AI correction

[Adamski]

Hi Guys, do you think Nvidia, Nasdaq will correct soon? Noticed gold up 10%, last few months, investors getting ready?

Or are we in a "new paradigm"? Seems only yesterday had the pandemic stocks bubble and correction. We've been here so many times before!!

Cheers Adam

[Degsy67]

Answers to your questions: Yes, No, Maybe

Not necessarily in that order.

The questions you really have to ask yourself:

Q. Why am I posting these questions here?
Q. Do I think a bunch of random anonymous people on the internet have better insight and research compared to any other set of random amateur or professional investors?
Q. Am I simply seeking confirmation to feed my existing biases?
Q. How am I going to evaluate the responses and predictions provided here to determine how accurate they are likely to be?
Q. Given all of the above, how am I going to adjust my investment strategy in light of the information provided?
Q. Why do I think this is likely to give me an edge in relation to my investment decisions?
Q. Why aren’t I simply investing in a globally diversified passive fund and allowing time and global capitalism determine the answers for me?

Hope that helps.

Degsy

[GoSeigen]

Q. Why aren’t I simply investing in a globally diversified passive fund and allowing time and global capitalism determine the answers for me?

Ah, finally the agenda reveals itself. This poster looks suspiciously like the one who used to inhabit the HYP board and chase anyone sceptical away from that place. Now rather than pushing the HYP market timing / stock picking strategy, he favours buying all the stocks low or high yield at whatever price they happen to be no matter how good or bad that price. Oh, and not correcting the mistake until years later. He evidently believes the market "owes" the investor an automatic fair share of the economy's profits without doing an ounce of work!


Well, some of us believe that to be profoundly wrong. For my part I believe every person is blessed with a range of innate and acquired skills they can apply to the matter of investing. They are also capable of learning about investing itself. The most important aspect of investing is the price at which you buy or sell an asset. The party who cares more about the price will almost always get the better deal in a trade. If you buy a tracker you have practically NO control of the price you pay for the assets therein. If you're going to do this, at least have some other sort of pricing strategy in mind, e.g. as a momentum play or some kind of hedge [I myself have recently traded FTSE index options and futures specifically as a value/momentum/volatility play on that specific market].


My comment on the general thrust of the "questions" in the answering post is "This is a discussion board, why shouldn't the OP put something out there for discussion? I doubt he'll be staking his life on the answers he gets."


As for the OPs questions:
-Will the Nasdaq correct soon? I doubt it. Tops are a process, bottoms are an event. Wait till everyone is getting sucked in.
-Noticed gold up 10%, last few months, investors getting ready [for a crash]? "Investors" seldom do anything specific like this. How could they? The very nature of a trade is that one (group of) investor(s) does one thing, while another does exactly the opposite. A better question is "Which sets of investors are getting ready?" e.g. is it the smart money or the dumb money?
-Or are we in a "new paradigm"? Again, who is "we" -- you and who else? I doubt you speak for me so you may as well exclude me from your "we". So who do you suppose is in a new paradigm? Speaking for myself markets are always the same, i.e. they are in a constant state of flux, the changes are often subtle and often not what people expect. If there is a paradigm shift it is not a sort of magical thing that donates a crash to permabears after a certain number of years of predicting them. A paradigm shift will be specific and have causes and limits and you'd do well to think what exactly you mean by such a thing. Is it literally a magic money machine for bears like you and not much more?


Personally I think we are in the early stages of a bull market. We are just a handful of years beyond an almost 60% market crash, did you not buy stocks at that time??? And if you did, you should really be enjoying this bull market and gradually selling down what you bought, not sitting in cash or other assets hoping yet another crash will come your way. If you don't like the Nasdaq hold something else, there is a wide choice of stocks so investors don't have to be obsessed with tech and whether or when it will correct.


GS

[Degsy67]

No agenda. I’m all for debate. Best of luck with those innate set of skills.

Degsy

[Lootman]

Hi Guys, do you think Nvidia, Nasdaq will correct soon?

