Be wary of anyone making firm statements about the future of anything. This article doesn’t do that.
This article is merely drawing similarities with past events and concludes:
> First, we need to see the economy slow down and inflation slow down. We need to see stocks bottom out and hang out there for a while. And we need to be patient. None of this is going to happen fast.
This seems reasonable. Wait and see based on variables that were important in the only comparable period in recent times.
Eh, not really. Having a plan to ride it out if things get bad is never a terrible idea. Personally you should have a rainy day fund that can sustain you and your family for 12 months. You should have the same as a business, but that fund should really be like 24 months instead of 12.
Buy an index fund and when the market is down try and buy more.
If you do wish to do something to actively manage things, try giving Nassim Taleb books a read, or just read about his or Mark Spitznagel's investment strategy. They also keep 97% of their money in an index fund, but the other 3% are slowly wasted away buying far out-of-the-money PUT options on boring stocks that are very cheap to buy because they'll "never happen". And most of the time, they lose that money. But when COVID hits, or airplanes crash into famous buildings, or <insert next surprise here>, those little never-gonna-happen options pay for all the damage to the 97%.
Their core theory is that humanity systematically underestimates the probability of very rare events. So it's not about timing the market, it's about using this exploit in human psychology to reduce or eliminate your "risk of ruin" from very rare events.
To give a brief counter to the Taleb/Spitznagel Empirica Kurtosis strategy, the pricing of deep out of the money options is systematically overvalued in relation to the Black-Scholes model, suggesting that the market correctly prices in fat tails.
The volatility smile pattern describes the 'overvalued' nature of these options, and the SKEW index tracks their pricing.
I wonder if this adjustment is enough... Spitznagel's fund did return 4,144% in Q1 2020. Maybe they found some other similar hole, but one seems to still exist.
It's certainly possible that even with the volatility smile markets still underprice unlikely events, but high returns from a tail-heding fund during a black swan event hardly provides any evidence. Regardless of pricing, the expectation of the strategy is infrequent high returns and frequent poor or negative returns. Whether the market accurately prices these events also depends on how bad returns are during years without anomalous market conditions, and the intervals between fat-tail events.
Here it’s entirely about the source. Fred Wilson is an unusually smart and honest investor, and has experienced more market corrections than I have. So I weight his opinion higher than mine.
I also weight his opinion higher than my favorite financial columnists because he’s the man in the arena, and focused on the part of the economy I care about — startups — while columnists have to think about housing prices and other stuff.
Maybe, but Barron's also has plenty of day-trader hype. How do you separate the good long-term predictions in Barron's from the bad ones? Read someone else. (You can optimize the process by skipping Barron's entirely.)
There are domains where I feel I can judge an argument solely on its content. Predicting the economy isn't one of them. While I can discard some bogus arguments, there are plenty of coherent and self-consistent arguments pointing in different directions. So I have to consider the source.
I'm still not sure why you'd weigh his opinion higher, he may be honest or have experienced more recessions than you have, but why not find an old columnist who doesn't lie? His lack of consideration for the other parts of the economy like real estate, etc. and his focus on startups to me seems like a handicap and not something that makes his economic predictions more accurate.
The best you can do is to build a market thesis that represents your views, try to find reasons that you are wrong to help harden / shape your views, and only then try to find others that believe the same way your thesis does to try to see how they predict.
Everyone has their own crystal ball, and everyone believes theirs is the right one. If you look at fintwit, you will see "the world is ending", "the worlds ended, we going up", and "lets wait and see". At least a few of them will get it right, to some extent or another. I dont think you can figure out at this time which is the right one.
So, best you can do is form your own thesis I think. I've formed mine. It helps me not panic when things are temporarily against me.
I am generally generally wary of one liner predictions that people throw out on Twitter.
We have all seen those recently:
"This is going to be worse that dot com", "This is nowhere near the bottom" and basically bold but unsupported predictions of that flavor.
This, however, seems like a reasonably balanced take. Tries to take cues from the historical events, which doesn't always work imo but still is _something_ to base your arguments on.
I don't navigate it. It's a bit like trying to predict the weather. You can kind of guess that it's going to rain tomorrow, but you can't guess if it's going to rain in a year, let alone how much rain there will be in the next 10
I just buy a little bit of monero, funnel money into 30+ year tax advantaged retirement savings, and work on my skills I guess
This isn't much of a prediction. It's saying this correction is going to look like all the others. We had an overheated market in an inflationary feedback loop with pandemic relief, and that stopped, and now prices have corrected and we wait for growth to start again. That's... like predicting autumn will come some time after the end of summer.
The takeaway here is that there are no unique circumstances at play. This is a market cycle just like any other.
Take every major future scenario and make sure you have some idea of how your strategy and portfolio survives it. There is no difference between a useful and useless economic prediction in a highly uncertain environment — they’re all roughly plausible.
You need to understand more about macroeconomics, monetary policy, ad government, along with studying past how past markets behaved under similar conditions.
History doesn't repeat but it rhymes becomes the mantra.
