Quote: (12-25-2018 08:58 PM)The Father Wrote:
Quote: (12-22-2018 04:58 AM)Days of Broken Arrows Wrote:
One of the best-ever books on the stock market is Burton G. Malkiel's "A Random Walk Down Wall Street," which has been re-printed in eleven editions since it first came out in 1973.
THANK YOU FOR POSTING THIS!! If there is anything this thread needs, its a well-researched bible of investing history to use as a lens through which to view the current volatility.
Quote: (12-22-2018 04:58 AM)Days of Broken Arrows Wrote:
In one chapter, he makes the point that the market always heads into a tailspin when interest rates are raised.
I have read this book several times, and such demonstrative claims ("when x happens, y always follows") strike me as the exact antithesis of Malkiel's research. Just to be sure, i pulled out my copy (2015 version) and looked for any language on interest rates, federal reserve actions - anything close to what you said.
Here is Malkiel's actual language on the topic of Federal Reserve hikes:
"The [1929] crash itself, in [Bierman's] view, was precipitated by the Federal Reserve Board' policy of raising interest rates to punish speculators".
That's all I saw, but feel free to quote the book directly is you saw something I missed.
Quote: (12-22-2018 04:58 AM)Days of Broken Arrows Wrote:
The hard part will be finding where the bottom is and buying in then. We had a mini-pullback in Jan.-Feb. 2016, and I missed major buying opportunities. I'm gonna try to do better this time.
It's like you read this wonderful book, and didn't internalize any of it! The THEME of the book is: Capital markets are random. Don't jump in and out. Have a diversified portfolio of stocks and bonds and add to it consistently over time.
And that's the last thing I hope to say on this thread: All the nay-saying, know-nothing posts, conspiracy theory posts, etc - it's maddening.
Malkiel's book is indeed one of the best (some say the best) investment book ever written. Or read "The Intelligent Investor" by Benjamin Graham (Warren Buffet's mentor). Or pretty much anything written by Buffet. They all say what most of you (the smart ones) know intuitively: Timing the market is a sucker's bet, for gambling addicts. Invest over the long term, and DIVERSIFY: Stock index funds, bond index funds, etc. Don't over-invest in any one stock, or sector, and don't jump in and out of the market.
"The case for tightening credit before a major rise in the general inflation rate rather than afterward is that the longer the delay, the greater the eventual pain is likely to be in terms of lost economic output and rising unemployment. And so the central bank restricted credit and engineered a rise in interest rates. The hope was that further rises in property prices would be choked off and the stock market might be eased downward.
Interest rates, which had already been going up during 1989, rose sharply in 1990. The stock market was not eased down: Instead, it collapsed. "
"Again in 1987, interest rates rose substantially, preceding the great stock market crash of October 19. "
"On the other hand, when interest rates are very low, fixed-interest securities provide very little competition for the stock market and stock prices tend to be relatively high. During the 1990s, when bank rates on certificates of
deposit fell to 4 percent or less and long-term rates on U.S. Treasury securities fell to less than 6 percent, money poured out of the banks and the bond markets and into the stock market. This pushed up stock prices and, thus, provided justification for the last rule of the firm-foundation theory:
Rule 4: A rational investor should be willing to pay a higher price for a share, other things being equal, the lower are interest rates."
"Higher risk and higher interest rates tend to pull them down. There is a logic to the stock market, just as the firm foundationists assert."
"Changes in interest rates also systematically affect the returns from individual stocks and are important nondiversifiable risk elements. To the extent that stocks tend to suffer as interest rates go up, equities are a risky investment, and those stocks that are particularly vulnerable to increases in the general level of interest rates are especially risky".
"will be sensitive to the tendency of certain stocks to be particularly affected by changes in interest rates."
"First, an increase in the rate of inflation tends to "increase interest rates and thus tends to lower the prices of some equities, as just discussed."
"The volatility of interest rates constitutes a prime economic influence on share
prices".
"Specifically, when interest rates go up, share prices should fall, other things being the same, so as to provide larger expected stock returns in the future. Only if this happens will stocks be competitive with higher-yielding bonds. Similarly, when interest rates fall, stocks should tend to rise, because they can promise a lower total return and still becompetitive with lower-yielding bond"
"Obviously, in any given period there are many influences on stock prices apart from interest rates, so one should not expect to find a perfect correspondence between movements of interest rates and stock prices. Nevertheless, the tendency of interest rates to influence stock prices could account for the sorts of return reversals that have been found historically, and such a relationship is perfectly consistent with
the existence of highly efficient markets."
"An economic shock that raises general market interest rates will be associated with a decline in stock prices, which will lower realized returns. "
There´s more.
http://site.iugaza.edu.ps/wdaya/files/20...Street.pdf
I never read this book. Just googled it and made search for interest rates. Was keen to know who could argue interest rates don´t affect stock prices. It´s somehow true true interest rates don´t affect stock prices directly. Interest rates affect the law of demand. And the law of demand will consequently affect stock prices.
You know why beach hotels are cheaper in winter? Or why umbrellas can´t be sold in summer? Law of demand. Interest rates makes the demand more expensive. And reduces the demand. Making general prices lower. You don´t need to have a PHD to know this simple fact of life.
If I want to sell a house and have 15 buyers maybe I will raise the price of the house. They will probably pay more. If there´s no buyer will have to lower the price. Buyers if interest rate goes up can´t buy the house. Because the effort to pay the monthly installment will be bigger. So your price cannot reach you buyer because the rate increase ate the space where your price and the buyer could connect. Everytime there´s a rate increase you are eating a chunk of an asset price. And because credit is transversal to all economy you take from the entire economy.
A recession is an economy without credit.
All prices are subject to interest rates. Also QE, fractional and all others. But interest rates can make the tide go up and down. (buffett)
Conspirational I would say it´s a way of calling back home the dollars from the world. Harvesting and fuck.. up China.
Back to topic. Trump saying BUY THE DIP!