A correction is defined as a 10% drop. Nvidia is already 7.2% down from its recent all-time high. And in fact was down over 10% from its previous high on March 11th.

Sounds like you should be getting ready to buy.

[LooseCannon101]

Answers to your questions: Yes, No, Maybe

Not necessarily in that order.

The questions you really have to ask yourself:

Q. Why am I posting these questions here?
Q. Do I think a bunch of random anonymous people on the internet have better insight and research compared to any other set of random amateur or professional investors?
Q. Am I simply seeking confirmation to feed my existing biases?
Q. How am I going to evaluate the responses and predictions provided here to determine how accurate they are likely to be?
Q. Given all of the above, how am I going to adjust my investment strategy in light of the information provided?
Q. Why do I think this is likely to give me an edge in relation to my investment decisions?
Q. Why aren’t I simply investing in a globally diversified passive fund and allowing time and global capitalism determine the answers for me?

Hope that helps.

Degsy

I totally agree with Degsy67 and particularly the last sentence - Why aren't I simply investing in a globally diversified passive fund and allowing time and global capitalism determine the answers for me?

There always is a correction in any market, with prices rising above fair value and then going down (usually quicker) when there appears to be a better proposition elsewhere.

I wonder how many momentum traders on these boards actually make money in the long term?

[Bubblesofearth]

Personally I think we are in the early stages of a bull market.


GS

Early stages? US and Japanese markets are up 2.5X over the past 10 years. CAPE ratio on the S&P500 is sitting around 34, some 1.7 standard deviations above its long-term average.

BoE

[GoSeigen]

No agenda. I’m all for debate. Best of luck with those innate set of skills.

Degsy

You might at least state your assumptions clearly. You're assuming markets price stocks correctly. They do not. Far from it. If markets mostly priced stocks correctly your faith in the power of trackers might be justified. But there are at least three basic flaws in the method as far as I can see:

1. People who buy index trackers don't care a jot what price the individual stocks trade at. That means they will pay whatever price is bid by a savvy seller or take whatever price is offered by a savvy buyer [ignoring the fundamental value of the businesses]. For all one hundred (or however many) components. If you want to know why banks have been trading so cheaply for so long this may be one reason. [It's worth noting that these tracker funds have both outflows and inflows.]
2. If they don't care for the price of the individual stocks the corollary is that they don't care about the price of the entire index either! And as usual many of them will be buying at a poor price and selling at a poor price (both for reason 1. and because many are poor timers of the market for whatever reason).
3. A large enough stock of people who don't care about prices implies that much of the time stocks are mispriced. This means not only that the careless investors are losing money on their trades, it also means that with the entire market mispriced, capital is being inefficiently allocated and returns of the entire market will suffer as capital is allocated to poor businesses at the expense of good ones. This further reduces returns to careless investors so they are shooting themselves twice, once in each foot!

Because of the above I believe tracker buyers, especially if they do it without any real care for value, are ripe for exploitation by savvy active investors. Given the undeniable fashion for theses things I think any investor who aspires to actually do what investing is about should largely avoid them and rather focus on individual stocks.


Just a quick aside on why "average returns" might not be particularly attractive:
1. What average are you talking about?
2. If the distribution of returns is skewed (not normally distributed/uneven tails) then are you still happy with an average outcome?
3. If the average/mean itself is worse than it might otherwise have been because of capital misallocation then are you happy with that?
4. How does it help to get the average return over a period if you buy at too high a price and the start and sell at too low a price at the end of the period?


GS
P.S. The above is grounded in my admittedly rusty and average A-level/engineering-degree-level understanding of statistical maths. Happy for more knowledgeable fools to educate me if I've gone wrong. Or if a mathematician could express the above ideas in clear and simple mathematical expressions that would be wonderful too.

[GoSeigen]

Personally I think we are in the early stages of a bull market.


GS

Early stages? US and Japanese markets are up 2.5X over the past 10 years. CAPE ratio on the S&P500 is sitting around 34, some 1.7 standard deviations above its long-term average.

