Re: US debt and long-term savings strategy - what do you think ?

morrisjcroy@xxxxxxxxx wrote:

<snip>

It just happens that these empirical observations can be approximately
modeled as a random walk for stocks.

But the market is considerably more complex than that.


This is a simplified picture of the financial markets, which just
happened to fit nicely into the random walk hypothesis framework along
with the mathematical tractability is dealing with the random walk.
(There's an entire field of stochastic differential equations which
can be exploited, based on the assumption of the random walk).

The entire idea of "index funds" is based on largely on the idea of
the random walk hypothesis. Basically if one can't do any better than
the "market" (ie. s&p 500 index in America) on a consistent basis, one
mind as well just invest in the "market" in the form of an index fund.

Which is why I've kept out of them as I want my money going into something tangible which is what a share is--a piece of a company.


In practice, things aren't quite this simple. Nobody has any idea how
the s&p500 index will perform in the longer term. If a century ago
somebody invested in hypothetical "index funds" representing places
like imperial Russia, imperial Germany, Argentina, imperial Austria-
Hungary, Spain, etc ..., they would basically have the equivalent of
worthless low quality wallpaper today. (The Austrian currency was
considered very stable more than a century ago or so). The index fund
idea is highly dependent on the notion of a stable government and
country. Despite a place like Israel being very "westernized", it's
in a highly unstable neighborhood which doesn't make it as attractive
for investing.

On the whole, one might be better off buying Lotto 6/49 tickets. Either way, one is making an investment in a random number.



Morgan's response was like the typical "no comment" because people kept
asking him for some hint about what would happen in the near future.


Morgan probably also knew very well that his "word" can drastically
affect and move markets.


Which is why people sought his advice. It's kind of like what happens when Ben Bernanke is about to make an announcement. The market often doesn't do a lot until after he speaks. One thing it can't stand is uncertainty.
.

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