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birb_cromble  3mo ago (text post)   1836 thread views

Weekly Finance Thread

Since a lot of us here have expressed interest in not starving to death in a gutter, I figured I'd start a weekly thread to discuss financial matters.

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Oh, good timing, I just crossed a very large milestone in my portfolio today. A few questions:

  • What do you think the chances are that we are currently in a large (AI related or not AI related) bubble that will pop? It seems like the money printing of the past few years has massive upward pressure on the stock market so I don't know how to unpick the two.
  • I have always been a saver and live fairly frugally. But I am itching to increase my standard of living with some of my invested money. At what number in USD would you personally be comfortable beginning to draw down, say, 4% of your portfolio a year to increase your standard of living sustainably?
  • It seems like I am outpacing the rate of inflation with my investments. For example I have doubled my money in 4 years, whereas I am not paying nearly 2 times as much for gas or groceries or restaurants compared with 2022. And it seems like inflation is much slower at the lower end of prices- for example goods at thrift stores or antique stores seem to be retaining low prices while things like houses and fine art are exploding in valuation. Do you think it's likely to stay this way in the US for a while or do you think the inflation will be coming for lower priced goods as well?
  • Do you think it's too late to buy bitcoin or is it still wise to buy it today? I have only like $2000 worth of bitcoin because I never found it very appealing or interesting but I can see its use in hedging against fiat currency debasement and many people smarter and richer than me are still interested in its success.
  • The older I get, the more I have access to but the less I want. I have already satisfied most of my needs and desires from my youth. How do I generate more desire within myself as I grow older? (I am in my mid thirties if that is relevant.)

What do you think the chances are that we are currently in a large (AI related or not AI related) bubble that will pop? It seems like the money printing of the past few years has massive upward pressure on the stock market so I don't know how to unpick the two.

Between 0 and 1 probability. In other words, who knows. (I think it's not). But this is irrelevant , imho, because the market has gone up so much, and stands to keep going up even more, that even if it were a bubble and does pop, you may still be missing out by not buying now, as no one knows where the top may be. People who thought home prices were overheated in 2013-2014 or waited for lower prices after Covid, were either forced to rent forever, sit on sidelines forever , or buy at a much higher price. If the Nasdaq gains another 30% this year and 100% within 2 years, you would need a pretty big crash to undo just those gains, so we're talking a once in 15-50 year event. I do not like those odds. I would rather just hold my nose and buy, accepting that market is possibly overvalued, but also that I will not get a better price either. Overpay now or regret later.

It seems like I am outpacing the rate of inflation with my investments. For example I have doubled my money in 4 years, whereas I am not paying nearly 2 times as much for gas or groceries or restaurants compared with 2022. And it seems like inflation is much slower at the lower end of prices- for example goods at thrift stores or antique stores seem to be retaining low prices while things like houses and fine art are exploding in valuation. Do you think it's likely to stay this way in the US for a while or do you think the inflation will be coming for lower priced goods as well?

This is why the stock market is so great for wealth creation and inflation hedging, even compared to collectibles, cars, etc. Only MTG & Pokémon cards have outperformed the stock market long term. I am not sure about art--not much liquidity, lumpy markets and possible manipulation.

Do you think it's too late to buy bitcoin or is it still wise to buy it today? I have only like $2000 worth of bitcoin because I never found it very appealing or interesting but I can see its use in hedging against fiat currency debasement and many people smarter and richer than me are still interested in its success.

You're too late by 8 years. Stocks are clearly better.

Oh, good timing, I just crossed a very large milestone in my portfolio today.

Congratulations! While I did not hit a large milestone or anything, I did hit a new net-worth PR on Friday thanks to another good day for equities. I imagine many are in a similar boat.

What do you think the chances are that we are currently in a large (AI related or not AI related) bubble that will pop? It seems like the money printing of the past few years has massive upward pressure on the stock market so I don't know how to unpick the two.

Me looking at a bubble in the elevator: "I don't think about you at all." Bubbles are only identifiable ex-post. Best to just stay the course with whatever you're doing instead of trying to time the market or outguess it. Investing at all time highs yields similar results as all other days.

I have always been a saver and live fairly frugally. But I am itching to increase my standard of living with some of my invested money. At what number in USD would you personally be comfortable beginning to draw down, say, 4% of your portfolio a year to increase your standard of living sustainably?