BoE

EDIT: Added 2. below.
1. What's the point of this quibble?
2. What are the practical limits of the S&P's deviation from "its long-term average"? Can the average itself not increase? Can the index not remain above its average for long periods? Can profitability not improve? Is inflation impossible?

GS

[GrahamPlatt]

https://www.ii.co.uk/analysis-commentar ... 0505%0A%0A

From PrefInvestor, here

viewtopic.php?p=656779#p656702

[Bubblesofearth]

Early stages? US and Japanese markets are up 2.5X over the past 10 years. CAPE ratio on the S&P500 is sitting around 34, some 1.7 standard deviations above its long-term average.

BoE

EDIT: Added 2. below.
1. What's the point of this quibble?
2. What are the practical limits of the S&P's deviation from "its long-term average"? Can the average itself not increase? Can the index not remain above its average for long periods? Can profitability not improve? Is inflation impossible?

GS

1. The point is that we have been in a bull market since the GFC with a short interruption for Covid. I'm not sure what timeline would support your belief that we are at the start of a bull market because I don't agree with it.

2. Yes, all these things are possible. But investing is about playing the odds and IMO the odds of a bull market from this point are not favourable, partly for the reason given regarding current valuations.

BoE

[Degsy67]

No agenda. I’m all for debate. Best of luck with those innate set of skills.

Degsy

You might at least state your assumptions clearly. You're assuming markets price stocks correctly. They do not. Far from it. If markets mostly priced stocks correctly your faith in the power of trackers might be justified…

Asking me to state my assumptions is fair however you’ve then presumed to assume what my assumptions are and you got your assumption wrong so I felt I had to respond.

I’ve tried in the past to find stock picking strategies which work for me. You correctly identified that in my early stages of my investment journey I went all in on HYP investing. Through this I learned a lot with a portfolio which over time reached about £100k but which delivered results which were below that of simple passive index funds despite hundreds of hours of effort on my part. I now manage a seven figure portfolio through a passive index investing approach. My returns last year exceeded the size of my previous HYP portfolio. That wasn’t because I did anything clever other than better understand myself over time.

My only assumption is that despite my research, knowledge, mathematical abilities, skills extracting data into spreadsheets and decades of experience analysing data and improving businesses, I don’t have an edge when it comes to investing. That’s why I use index investing.

If others think they can find an edge then best of luck to them.

Degsy

(Retired at 55, relaxing in the back garden, sharing some thoughts here for the benefit of others, heading out for a few weeks in Thailand next week)

[JohnW]

'he favours buying all the stocks low or high yield at whatever price they happen to be no matter how good or bad that price. .....He evidently believes the market "owes" the investor an automatic fair share of the economy's profits without doing an ounce of work!'

Not doing any work, that's right and much of the attraction when your interests turn elsewhere. But the market 'owes' him a fair share because he's taking market risk with his investing. It's not something for nothing by any means.

'People who buy index trackers don't care a jot what price the individual stocks trade at. That means they will pay whatever price '

Indeed so, but the prices are set by the knowledgable skilful stock pickers so they can't be very far off the mark. Likely, there are times of exuberance and times of misery when prices drift away from a sensible value which is why long term holding of stocks is likely to be more beneficial as those deviations from fair value get swamped by nominal and real value appreciation. Speculation (on how prices move) aside, we always come back to earth with a jolt when we keep reading that only a small proportion of astute stock picking fund managers have outperformed an index fund however badly priced the stocks were that the index investor held.

'A large enough stock of people who don't care about prices implies that much of the time stocks are mispriced.'

No. Index investors as you point out are price takers not price setters. The price setters are the stock pickers so we can thank them for mispricing since it is in their hands to correct prices by trading at the right price.

'Because of the above I believe tracker buyers, especially if they do it without any real care for value, are ripe for exploitation by savvy active investors.'

One might imagine, but with >90% of stock picking fund managers under-performing a comparable index over 10-15 years, their investors certainly aren't getting the benefit of any exploitation.

'Just a quick aside on why "average returns" might not be particularly attractive:
What average are you talking about?

