In this blog I will list some of my top Quora answers for the last few days.
If you want me to answer any questions on Quora or Youtube, don’t hesitate to email me – firstname.lastname@example.org
Table of Contents
Is Tesla stock all hype or is it legit?
Of course Tesla is a legitimate stock from a legal point of view. It is a “legitimate company” of course, as that word implies some kind of legal meaning.
The question is if its valuation is justified? Tesla only became profitable 2–3 quarters ago.
It’s p/e ratios have been crazy for a long time now, and finally now the stock is crashing.
As I said on other answers before, when an individual stocks p/e ratios go crazy, there are only two possible long-term outcomes:
- The stock price will eventually go up
- The stock will crash
Stocks are like a dog and its owner. A dog can walk behind, and in front of its owner, for a long period of time during the walk.
Eventually, the dog gets pulled back into line. The same tends to happen with stocks that get overvalued.
The only question is if it gets pulled into line due to increased profits, or the stock price eventually falls.
Nobody really knows what will happen to Tesla in the future. It is a speculation.
That speculation (hype) might pay off for people or might not, but it is a speculation nevertheless.
It is very different to just doing something like buying and holding 3–4 indexes for 40 years, and rebalancing, which is based on some kind of logic.
Let me put this another way. If I owned a house for $200,000, and I tried to sell that house to you for $600,000, based on the logic that the area I am living in is up and coming, you wouldn’t think it is a good deal.
The reason is simple. I am asking you to buy at (potential) 2025 or 2030 prices in 2020.
So it isn’t a good deal, even if you bought at those prices and you “win”.
You see the same thing if you watch programs like Dragons Den/Shark Tank:
Some business owners try to sell their business for many multiples of revenue, on the fact that their business has huge potential.
So the pitch is usually “overpay now because our business will be worth this in 2–3 years and much more in 10 years!”.
I am not saying Tesla is the same thing, but people buying at these prices are hoping that Tesla’s potential is what makes this a good investment.
I would keep gambles like that down to 5%-10% of your portfolio as a maximum.
Is it fair for Jeff Bezos to have so much money?
As Murray has said below, his wealth is technically not his money.
He didn’t “lose” money in the last few days, unlike what some media outlets are saying.
Likewise, he didn’t “make” 80 billion this year. Merely, as the Amazon stock price fluctuates, his net worth changes over time.
Wealth and income aren’t the same thing. Even if we focus on income, the market doesn’t care about what is fair.
Is it fair that some sports stars earn over $100 a year, when they didn’t usually make much 30–50 years ago, and many key workers can’t earn that in a lifetime?
Of course not, but people are reasonable for these trends as well.
Unlike inherited wealth, people can decide to stop shopping on Amazon, or reduce how much they shop online.
They can spend less on sports and entertainment. They can support smaller businesses and start ups, rather than being reassured by a big name.
So people can control these processes. Every time somebody decides to shop on Amazon as opposed to the new kid on the block for some emotional reason like fear, they are increasing these global trends.
That’s fine but then to complain about it is silly. I had this conversation with a friend recently.
He was complaining about how much money big tech has but uses big tech when alternatives exist!
Often the reason is simple. He feels safe with them as unlike in 2005 or even 2008, they are now “the establishment”.
So the world is full of people who complain about these huge firms, yet they still use them.
The world is also full of people who complain about “the rich”, even people who are much poorer than Bezos, who nevertheless want to be rich themselves!
So it might not be fair, but if enough people are so exercised by this issue that they take action themselves, the situation would soon change.
In the past countless firms have seen reduced sales due to boycotts.
I am not encouraging a boycott of Amazon, I am merely suggesting that people have power to change this situation.
How likely is the stock market crash in 2021?
Today, I read one of the best articles I have came across for a very long time. It was short, and sharp, and wasn’t slick, but the content was spot on.
Written in 2011, the title was “A 30-Year Stock Market Crash? Yes Please!”.
I have not came across the writer before, but I enjoyed the article a lot. It is available here – A 30-Year Stock Market Crash? Yes Please!
The interesting thing about these discussions is that there are always three camps:
- Those that have read the evidence and know it is impossible to time markets. They buy, hold and rebalance in both bond and stock funds
- Those that have read the evidence and know it is impossible to time markets. They try to buy, hold and rebalance in both bond and stock funds but then once something like 2008 or March 2020 comes along, they panic, even though they say they won’t.
- Those that are still deluded that they can time markets long-term, often because they succeeded once, due to luck or another reason. They wrongly think they can beat markets by timing them for 40–50 years. In reality less than 0.1% do.
What few people ask is, wouldn’t a sustained market crash, even if we can’t time it, be a good thing for the long-term investor, compared to ever-rising ones?
