Daily General Discussion and spitballin thread - December 01, 2021 Investing |
- Daily General Discussion and spitballin thread - December 01, 2021
- Daily Advice Thread - All basic help or advice questions must be posted here. December 01, 2021
- Are we in a bubble? - Comparing the current stock market rally to the dot-com bubble!
- China Plans to Ban Loophole Used by Tech Firms for Foreign IPOs
- How will this wash sale affect me?
- Comparing macro trends from 08 to 21
- Intel as a long-term investment
- Request: Weight Distribution of S&P High Beta Index
- VG, Marcus, Coinbase, Acorns + Company Fidelity sponsored accounts - am I spread too thin?
- Investing in Non-Profit Organizations
- Feeling frustrated - fidelity s&p 500 index funds
| Daily General Discussion and spitballin thread - December 01, 2021 Posted: 01 Dec 2021 02:02 AM PST Have a general question? Want to offer some commentary on markets? Maybe you would just like to throw out a neat fact that doesn't warrant a self post? Feel free to post here! This thread is for:
Keep in mind that this subreddit, and this thread, is not an appropriate venue for questions that should be directed towards your broker's customer support or google. If you would like to ask a question about your personal situation or if you are asking for advice please keep these posts in the daily advice thread as that thread is more well suited for those questions. Any posts that should be comments in this thread will likely be removed. [link] [comments] |
| Daily Advice Thread - All basic help or advice questions must be posted here. December 01, 2021 Posted: 01 Dec 2021 02:01 AM PST If your question is "I have $10,000, what do I do?" or other "advice for my personal situation" questions, you should include relevant information, such as the following:
Please consider consulting our FAQ first - https://www.reddit.com/r/investing/wiki/faq And our side bar also has useful resources. Be aware that these answers are just opinions of Redditors and should be used as a starting point for your research. You should strongly consider seeing a registered financial rep before making any financial decisions! [link] [comments] |
| Are we in a bubble? - Comparing the current stock market rally to the dot-com bubble! Posted: 01 Dec 2021 04:49 AM PST Lately, there has been growing chatter around whether the current rally that we are experiencing over the past one and half years is mainly driven by speculation and if we are in one of the largest investment bubbles ever.
Even professional investors whom I consider level-headed and not indulging in sensationalization are calling the current rally unsustainable.
Adding to all of this, we can see that the Shiller PE Ratio is now climbing close to the 2000 dot-com bubble level. While it's easy to say that it's all a bubble and we should be liquidating all our investments based on the current trend, I feel that we might be missing the other side of the story. The 2020s are wildly different times compared to the 2000s and we should not be looking at both scenarios through the same lens. There is an immense difference in the available capital, interest rates, and ability of the retail crowd to invest in stocks now compared to 20 years back [1]. So what I wanted to analyze is: Should we really be worried about the current trends or is this the 'new normal' given the drastically different situation we find ourselves in? Finally, this would give us an insight into how to manage our current portfolio and future investments! [2] The Warning Signs Let's first look at the dive into the various concerning trends that we are observing in the current market. (Spoiler alert — there are a lot of them!) PE /Shiller PE (CAPE) The price to earnings ratio has been historically used to understand if the market/company is overvalued when compared to historical trends. Shiller PE is adjusted for the cyclical nature of earnings when compared to normal PE. The current concern is that as of Nov'21, the Shiller PE for the S&P 500 crossed 40, which is the highest reading in the last two decades. The last time the Shiller PE crossed 40 was during the 2000 dot com bubble (The value reached only a max of 27 before the 2007 financial crisis). The red flag here is that those who invested when the CAPE was above 40 last time (1999-'00) had to wait another 7 years to break even for a brief period of time (just before the 2007 housing market crash) and then wait another 5 more years before the market consistently settled above their buy-in price. Money Supply Growth (Aka 'Money printer go brrr') 1/5th of all U.S Currency in circulation was printed in 2020. While it might be argued that there are structural reasons why this was required, there is no denying that only a small portion went into the actual paychecks that people received and a vast majority was used for keeping companies afloat. One can argue that even the stimulus has been increasingly trapped within the financial markets and fueled speculation. Increasing use of leverage There are two ways of using leverage while investing. The first method is borrowing money to invest in the markets and the other is using options. Both of these have seen a dramatic rise in the past 2 years. This survey conducted by Magnifymoney for almost 1,000 investors shows staggering results. 