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.
Ground Rules
- Remember that we're all just Internet randos. Don't bet your life savings on a hot tip from this thread.
- Keep culture war in the culture war thread. Yes, global events may impact our personal finances, but that does not mean we have to incessantly harp on culture war aspects here. If you are going to discuss it, please stick to the practical impacts of it on an individual level.
- Be kind. Remember that everyone here comes from different circumstances. We all have different resources available and different risk tolerances.
- Don't let the perfect be the enemy of the good. Better is better. Celebrate people when they take a step up and work to move their finances in the right direction. Don't flame out because they haven't followed what you consider the optimal path. Everybody has to start somewhere.
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Notes -
This stock market rally has been insane. I think this is the greatest increase in a 1-month period ever, a 180 degree reversal of sentiment from panic 1.5 months ago over Iran to now euphoria even as oil prices remain high.
There is a possibility that the market pricing in AGi/takoff...in other words, this is really it. To invoke the meme, "it's happening". What will happen is the stock market will go vertical, something like 50-100% gains in a year for 3-5 years in anticipation of massive gains in productivity and earnings due to AI, which will be reflected in earnings reports later. So stocks will temporarily be wildly overvalued until the productivity wave hits.
One way to play this, which I am running now, is a two-pronged strategy: invest in something like a mix of leveraged S&P 500/nasdaq indexes funds (e.g. QLD, SSO) and then a small fraction out-of-money SPY call options.
So I may buy SPY call options that expire at $860 in 5 months at $100/contract. This is 17% out of money. If the S&P 500 continues its current trajectory for the next 5 months, this is a target of $1062 .This works out to a profit of $20,000 per contract. It's like a lottery ticket , but with much better odds. I think most people would agree, even AI skeptics, that AGI is much more probable than winning the lottery.
Many industry experts agree that there will be some AI phase or paradigm shift, if it hasn't already happened. If this means GDP and earnings forecasts have to be ratcheted upward for the next decade or longer, of course this will be reflected in stock prices. Even going from only 3% to 6% real GDP growth or 10% to 20% margins , when compounded over decades, implies a huge revaluation of stock prices that will be nearly instant.
That's a bold theory, and it will be interesting to see if your strategy pays off.
I'm of a somewhat different mindset. My personal experience is that we're not seeing the automation gains we expected, the friction involved in scaling is eating into the capability gains, and the hype may have been premature.
Current market behavior looks more like a melt-up to me than anything predictive, and practically speaking, where else would people put their money right now? The federal funds rate has been in the shitter more often than not for a quarter century, so treasuries aren't a great option. Commercial debt took an absolute ass-pounding in 2022, and this year's refinancing cliff could hit it just as things were recovering. Preferred stock is all over the place. Dividends have been kind of shit because of the tax treatment compared to capital gains. All that's really left is capital appreciation on equities, and that needs a pretty significant growth story to justify the risk. Luckily, AI is a great story.
Given all that, I've been tilting into value funds lately. Avantis has one that I rather like.
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