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TFSA - Why Bother Anymore
December 3, 2023
2:01 pm
Alexandre
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mordko said
Ok, but that’s fundamentally different.

Your PhD friend was looking for a greater fool. Someone had to lose for him to make money. Buying stocks isn’t done with the intent of anyone losing money.  

But if I rephrase what you said as "everyone who buys stocks makes money" you'll be upset I misquoted you.

Reality of investing would be closer to the following:

1. You invest in equities to make money;
2. When you participate in financial markets (a.k.a. invest) you might lose money;
3. You know for a fact that some people who invest in equities will lose money. That does not concern you.

How is it fundamentally different from my (former) friend with PhD:

1. He joins pyramid scheme to make money;
2. When he participates in pyramid scheme he might lose money;
3. He knows for a fact that some people who participate in pyramid scheme will lose money. That does not concern him.

December 3, 2023
2:40 pm
mordko
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When I buy and sell a house, there is always a chance I may lose money. Or someone else. Overall, there is an expectation that if one lives in a house long enough, he will make money. On top of that, I get the benefit of enjoying the property.

Same with stocks. Companies make profits, I get a share of the profits in the form of dividends, and there is an expectation of positive returns over time as the overall world economy and profits grow. And shareholding helps to keep companies and economies honest and productive.

A pyramid has no inherent value, no profit, no growth. Just a guaranteed loss for those late to the party. When one near the top engages the next rung, he is cheating people who have an even higher probability of losing money. And its illegal. Because its a type of fraud, a scum. Note that stocks and markets are not just legal; they are regulated and governments step in when things go wrong.

Alright, I wasted enough time. My hope is that young huns, if they read this discussion, will see the obvious fallacy of some of the claims for themselves.

December 3, 2023
4:43 pm
smayer97
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Both of these are an oversimplification of the markets. On the one hand, I do not agree that an open free market is a pyramid scheme. But the government, and other parties do manipulate the markets, in part with inflationary pressures through manipulating the money supply, by imposing regulations that favour some and disadvantage others, by supporting, favouring, and even rescuing certain industries or even individual companies over others, whatever the justification, while at the same time benefitting directly and indirectly by these actions, by companies paying off of politicians, and so so much more.

As such, to many it is a scam as a result because it is not so self-deterministic and self-governing as one would ideally hope. We cannot be so naive to not recognize the amount of corruption that does exist, even among the regulatory bodies. I do not disparage those who want to stay away for these kinds of reasons.

December 3, 2023
5:06 pm
AltaRed
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Governments and central bankers everywhere want some asset inflation to create 'wealth' and will do what is required to ensure returns (trends), with some bumps along the way, continue to the northeast. That is true in both capital, e.g. stock, and real, e.g. housing, markets. It is what stimulates capital investment and thus GDP growth. Anything less would be an implosion, circling the drain. There is nothing new about any of that.

It is why I assume my portfolio to keep giving me 6-8% CAGR returns on a 10 year rolling average basis for the rest of my life.

December 3, 2023
5:07 pm
mordko
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This is like claiming that money is a scam because governments cause inflation, because there is corruption, etc. Which some people do. Back to gold bars.

December 3, 2023
5:41 pm
savemoresaveoften
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mordko said
This is like claiming that money is a scam because governments cause inflation, because there is corruption, etc. Which some people do. Back to gold bars.  

To those who think the capital world is a pyramid scheme, govt should have zero involvement cuz its a form of corruption, gold bar wont cut it. They need guns and lots of bullets....
Its no point to further this discussion. Back to netflix. Oh its the pyramid scheme of the stock market providing capital that drives the technology behind it, AND govt corruption creating the internet so we can all BS here for a good laugh at the end.

December 3, 2023
10:55 pm
Norman1
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Alexandre said

Reality of investing would be closer to the following:

1. You invest in equities to make money;
2. When you participate in financial markets (a.k.a. invest) you might lose money;
3. You know for a fact that some people who invest in equities will lose money. That does not concern you.