80% of Gen Z and 60% of Millennial investors have borrowed money to invest in the market. More than 50% of the surveyed population borrowed more than $5k or more for investing. While leverage works great in a bull market, it can destroy your portfolio during downturns. [3] Research by Goldman Sachs shows an even more concerning trend. Retail brokers alone are now trading more options than the entire market used to do in 2019. While this can be attributed to the democratization of complicated investment instruments by platforms such as Robinhood, Fidelity, E-Trade, etc., it's highly unlikely that all the retail traders who are using options completely understand the instrument and the inherent risks while using it. Rise of new issues and speculative assets More than $600 Billion have been raised by IPO's this year. This is the highest number of deals in the last decade or so and has even left the 2007 record in the dust. The cherry on top was the Rivian IPO where the company is now valued at more than $100 Billion with zero revenue and less than $50 Million in pre-order deposits. SPACs [4] also witnessed incredible growth with the number of SPACs jumping from a mere 59 in 2019 to 248 in 2020 and then a massive 559 in 2021 (As of Nov '21). The staggering rise in IPOs and SPACs showcases the availability of cheap capital and investors' desire to hold assets. This is very similar to the dot-com bubble where there was a large spike in IPO's just before the crash. This is without even getting into the speculative world of Crypto where NFTs are being sold for more than half a billion dollars, a coin that started as a literal joke has a market cap of $27 Billion and there are now more ICOs than anyone can keep track of! Investor expectations More than the P/E ratio, investor expectations seem to be the highest in recent history. The price-to-sales ratio shows how much the market values every dollar of the company's sales. As we can see on the chart below, more than double the companies are trading above 10x their sales when compared to the 2000 dot com bubble. If you consider a four-year time period, stocks that had a very high P/S ratio have underperformed those having low P/S ratio since most companies don't grow as per expectations. Now that's a lot of bad news for anyone to digest! But, Are we certain it's a bubble? There are multiple factors that can be attributed to the current rally. Just because we are in an impressive rally, it does not mean the only eventual outcome is a bubble and subsequent crash. Let's look at the key factors that are driving up the stock prices over the last few years. Low-interest rates This is one of the key aspects that many miss while comparing the current rally to the 2000s dot-com bubble. Between 1997 and 2000, the fed rate varied from 5 - 6% compared to the historically low 0.25% that we have now. This means that the capital available now is much cheaper (to prop up the economy after Covid) than it ever was. This is bound to have a positive impact on the stock market with investors moving their money from bonds and other lower returning funds to the stock market in search of better returns. New Investors It's no secret that we all hate Robinhood. But the data they put out during their IPO filing shows that there has been a staggering growth in new investors/traders coming to the market. All of these new investors would bring fresh capital into the market triggering another bull run which we are experiencing now. 401(k) and Index funds As I have highlighted in one of my previous articles, the amount of inflow US index funds receive is massive (more than $50 Billion fund inflow is expected to occur to just the Vanguard 500 index fund this year) and index funds are expected to make up more than 50% of the fund market. According to this report from Fidelity, the average 401(k) account now has a balance of $129K and 12% of workers increased their contribution. The key point being: all this new capital that is being allocated into the index funds is expected to cause a rise in the overall valuation of the stock market [5]. What's the implication? As long as the above factors remain as is (Fed maintaining its rate and a steady supply of fresh capital) we might see the party go on much longer than expected. Conclusion The market of 2021 is significantly different when compared to the 2000s. As we can see there are more investors, cheaper capital, and even more passive funds that are flowing into the market than ever before. So I feel that looking at the current market and comparing it directly to the dot-com bubble is a tad wrong. But, that's not to say that all is well. Almost all the fundamental indicators are flashing red and even the experts are predicting a significant drawdown in the near future. The expected annual return by investors above inflation is a whopping 17.5%(which is 161% more than what is realistic) — This is a testament to the euphoria we are seeing in the market now where a yearly double-digit return is the norm. Even if we are in a dot-com bubble-like scenario, this thread from Corry Wang perfectly summarizes the issues with making money calling a bubble in the middle of the bubble. Basically, even