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 contact me.
Should I be concerned that the stock market is booming this much?
You shouldn’t for a number of reasons:
- It isn’t booming as much as you think. The S&p500 was at about 3,200 at the start of the year. It is now at 3,380. Including dividends it is only up by about 4% this year. So it only seems like it is booming if you look at what happened in March. Only the Nasdaq has had an excellent year- up over 20% so far. All the other indexes have performed significantly below their historical averages even adjusted for dividend reinvestment.
- There is no correlation, whatever anybody tells you, between pandemics and GDP, and even recessions and GDP. Markets have fallen on these events and risen. They rose from 1918–1920 despite World War 1 and the Spanish Flu! They have fallen in China since 2006 despite excellent GDP. The economy is not the stock market and vice versa.
- Point 2 has always been the case, but that is becoming even more important these days. In the 1950s, most of the buyers were regular people and not big institutions like banks and hedge funds. Most of the firms were only making money locally as well. Not all of them. Coca Cola (the US) and BP (the UK) always made loads of money internationally. Most firms were more domestic though. Fast forward to 2020 and many “US firms” actually make more money internationally than domestically, and 80%-90% of the money in the stock market is held by institutions. So the idea that more unemployed people would reduce demand for stocks is flawed. The cream of the crop, due to technology, can also get bigger even if small businesses suffer.
- If you are long-term enough, you should be delighted if the markets crash and even stay stagnant for 10–15 years. You will make more money this way as it gives you a chance to buy at cheaper prices. Imagine how much money you would have made if the Dow had stayed at 18,000 like in March for a decade!
- The absolute bottom line is this. I have never met somebody who can prove to me they can market time long-term. In fact, I have never met anybody who has met anybody who has done it! That is what Vanguard’s founder John Bogle said, and I have also never met anybody who knows anybody who can prove this over the long-term. I have met plenty of people who have managed it briefly, but then suffered. In comparison, how many people have I met who have suffered due to market timing and reading the media? Countless
Some of the biggest reasons for number 5 is if you are fully invested you can do two things:
- Reinvest dividends
- Buy, hold and rebalance from bonds to stocks during market crashes
- Sometimes fees and taxes involved in market timing
- The market does go up long-term. The Dow was 66 in 1900, 2000 in the late 80s/early 90s and hit 29,000 this year. So trying to catch the perfect time to get onto a rising escalator, without costing yourself in lost dividends and the costs of doing so, is almost impossible long-term
So, I wouldn’t be concerned. Just be long-term, buy, hold and rebalance.
If markets rise, rebalance. If they fall, rebalance. It is that simple , together with buying and holding “forever”
Being concerned, even though unnecessary, is harmless though.
What causes harm is when people act on their fears. In other words, panic sell during the pandemic like 35% of people allegedly did.
Dead people’s investment accounts beat the living, and those that never watch the news or check their valuations beat those that do for a simple reason……they need to buy and hold and can’t get concerned in the first place.
Is Dollar losing its value to Chinese Yuan?
No. In fact, the general trend has been the opposite in the last 6–8 years.
This is contrary to the previous trend before 2008–2009, when the RMB was going up.
In 2003, the RMB was about 8.27 to the USD. It then hit 6:1 in 2014.
It is now at 6.79, which is higher than the recent peak of around 7:15.
What is more is the policy. In the 1990s and 2000s, people complained, with some justification, that the Chinese Government was trying to hold down the value of the RMB.
This was to keep the RMB, and China’s manufacturing, competitive in the world.
If the RMB would have been freely floating in those days, the RMB could have gone to 4:1 or even 2:1 against the USD.
The reason was simple. So many foreign investors would have wanted it due to the hype that the RMB was only going in one direction.
In comparison, if there was full currency liberalisation today, and Chinese people were able to send as much money outside the country as they want, and currency speculators could short either currency easily, then I suspect the RMB would weaken to 8:1 or even 9:1 against the USD.
These days China is trying to support domestic consumption rather than manufacturing, and a stronger currency helps with that.
Ultimately, even though China has been moving towards a more flexible currency system, RMB is still not a freely convertible currency
You can see that in the charts. It does go up and down against the USD, but you don’t see these huge spikes.
The currency is only allowed to trade within a narrow band of 2% above or below the day’s midpoint rate.
That is one of the many reasons why there has been more trade tensions between the US and China.
The US has been a more free market economy for decades, and China more mercantilist.
So China was able to take advantage of other countries freer markets, without opening its own up (including its currency markets) to the same extent.
Ultimately it is better for all countries, long-term at least, to have completely freely convertible currencies.
How is Tesla’s stock 400 percent up in a year despite no profits?
Tesla is now profitable finally. Even last year and briefly in 2016, it had some months and quarters of profitability:
Ultimately, there are always two kinds of people in the market:
- The long-term investor. He or she doesn’t give a damn about valuations if they buy the indexes, or they just buy stocks forever, not caring about the short-term
- The speculator. These are people who think they can spot trends in individual firms.
Vanguard’s Founder Jack Bogle made this distinction in his last book:
Many professional investors are sceptical about Tesla. That doesn’t mean that no professional investor puts money there, and that Tesla won’t do very well.