The point the author is making I think is that for somebody young enough, a sustained market downfall is an opportunity, not a threat.
It is a mathematical reality, that if you can afford to buy more units when you are young, you will benefit more when markets eventually increase.
Let’s look at a simple recent example. The Nasdaq didn’t hit its 2000 height until 2014. 14 years of falls and stagnation.
That would only increase the long-term investors returns. Let’s look at two people.
- David buys Nasdaq at close to the peak at 4,400 in 2000. The Nasdaq has been trading at 10,500–11,800 in the last month. So he would have made a reasonable profit if he was patient enough, especially if you factor in the dividends. So you could say he has at least 3x his money adjusted for dividends.
- Now imagine person two, Sarah, also buys the Nasdaq at 4,400 in 2000. She is also patient. However, in the next 14 years she buys the Nasdaq every month for 14 years at lower prices (1,300–4,400). Who has more money, and who has also made more money as a percentage? Sarah obviously. You can work that out without getting the calculator out.
The Nasdaq example isn’t the only one I could have used. The S&P500 also had a period of stagnation from 2000 until 2010–2011.
If you play around with a compound interest calculator you can work this out for yourself – Compound Interest Calculator
If you invest $1,000 a month for 40 years and get a stable 8% (almost impossible i know but I am illustrating a point) you will have $3,357,372.
If you invest for $1,000 a month for 40 year and get 0% in the first 20 years (like the period from 2000–2010) and then get 13% from year 21–40 (this is about 3% less than the average returns from 82–99 and about the same as the 2009–2019 period) you will have $3,863,180.06.
If you get 0% for the first 10 years, -5% for the next 10 years and 15% for the next 20 years you will have $4,086,972.90.
It would be tempting to think you can time the market to avoid the bad period, but that isn’t so.
So the key things to remember are:
- Don’t time markets
- Be thankful for any market crashes and stagnations but don’t time the markets in cash
- Reinvest dividends. It helps during stagnant markets. Take the UK FTSE as an example. Stagnant capital values recently but dividends changes the situation:
4. Switch off any media which encourage market timing. Various studies have shown the dead outperform the living in investing, and those that never check the media and login to their accounts outperform those that actively seek out media. The reason is obvious. Emotions. The dead and those that seldom check their accounts don’t consume the media. The media exists to puts bums on seats. It wouldn’t be very entertaining to just say “markets increased/decreased today and we don’t know why!”.
5. Be in bonds and stocks. When stocks fall, short-term government bonds tend to rise. Let’s take these days as an example. Markets have fallen by 5%-10%. Short-term government bonds are up very slightly. That means if a crash happens, you can rebalance from bonds to cheaper stocks. In other words, you can take advantage of a falling stock market without having cash in a 0% bank account.
6. When you are young, 10% in bonds is fine. When you are 5–10 years away from retirement, it is safer to have 30%-40% in bonds.
7. Never try to predict when markets will have a big bull run or crash. Very few people saw last year’s +30% rise coming. Even fewer saw the -50% falls after lockdown. Even fewer still saw the big rebound coming. So don’t try to predict if markets will sink in 2021, 2022, 2023 etc. Markets do, and will, crash from time to time though.
8. Never think you can spot “trends”. As per the article I put here from 2011, at that point in time people were pessimistic after 10–11 years of stagnation. Many people thought that US Markets would do poorly, due to the ageing society, and emerging markets would do well. What has happened since then? Emerging markets have done poorly and the US Markets have done excellently! It won’t last forever I am sure. Emerging markets will have their time in the sun eventually. The point is, nobody can foresee the majority of trends for certain. Best to just be diversified.
Following that strategy is 10x more efficient and profitable long-term than worrying about crashes, or even being excited for their arrival!
Is it possible to achieve a $200k salary in your mid-twenties?
I do know a very small number of people who achieved this by 24–27.
There was one huge commonalty though. They were willing to do things others weren’t willing to do.
Examples included somebody who worked commission-only from 22, and achieved 200k+ by 25.
Another example is a guy who was doing a dirty, horrible job, working about 95 hours a week, doing something which nobody else wanted to do!
An alternative is to play the long game, to aim to get to this level by 30+.
This quote says it all:
Most people aren’t willing to take big, calculated risks, and do things which aren’t comfortable (financially, emotionally etc).
So that is why this works. Outworking others, and getting that high-level job at Goldman Sachs or Silicon Valley, is more competitive than being willing to do what others won’t.
As a final comment though, I would say being willing to be paid on performance makes it easier.
If that is the case, you are taking a calculated risk, but you will be paid as much as the 35 or 65 year old.
