Despite the current economic turmoil and job losses stemming from trade conflicts and supply chain disruptions, stock markets have surprisingly rebounded to previous highs, seemingly unaffected by real-world conditions. This author argues this disconnect between stock market performance and the reality of the economy is a result of significant policy changes in recent decades, particularly the shift towards mandated, stock market-based pension savings. This continuous "wall of money" flowing into the market artificially inflates share prices, creating an unsustainable bubble that will inevitably collapse when withdrawals eventually outpace contributions, revealing a system built on a myth rather than genuine economic value.
While celebrated for their low costs and broad diversification, index funds, designed primarily to match index returns, face hidden costs related to their need to trade to track market changes. These costs stem from adverse selection (buying when firms are selling and vice versa), price impact (buying after prices rise due to index inclusion and selling after they fall due to exclusion), and mean reversion (buying high-valuation stocks that tend to drop and selling low-valuation ones that tend to rise). These trading behaviors, while necessary for rigid index tracking, deviate from maximizing investment returns, suggesting that a more flexible approach could improve performance despite the valuable nature of index funds as an investment vehicle.
01:11 🔄 Inverting problems for better solutions
04:25 🤝 Knowing your circle of competence
08:06 📉 Rational response to market swings
10:25 🔄 Keep investment strategies simple
12:28 📚 The power of continuous learning
00:00 🌐 Retirement Fund Withdrawal Strategy
01:35 💰 Understanding Fixed Income Sources
03:54 📊 Calculating the Retirement Fund Gap
05:33 💼 Knowing Retirement Account Types
08:49 📉 Example Scenario Analysis
14:08 🎯 Strategic Withdrawal Strategies
Focus on return on invested capital, not P/E.
Income/Invested capital = how hard your assets/capital are working for you; how efficiently the business is using their capital.
Instead of rebalancing, buy and forget, much like Buffet. Interesting.
Wasted time stock picking and timing.
In whatever asset class...
sell when price drops below 200 day moving average
buy when price rises above 200 day moving average
money sold goes into t-bills
Significantly less downside risk; approx. same or slightly greater return.
Did I get that right?