How is it fundamentally different from my (former) friend with PhD:

That's empty rhetoric with no substance. That's quite obvious if one changes the subject:

1. You run a grocery store to make money;
2. When you deal in groceries you might lose money;
3. You know for a fact that some grocers will lose money. That does not concern you.

How is being in the grocery business fundamentally different from my (former) friend with PhD?

The answer is running a grocery store and equity investing are not zero-sum. It is possible for everyone to end up a winner.

Not the case with your former friend's pyramid scheme.

December 25, 2023
1:20 am
RetirEd
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I told a friend pushing a pyramid scheme that he was a bad (and dumb) friend for trying to rope me in.

On another topic, gee, gold sure looks to be on a tear lately! Wars do that, and we've been seeing lots of ads promoting it lately. Nobody knows what, or when, it will do in the future.

I'm not young enough to be sure of a ten-year future. I can sit out the equity party.

RetirEd

December 25, 2023
7:18 am
Alexandre
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Norman1 said
... equity investing is not zero-sum. It is possible for everyone to end up a winner.

Not that again! Sometimes I feel like non-believer coming to the cult gathering.

I am going to make three simple statements, draw a conclusion and you feel free to point which statement is wrong.

1. Currently shares of many companies are overvalued according to classical dividend discount model (for different reasons).

2. Younger generation does invest in stock markets less than older generation. These younger folks still park their money somewhere expecting good profits, but it is in bitcoin (crypto in general), arts, gold, real estate.

3. Older generation starts spending money in retirement which means cashing in, also follows advise from financial investors to reduce exposure to stocks with age. Such as "One rule of thumb states that you should subtract your age from 100 to get the right answer of your portfolio in stocks and the remainder should be in other investments (bonds, cash, real estate)."

This will lead to a situation when new money inflow in equities will be substantially less than outflow. What will it do to share prices and "equity portfolio" not hard to guess.

It is possible for everyone to end up a winner.

If you agree with all three statements I made, you should rethink yours.

December 25, 2023
7:34 am
savemoresaveoften
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Alexandre said

Norman1 said
... equity investing is not zero-sum. It is possible for everyone to end up a winner.

Not that again! Sometimes I feel like non-believer coming to the cult gathering.

I am going to make three simple statements, draw a conclusion and you feel free to point which statement is wrong.

1. Currently shares of many companies are overvalued according to classical dividend discount model (for different reasons).

2. Younger generation does invest in stock markets less than older generation. These younger folks still park their money somewhere expecting good profits, but it is in bitcoin (crypto in general), arts, gold, real estate.

3. Older generation starts spending money in retirement which means cashing in, also follows advise from financial investors to reduce exposure to stocks with age. Such as "One rule of thumb states that you should subtract your age from 100 to get the right answer of your portfolio in stocks and the remainder should be in other investments (bonds, cash, real estate)."

This will lead to a situation when new money inflow in equities will be substantially less than outflow. What will it do to share prices and "equity portfolio" not hard to guess.

It is possible for everyone to end up a winner.

If you agree with all three statements I made, you should rethink yours.  

All 3 statements are not wrong, but whether by itself or combined, does not mean much.
'possible' does not mean 'absolute'. I do agree stock market is a zero sum game most of the time, if u count selling too soon leaving money on the table as a loss.

December 25, 2023
9:09 am
mordko
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Alexandre said

Norman1 said
... equity investing is not zero-sum. It is possible for everyone to end up a winner.

Not that again! Sometimes I feel like non-believer coming to the cult gathering.

I am going to make three simple statements, draw a conclusion and you feel free to point which statement is wrong.

1. Currently shares of many companies are overvalued according to classical dividend discount model (for different reasons).

2. Younger generation does invest in stock markets less than older generation. These younger folks still park their money somewhere expecting good profits, but it is in bitcoin (crypto in general), arts, gold, real estate.

3. Older generation starts spending money in retirement which means cashing in, also follows advise from financial investors to reduce exposure to stocks with age. Such as "One rule of thumb states that you should subtract your age from 100 to get the right answer of your portfolio in stocks and the remainder should be in other investments (bonds, cash, real estate)."

