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Are the markets pricing the effects of this war correctly? As far as I understand it, the blockade (which seems to be in effect) of the strait of Hormuz is going to reduce the amount of oil in the market by about 20%, until either the war ends, or another pipeline workaround is found. This is going to be absolutely catastrophic for the world economy, especially for Asia, as there isn't a ready substitute. Even in the US, where we produce enough oil to cover domestic consumption, increased prices are going to hurt consumers and businesses significantly. It's not just oil: sulfuric acid for mining is made from Middle Eastern Crude, most of Europe's LNG comes from Qatar, and global air shipping routes are also going to become more costly. Even if we reach an agreement with Iran tomorrow (unlikely given the nature of the regime), the supply chain shock would be at least on the level of the Iraq War in 2003.
Yet the SP500 is only down 2% from January this year. Are investors not taking this war seriously, or is there really nowhere else to park money other than in US tech stocks?
I personally sold all my index funds and random stocks a few days ago and reinvested the money into US Oil Companies and 3-months CDs.
If you need to ask if markets are pricing something correctly, as a member of the public with no insider knowledge, the answer is always yes. As others have mentioned, there are plenty of potential mitigations or off-ramps that could make this a relative non-issue in a few months.
Not your financial advisor but liquidating your entire portfolio based on a current event that the public has almost no visibility on seems incredibly insane to me.
IDK Covid was a pretty big market oversight: the market reacted quite late (March) when it was clear there would be a problem in January-February. The market has also been retarded for a long long time when it comes to tech, so I do not share your blind faith.
I mean I don't see the downside from a personal financial standpoint. I put the money in 3 month CDs and American oil companies. I can always sell both of these instruments and get back into index funds if the situation changes...
The semi-strong EMH is perhaps not true if you're a quant at a prop trading shop, but it is certainly true for a random guy off the street. I assure you anything you think you know about the war has already been priced into the market by an army of quants.
The SP500 was up like 10% from Jan 2020 at the end of the year. It did in fact turn out that the Fed would print unlimited money to keep the market going and that the pandemic wouldn't hurt the markets long-term. Lots of rationalist types were selling everything they had in early 2020 as well, but likely they all lost money unless they all bought back exactly during the March dip. Even if you think assets are over-priced it's not actionable unless you can predict how and when the drop will happen.
Your plan is, checks notes, to sell when prices are depressed and try to get back in if your new assets start dropping and index funds recover? Bold move.
It wasn't hard to buy Nvidia shares at the lows in 2022 and make 10x. It was hardly an obscure company back then. Even pre-ChatGPT it was pretty clear AI was going to be a big thing if you'd read a few things about technology between 2020 and 2022. There were early versions of GPT-3-based AI that I, random guy off the street who couldn't tell you what a tensor is, checked out and was surprised by the intelligence of. Obviously this was going to be huge and worthy of investment.
I did that, made a good amount of money from Nvidia and later on ASML, AVGO... Of course I've made a fair few mistakes too. Nevertheless, my returns are much higher than market average.
Efficient pricing is cope. Fundamental analysis works just fine, your theses just have to be right and that's something that no amount of quant skills or training can teach.
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