TOP QUORA ANSWERS FOR WEEK – JUNE 22-28

This article will list some of my Quora answers for the week.

Has the COVID-19 stock market crash of March 2020 hit the bottom, or should we expect another crash?

The only things we know is:

  1. To expect the unexpected when it comes to markets
  2. That the general trend will be higher over the decades. Just type into Google “record closes for the Dow Jones, S&P500 and Nasdaq” and you will see a pattern emerge……and that isn’t adjusted for reinvesting dividends either
  3. Despite number 2, markets will regularly go down and even crash. Over a 40–50 year investing career, you might see 10 or more big falls. So markets take the scenic route to record highs sometimes . Just look at recent big daily declines in the last 15–20 years

4. People who can’t deal with 20%, 30% or 50% declines will panic sell and lose.

5. Those that understand that stock market declines are actually good for the long-term investor will keep investing, not time markets and take advantage of any falls

6. Any net buyer of units (younger people and even some middle-aged people) should want markets to go down but shouldn’t keep money in cash waiting for those falls. Any net seller of units (those about to retire or those in retirement) should want markets to go up and up. Having said that, they should have assets in bonds as well for diversification.

7. Nobody can consistently time markets. I know countless “finance pros”. I don’t know one who has consistently timed the stock market. To paraphrase Vanguard Founder Jack Bogle, “i don’t know anybody who has timed stock markets long-term. I don’t even know anybody who knows anybody who has timed the markets”.

8. You won’t beat the market by listening to sensationalist media outlets as those pundits themselves aren’t beating the market by taking their own advice as per numerous studies done on CNBC and Bloomberg pundits, as per one of the links below

So in conclusion, don’t worry about it. It doesn’t matter for the long-term investor if markets are up or down sharply in the next few months or years.

You should continue to invest in either situation.

Is wealth a skill or a choice?

Skills and especially choices can help with wealth. The problem is everybody wants change but few want to change their choices.

Most want an extraordinary life but few are willing to make extraordinary choices.

Extraordinary choices are more likely to get extradorinaiy results.

Simple example – let’s say you want to retire at 40. You have a few extraordinary choices which will increase the probabilities

  1. Emigrate to a low cost country could help like a low-cost beach resort in SE Asia or somewhere in Eastern Europe.

2. Alternatively, investing from 18, even small amounts from your first part-time job and then doubling down once you have a full-time job, increases your chances.

3. Or perhaps you could try starting your own business or get a commission-only, or mainly commission based, job when you are young enough to not have to care about the risks. If you fail, you fail, but you have little to lose as a 22 or 24 year old if you can pay the bills for 6 or 12 months.

The problem is, most people are risk adverse when they have little or nothing to lose.

It makes sense to be a bit risk adverse if you are 35 with a disabled kid and a mortgage.

It makes sense to be relatively risk adverse if you have $10m and don’t need to take anymore big risks.

It doesn’t make sense to follow societies “path” when you are 18, 20, 22 or 24 and have little or nothing to lose.

You will regret putting yourself and your kids on the street in later years.

You almost for sure won’t regret “losing” 5k trying to start your own business or taking another “risk” when you were very young.

In many ways, societal norms (getting a degree, a job, playing it safe, not investing in anything remotely which has volatility and getting as big a mortgage as you can afford) is storing up risks long-term.

You are more likely to wake up one day with a mid-life crisis for one thing.

Having said that, there isn’t a 100% guarantee. You can make the best choices in the world and end up with a heart attack tomorrow, and have little or no money at middle age despite taking risks.

We all can do is increase our chances. Taking calculated risks and breaking some societal and industry norms, rather than following a script that society wants you to follow, is one way to increase your probability of success.

Is it theoretically plausible that everyone could win in the stock market?

It could be theoretically. If everybody held the index, then everybody would make the profits from the index – the cost.

If this ever happened indexing wouldn’t work though. I doubt we will ever get to that point though, as most people have the “gambling instinct” in their body, even if it isn’t profitable.

So what most people do is trade. They sell Amazon stocks, and buy Apple, and therefore somebody else buys Amazon and sells Apple.

