time horizon. The Trinity study was only looking at 30 years, and you would only need 1.219% real returns to achieve a 4% SWR over 30 years.

Quote
ah.  is your target SWR lower than 4%?
Yes, given higher valuations and a longer time horizon, I am aiming for 3.75%. If valuations are lower by the time I FIRE then I would go back to 4%. In addition, I am assuming lower market returns on my way to FIRE. If we keep experiencing pleasant returns I will be pleasantly surprised, but my spreadsheets don't assume that.
« Last Edit: January 21, 2018, 09:53:52 PM by Indexer »

phil22

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Re: Is it too late [bitcoin]?
« Reply #836 on: January 22, 2018, 06:43:11 PM »
Quote from: phil22
as a FIRE investor with an SWR you are speculating that it WILL recover.

If my previous posts about intrinsic value haven't covered this then there isn't anything new I can say.

i see your points on intrinsic value.  i agree that during the accumulation phase market price doesn't matter so you're not speculating.

(sorry, i keep saying "you."  i don't mean you personally.) my caveat is that once you are no longer in the accumulation phase, if you have a 4% SWR (by historic and current market metrics) then any year there's a bear market, or a crash, a flat year, or even only modest returns, you'll have to lose principal (sell mutual fund shares) to maintain your SWR.  if there's a long-term bear market and you keep rebalancing into stocks, you accelerate your principal loss because your withdrawal rate stays the same.  you are taking the risk that a bull market, not even a gradual recovery, won't occur before you lose too much principal.

Some of your thoughts seem contradictory. In the same post you said I am speculating because I need markets to recover after a crash and then you agreed that a portfolio could survive a 1929 style crash where prices took decades to recover and then you even said, "recovery to exactly market peak levels doesn't need to occur."

you're right -- i should have said "strong bull market" not "recovery."  rebalancing into stocks following the crash, and then the '32-'37 bull market, would have helped investors through that crash.  i don't see a contradiction in the semantics there.  i'm saying a bull market is not guaranteed to happen shortly after a crash, but it did in that case.

On the topic of speculation, technically making any guess or assumption about the future is speculation.  Assuming the world won't end tomorrow is speculation. I believe that is how you are using the definition.

nope, i'm talking about that accepted investment-world definition of "speculation."

using the quoted definition of "speculation," let's step through how a 4% SWR index investor with a stock-heavy asset allocation fits that description:

(again, you personally are accumulating, and not even planning for a 4% SWR, do don't be offended by the below)

"... In finance, speculation is also the practice of engaging in risky financial transactions ..."

having the majority of your portfolio in stock index funds, where you can't live off the dividends (4% SWR), where you gradually own fewer and fewer fund shares, is taking the risk that there won't be a long period of bear/crash/flat/modest markets without a subsequent bull market.  it's a calculated risk with 100+ years of history to look at.  no sensible investor would argue stocks aren't a "risk."  look at Japan, for example, or the history of US stock market crashes.

"... in an attempt to profit from short term fluctuations in the market value of a tradable financial instrument ..."

rebalancing is considered a sound strategy to take advantage of "short-term fluctuations."  sell winners and buy losers.  if we all agreed that losers tend to stay losers for a few years, then annual (or more often) rebalancing wouldn't be recommended.
 rebalancers are literally attempting to "profit from short-term fluctuations."

"... rather than attempting to profit from the underlying financial attributes embodied in the instrument such as capital gains, dividends, or interest."

again, 4% SWR index investors get dividends and market price returns.  they can't even survive, let alone "profit from," dividends: the 4% SWR was arrived at INCLUDING earnings/dividends/buybacks/etc AND market price.  if you don't get the market price returns you are expecting, your SWR has to be below 4%.  many people on this forum, including yourself, are shooting for a less than 4% SWR because you are not expecting the market price returns.

BTW, yes you could sustain a SWR of 4% on dividends and/or bond income, especially in any period where the yield was greater than 4%.  I assume that is self explanatory.

i fully agree that if you get great returns, your SWR is fine.... i think we're on the same page there.  but again the 4% rule was arrived at by the trinity study by including both dividends and market price.

