"implosion" of US economy

[Mark Herschberg]

Originally posted by Eleison Zeitgeist:

Don't really understand your logic. You say that it is as easy to make money in a down economy as in a good economy. However, you then say that in a good economy "you can make money without much knowledge" -- meaning less work?, ergo easier to make money in a good economy than a bad??

Let me take another stab at it. The key modifier was it's just that making money in a down market is probably similar to beating the market in an up market.
If you want to make money all you need to do is by an index fund. The dow has has historical returns of about 10%. It turns out anyone can make money just by being in the market. Nothing is easier.
But I didn't talk about making money in an up market, I talked about beating the market. That does take research and knowledge.
Likewise making money in a down market also implies beating the market. Hence, my statement was, "beating the market in a down market is just as difficult as beating the market in the up market." (To be more general I should have said "beating the market" in a down market, instead of "making money" in a down market; but the latter implies the former.)

Originally posted by Matt Cao:

I think Mark H's strategy also working legally. The difficulty is obtain the information.

Right, this is why I rely on investment managers who have the time and resources to do the research and make the decisions for me.

--Mark

[Tim Holloway]

Mark, I think you'll make a good short trader. You completely missed the issue that some people would have qualms over not sharing information that could financially hurt poor old Joe Sucker.
Like I said (I think), this is a psychological issue that keeps many people from short-selling. Not everyone worries about it.

Originally posted by Mark Herschberg:

Both my father in the past and our money managers now do intentionally sell at a loss.

--Mark

You can't always sell at a profit. Sometimes you cut your losses, and when you do, you're always well-advised to make the most of it. However, barring the occasional tax incentive, the maximum amount of money you can "make" off a tax loss is your total tax liability. Which means that you'll get back on average about 25-30% of the money you lost - allowing for what kind of taxation rules apply - but you've still lost money overall. That's why a loss strategy for making money can only work if there are other factors you can throw into the mix. I did find life simpler before the carry-over rules, however.
Personally, I took advantage of having no taxable income to speak of last year to take profits off some investments that would otherwise not have been taken until retirement. Except that in this case, I hope I'll be in a higher tax bracket (due to income level) come retirement time. I'd rather have had the income, but when you get lemons, make lemonade!
God doesn't value companies. To quote Snoopy in his Joe Lawyer persona: "The value of the thing is what the thing will bring". Nothing has an absolute and immutable value, not even, alas, human life. Especially now that the gold Standard is a dim memory.

Originally posted by Matt cao
I think Mark H's strategy also working legally. The difficulty is obtain the information. If Joe Sucker see the same information like Mark, Joe probably will not buy the stock from him. But if Joe is a deep pocket fella, he still wants to purchase at that price or lower toward the bottom. Money movement like roller coaster, what go up must come down, what been down must go up eventually.

Hmmm. I'll have to see if I can dust off those old Air Florida stock certificates I have, then.

[Mark Herschberg]

Originally posted by Tim Holloway:
Mark, I think you'll make a good short trader. You completely missed the issue that some people would have qualms over not sharing information that could financially hurt poor old Joe Sucker.

I think you're all missing the point. I'm talking about information in an information theory sense, not as some concrete inside information. The latter is illegal.
People and companies trade on models, e.g. equations. Anyone can make an equation, and most people make them based on running regressions against historical data. Anyone can do that. Some people can make better equations. If the true price is $52, and your model says $48-53 and my model says $51.50-52.50, I would say my model is better and therefore I have more information than you. There is nothing at all illegal or immoral about it. Warren Buffet doesn't tell everyone what he is going to buy before he buys it (in fact, doing so would cost you money, and is illegal under some circumstances).
--Mark

[Matt Cao]

Hi,
From my view, Joe Sucker is a bargain hunter/a salvage specialist. There is nothing sucker about these people. Some are quite wealthy.
Air Florida have been through the salvage specialists touches or not. I don't know, but if Joe Sucker knows about the info. He/she, in turn, will purchase a slice of Air Florida not the whole like Tim H probably having. Joe then sells it when it goes up.
Mark H is in the scenario before the salvage specialist. But if the Air Florida is still trading or only off the market for reorg, then Joe Sucker definitely is not a salvage specialist, but a simple bargain hunter.
Regards,
MCao

[Tim Holloway]

Originally posted by Mark Herschberg:

I think you're all missing the point. I'm talking about information in an information theory sense, not as some concrete inside information. The latter is illegal.
People and companies trade on models, e.g. equations. Anyone can make an equation, and most people make them based on running regressions against historical data. Anyone can do that. Some people can make better equations. If the true price is $52, and your model says $48-53 and my model says $51.50-52.50, I would say my model is better and therefore I have more information than you. There is nothing at all illegal or immoral about it. Warren Buffet doesn't tell everyone what he is going to buy before he buys it (in fact, doing so would cost you money, and is illegal under some circumstances).
--Mark

Hmmm. I think this goes along with your statements about "beating the market". The reason so many here disagree is that I think you're looking at the situation from the point of view of a population vs. us thinking about merely our own greedy selfish little selves. I'm a little disoriented myself when you start using the term "model", since it's generally taken as a given in investment circles that individual investors at least don't have a good formal model, but invest altogether too much on emotion (I'll accept an emotional basis as an example of an unconscious model if you like). Of course, the same emotional charges have been laid against the pros, despite their more formal bases and AIs.
Naturally the market can't beat itself. But individuals often beat the market. It's called winners and losers, and some win more often and some lose more often, but that's life.
I'll touch briefly back on short-selling because I think that I should set one misconception straight, but beyond that I think I'll try and drop it and just repeat that I'm echoing the viewpoint of those who study investment markets, and if I can't can't make it plain (a charge often brought against me) then I'll just have to recommend you look for an explanation from the perpetrators themselves.
The one thing I do feel obliged to make clear is that the perceived ethical dilemma of short-selling has nothing to do with insider trading. Not in the sense, at least that gets the SEC on your case. All of us here are presumably "insiders" in the tech industry. Relatively few of us are executives or board members or Martha Stewart. So if we see a trend, like say, a slowdown of people buying Windows at the same time a lot of people are installing Linux, we may decide to short Microsoft. But a sale takes two parties. Someone has got to buy the stock and that somebody is probably not anticipating seeing the price drop radically enough to make a short sale profitable. So we're setting up old Joe S. for a fall. And some people feel uncomfortable taking advantage of poor old Joe's gullibility 'cause he thinks that Microsoft will go up forever.
Of course, Joe could be right and we could be wrong. Joe won't know (or care) if we made a long sale or a short one if the price skyrockets. Which is where the other problem with short sales comes in - no upside protection for us.
BTW, Matt, Air Florida gained a brief notoriety about 20 years back when one of its airliners built up too much ice on its wings and slammed into a Washington DC bridge. Within a few years they went out of business. Assets were liquidated according to the standard rules, which means that creditors got paid first, shareholders were at the end of the line. There was nothing left for the shareholders. I had 1200 shares.
Sometimes what goes down doesn't come back up.

[Mark Herschberg]

Originally posted by Tim Holloway:

I'm a little disoriented myself when you start using the term "model", since it's generally taken as a given in investment circles that individual investors at least don't have a good formal model, but invest altogether too much on emotion (I'll accept an emotional basis as an example of an unconscious model if you like). Of course, the same emotional charges have been laid against the pros, despite their more formal bases and AIs.

You got it. I was talking generally about everyone havng a model, even if not a formal one. If you prefer, "investment strategy." ("Buy low, sell high" still requires that you recognize "low" and "high.")

Originally posted by Tim Holloway:

The one thing I do feel obliged to make clear is that the perceived ethical dilemma of short-selling has nothing to do with insider trading. Not in the sense, at least that gets the SEC on your case. All of us here are presumably "insiders" in the tech industry. Relatively few of us are executives or board members or Martha Stewart. So if we see a trend, like say, a slowdown of people buying Windows at the same time a lot of people are installing Linux, we may decide to short Microsoft. But a sale takes two parties. Someone has got to buy the stock and that somebody is probably not anticipating seeing the price drop radically enough to make a short sale profitable. So we're setting up old Joe S. for a fall. And some people feel uncomfortable taking advantage of poor old Joe's gullibility 'cause he thinks that Microsoft will go up forever.

Ok, I see what you're saying, but you're drawing the line in the wrong place. Insider infomation is defined as having unfair access to information. Where would we see a trend like more people using Linux? From talking to people or discussion board, etc. All public information. Some of us might see it because we're in charge of sales at Oracle--but that would be insider information.
How are we setting Joe up for a fall? We risk the stock doubling and losing lots of money. He risks the company going bankrupt. Everyone understands the risks (or should if they are going to invest).
Look at the market today. My friend says it's going to tank in a major way. Others see a bull market. They are taking opposite sides and will trade appropriately. Viva la difference!
--Mark

[Matt Cao]

Originally posted by Tim Holloway:

BTW, Matt, Air Florida gained a brief notoriety about 20 years back when one of its airliners built up too much ice on its wings and slammed into a Washington DC bridge. Within a few years they went out of business. Assets were liquidated according to the standard rules, which means that creditors got paid first, shareholders were at the end of the line. There was nothing left for the shareholders. I had 1200 shares.
Sometimes what goes down doesn't come back up.