The scepticism comes from a simple fact that you identified. Tesla has consistently either been unprofitable or made money only in some quarters.
Therefore, if you buy Tesla’s stock, you are betting about the future of electric cars and Tesla winning that “competition”.
Or maybe you are betting on it due to Elon Musk’s personality cult or any number of reasons.
It is still a bet/gamble though, which may or may come off in time.
In general, it is better to keep “bets” to 10% of your portable at most if you are an average investor.
A do it yourself (DIY) investor has close to 0% chance of beating the S&P500, Dow Jones or some other major indexes over a 40 year period.
What’s more, if you get lucky once, you are unlikely to get lucky a second time, and even more unlikely to keep getting lucky.
I have met plenty of people who got in early with the likes of Facebook and Apple.
At least 50% of them lost out eventually to the S&P500 because their egos grew and they were convinced that they would be able to identify the next Facebook or Apple!
Sometimes slow and steady can win the race.
Is it the right time to invest in 1 BHK in Dubai?
Nobody can know for sure about timing. Timing the housing market might be slightly easier than the housing market, but it isn’t easy.
Dubai has seen 1–2 cycles even since 2008. As Imran said below, prices are at a low point, but not an all-time low.
They had never recovered from 2008, even in nominal terms, even before covid struck:
Now covid has stuck, prices have gone down further. Many sellers are willing to sell far below the asking prices I have heard as well.
However, just look at the graph above. Somebody who bought in 2009 thought they were getting a great deal, but they have barely made anything if the graph was extended until now.
You may say that is because there has been two huge crashes in 12 years – 2008 and 2020.
Yet Singapore and London have more than recovered. Dubai has some very specific negatives, such as oversupply of housing.
That doesn’t mean that now might not be a good time to buy. I can’t predict that.
Remember though, Dubai isn’t especially a good real estate market.
Most of the people I know that have bought there have lost money, or broken even adjusted for rental yields.
So, if you do buy and make a fast profit, then you might want to sell again. That feels like a speculation though.
The main reason to buy is if you already live there. Rents are expensive relative to buying.
That means that even if your house goes down in price, it might be cheaper to buy than to rent.
What 3 rare skills will do the most to make you a success?
I would focus on a combination of skills, attributes and personality traits. Skills alone aren’t as valuable as people think.
If you have great investing skills but panic every time markets crash, and then regret it years later, then you will underperform somebody who knows less but is less emotional.
Likewise, you have great marketing skills but never apply them with hard work, persistence and determination, you can get beaten by somebody who has less natural talent in that area.
The rarest 3 attributes/triats I have found are
- The ability to break norms
Most people are influenced by what is normal in their industry, society or business. That is human nature.
However, if you only focus on what is normal, then you will almost for sure get normal results long term.
Let me give you a simple example. If it is still the norm in your industry to cold call, then you will only get average results by cold calling.
You might get on the upper side of average if you try to outwork people, but you won’t get extraordinary results by doing that, unless you try other techniques.
If you are better than other people at norms, eventually other people will copy your tactics.
That is one example of many I could have used
2. The willing to do what others won’t
The last example shows something. Even though cold calling isn’t as effective as it once was, it still hasn’t completely died, even though it isn’t the most efficient approach in most industries.
One of the reasons is that few people are willing to do it, regardless of the financial benefits.
Perhaps better examples of being willing to do what most others won’t is:
- Emigrating for better opportunities
- Taking more risk than most people. Most people are so risk adverse that they won’t even take a risk when they have nothing to lose, like when they are 21, 22 or 25 without kids and a mortgage.
- Being willing to be unpopular if needed and it makes sense
- Never giving up. Some people are willing to take risks, emigrate or whatever, but few will keep it going for years, even 10 years, if it isn’t completely working out. Persistence can be even more important than patience and plenty of people will give up just before they reach success. So resilience is important.
- Play the numbers game. That is linked to the last point. If it was so easy to try one extra-ordinary idea, then more people would do it. You might have to try tens, or even hundreds of ideas, for 1–2 to really work.
3. Taking advantage of randomness, chance or luck
- We all get good, and bad luck.
- Some people get more luck than others, yet few take advantage of these lucky breaks long-term. Most rest on their laurels. That is one reason why over-performance doesn’t last long.
- You see it in countless domains. In sports few world class stars stay at the very top for a whole 10 years. Same in business.
- So if you get some lucky break, put more wood on the fire when it is burning, rather than sitting back and admiring the fire. Simple example. Let’s say you play the numbers game, break norms etc and get a good break after 5–10 years. Focus straight away on new techniques to add to that success story. For instance, if you got onto Google page 1 for loads of key terms back in the days when it was less competitive, the rational thing would be to move onto the next idea, whilst also focusing on what works.
- A lack of complacency, and ability to adapt, is key. If something works now, it might not work next year or in 2025.
Of course, if you mix rare skills, with attributes, then you are on a winning ticket. However, rare skills tend to only exist for a decade or so.
In the 1980s, plastic surgery was a new, and incredibly well-paying niche, in LA in the US.
What happened? Loads of medical students went into that niche. Today the average salaries in that area aren’t significantly higher than other disciplines.
In comparison, the plastic surgeon who is doing what others aren’t willing to do in 2020, might be making many times more than even the best in the 1980s.