Both people can’t be right. The person buying can’t be right as well as the person selling.

Nevertheless, statistically speaking, that kind of zero sum thinking is still the majority play in the market.

It is a point Bogle made in this book:

He also made another interesting point, one I didn’t know before reading the book.

Namely, in the early 2000s, there was regulation in the US to lower trading fees every time you buy and sell.

Originally, the banks tried to stop it and lobbied against it. Then they got behind it as they understood that it could become more profitable. Lower transaction costs would encourage active trading.

It also amazes me how many people are worried about small fees before getting into investment accounts, but then trade like crazy once they are in it!

As a final comment people would also need to not panic and hold onto the investments for decades to reap the full benefits of buy and hold.

Most panic at the first sign of trouble if they invest for themselves.

What are the biggest mistakes a person can make during the coronavirus pandemic?

The biggest mistake might be surprising for some people. In essence, the biggest mistake is not taking advantage of events.

We can’t control events like recessions, virus’ or how government reacts to them apart from indirectly through elections.

So the fact that governments decided to go into lockdown and therefore make the economy worse than it would have been to save lives, as an example, is something outside of our area of control.

What we can control though is:

  1. Our own thoughts
  2. Our own actions and decisions

So what has changed as a result of coronavirus?

Well:

  • Interest rates are even lower than they were before
  • QE is getting bigger
  • We are moving into a digital world even more quickly than before
  • Taxes will probably go up in most developed countries.
  • The political blame games will begin!

So it makes sense to take advantage of these trends by investing in yourself (learning how to do things online as a business owner as one example) and financial assets that pay above inflation unlike the bank.

There will always be those that react in fear to moments like 2008 and March 2020 by panic selling their investments and panic buying.

Then there are those that keep calm, stay the course and even take advantage of events.

People who are always scared never seem to profit in the long-term.

Those that take advantage of trends, do.

hould I start investing at a young age? Where should I invest in and how do I start with it?

The short answer to the first question – should i start investing at a young age – is yes.

The reasons are simple. Markets in the US and some other areas have always gone up big time long-term.

Look at recent times. Last year US markets were close to +30%. This year the Nasdaq is up but the S&P500 is still slightly down for the year. Nobody can time the best times to get in and out of markets.

Therefore, the safest and most profitable way to invest is monthly for decades. You will have good and bad times, but the averages should be fine.

Investing these days is even more important than 10–20 years ago as you can no longer even beat inflation keeping the money in the bank.

That is a guaranteed loss and that situation will only get worse now with 0% interest rates and QE after coronavirus.

The table below shows you that you don’t need to invest much if you start young:

In terms of what you should invest in, the safest way is to be as globally diversified as possible.

Indexes like the S&P500, MSCI World and a global bond index are safer than a niche position like a Chile or South Africa ETF as even the US Markets are actually very international when you look at the big names.

If you want to go for something aggressive, a Nasdaq ETF is likely to do well long-term, but will be extremely volatile.

What is important is to increase your government bond allocation as you age. 90%-100% in stock indexes makes sense when you are 20, 30 or even 40.

When you are 5–10 years away from retirement, you need to increase that, as bonds don’t pay much, but they outperform when stocks are down.

The how’s is easy. Whether you go through an advisor or do it yourself, you need to provide anti-money laundering documents like proof of address and ID, and do application forms online.

The key thing is not how to do it literally, which is easy, but how to do it productively.

Most people panic sell when markets are down like in 2008 or in March, which is why many people need emotional helps from advisors.

I heard the founder of Vanguard, the late Jack Bogle, make this point. People came into index funds in the 90s bull market, only to sell in 2000 when markets went down and again in 2008.

In march, yet again and unsurprisingly, people panicked. So only DIY invest if you are sure you can stomach huge market swings, up and down, and will remain stoic throughout.

An incredible statistic to illustrate my last point? The accounts of dead people perform better than the living.

Why? The dead don’t get emotional. So the thing with investing isn’t to have loads of knowledge about investing only.

You need to understand how to control emotions which is easier said than done.

Has the stock market bottomed out from the coronavirus pandemic?

