[extropy-chat] 'a process of non-thinking called faith' 2 (2)

[BillK]

On 11/26/06, Eugen Leitl wrote:
> Classical mix is 1/3rd Ag/Au/Pt/Pd bullion (1 kg bars, not dead tree),
> 1/3rd real estate (make sure you're not in a bubble -- not an option
> for most in the U.S.), 1/3rd stock (energy and natural resources in
> general). This assumes you're liquid, going into debt to purchase
> above is probably not a good idea.
>
> (Caveat: I'm just regurgitated advice from others I consider sensible.
> YMMV, if you disagree, I would like to know why).
>

No problem in the long term with a mix of investments like that, in
normal boom / slump business cycle conditions. Just continually adjust
the proportions as required for market conditions. You have to try to
achieve the buy low / sell high target so far as practically possible,
while doing risk management so that you are not too much committed to
one market. i.e. Don't put all your eggs in one basket. Though the
really *big* winners and losers are those who commit everything to one
option and either win big or lose big.

If you *know for sure* that runaway inflation is coming then you
should indeed borrow to the maximum to buy real assets. This happened
accidentally to all the property owners in the UK in the period 1971
to 1982 when inflation was high, maxing out at 24.3% in 1975.  People
who were borrowed to the maximum anyway to buy their home found that
after this period they were able to repay their 'maximum' mortgage
with spare change. They were almost rich!  Galloping inflation had
wiped out their money debt, while property values and wages had
increased along with inflation.

But borrowing to the maximum to invest is normally a very risky
strategy. If runaway inflation doesn't appear, then you are left with
large debts and large interest payments and may be forced to sell
assets at a loss to reduce your debt and you end up ruined
financially.

>
> Have you seen any prior Black Friday/Monday/$weekday announcements in
> the press?
>

There are always articles saying "We're all doooooooommmmmed!"
Economic forecasts are full of contradictory opinions. Whatever your
expectation, you can always find some economists to back your opinion.
You have to try to be realistic. If something sounds too good to be
true, then it usually isn't true.

> If you're doing what the press says, and what the bulk of investors
> does, you'll lose long-term. Whomever you listen to, consider Taleb's
> advice.
>

True. Buffet avoided the dotcom boom, and endured much ridicule as
tech shares soared upwards. But long term, after the crash, he ended
up ahead.

However, a few people did make millions in the dotcom boom by selling
before the crash. And thousands of people lost everything by buying in
and refusing to sell. Timing is everything. But active management
takes a lot of time and effort. You have to make investment your main
interest / hobby if you take the risky route. That life is not for
everyone.

I agree with Rafal's recommendation of Index funds for the stock
market part of your investments. This enables cautious investors to
track the long term index gains for very low management costs.


BillK