In addition, a 4% SWR doesn't require 4% returns. It requires returns sufficient to keep the portfolio positive over the given time horizon. The Trinity study was only looking at 30 years, and you would only need 1.219% real returns to achieve a 4% SWR over 30 years.

agreed.  yet there is nonzero risk that you will run out of principal too soon, or you wouldn't be able to afford a large medical bill, or whatever, which is why you're not even targeting a 4% SWR.

a FI non-speculator, who remains in the accumulation phase perhaps with part-time work or a side hustle, would almost never run out of principal and would be more likely to afford large unexpected purchases.

Yes, given higher valuations and a longer time horizon, I am aiming for 3.75%. If valuations are lower by the time I FIRE then I would go back to 4%. In addition, I am assuming lower market returns on my way to FIRE. If we keep experiencing pleasant returns I will be pleasantly surprised, but my spreadsheets don't assume that.

i think the exact number is debatable but i think we both agree, by current metrics, that once you are somewhere below a 4% SWR, you are no longer speculating because in any given year, no matter what the markets do, you will most likely not have to lose much principal (sell mutual fund shares) if any, to maintain your SWR.

speculators look at the risk of losing principal, look at the chance of getting returns, and pull the trigger.  if you're happy to take that chance and go back to work if you lose your principal, you're still speculating.  if you're shooting for a very low SWR or a short retirement period, and don't care about market price returns, then you're not speculating.  most posters i've seen on this forum are in the former category.

Indexer

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Re: Is it too late [bitcoin]?
« Reply #837 on: January 22, 2018, 07:43:51 PM »
Phil22:  Seems like we agree on most now. Glad to see it.

I would like to add context to rebalancing. Why is the person rebalancing? Rebalancing can improve returns during a market with a lot of back and forth, but not rebalancing would be better if stock prices kept trending up for a long time. If you are doing it, or not doing, because you think it will improve returns then that is likely a form of speculation.

However, many people, especially retirees, rebalance for the sake of lowering risk. Someone who is comfortable with a 60/40 might not be comfortable with an 80/20. If they were in an 80/20 during a major crash they might make impulsive decisions. Rebalancing to the 60/40 helps them check their emotions.

MrThatsDifferent

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Re: Is it too late [bitcoin]?
« Reply #838 on: January 29, 2018, 12:28:05 PM »
Yes, still feels too late, no movement at all to buy bitcoin. So far only Vanguard makes sense to me.

sol

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Re: Is it too late [bitcoin]?
« Reply #839 on: January 29, 2018, 02:06:35 PM »
Looks like bitconnect has gone from $425 to $7 in the last three weeks.  Ouch. It's not 100% losses, but it's close.

Maybe other cryptocurrencies will have a softer landing?

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Re: Is it too late [bitcoin]?
« Reply #840 on: January 29, 2018, 02:39:33 PM »
I will out myself as having bought Bitcoin at around $14,700 (and ethereum at $970) the first week of this year.

I've followed the exchange rate between the two, which has swung favorably toward the ethereum stake. I was expecting Bitcoin to hold up better on those days when all crypto- is down, but that hasn't played out during this month.

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Re: Is it too late [bitcoin]?
« Reply #841 on: January 29, 2018, 05:19:58 PM »
I will out myself as having bought Bitcoin at around $14,700 (and ethereum at $970) the first week of this year.

I've followed the exchange rate between the two, which has swung favorably toward the ethereum stake. I was expecting Bitcoin to hold up better on those days when all crypto- is down, but that hasn't played out during this month.

The window of time for picking crypto has dramatically decreased. Websites show a list of 1500. There are thousands more not shown, and in 2018, I predict there will be tens of thousands. For new speculators, the thousands of new crypto are huge gambles at this point; bloomberg cautions everyone to risk no more than 1-5% of their finances.

I view eth as a safe bet among your choice. What's the thought process behind purchasing bitcoin? Did you do 50-50% of eth and btc or some other %?





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Re: Is it too late [bitcoin]?
« Reply #842 on: January 29, 2018, 11:20:13 PM »
Looks like bitconnect has gone from $425 to $7 in the last three weeks.  Ouch. It's not 100% losses, but it's close.

Maybe other cryptocurrencies will have a softer landing?

Sol, The trick is knowing which beenie babies to pick (you want the rare ones and the ones with errors) and making sure to keep the original tags.

