I often write on Quora.com, where I am the most viewed writer on financial matters, with over 294.9 million views in recent years.
In the answers below I focused on the following topics and issues:
- Given the current real estate market with property selling at such a high price do you think there will be a crash like in 2008? I explain why this isn’t yet 2008 for housing.
- What has made Jeff Bezos, and Amazon, so successful?
- Is the future looking bright for the global economy?
- What is a “sure” way to never lose money in the stock markets? Could the obsession with avoiding losses, ironically, result in more chances of losses in the long-term?
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I don’t see a bubble in most cities. The reason is simple. In most developed countries, prices haven’t actually moved in real terms.
Take the UK. In 2007-2008, prices were at a record in most parts of the country, and not just London.
This was a record adjusted for wages and inflation, and not just in nominal terms.
Between 2008 and January 2021, prices actually fell adjusted for inflation and wages apart from areas like London:
Even with the recent rises, prices haven’t recovered. Take the Nationwide Building Society’s survey:https://www.housepricecrash.co.uk/indices-nationwide-national-inflation/
In 2007 Q4, average UK house prices were £183,959, but that was a long time ago now.
Almost fifteen years of two or three percent inflation adds up. Therefore, in real terms, that is £255,305 in today’s prices.
In 2013 Q1, just before “help to buy”, UK house prices were at £163,056, which was an inflation-adjusted low of £191,902 in today’s prices.
Now prices are £242,709 in nominal terms, which is also £242,709 in real terms of course.
So prices are still 13,000GBP below their all-time, real terms, peak.
Not in London, but on average, across the country.
We see similar trends in the US. Whilst some cities have gone crazy (Like New York), the average US house price last year was about 10% cheaper, adjusted for inflation, than twenty years ago.
Looking at nominal prices is pointless unless you are living in Japan where there is almost zero inflation.
What matters is:
- Real terms prices. If you buy a house for 500k today and you sell it for 514k next year, you have lost 1k in real terms if inflation is running at 3% a year.
- Price to salary levels
- Do the economic fundamentals back up the prices. That is partly linked to wages, but not always. Global cities like New York and London are different as they can attract many international buyers.
So, I don’t see a bubble yet. However, if the price rises continue, then one might form.
That might happen as people who are working from home want more space, and are, in some cases, using the savings from the commute to upgrade their house.
The biggest ones are
- Excellent strategy. He focused on the long-term, and not short-term.
- Timing. Of course, if he was born 300 years ago, or twenty years before World War Two, he wouldn’t be where he is today.
- He had support during the early stages of Amazon.
- He is smart AND has business savvy. So, he knows how to execute, rather than just have great ideas, which are pointless in isolation.
- He focuses on the path of least resistance. One of the biggest reasons Amazon is so big is that they make buying easy AND they are cheaper. Even if Amazon was even cheaper than they are, they would suffer if the sales process was more difficult. People can buy with a click of a button.
- He ignores the naysayers, who always find excuses to say something won’t work.
- He didn’t give up after the crash of 2000 made people doubt the technology revolution.
- Focusing on delighting the customer, not just making them happy.
- Hard and smart work, rather than just one of the two. Smart work allows people to leverage, rather than just working harder for more incremental payments.
- All the above + luck/chance. As mentioned, even with all the above, he wouldn’t have been abler to create Amazon if he was born before WW1. He was also born in the US, and not Cuba or many other countries.
Here he is in his own words:
What is interesting about Bezos is he was often underestimated for years, unlike somebody like Gates or Musk, partially because he played the long game and doesn’t have a very imposing personality.
Nobody can predict the future. Just look at the year we have just had.
What I would say is that few people realize how good the present is.
Let me give you a simple example
1945 = about half the world’s population were living in absolute poverty of $2 a day or less (adjusted for inflation of course)
1980 = About 40%
1990 = About 30%
Today = 9%-10%
In 1945 the richest countries had a GDP per capita of about $6,000-$7,000 adjusted for inflation.
Now average countries, mid-income countries, like Thailand have such levels of income or slightly higher.
It took thousands of years to bring half the world’s population out of poverty by 1945.
It has taken just thirty years to reduce the poverty rate from 30% to 9%-10%, after the fall of the Iron Curtain.
This is a great book to read about the subject
You can see the author give an interview here:
He also has a website here – HumanProgress
Some stats from the interview and online website
- “In 1966, average life expectancy was only 56 years. In 2016, it was 72. That’s an increase of 29 percent.
- Out of every 1,000 infants born, 113 died before their first birthday. In 2016, only 32 died. That’s a reduction of 72 percent.
- The average income per person rose from $3,698 to over $17,469, or by 372 percent – and that’s adjusted for inflation.