The returns of all investors after costs, averaged. Index investors must get market returns less costs and tracking error. What's left after taking market returns is market returns for the stock pickers, which they get less costs. Some will get less than average, some more than average. That's our choice.

[EthicsGradient]

EDIT: Added 2. below.
1. What's the point of this quibble?
2. What are the practical limits of the S&P's deviation from "its long-term average"? Can the average itself not increase? Can the index not remain above its average for long periods? Can profitability not improve? Is inflation impossible?

GS

1. The point is that we have been in a bull market since the GFC with a short interruption for Covid. I'm not sure what timeline would support your belief that we are at the start of a bull market because I don't agree with it.

2. Yes, all these things are possible. But investing is about playing the odds and IMO the odds of a bull market from this point are not favourable, partly for the reason given regarding current valuations.

BoE

There was also a drop from 3261 at the start of January 2022 to 2315 in October 2022, in the MSCI World Index - a drop of 29%, making that a bear market by normal definitions.

https://www.cnbc.com/quotes/.WORLD

That makes the current bull market about 18 months old.

[Bubblesofearth]

1. The point is that we have been in a bull market since the GFC with a short interruption for Covid. I'm not sure what timeline would support your belief that we are at the start of a bull market because I don't agree with it.

2. Yes, all these things are possible. But investing is about playing the odds and IMO the odds of a bull market from this point are not favourable, partly for the reason given regarding current valuations.

BoE

There was also a drop from 3261 at the start of January 2022 to 2315 in October 2022, in the MSCI World Index - a drop of 29%, making that a bear market by normal definitions.

https://www.cnbc.com/quotes/.WORLD

That makes the current bull market about 18 months old.

Since 2009 the MSCI World index is up almost 10-fold

https://www.msci.com/documents/10199/17 ... fc565ededb

The couple of corrections along the way are merely blips in comparison. I'm an equity optimist by most standards but to claim we're at the start of a bull run is nonsense.

Presumably you and GS will be leveraging up to take advantage of this impending run?

BoE

[EthicsGradient]

Sorry, BoE, if you're going to use recognized phrases like "bull market" and "bear market", you don't get to make your own definitions for them and then pontificate.

[clissold345]

It's good to check definitions.

https://www.investopedia.com/terms/b/bearmarket.asp

https://www.investopedia.com/terms/b/bullmarket.asp

[Bubblesofearth]

Sorry, BoE, if you're going to use recognized phrases like "bull market" and "bear market", you don't get to make your own definitions for them and then pontificate.

What I said was that I do not believe we are at the start of a bull market. It seems you agree with me as you have pointed out that, according to your definitions, this bull market is already 18 months old. Technically 2022 may have been a bear market but that takes nothing away from the fact that Global equities have given a fantastic return since the GFC such that valuations are now very stretched compared to historic averages.

What matters is that we are all making investment decisions on the basis of our beliefs. Anyone who believes we are at the start of a bull run is presumably going to invest accordingly. Good luck to them!


BoE

[scotview]

Hi Guys, do you think Nvidia, Nasdaq will correct soon? Noticed gold up 10%, last few months, investors getting ready?

Or are we in a "new paradigm"? Seems only yesterday had the pandemic stocks bubble and correction. We've been here so many times before!!

Cheers Adam

I've seen articles in the last week or so saying that Nvidia has made a killing from selling it's highly priced chips but there is no sign that the implementation of such chips are showing up as increases to productivity, job reductions or increased profits. That will be the measure of the paradigm but no sign so far other than improvements to mobile phone photo editing. At the moment AI implementation just seems to be another, rather expensive, overhead.

[clissold345]

I've seen articles in the last week or so saying that Nvidia has made a killing from selling it's highly priced chips but there is no sign that the implementation of such chips are showing up as increases to productivity, job reductions or increased profits. That will be the measure of the paradigm but no sign so far other than improvements to mobile phone photo editing. At the moment AI implementation just seems to be another, rather expensive, overhead.

This article looks quite good. It gives soundbites but also gives some of the details behind the soundbites.

https://www.theverge.com/24075086/ai-in ... e-earnings