Stocks and Trading Thread - Channeling your inner Mono

[DGuller]

The stock market has always gone up over time and it's reasonable to assume that that will continue and an index fund makes your savings follow that increase.

I always get scared when I read something like this.  Anything that is thought of to always go up over time will be eventually bid up to the point where it may not always go up over time going forward.  Instead it may be bid up to the 1990 point of this graph: https://www.macrotrends.net/2593/nikkei-225-index-historical-chart-data.

[Tamas]

Palantir on another rampage upward today. Before close I will sell half my shares. It will cover my dentistry costs. 

[Threviel]

The stock market has always gone up over time and it's reasonable to assume that that will continue and an index fund makes your savings follow that increase.

I always get scared when I read something like this.  Anything that is thought of to always go up over time will be eventually bid up to the point where it may not always go up over time going forward.  Instead it may be bid up to the 1990 point of this graph: https://www.macrotrends.net/2593/nikkei-225-index-historical-chart-data.

Yes, that is a possibility. 2001-2007 the Swedish stock market halved. Now it's bounced back and more. I put all my pension savings in the stock market, but I also invest in other stuff, my house, my farm, my career and so on. If my stock market investment fails I will retire five years later and I won't buy a new car upon retirement. Quite serious, but not lose-my-house-serious. I recommend no-one to put their economical security on the line in the stock market.

[Threviel]

Also, during my saving years, the last 20 years, Nikkei has doubled. Of course, it has almost tripled the last ten years, but anyway.

[Josquius]

Here's a concrete example.  I recently sold one Tesla call option with a January 8 expiry at a "strike price" of $750 for $3.54 per share.  VERY IMPORTANT to keep in mind that each option contract covers 100 shares.  So the buyer paid me $354, and he paid his broker a commission for executing the option.  My broker charges 65 cents per option.  I paid my broker 65 cents as well to execute my sell order.

That was the time Tesla's share rose c. $200 in two weeks.  Tesla *met* (not surpassed, just met) its announced target for delivering cars in 2020, and the share price rose $100.  Then the idiots stormed the Capitol, and the price rose another $100 per share.

That call option I had sold was now trading for something like $106 per share.  Which makes sense, because the right to buy a share at $750 is worth that when the stock is trading at $856.

106X100=10,600.  So the buyer of that call made a nice pile of loot in two weeks for an outlay of $354.

So options cost a lot less than actually buying the stock for a price would?
You buy an option of $10 for 50 cents and its effectively a gamble on the stock price rising by more than 50 cents so there value in using it to buy stocks/people will want to buy it so they can buy stocks?

Please keep in mind no one is suggesting you buy calls in hopes of striking it rich overnight.  The consensus here is that they are a sucker's bet.  But you asked about the motivation, and the motivation is fast big money.

No intention of gambling serious money here rest assured :p

[DGuller]

Also, during my saving years, the last 20 years, Nikkei has doubled. Of course, it has almost tripled the last ten years, but anyway.

The point is that "in the long run the stock market always goes up" hasn't been the case for people who invested in Nikkei in 1990.  Thirty years later they're still in the hole.  The reason they're in the hole is because shortly before 1990 too many people believed that in the long run the stock market would always go up, and invested accordingly.

The age we're living in now may not be representative.  I believe that there are three important factors that are all inflating the stock markets everywhere in a way that's a one-time boost:  the increasing popularity of investing in the stock market, the increasing wealth inequality making more funds available for investment/speculation because there is nothing else to do with it, and the central bank policy encouraging asset bubbles.  If you got in the market ahead of all these drivers, then you feel smart, but there is no guarantee we're not right now in the 1990 Nikkei territory, when no one who puts their money in the stock market now will ever be made whole again in their lifetime.

[alfred russel]

Also, during my saving years, the last 20 years, Nikkei has doubled. Of course, it has almost tripled the last ten years, but anyway.

The point is that "in the long run the stock market always goes up" hasn't been the case for people who invested in Nikkei in 1990.  Thirty years later they're still in the hole.  The reason they're in the hole is because shortly before 1990 too many people believed that in the long run the stock market would always go up, and invested accordingly.

The age we're living in now may not be representative.  I believe that there are three important factors that are all inflating the stock markets everywhere in a way that's a one-time boost:  the increasing popularity of investing in the stock market, the increasing wealth inequality making more funds available for investment/speculation because there is nothing else to do with it, and the central bank policy encouraging asset bubbles.  If you got in the market ahead of all these drivers, then you feel smart, but there is no guarantee we're not right now in the 1990 Nikkei territory, when no one who puts their money in the stock market now will ever be made whole again in their lifetime.

The people who invested in Japanese stocks in 1935 are also still in the hole.

[Josquius]

Also, during my saving years, the last 20 years, Nikkei has doubled. Of course, it has almost tripled the last ten years, but anyway.