This question was asked in March, 1–2 weeks it seems after the worst of the crisis.

The answer seems to be yes but nobody knows. Markets have recovered well since then.

However, I wouldn’t bet on anything. Markets like the S&P500, Dow Jones et al could go on to hit highs like the Nasdaq has this month, or might fall or crash.

There are always too many unknown variables to predict the direction of stock markets.

I don’t know one person, nor have I seen one single person online, get 2020 right.

Who predicted all these things:

  1. A global pandemic on January 1? Well Taiwan warned the WHO but few thought it would be bad
  2. Markets to hit record highs in February, even though the virus was getting worse.
  3. Markets to crash in March badly
  4. Markets to have a record recovery in the case of some US markets, with the Nasdaq in particular doing very well?

I don’t know one person that even got 2 of these 4 right on January 1, never mind all 4!

Last year US Markets rose by 30%, and again, I don’t know many who thought that would happen.

Even the best brains in investing, including Soros and Buffett, advise against trying to predict the markets for the average investor.

This says it all:

Just invest monthly for the long-term and add lump sums as they come available.

Investing at different intervals + long-term investing = the best risk-adjusted chance to earn well over time with compounding.

It is the most tried and tested way.

Why is the UK considered a wealthy country when there is so much poverty?

Wealth and income are different. Some Nordic countries don’t have much poverty. It is high-income, but it is less wealthy than the typical high-income country.

The UK has a relatively high average wealth per person:

Don’t get me wrong, statistics can sometimes be misleading. Many wealthy in the UK aren’t very liquid.

Often they are house poor. Living in a huge house worth 1m-2m, but in poverty. There are plenty of “poor millionaires” in London like that.

Old ladies that are living in houses that have gone up in value, their husband has died or they are divorced, and they don’t want to downside.

So poverty, wealth and income aren’t always as connected as people think. Some people are high-income but low wealth or even in debt and poverty.

Some people merely have paper wealth which isn’t very liquid. Having 1m in “investable assets” like cash, ETFs or liquid investments like stocks, isn’t the same thing as some estate agent telling you your house is worth millions or somebody saying your business is worth a fortune.

The issue of poverty, despite the UK being a high-tax society, is a complicated question.

Many people have very simplistic explanations for it like inequality which don’t tell us the whole picture.

Are we going to see a stock market crash in July or August worse than the March 2020 crash?

Next time somebody claims to know where the stock market is going, do three simple things:

  1. Google their name. So if it is a famous person, look at their previous predictions made over a number of years. Make sure the sample is big enough and long enough over many decades. Do the same for Quora users claiming to be more sensible than the entire market.
  2. Then, work out how much money you would have made, following their advice. There are some online calculators for that.
  3. Then, work out how much money you would have made if you would have had a buy, hold and rebalance approach, including reinvesting the dividends.

What you would have found, almost for sure, is taking the later approach is more profitable.

In other words, buying and holding, and ignoring everybody who tries to predict the future, works out long-term.

There are many reasons for this. Too many to speak about here. But one of the biggest reasons is that even if markets are down, you are unlikely to time the bottom and you can profit from even falling markets.

As I mentioned on this answer Adam Fayed’s answer to How should I invest my money during the coronavirus crisis? , even somebody who invested a lump sum 1 day before the great depression + did monthly investing for 6–7 years, would have beaten somebody who put money in the bank for that time.

To go over the maths again for somebody who would have invested 100k at the worst time in history (adjusted for inflation of course as 100k was a lot of money in 1929) +1k a month in the US Stock Markets:

Results

1930 = 112k contributed. Account value = 76k. A big drop

1931 = $124k contributed. Account value = 54k. A massive drop

1932 = 136k total contribution. Account value = 54k. An even bigger drop!

1933 = 148k contribution. Account value = 90k. Green shoots!

1934 =160k contribution. Account value = 98.7k

1935 = 172k contributed. Account value = 150k

1936 = 184k contributed. Account value =……….232k.

So even if markets ever are in the position of being like they were in the 1930s, which is very unlikely, you won’t profit by trying to time markets or staying in cash.