Oops, sorry, wrong bubble...

https://www.psychologytoday.com/blog/the-decision-tree/201107/psychology-not-economics-is-behind-market-bubbles
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zoltani

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Re: Is it too late [bitcoin]?
« Reply #843 on: January 30, 2018, 03:05:19 PM »
And being sued for a ponzi scheme! I mean, who wouldn't trust a guy like Carlos Matos?!?!?

Bitconekkkkkkkttttt!!!!!!!!!!
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Re: Is it too late [bitcoin]?
« Reply #844 on: January 30, 2018, 04:24:53 PM »

phil22

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Re: Is it too late [bitcoin]?
« Reply #845 on: January 30, 2018, 09:11:50 PM »
surely you remember when bitcoin hit $2 following the dramatic crash from $32... those were uncertain times.  it was too late then too i gather.

Mr Mark

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Re: Is it too late [bitcoin]?
« Reply #846 on: January 30, 2018, 11:34:38 PM »
surely you remember when bitcoin hit $2 following the dramatic crash from $32... those were uncertain times.  it was too late then too i gather.

I guess it depends - as with any bubble (or even a pure ponzi scheme) it's possible to make a lot of money if you get in and out at the right time. The problem is timing the market. Traditionally, as the bubble inflates or the Ponzi runs, people get greedy & instead double and triple down, and have great reluctance to sell. The fact that bitcoin has had such huge volatility in the past as you point out (ie dropping over 90% over a short time period) is hardly a vote of confidence in it's future stability.

A lot of the pro comments on bitcoin as an "investment" and the criticisms directed at people who call it a bubble/scam strike me as almost of a religious nature. Any currency is based on collective faith, and when anyone's faith is challenged people respond by defending the attack in myriad (and often bizarre) ways. Ad hominem attacks on anti-crypto commentators, even ones with Nobel prizes, are pretty common (they don't get it, they're old, they're just a shill for the corrupt fiat system, their business model is threatened by bitcoin, they are too stupid to understand how blockchain will rule the world, etc etc).  If people do not have faith in the value of bitcoin (and I'll here ascribe 'value' as the amount of physically useful things it can be exchanged for, such as food, utilities, shelter, healthcare, transportation, etc) it will be confined to the past as a weird fad where people actually exchanged things of real value for a few 1s and 0s in an unregulated Asian computer programme.

The oft cited criticism of the above might be something along the lines of  "Well, your 'investments' in the SP500 and US fiat have also been historically volatile, and are also just as much an act of faith! Aren't US equities and bonds also a bubble?" which indeed, is sort-of true. But there are significant differences.

The fiat of the US is founded on the US Government's ability to tax the income and assets of 330 million people in the world's larget economy and that of most of the largest businesses in the world. And despite the dollar losing over 94% of its value over the past 80 years it still remains the world's reserve currency and the benchmark of value for any traded commodity. I can use them at any time to pay my taxes to that Government and to obtain all the material needs I might have, 24/7, often delivered to my home effortlessly.

The US equity market is also underpinned by the rule of law which therefore allows me to own a piece of every traded company registered in the world's largest economy, and to take a slice of the earnings generated by those companies across the USA and the world. That market has existed for over 120 years, is highly regulated, and has systematically continued to increase in value, albeit with periods of decline that have always proved ephemeral - and perhaps more importantly the fundamental economics of earnings and dividends from businesses in a growing economy explain very well why the periods of declining equity values eventually recover.

So while hindsight is a great way to trade anything, I'll avoid relying on the greater fool theory to invest my fiat US$. Instead I'll own pieces of all the publicly traded companies in the world, take my share of the continued growth of the US and global economy, claim ownership of land and buildings for which people will pay me rent, and even lend some of my money to the US government and some large companies.

While it's been a facinating discussion to observe, I don't believe it belongs on an 'early retirement through badassity' forum except as a means to educate savers on what a crazy and unreliable place the cult of crypto would be to send your hard earned green soldiers.

Mr. Mark

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Re: Is it too late [bitcoin]?
« Reply #847 on: January 31, 2018, 09:21:56 AM »
@Mr Mark, that was quite a good post. 

Acastus

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Re: Is it too late [bitcoin]?
« Reply #848 on: February 01, 2018, 01:21:04 PM »
How many times has Bitcoin lost 50% of it's value in the past?

Bitcoin went from ~1000 to ~250 a couple years ago.

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Re: Is it too late [bitcoin]?
« Reply #849 on: February 01, 2018, 03:53:36 PM »