though everyone knew it was a bubble back in 2000 (Investment firms did entire conferences comparing the internet companies to Tulip mania as early as '98), making money using that information was hard! There were a few investors such as Mark Cuban and John Templeton who successfully shorted the stocks at the peak of the bubble and made a killing when the market crashed, but there were many others who lost their entire investment shorting an overvalued market which went on for longer than anyone could have expected. It makes perfect sense to be apprehensive about investing in the current market. But, pundits have been calling a crash from as far back as 2017. Right now based on fundamentals, the chances do look far higher. It does make sense to not make significant one-time investments in the market now. But, changing your portfolio significantly based on recent trends might not be the best long-term strategy! As Peter Lynch quoted,
Until next week… Footnotes and Existing Research [1] The amount of commission charged per trade before the rise of the zero-commission trading model was staggering. In the 1980s average commission per trade was $45. [2] As always, I am not a Financial Advisor. This is not investment advice. Please do your own research before investing. [3] Leverage only makes sense as long as the equity you are investing into would give better returns than the cost of capital at which you borrowed. Otherwise, your losses are magnified as you have to pay the interest for the borrowed money as well as take your losses on the underlying asset. [4] For those who don't know, a special purpose acquisition company (SPAC) is a company that has no commercial operations and is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring or merging with an existing company. It's generally considered riskier to invest in a SPAC as it has lower reporting/regulatory requirements when compared to traditional IPOs [5] And no, this is not going to cause an index fund bubble. [link] [comments] |
| China Plans to Ban Loophole Used by Tech Firms for Foreign IPOs Posted: 01 Dec 2021 12:59 AM PST So it looks like China is closing the loophole on going public outside using VIEs. Going public in Hong Kong would still be allowed. Any current companies using VIE will need to adjust their ownership structure and and be more transparent. Could a delisting of "sensitive" firms be possible? [link] [comments] |
| How will this wash sale affect me? Posted: 01 Dec 2021 01:03 PM PST Early in the year, I made $15k realized gains in my portfolio. In June, I invested heavily in Stock A. As of today, I have $10k in unrealized losses on Stock A. I'd like to sell Stock A to realize those losses and offset my gains for the year (to pay taxes on net 5k profit). But I also want to continue to hold this position in Stock A. My original plan was to hold this investment until mid next year. So I want to immediately repurchase this stock after realizing the losses. What is the impact of this wash sale? Can I still offset the gains with these losses? What risk am I taking by doing this? [link] [comments] |
| Comparing macro trends from 08 to 21 Posted: 01 Dec 2021 11:23 AM PST https://www.theancienteconomist.com/post/a-tale-of-two-americas-inflation-in-2008-compared-to-2021 As we all know, Federal Reserve chairman Jerome Powell said on Tuesday that inflation may keep rising as we head into 2022. Growing fears over this rise in the annual inflation rate are justifiable, as this number was at 4.4% in September 2021 and now is at 6.2% after October 2021. As a result, many investors and businessmen are nervous that we might be approaching a recession in the near future. We will attempt to look at various indicators and data from 2008, right before the Great Recession, to compare and contrast to the present day. First, how can we even define a recessionary period? Recessions generally arise from weakness in demand; however, issues with supply can also trigger economic dismay. Recessions come from a period of time where economic activity has become severely reduced, which can be statistically identified by falls in GDP in two consecutive quarters. Real GDP has increased by 6.7% in Q2 and 2.1% in Q3, indicating no worries of a recession at this moment (Bureau of Economic Analysis). However, there are some signs that we may be approaching this economic collapse very soon. We should look to aggregate supply and demand to attempt to diagnose the future of the American economy. As we have seen in 2021, the economy has had no problem reacting to increases in aggregate demand: Congress just passed their $1.2 billion Bipartisan Infrastructure Deal, and consumers have more than enough money as a result of increased salaries, stimulus checks, and unemployment insurance. However, supply chain problems have sprung up as a result of almost too much demand, and companies have had a hard time keeping up. Nearly 40% of small businesses have supply chain delays as a result of the pandemic, and there has been a 14% increase in supply chain disruptions between 2019 and 2020 (Zippia). Clearly, there are issues with the aggregate supply that could worsen in the near future, with rising inflation allowing for a negative output gap between the availability of supply-side producers to deliver for demand-side consumers. [link] [comments] |