This will lead to a situation when new money inflow in equities will be substantially less than outflow. What will it do to share prices and "equity portfolio" not hard to guess.

It is possible for everyone to end up a winner.

If you agree with all three statements I made, you should rethink yours.  

1. There are lots of models. The best one is called “Mr Market”. Its not perfect but prices stocks far more accurately than “Dividend discount model” (which does not work at all for most companies which have been driving world economy for the last few decades). Dividends are a completely random measure of anything; many companies prefer to distribute profits to investors by other means.

Most economists adhere to the “efficient market hypothesis” which suggests that the markets are not “overvalued” but are priced correctly based on the information we have right now.

2. 36% of Gen Z own stocks. These are people born 1997 to 2003. As they get older and wealthier this proportion will go up. And?

3. Too lazy to google, but have seen stats that older people continue holding a high proportion of net worth in stocks.

Ultimately stock market reflects global profits and there is no reason why world economy won’t continue generating more and more profits - as it has for many decades. Stock ownership is not a zero sum game for the simple reason that profits are not guaranteed to stay constant.

December 25, 2023
9:42 am
canadian.100
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Remember that stocks are held not only directly by individuals, but massive amounts of stock position holdings by Pension Funds, Retirement Funds, Endowment Funds, Estate Funds, Trust Funds, Government funds etc. That will continue even if you claim that individuals might invest less in stocks. Actually I read an article about certain Federal Members of Parliament who own significant shares in the oil and gas industry etc. - so reality is that the little guys like us with modest trading and holdings don't matter much in the scheme of things re stock market.

December 25, 2023
1:57 pm
Alexandre
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Dividends are a completely random measure of anything; many companies prefer to distribute profits to investors by other means

In classical financial world, investor buys shares for the slice of profits in the form of dividends.

These "other means," what are they? Can you give an example, specifically for a company that does not pay dividend and specifically in regard to company's profits distribution among its shareholders?

December 25, 2023
2:04 pm
Alexandre
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Millennials, who are 25-40 years old, own about 2.5% of stocks, according to Federal Reserve data from the second quarter this year (2021).

Baby Boomers own 55% of stocks.

Gen-Z stock ownership wasn't tracked by the Fed, likely because it's a drop in the bucket.

So, the question is, will younger generations buy equities faster than Baby Boomers will be selling them.
Next decade would be quite interesting to watch.

December 25, 2023
5:50 pm
canadian.100
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Alexandre said

So, the question is, will younger generations buy equities faster than Baby Boomers will be selling them.
Next decade would be quite interesting to watch.  

Not so sure baby boomers have upped their selling of their stocks, if they have a good portfolio - baby boomers have tended to buy and hold for the long term, if they have a good portfolio. Also, when baby boomers "pass" I have seen their portfolios pass to their benficiaries who may continue to hold those portfolios intact. So I don't think there is much of a link to your assertion re any meaningful relationship that younger generations might be buying equities faster (or slower) than baby boomers are selling. My baby boomer friends are certainly not dumping their stocks as you may be implying.
As well, remember that individuals buying and selling stocks are not the biggest part of the stock market activity - Pension Funds, Retirement Funds, Estates, Trusts, University Investments, Union Investments, Government Investments, Foreign buyers etc. are the big buyers and sellers of stocks.

December 25, 2023
7:40 pm
mordko
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Alexandre said

Dividends are a completely random measure of anything; many companies prefer to distribute profits to investors by other means

In classical financial world, investor buys shares for the slice of profits in the form of dividends.

These "other means," what are they? Can you give an example, specifically for a company that does not pay dividend and specifically in regard to company's profits distribution among its shareholders?  

Share buy-backs for example. More tax efficient than dividends. Investing profits like BRK does is another example.

December 25, 2023
7:53 pm
mordko
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Alexandre said

Millennials, who are 25-40 years old, own about 2.5% of stocks, according to Federal Reserve data from the second quarter this year (2021).

Baby Boomers own 55% of stocks.

Gen-Z stock ownership wasn't tracked by the Fed, likely because it's a drop in the bucket.