Hi,
You have the whole share of stocks not a slice like Joe Sucker. I sympathize for you because that is what majority of shareholder know.
In general, this is what Joe Sucker purchased Air Florida stocks for:
1. Airplanes damaged or not will decide later.
2. Airplanes parts and tools.
3. Landing dock rental spaces.
4. Information systems will split further.
5. Bonds and other bank notes.
.
.
.
You see where I am going with this, right.
Regards,
MCao

[Tim Holloway]

How are we setting Joe Sucker up for a fall?
Simple. We're clever, so we're going to be right! He's wrong! He's going to get burned because (in the near term, at least), the stock's gonna tank and his net worth will drop.
Like I said, it's psychological. It's all on whether you want feel to sorry for this poor deluded fool or not. You yourself take an objective attitude which is that you invest knowing the risks. Long sales can leave both sides with a net gain, but in a short sale in the short term, someone has to get burned. And that's all the difference there is. Some people don't want to do that. Other take the attitude of "a fool and his money..." and merrily sell short at the drop of a hat.
---
Matt, I bought stock in a working airline, NOT an bankrupt one. I owned those shares long before the DC bridge incident. The money I spent on the stock went for keeping those planes in the air a little longer before the creditors grabbed all the cash.
Don't confuse this with a short sale - I'm talking on 2 topics at once. All I meant to say was that while markets may go up and down, individual investments carry no guarantee that they won't simply evaporate forever.

[Mark Herschberg]

Originally posted by Tim Holloway:

Simple. We're clever, so we're going to be right! He's wrong!

Trying to not make money off of im sounds like welfare.

Originally posted by Tim Holloway:

You yourself take an objective attitude which is that you invest knowing the risks. Long sales can leave both sides with a net gain, but in a short sale in the short term, someone has to get burned. And that's all the difference there is. Some people don't want to do that. Other take the attitude of "a fool and his money..." and merrily sell short at the drop of a hat.

Um, I don't think this is true. Or rather that you'r eover simplifying. Yes, a long sale can leave both sides with a net gain. Or one can win while the other loses.
Likewise with short sales, it can go either way. I sell to you at $50. The stock goes up to $55 and you sell. Then it goes to $45 and I buy to cover my sale. Then it goes to $60. Everyone wins. The key is that people have different time horizons.
--Mark

[Joe Pluta]

Likewise with short sales, it can go either way. I sell to you at $50. The stock goes up to $55 and you sell. Then it goes to $45 and I buy to cover my sale. Then it goes to $60. Everyone wins. The key is that people have different time horizons.
Nope. The guy who sold it to you at $45 before it went to $60 lost out.
The market is a zero-sum game. And I don't mind brokers making a thin slice (they're providing a "service", albeit more and more anachronistic). But thanks to stock options corporate officers make money no matter what they do to their companies, and that leaves the stockholders (and their pension funds) holding the bag.
Joe

[Mark Herschberg]

Originally posted by Joe Pluta:
Nope. The guy who sold it to you at $45 before it went to $60 lost out.

Job, I'm not sure if you read the whole thread. The argument Tim was making was that in a down market someone has to lose while in an up market everyone can win. I pointed out how this is not the case.
Yes, if the guy who sold at $45 held it, he would have made an extra $15, but that might have taken him another year of holding. As noted earlier, he may have been happy to sell at $45 to select a different financial instrument.
In any case, the market is not a zero sum game, not the real market anyway in a partical sense. The net value of the market is expanding. I can buy a stock today at $20 and in 10 years it will be worth $80, which I then sell to you to hold for another 10 years when it goes to $140. For it to be a true zero sum game, the stock must ultiately return to $20 at some point. This implies that the market is some big pyramid scheme and we're not really adding value.
--Mark

[Tim Holloway]

"The key is that people have different time horizons."

True. However in certain cases - such as short sales, you have external time constraints. That's where the short-seller can get burnt. Short or long, the demonstrated overall most successful way to profit on investments is to sell on your own terms at your own choice of times and generally on a long schedule. Day-traders, for example, often end up losing big. Indexers generally do well.
Do remember when calculating profits that dollars are not absolute! Once you start talking in terms of years or decades the real profits have to be measured against inflation. If I bought a 10-year 2.5% CD and the average inflation rate over that period was 4%, I'd be a net loser in purchasing power even though I had more net dollars at the end.