- The food supply rose from about 2,300 calories per person per day to over 2,800 calories, an increase of 22 percent, thus reducing hunger.
- The length of schooling that a person could typically expect to receive was 4.15 years. In 2016, it was 8.71 years – a 110 percent increase.
- On a scale from 0, which denotes autocracy, to 10, which denotes democracy, political freedom rose from 4.55 in 1966 to 7.05 in 2016. That’s an improvement of 55 percent”
- The average person in the world’s poorest region, sub Saharan Africa now eats 2,400 calories a day. That is about the same as Portugal in the 1960s.
- World food prices adjusted for wages and inflation are down 70% when the population has risen by 70%.
The author also makes the point that even in areas like the environment, believe it or not, there has been a lot of progress.
The US, UK, and many other countries are more green, clean, and environmentally conscious than before.
That doesn’t mean everything is perfect. Whilst most poorer and middle-income countries have gotten much richer, a few extreme cases like North Korea and Venezuela, have become poorer.
Whilst war and conflict have reduced a lot, there was Iraq and many other conflicts.
Moreover, it hasn’t been an easy twenty years for younger people in Western and even developed Asian countries, even though most younger people have benefited from better healthcare, education, technology, and tolerance.
The world has definitely become much easier for minorities, women and gay people.
The biggest two reasons people don’t understand how things have improved is
- The media. Fear sells. Whatever bleeds, leads.
- Human nature. If you had a performance assessment from your boss and 90% was good and 10% bad, what would you focus on? Are you more excited by investment gains, or more terrified of losses? It is human nature to focus on the bad. It is also human nature to think the past was better than it really was “things were better in my day”.
There are two directions the world could go in in the future:
- The progress which has been made since the Industrial Revolution, 1945, and especially since the late 80s and 90 continues
- We go back to some of the mistakes of the past. Wars and conflicts. Extreme socialists and nationalists come to power, and so on. We have been seeing some bad signs recently. People blaming the “rich”, extreme protectionism, and so on.
The world GDP today is about 84 trillion. If the world grows at the same level it has done since 1945, world GDP will be about 600 trillion in 2100, adjusted for inflation.
You can only imagine how better life will be if that happens. In comparison, if growth falls to 0.1% per year, which was the historical average, world GDP won’t reach such levels for thousands of years.
To invest in “everything”, reinvest dividends and do it forever.
What do I mean by everything? I mean the entire global stock and bond market.
For example, if you are American, have the following portfolio
- S&P500 or total stock market exchange
- Total international stock market ETF
- Total bond market ETF
Or some variant of the above. This approach has had an 100% historical success rate if:
- You do it long-term
- There is no panic when markets fall
- Dividends are reinvested.
That doesn’t mean it always will in the future, but if it doesn’t work in the future, that means we are in trouble as a species, if even our most innovative companies aren’t getting more profitable over a 50 year period!
Dividend reinvesting is important. Take the graph below. It seems like the S&P500 has vastly outperformed the UK FTSE 100 which has been stagnant for twenty years?
Well it has. Now let’s add dividend reinvestments and things don’t look too bad for the FTSE:
Even the much maligned Japanese stock market has been up if you reinvest dividends.
Time is another key component as the two graphs below show:
Add 40% bonds and you get these results:
The issue is, everything wanted to buy the Nasdaq in 1999 and China in 2006. Few wanted to buy the Nasdaq in 2002, or buy in 1999 “forever”.
Moreover, too many people confuse a decline and a loss. If the markets fall and you need to wait months or even years to see a full recovery, that is nothing to worry about.
In fact, it means that if you have fresh money to invest, you are buying in at a good price, and you can rebalance your portfolio away from bonds towards stocks.
So, emotional control is one of the keys to investing success. It is ironically the fear of losses, which causes more losses!
Many people keep money in the bank due to this fear, with a 100% chance of losing out to inflation.
This is a huge loss that will compound over time, but it feels more emotional due to the lack of fluctuations.
You will notice all the figures above are for inflation-adjusted losses, and the right portfolio hasn’t lost even on this measurement, long-term.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 294.9 million answers views on Quora.com and a widely sold book on Amazon
In the article below, taken directly from my online Quora answers, I spoke about the following issues and subjects:
- What are some good investment options in a low interest rate environment? Is the “game rigged” in the favour of wealthier people?
- Is the fastest way to make money in stocks always the best way? I look at how trading and using debt to grow can often be counterproductive.
- Is the UK, Germany or the US the best place to settle down as a long-term expat? How about those who are on short-term expat assignments?
- Taking calculated risks can be important, but does it guarantee success in investing or business?
To read more click on the link below.