So, the question is, will younger generations buy equities faster than Baby Boomers will be selling them.
Next decade would be quite interesting to watch.  

Alexandre said

Millennials, who are 25-40 years old, own about 2.5% of stocks, according to Federal Reserve data from the second quarter this year (2021).

Baby Boomers own 55% of stocks.

Gen-Z stock ownership wasn't tracked by the Fed, likely because it's a drop in the bucket.

So, the question is, will younger generations buy equities faster than Baby Boomers will be selling them.
Next decade would be quite interesting to watch.  

Of course young people with their whole working lives in front of them own less than those about to retire. According to stats Canada, under 35 year olds account for 6% of total net worth. And one would expect them to focus on housing, cars and other things essential to young families more than on things essential to retirement.

The question of generational change and impact on returns is more complicated once we accept that its not a zero sum game. If we suppose that economies continue growing and profits continue increasing but that young people invest less, then returns go up. And, assuming people are rational, they would start investing more and our premise falls apart.

That said, the actual impact of baby boomers dying on markets is likely unpredictable and certainly beyond what I can predict.

December 26, 2023
9:39 am
Bill
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I suppose another way of "distributing profits" is to reinvest them in the business, result is share valuation increase, result is (ultimately) capital gains to shareholders.

I don't see how boomers passing on will have noticeable effect on the world's markets, they're going to pretty much keep their equity investments until the end and then it'll just be in new (likely 50-something) hands. Might be more of a noticeable effect on the treasury due to taxes on deemed disposition at death.

December 31, 2023
11:02 am
Norman1
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Alexandre said

Dividends are a completely random measure of anything; many companies prefer to distribute profits to investors by other means

In classical financial world, investor buys shares for the slice of profits in the form of dividends.

No, stock investors do not. You obviously don't understand how stock investment works. Some of my stocks don't pay any dividends at all!

December 31, 2023
11:26 am
Norman1
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Alexandre said

Norman1 said
... equity investing is not zero-sum. It is possible for everyone to end up a winner.

Not that again! Sometimes I feel like non-believer coming to the cult gathering.

I am going to make three simple statements, draw a conclusion and you feel free to point which statement is wrong.

1. Currently shares of many companies are overvalued according to classical dividend discount model (for different reasons).

2. Younger generation does invest in stock markets less than older generation. These younger folks still park their money somewhere expecting good profits, but it is in bitcoin (crypto in general), arts, gold, real estate.

3. Older generation starts spending money in retirement which means cashing in, also follows advise from financial investors to reduce exposure to stocks with age. Such as "One rule of thumb states that you should subtract your age from 100 to get the right answer of your portfolio in stocks and the remainder should be in other investments (bonds, cash, real estate)."

This will lead to a situation when new money inflow in equities will be substantially less than outflow. What will it do to share prices and "equity portfolio" not hard to guess.

It is possible for everyone to end up a winner.

If you agree with all three statements I made, you should rethink yours.

All three statments are wrong or irrelevant. Your conclusion has no support.

Doesn't matter what some dividend discount model says. The models are just sanity checks. One cannot predict the model inputs (earnings, dividends, and interest rates) decades in advance. The computer folks have a saying: Garbage In, Garbage Out.

Doesn't matter what the younger folk think about investments (#2). No-one is looking to the younger generations to support stock prices. As canadian.100 described, institutions are large investors in stocks. One doesn't need lots of people to believe and support stock prices. One just needs a few who have lots of money.

#3 is false. One doesn't need to sell to spend. Some stocks pay dividends. One can spend the dividends without selling any of the shares. That "subtract your age from 100" rule is for those dim stockbrokers of the past who were just product pushers pretending to be an advisor and didn't have much actual financial planning skills.

You can also throw out the stuff about the earnings discount model too. Many years ago, Templeton Funds was advertising that they take a company's earnings for years in the future and discount those earnings to arrive at a current value for the company to see if the shares are undervalued or not.

Nonsense! If the people actually running the company, with access to non-public info about the business, can't predict the company's future earnings years in advance, then how can some fund manager predict those earnings using only public info?

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