I have noticed three commonalities between those who think they can time markets:

  1. They never pull the trigger or seldom do! So those keeping money in cash before 2008, didn’t buy the Dow at 10k or even 7k, as they were convinced markets would go down more! Those that saw markets go to 22k, 20k and even 18k in March, didn’t pull the trigger, for the most part.
  2. They haven’t read much on investing. If somebody had, they would know there was little or no correlation between geopolitical risks, recessions and 1001 other variables, and markets. Markets can go up or down in recessions, shutdowns, wars and so on. They went up in 1918–1920 during WW1 and the Spanish Flu.
  3. They are clueless about an obvious fact. Net buyers of units (those in their 20s, 30s, 40s and sometimes 50s) should celebrate any falls. Those in retirement or close to retirement (net sellers) shouldn’t welcome falls but they should be rebalanced into bonds and stocks in any case. So rationally speaking, if we see a crash in July or August, net buyers should be delighted.

I wouldn’t listen to anybody who claims to know markets will go up or down in the short-term.

You aren’t smarter than the entire collective wisdom of the market. You can’t outsmart the market by watching YouTube, the BBC or CNBC.

Just stay invested over decades in stocks and bonds, rebalance when bonds go up or down relative to stocks, reinvest dividends and you will be fine long-term.

So markets might go up or down in July or August. Nobody knows. That’s the point. Quite often markets act in the opposite way we expect.

They went up after Trump’s victory. Up during coronavirus (February and then after April) and during Spanish Flu and WW1 happening at the same time (1918–1920).

This quote says it all:

I don’t know one person that has successfully timed markets over a 15 year time horizon. Even investment professionals.

I doubt you know somebody who has either.

Why don’t stock markets just stop trading during this pandemic? The fear and panic is just uselessly destroying wealth. If we can stop trading on holidays and weekends, we can stop for at least a couple weeks to better weather this crisis.

You are 100% right to say that fear and panic destroys wealth for two simple reasons:

  1. People press the sell button when they panic. Declines aren’t a loss. They become a loss when people sell. Moreover, many people stop buying even if they don’t panic sell. That is one reason for the results below. Many people buy high and sell low due to emotions. Even investors that are in the same indexes as the market, often lose out for this reason:

2. People don’t invest in the first place as they wrongly think investing is dangerous. It isn’t if you are long-term. The Dow was at 66 in 1900, 2,000 in the early 90s and 29,000 this year. Both the Dow and S&P500 have produced about 6.5% after inflation if you reinvest dividends. The Nasdaq more.

So I agree with what you are saying but if you close down markets, this stops the sensible buy and hold + buy more investors from following the evidence which indicates that we should stay the course.

Millions of people like me, who calmly didn’t change our strategies, would have been penalized.

The best way to deal with the issue you bring up is to deal with the root cause of the problem via eduction, starting at school with better financial education, and ongoing.

Moreover, advisors can help clients stay calm during these moments, in the same way a gym instructor can say “just do one more rep”.

During the worst of the crisis, the number of clients that panic sold in do it yourself (DIY) platforms was huge.

I am not saying everybody needs an advisor. Some can invest by themselves. But those people have both emotional stability + know how to do it.

They are a minority. Most people find investing scary and unfamiliar, so can do with some support.

The fact that, statistically speaking, dead people and dormant accounts (accounts where people invested ages ago but forgot about it) outperform, should tell us one thing.

Emotions kill wealth.

What prevents governments from banning Bitcoin or making it illegal?

In John Bolton’s book, Trump allegedly wanted the US to, quote, “go after Bitcoin”:

A few days ago, Jim Rogers suggested governments could ban it:

I think it is unlikely. Governments don’t for the most parts see digital currencies as a threat.

They aren’t taking much market share right now. They can issue their own currencies and rely on regulations rather than outright bans.

So nothing is “stopping it” per see, apart from a lack of willingness and it isn’t considered a threat by most governments.

I do think a USD, GBP or Euro version of a digital currency could come into being though.

I just don’t think banning it would make sense. China and some other countries have been quite authoritarian with their laws with regards to Bitcoin.

Not sure that has worked.

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