Unfortunately, I can't afford to lose everything. If I took the view that "no one can predict the future", and let it all ride on stocks, then my job, my home value and my retirement savings would all be 100% correlated to the economy and stock market. Currently, my retirement savings are in short-term Treasuries, so there is no correlation to the market, which I will show below. However, to the extent that I need to keep on saving to reach my retirement goals, I still have risk exposure to my future savings, via my employment income.
The article above states that Alan Greenspan provided the ultimate bad example of "market timing" when he famously declared in 1996 that stocks were exhibiting "irrational exuberance". What followed was a five year 100% rally. On a similar magnitude, I "missed out" on most of the rally since 2009, even though I fully avoided the 2008 collapse. So by the same measure, on paper, I have been as "wrong" as Greenspan, for just as long. However, the real "cost" of being overly cautious and otherwise not trusting the markets has been far less than 100%. Below I will compare the two scenarios of being invested in the U.S. stock market since the inception of my blog in early 2007 versus being invested in short-term treasuries over the same period:
SPY v.s. SHY
SPY is the S&P 500 ETF and SHY is the short-term Treasury ETF. Both are adjusted for dividends/interest payments:
SPY - has gained 32% (dividend reinvested) since the beginning of 2007.
Maximum drawdown: -53%
SHY - has gained 20% since the beginning of 2007
Maximum drawdown: -2.5%
I Rest My Case
The bottom line is that by playing around with timeframes, you can come up with whatever conclusion you want. That said, I have lost no sleep due to the markets since starting this blog, other than from staying up late writing drunken blog rants. Anyone who values their sleep, their health and their peace of mind should seriously consider SHY over SPY and dispense with the siren song of Wall Street telling us that "no one can time the market".
You Don't Need a Degree In Biology To Know that Shit Stinks
The fact is that with each passing moment of each passing day, we get closer to the point in time when the charlatans of this era will be finally silenced. There is no need to predict what will happen, when we already know what has happened. The only reason the stock market rose for the last four years straight is because profit margins were outsourced to their highest level in U.S. history, wages collapsed to their lowest level in history (% of GDP), the U.S. Government borrowed $6 trillion to fill in the output gap, while global Central banks pumped $9 trillion into financial markets. Contrary to the article cited above, this isn't some fucking mystery novel; and you don't need a degree in history to know how all of this turns out. No country in the history of the world has borrowed its way to prosperity, and the U.S., Europe and other developed countries running massive deficits, won't be the first. The final collapse is inevitable if not imminent and when it comes, the underwear will be mighty stained for all of the bullshit artists now telling us that no one can predict the future. For those who prefer a more academic version of this story, Hyman Minsky already explained how this ends...
For those who think that the U.S. will default on its debt before Greece, Italy, Spain, Japan, (insert country here), then by all means buy gold. The U.S. dollar is the world's reserve currency which means that it is the most liquid safe haven on the planet. And Treasuries are still the most liquid dollar denominated asset. If you say they are both worthless, I won't argue; if you say there is a better alternative, I say, good luck. Bear in mind that back in 2008, gold lost 35% on the flight-to-safety that never was...but then again, I don't get paid to say any of this, so what do I know?
Gold on the precipice - Get busy living, or get busy dying...
