It suggests another hypothesis to be considered: that younger investors are better at choosing stocks than those who are older and have had more (positive and negative) experiences. The older need to do more work to unbias themselves and look at look at facts with a fresh mind. It is not easy.
There's an old saying from my childhood: "You only touch your mother's hot iron once."
There's another more crude joke from my childhood: "What's the first thing Adam said to Eve? Stand back, 'cause I don't know how long it's going to get!"
There's almost nothing leading the stock market today that one would've *ever* bought under the "old-school" rules. The only people who've owned Amazon.com stock all the way up,are Jeff Beszos and his ex-wife ... everyone else repeatedly said it was "too expensive".
It's part of my thesis that it's more about TAM and narrative and "winner takes all" these days, and trying to jam things through a Graham & Dodd/CAPM lens will keep you buying value traps like Nokia all the way down as their market share dwindles from 40% to zero. When I started in the business, every industry generally had 10 viable competitors with 10% market share, and your job as an analyst was to identify the stocks of the four increasing share (buys), the four losing share (holds), and the two that were swindles (sells). No one imagined a world where *every* business was (for better or worse) run by profit-maximizing MBAs, and that anti-trust regulators would take a long siesta (Facebook wants to buy Instagram *and* WhatsApp *and* Oculus. Sounds okay us!
As an older Private Investor I can illustrate (1) What happened - stock market crashes; (2) How this has affected my investment choices. Note: my choices may not be ‘rational’, but that is part of what JK seeks to show.
October 1987 & February 2020 crashes were of so short a duration, forget them
This leaves 1975 Inflation crisis; January 2000: dot com crisis; 2009 GFC.
How have these affected my investment choices?
Fear of Inflation. I hold a very small allocation to short duration Fixed Income (nominal) Bonds, but mainly choose TIPS, as an ETF or via wealth preservation funds (PNL, CGT). TIPS do not track ‘real world’ USA CPI but are loosely connected.
At my age the starting point is to de-risk (which I do by holding Cash or ‘close to cash’ to cover the next 5 years). BUT most of my investments portfolio will be left to children & grandchildren, which means an investment period of 20 to 50 years. In consequence I hold mainstream Equities (just like a 20 to 50 yo) via OEIC Funds & (most) via Investment Trusts or ETFs. For these, memories of dot.com bust & GFC give me a sanguine approach - Do not sell out after a Correction (10% fall) or a Bear market (20% fall). They always come back; and if they do not we have much bigger problems.
TLDR: feelings trump facts in human behaviour.
Also, there is no homo economics. Like Prester John and the Loch Ness monster it's a myth
It suggests another hypothesis to be considered: that younger investors are better at choosing stocks than those who are older and have had more (positive and negative) experiences. The older need to do more work to unbias themselves and look at look at facts with a fresh mind. It is not easy.
There's an old saying from my childhood: "You only touch your mother's hot iron once."
There's another more crude joke from my childhood: "What's the first thing Adam said to Eve? Stand back, 'cause I don't know how long it's going to get!"
Youth is wasted in the young indeed. Undoing biases that accumulate over time https://1drv.ms/p/s!At9od58qwtRejZcgXHTkoNIjtfMIIg is difficult.
There's almost nothing leading the stock market today that one would've *ever* bought under the "old-school" rules. The only people who've owned Amazon.com stock all the way up,are Jeff Beszos and his ex-wife ... everyone else repeatedly said it was "too expensive".
It's part of my thesis that it's more about TAM and narrative and "winner takes all" these days, and trying to jam things through a Graham & Dodd/CAPM lens will keep you buying value traps like Nokia all the way down as their market share dwindles from 40% to zero. When I started in the business, every industry generally had 10 viable competitors with 10% market share, and your job as an analyst was to identify the stocks of the four increasing share (buys), the four losing share (holds), and the two that were swindles (sells). No one imagined a world where *every* business was (for better or worse) run by profit-maximizing MBAs, and that anti-trust regulators would take a long siesta (Facebook wants to buy Instagram *and* WhatsApp *and* Oculus. Sounds okay us!
As an older Private Investor I can illustrate (1) What happened - stock market crashes; (2) How this has affected my investment choices. Note: my choices may not be ‘rational’, but that is part of what JK seeks to show.
October 1987 & February 2020 crashes were of so short a duration, forget them
This leaves 1975 Inflation crisis; January 2000: dot com crisis; 2009 GFC.
How have these affected my investment choices?
Fear of Inflation. I hold a very small allocation to short duration Fixed Income (nominal) Bonds, but mainly choose TIPS, as an ETF or via wealth preservation funds (PNL, CGT). TIPS do not track ‘real world’ USA CPI but are loosely connected.
At my age the starting point is to de-risk (which I do by holding Cash or ‘close to cash’ to cover the next 5 years). BUT most of my investments portfolio will be left to children & grandchildren, which means an investment period of 20 to 50 years. In consequence I hold mainstream Equities (just like a 20 to 50 yo) via OEIC Funds & (most) via Investment Trusts or ETFs. For these, memories of dot.com bust & GFC give me a sanguine approach - Do not sell out after a Correction (10% fall) or a Bear market (20% fall). They always come back; and if they do not we have much bigger problems.