Whereas, in most companies, salaries tend to increase with age up to a point.
So I don’t know the statistics on this, but I imagine 90%+ of the people earning 200k+ in their mid 20s are either self-employed or paid on performance.
Many probably started at 18–23, and had a few tough years, before making it.
That is certainty one of the similarities I have seen. The only difference is the key taken.
Traditionally being paid on performance meant a commission-only job, or low basic and high commission.
These days with the internet there are more varied ways to be paid on performance and not time.
It is incredibly to earn 200k+ in your mid 20s by being paid on time alone.
As of July 2020, why is the price of silver soaring? Is silver also a safe haven like gold?
Be careful reading too much into short-term price actions and the news.
Remember 2010? Gold was hitting record after record. Silver went up by about 300% to hit $49 at one point!
Oil went up to $130 with some speculating that the 2008 record would be breached again.
Commodities were soaring. So were emerging market currencies linked to them like the Brazilian Real. Many were talking about parity.
Emerging market stocks were also soaring thanks, in part, to commodities. The USD was weakening.
The media were suggesting that QE and 0% interest rates would cause inflation, a weaker USD and a second stock market crash because the economy was struggling but the stock market wasn’t (sound familiar anybody?!).
What happened in the next 10 years?
1.Gold has been stagnant at best in real terms. It was around $1,600 in 2010, $1,900 at the peak in 2011 and is now $1900. So adjusted for inflation it is stagnant over the last 10 years and lower than it was 9 years ago
2. Silver went down to less than $15, and has now “soared” to about $26. So it is trading at less than half its inflation-adjusted price of $49 in 2011.
3. Commodities, especially oil, have fallen hard.
4. There has been low inflation.
5. QE hasn’t weakened the USD. In fact, despite the recent weakness, it is still stronger than it was in 2010 against the Euro, Pound, RMB etc.
6.Most major US Stock Markets have beaten gold, silver and commodities. 200%-300% returns have been seen adjusted for dividends being reinvested
7. USD short-term government bonds have shown themselves to be the true safe heaven asset. Both during 2008–2009 and March 2020, they outperformed other assets.
8. Gold, and silver, have shown themselves not to be safe heavens. They both fell during 2008–2009 and again in March 2020. They have actually done better during periods of relative calm, like 2010–2011 and once investors knew lockdown wasn’t going to be the end of the world.
Here were the gold prices in March, courtesy of Gold Price.org, during the worst of the covid situation:
And here is 2008–
What makes this more interesting is that gold had a good 2000–2011, and was increasing since 2018.
In other words, gold has gone down during the worst of two big stock market crashes, despite being on a bull run during both episodes!
It only resumed its bull run in 2010, and from April/May this time, once investors knew the world wasn’t going to end.
I am not implying that gold and silver won’t go up this year or next.
They might do. Nobody knows. However, long-term they are awful investments.
They merely pay inflation long-term. Even gold bugs admit it is just a store of value.
The problem is, nobody knows which periods will be good for gold for sure.
So holding gold long-term is a losing strategy compared to just owning stock and bond trackers.
Bonds have had a consistent period of outperforming during market crashes, and stocks have ran rings around gold for over 200 years.
And remember gold and silver don’t pay dividends either. So the only way you can “win” with gold and silver, relative to bonds and stocks, is through luck.
In other words, buying at the right time, which is more linked to luck than people think.
After all, everybody has the same information. If buying, or selling, gold or silver was so obvious, then why isn’t everybody doing it?
In a world of millions of institutional investors like banks and hedge funds, why would people miss an “obvious” buying opportunity?
So I have never, not once, met somebody who bought gold in 2000, sold in 2008, bought in 2009, sold in 2011 and then bought again in 2017, sold in March 2020, then bought again in April!
I have met plenty though that bought 1–2 years before 2008, felt smug for a few years after the crisis (2010–2011) and then regretted holding onto it during the 2011–2018 period.
How much do investors expect in return?
Many studies I have read indicate that plenty of investors are at two sides of the extreme.
They either expect to earn 15%+ a year on average, which is what Buffett has gotten in recent decades.
Or they think that getting 8%-10% per year is “too good to be true”, even though that has been the average historical performance of some indexes. So they aim for getting a bit above inflation.
Perhaps an even more important question is how much investors should expect in the stock market.
Investors should aim for higher returns when they are young enough to take a risk, and become more conservative with age.
In terms of venture capital and angle investing, many do expect more for a simple reason.
If somebody can get decent, albeit highly volatile returns, investing in a safe buy and hold way, why take a big risk to get the same return?
So for private projects, most investors do expect to have the opportunity to get 15%-20%+, for taking a lot more risk.