4% might be a bit aggressive. Many recommend 3% instead for greater safety.

You can always start off slow by just stopping contributions and spending all your earned income, and reinvesting dividends/coupons to see how it feels. Then move on to spending earned income and any distributions instead of reinvesting. This would be to avoid triggering capital gains taxes. Then the final boss is actually starting to sell down your positions, capital gains be damned, and withdrawing.

it seems like I am outpacing the rate of inflation with my investments.

I would hope so! That's the whole point of investing in anything riskier than government inflation-linked securities.

Do you think it's too late to buy bitcoin or is it still wise to buy it today?

Buy bitcoin if you desire cryptocurrency exposure in your investment portfolio, don't otherwise. No ones really knows where the price is going. Today's a good a day as any to buy if you want that exposure. I personally own only a trivial amount of BTC for buying things from... alternative vendors.

The older I get, the more I have access to but the less I want. I have already satisfied most of my needs and desires from my youth. How do I generate more desire within myself as I grow older?

Marry a spendthrift or someone who likes keeping up with the Jones's and you'll never have to generate such a desire yourself! Hooray!

What do you think the chances are that we are currently in a large (AI related or not AI related) bubble that will pop?

The last few tech-related meta cycles have both changed everything and not consistently boomed or busted from a stock price perspective. Personal computing in the '80s took over everything, but even Apple's stock has been up and down and looked like a loser before Jobs returned. The Internet around 2000 looked like it would change everything --- and it did --- but my pets.com shares were a bad idea.

I'd bet AI is similar, and picking a specific single winner is improbable. Weak predictions: local models can do most of what people want; big models don't scale much past human abilities, but enough to be game-changing; AI doesn't think truly creatively well enough to replace human cultural achievements, but it's consensus-centering output may be a pragmatic counterbalance to rage-seeking social media algorithms.

I'd bet AI is similar, and picking a specific single winner is improbable

Wasn't that kind of the issue with early railroads? They wound up being transformative, but a great many of the early companies and frontrunners didn't do well?

  • I personally think we're in a bubble, but I don't know if it will pop, or we'll have a flat decade as the market digests current valuations.
  • Retirement planning suggests that 4% has a 90-95% chance of carrying you through 30 years of your investments covering your entire lifestyle. So, given that, I'd start withdrawing when I was in my late 60s or when I had genuine Fuck You money.
  • I think that current world events are going to hit a lot of lower cost goods. Petroleum products are an input into nearly everything these days, either directly or to move materials.
  • I can't speak to Bitcoin. I personally think all of it except maaaaaybe Ethereum is insane, but the market clearly disagrees.
  • Is reduced physical wants a bad thing? As I get older, I find a lot more value in human connections. If you have the money, use it to buy time and participate in your community. See if you can find somebody to mow your lawn and use that extra hour each week to volunteer, engage in the arts, etc.

As one further bit of commentary, you say

It seems like I am outpacing the rate of inflation with my investments.

I would be careful with that. If you're in your mid thirties, there's a decent chance you've never been financially active in a true down market. 2008 was awful. It didn't matter what inflation was, because everything was down 20-50%. Sequence of returns risk is scary if you ever have to withdraw in that kind of environment.

What do you think the chances are that we are currently in a large (AI related or not AI related) bubble that will pop? It seems like the money printing of the past few years has massive upward pressure on the stock market so I don't know how to unpick the two.

Betting against AI will make you broke, betting for AI will make you broke. Staying away is the smartest thing so far. Take Deepseek - they did magic with inference and the model is next to free now. I use it as daily drivers for heavy coding sessions and it is essentially free - I can barely burn trough 1$ daily. Even if they increase the price - I guess I will have the same USD consumption after 31st of may because flash is just a gem. With china compute ramping up and open models being so close behind the closed ones - the margins that Anthropic and OpenAI expect are just not there.

On the other hand - the technology is transformative. I don't think that there is a single programmer left that doesn't use AI heavily - even the holdouts grudgingly started to admit that latest models are better than juniors. I expect tokens to end up like electricity and oil - ubiquitous, affordable, metered by consumption but absolutely commodified with a mix of locally and remotely running models.

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