Comment by jfengel
2 months ago
In the long term fundamentals will matter. But the market can remain irrational longer than you can remain solvent.
Ordinarily I would say that an investment in a broad index for the long term (a decade or more) is always wise, and there's no point in trying to time it more specifically than that. However right now it's been irrationally exuberant for a long time. it's going to have to correct itself... Either tomorrow or another ten years.
Depends. If the fundamentals are already good, they're priced in, you probably have little upside, even long term. Maybe you'll just match the market. You have to think the fundamentals will improve over time more than the market expects to beat the market.
Long term, I think economics has more to do with market performance. Stocks rise as the money supply expands and capital has no where else to go.
You can't beat the market but you don't need to. The ordinary returns of GDP growth are pretty good.
The free money has definitely been screwing with GDP as a base. I'm still unclear on why the Fed would lower interest rates when the market is fine, the GDP is fine, and inflation is still slightly above baseline 2%. I know everyone is yelling for the punch bowl to come back but now would be a good time to pay down some debts.
> You can't beat the market but you don't need to.
You can, it's just difficult. Plenty of (mostly professional) traders and hedge funds do. The knowledge gap between amateurs and pros is just massive, as is the time they have to monitor their holdings.
> I'm still unclear on why the Fed would lower interest rates
There's a lot of space between where they started (0%) and where they topped (5.5%) and where they are now (4.5%).
As you approach a stop sign, do you wait to brake until you're at the sign or do you start slowing down as you approach?
At 5.5% the Fed became concerned (and I think rightly so) that they could overshoot into deflation territory so they stated easing to what they consider a current neutral position - somewhere in the 2.5% - 3% range.