The point is that "in the long run the stock market always goes up" hasn't been the case for people who invested in Nikkei in 1990.  Thirty years later they're still in the hole.  The reason they're in the hole is because shortly before 1990 too many people believed that in the long run the stock market would always go up, and invested accordingly.

The age we're living in now may not be representative.  I believe that there are three important factors that are all inflating the stock markets everywhere in a way that's a one-time boost:  the increasing popularity of investing in the stock market, the increasing wealth inequality making more funds available for investment/speculation because there is nothing else to do with it, and the central bank policy encouraging asset bubbles.  If you got in the market ahead of all these drivers, then you feel smart, but there is no guarantee we're not right now in the 1990 Nikkei territory, when no one who puts their money in the stock market now will ever be made whole again in their lifetime.

Not directly stock market related, but I am seeing a lot of signs in the UK at least that we're on a similar development path as Japan, only a few decades behind the curve. Would be fascinating and scary to see things map that closely...

[crazy canuck]

Also, during my saving years, the last 20 years, Nikkei has doubled. Of course, it has almost tripled the last ten years, but anyway.

The point is that "in the long run the stock market always goes up" hasn't been the case for people who invested in Nikkei in 1990.  Thirty years later they're still in the hole.  The reason they're in the hole is because shortly before 1990 too many people believed that in the long run the stock market would always go up, and invested accordingly.

The age we're living in now may not be representative.  I believe that there are three important factors that are all inflating the stock markets everywhere in a way that's a one-time boost:  the increasing popularity of investing in the stock market, the increasing wealth inequality making more funds available for investment/speculation because there is nothing else to do with it, and the central bank policy encouraging asset bubbles.  If you got in the market ahead of all these drivers, then you feel smart, but there is no guarantee we're not right now in the 1990 Nikkei territory, when no one who puts their money in the stock market now will ever be made whole again in their lifetime.

My mother in law was an early convert to the Asian market. She did very well with her meagre savings during the 80s going all Japan all the time.   I first met her in the late 80s, and suggested she see a professional advisor about retirement planning.  He got them diversified into a number of things.  Just in time....

[Habbaku]

Anyone looking for a fun encapsulation of the frenzy around GameStop stock (GME) and a really savvy explanation of the technicals around options (including plain-English descriptions of "The Greeks") need go no further than Matt Levine's column today, which is great reading:

https://www.bloomberg.com/opinion/articles/2021-01-25/the-game-never-stops

[Threviel]

Also, during my saving years, the last 20 years, Nikkei has doubled. Of course, it has almost tripled the last ten years, but anyway.

The point is that "in the long run the stock market always goes up" hasn't been the case for people who invested in Nikkei in 1990.  Thirty years later they're still in the hole.  The reason they're in the hole is because shortly before 1990 too many people believed that in the long run the stock market would always go up, and invested accordingly.

The age we're living in now may not be representative.  I believe that there are three important factors that are all inflating the stock markets everywhere in a way that's a one-time boost:  the increasing popularity of investing in the stock market, the increasing wealth inequality making more funds available for investment/speculation because there is nothing else to do with it, and the central bank policy encouraging asset bubbles.  If you got in the market ahead of all these drivers, then you feel smart, but there is no guarantee we're not right now in the 1990 Nikkei territory, when no one who puts their money in the stock market now will ever be made whole again in their lifetime.

I don't think I mentioned it, but I suggest a monthly saving. Or a weekly. The ones investing monthly between 1980 and 2000 are ahead.

But, what do you suggest as investment option for the uninformed and uninterested?

[Tonitrus]

I'm probably the most boring person ever...I typically save/invest over 50-60% of my monthly income.

[DGuller]

But, what do you suggest as investment option for the uninformed and uninterested?

The best I could think of for myself was just to max out my contributions to 401k, and put them in low-fee target retirement funds.  I realize that my objections to how some people think about stock markets are rarely actionable, but I still think there is value in not ever letting yourself think that some investment option can't lose (unless you choose to engage to insider trading, in which case ignore what I say, and listen to your lawyer or pardon broker instead).  We've already lived through the times when real estate couldn't go down in value within our lifetimes, and even though it's inflated again, that belief still burned some people to a crisp.

[Habbaku]

As a financial professional, I can say that DG's personal decision of choosing a low-fee, target-date retirement fund is absolutely the best for the uninterested, ignorant investor who just wants to make sure their retirement nest-egg is going to grow over the long-term and wants basically no interaction with it other than "money go in now, more money come out later".

[Admiral Yi]

So options cost a lot less than actually buying the stock for a price would?

Yes.  For the $354 cost of that call the buyer could have bought a little over half a share.

You buy an option of $10 for 50 cents and its effectively a gamble on the stock price rising by more than 50 cents so there value in using it to buy stocks/people will want to buy it so they can buy stocks?

I'm a little confused by this question.