| Intel as a long-term investment Posted: 01 Dec 2021 07:06 AM PST I'm pretty new to stock trading, so don't hesitate to point out anything I omitted that you think would be worth mentioning regarding Intel. So Intel seems to be one of those tech underdogs who no one thinks will perform well in the future because they haven't been innovative at all in the past few years compared to companies like AMD and such. To me, this looks like a long-term buy opportunity:
My plan would be to hold the stock for a few years and cash in those nice dividends while waiting for the stock to become a growth one. I think Intel has already reached its floor price, and it would be very unlikely that the stock price goes any lower considering that it has strong fundamentals. What do you think? [link] [comments] |
| Request: Weight Distribution of S&P High Beta Index Posted: 01 Dec 2021 08:57 AM PST Does anyone here work for a brokerage or have access to the weight distribution of the S&P High Beta index? Standard & Poor has the top ten and the sector exposure available publicly, but I emailed asking for the most recent weight distribution and got a boilerplate reply that they only make the info available to professionals with a subscription. [link] [comments] |
| VG, Marcus, Coinbase, Acorns + Company Fidelity sponsored accounts - am I spread too thin? Posted: 01 Dec 2021 07:18 AM PST Somewhat explained by title, but for a little more detail and my investment horizon: 1) Current allocation: 9k in Vanguard, 3k in work-sponsored/matched account with Fidelity (they match 3%), then a couple hundred in Marcus HSY, Coinbase (BTC and ethereum) and roundups/20 weekly to Acorns. 2) Willing to be really aggressive, as I will only have about three more earning years before entering med school (hopefully !) 3) Looking to buy a house/condo where I land for med school, so really just being aggressive about maybe having $ down for that is my main goal. My range here is about 300-450 k total without interest consideration. Maybe pay down my MS1 year loan interest as a plus. I understand the value of diversification, but feels like my non-Vanguard accounts are just earning interest on small amounts, when my vanguard account has accrued 40% since I opened it three years ago. Better to just pare down to my company sponsored/matching 401(k) with Fidelity and my personal vanguard (mostly ETFS)? TL;DR: willing to be very very aggressive with my portfolio and fear I am spreading too thin with current allocation - advice? [link] [comments] |
| Investing in Non-Profit Organizations Posted: 30 Nov 2021 08:23 PM PST Hey there! I have recently joined an internship where I was matched to a client running a non-profit organization. They host equine therapy sessions. These sessions involve a horse interacting with a person, both of whom were abused/neglected in the past, and both parties gain from it. The person, who presumably may have suffered some form of mental trauma before, learns more about themselves and develops a bond with the horse. The horse experiences the care and warmth of a parent-like figure that they may lack in their lives. Each session costs 300 AUD, and this price is already below the cost per session. Feeding the horses, paying the rent for the horses' occupancy, and paying the employees to take care of the horses costs a lot. My job is to look for sources of funding for this organization so they can cover their costs with the subsidy they get from the investors. They have no debt, but this organization does not generate profit. An investor cannot expect anything of monetary value in return for their investment into the organization. What they can expect is increased access to equine therapy sessions and growing awareness about a niche form of therapy that is genuinely helpful. What sort of investors would suit this project best? Is government funding better or should I approach private investors as well? I'm not sure about this because I assume private investors are looking for growth in the company and money in return for their initial investment. The benefits of investing in this organization may seem more valuable to someone with a strong sense of morality and responsibility to serve the community and better people's lives. Who should I approach? On another note, how do I even find investors to begin with? Are there any websites you would recommend? Is it possible that the typical websites that fund startups also have people interested in non-profit organizations? Please let me know. [link] [comments] |
| Feeling frustrated - fidelity s&p 500 index funds Posted: 30 Nov 2021 06:35 PM PST I invested about 11k into the S&p 500 (index funds). It's shit now. And has only gone down since I started in October 2021. I feel like my money will never grow. I have a lot of goals but don't know why it's gone this way. I feel like I've wasted my time and money and effort. I'm by no means rich but looking to grow. I know the market is on a down turn, but how exactly does this work? Is there a better, more stable way to do this? What does everyone else do? Any advice? Thank you so much yall [link] [comments] |
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