Yup.
People short Tesla a lot, but I would not mess with that. Elon isn’t dumb and it has some great products. There are many wounded animals out there and it’s easier to bum hunt than to try to take down Johnny Chan.
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Elon Musk is a compulsive liar who should be in jail for securities fraud. The company is burning billions with absolutely no prospect for profitable operations.
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Tesla’s one of my favorite tire fires ever
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Is this in relation to his Roth investments? There are no required minimum distributions for Roths until death.
Yeah… 2019 TSLA stock isn’t going to age well IMO. Neither are Uber/Lyft/Wework.
Of course not. He’s not piling up a $100 million Roth, it’s limited to like $6k of contributions a year.
Romney literally had 101M in his Roth in 2012.
Lol me, I guess. His kids should get hammered on RMD’s eventually, but just lol America that this is possible.
Not how Romney got $100mm in his Roth, but Google mega backdoor Roth sometime if you thinks Roth contributions are limited to $6k annually.
I’m pretty sure you can’t short stocks in an IRA account, and if you can figure out how to do so, I’d still think it’s a bad idea. More generally, I would strongly encourage you not to short stocks at all. You almost certainly don’t have superior knowledge about the right valuation level for the Nasdaq index, and it’s unlikely that you can identify firms that are:
- obviously terrible businesses
- trading at a high valuation that doesn’t reflect how terrible they are
- easily shortable
If you think that valuations are too high, just keep your asset allocation more tilted toward cash than you otherwise would. Shorting is a hard game (e.g., I’ve lost money shorting two different companies that ultimately went bankrupt), and the really terrible thing is that when things go wrong, you end up with a larger bet than you started with, which sucks. To illustrate:
- You buy company ABC because you feel good about it, and you make it 5% of your portfolio. It goes down by 50%, and now it’s 2.5% of your portfolio, and your bad investment is a smaller percentage of your portfolio.
- You short company ABC because you think it’s crap, and the short represents 5% of your portfolio. It goes up by 50% and now it’s 7.5% of your portfolio AND you’ve got to come up with extra equity to maintain margin requirements. It’s super mentally taxing when short positions go badly against you.
I’m happy to talk about shorting and options and investing all day - I love this stuff and it’s what I study for a living. But the tldr is:
- don’t short
- don’t dabble in options
- maintain a sensible asset allocation with passive, low-fee index funds (I think target date retirement funds are excellent), check the balances once a quarter, and devote your time and energy to chess or video games or woodworking
Also, this type of thing is what my Personal Finance thread was supposed to be about!
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spidercrab what are your thoughts on Mike Burry calling indexed stocks a huge bubble? That read of the situation read pretty true to me. I also can’t help but notice Buffett has stacked up 120B in cash that he can’t seem to allocate.
Help me understand how this isn’t a super obvious moment to go to cash.
EDIT: To be clear I’ve been in cash for quite some time because I own a business and buying financial products with a 5% yield and real risk is kind of the opposite of smart for me.
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I’ve been hearing people talk about super obviously going to cash since 2011.
Yeah but if you don’t dabble in options how can you become the next analfarmer?
https://www.reddit.com/r/wallstreetbets/comments/cl4sku/at_the_end_of_the_day_money_is_just_paper/
2011 I was buying with both fists. I’ve talked about my specific situation in this thread earlier. It’s non standard.
Well maybe for whatever your specific situation is, it makes sense to go to cash. But again, a lot of people have been expecting a crash for a long time, and some of them have lost a lot of money thinking it was obvious.
I mean some day a crash will happen but it’s almost never obvious. I just plan to ride it out.
Oh boy, you’ve hit on a couple of my soft spots. It’s like you want me to spew multiple long posts.
I think it’s silly to think that indexing, specifically, has led to a huge bubble or massive inefficiencies. (Maybe valuations are too high right now, but if they are it’s not because of indexing.) I actually read a decent article on this earlier today:
(If you want to get more theoretical about it, this relates back to an excellent academic article from 40 years ago: Grossman, S., & Stiglitz, J. (1980). On the Impossibility of Informationally Efficient Markets. The American Economic Review, 70 (3), 393-408.)
As for Buffett, let me preface this by saying I’ve owned shares of Berkshire since 1997 or 1998, I’ve gone to 2 Berkshire annual meetings, have a letter from him saying that I can use his annual letters in my classes, seen him speak in smaller settings a few times, and even had lunch with him. Point is, I’m a huge Buffett fanboy.
That being said, Buffett’s cash holdings reflect a couple of things imo, not all of which are relevant to small, non-professional investors:
- He has a strong preference for acquiring fully-owned operating companies, rather than minority stakes in public entities. The competition for those targets has increased significantly over the last few decades (private equity), so he doesn’t have the same ability to buy these types of companies that he used to.
- In terms of publicly-traded companies, he’s really only looking at companies where he can take a minimum $1 billion stake. That severely limits the population he’s looking at.
- He is infinitely patient, and he believes that if he simply waits long enough, the great pendulum of market valuations will naturally swing from overvaluation to undervaluation. And he wants to be ready when that happens. The problem with that is that there’s no natural law that dictates that periods of overvaluation must be balanced with periods of undervaluation.
At the end of the day, I continue to hold my Berkshire shares, but think Buffett has erred enormously by not repurchasing shares of Berkshire and is now at the point where they should distribute a large cash dividend.
All that being said, what does Buffett’s cash hoard tell us about likely future returns? I don’t think it’s clear. Extremely low interest rates are a very real thing. As Munger says, all of life is opportunity cost. So if inflation is <2% and yields on government securities are in the 1-2% range, then earning 4-6% equity returns isn’t really a terrible outcome.
The real challenge is that even if you’re correct about stocks being overvalued, you still don’t know how that overvaluation is going to resolve itself. Suppose that stocks are currently 50% overvalued. If that’s corrected tomorrow, then of course you’d like to be in cash right now, and then invest tomorrow. But if that overvaluation is resolved slowly through trivially-lower returns over the next 50 years, then sitting in cash and waiting around is an absolutely terrible strategy. So even in a world of obvious and massive overvaluation, you still don’t know enough about the resolution of that overvaluation to know precisely what to do right now.
Which is why I think the right move is to maintain whatever long-term allocation you think is right, be ready for fairly low nominal returns, but be perfectly fine with those returns because inflation is low and there are no obviously-better alternative investments.
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My problem is that I’m exposed to the recession through my business… which means I could literally be forced to liquidate at the bottom. Additionally I’m good at operating businesses so I can generate good returns compared to equities by just buying small private businesses… of which there are plenty.
So yeah not a standard situation at all. If I was 45 and sitting on a huge retirement fund I’d be thinking about how to weatherproof it but definitely wouldn’t go cash. Except maybe now lol. I don’t do pe’s of 20 lol.
If I was you I would separate my long term investments from my working capital. No way I would have cash that might be required for the business invested in equity.
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I am in basically all cash at the moment - looking for a position to take for the next 2 years. I want to stay this liquid - if I want to be all cash, what is the harm in going a little heavy on gold? I know goldbugs have been traditionally mocked here, but in these completely chaotic times I feel like gold is not that bad of an option.