2013 May 15 Wednesday
Jim Chanos: Lower Classes Invest Too Late
Very wealthy hedge fund short Jim Chanos states the tragedy of modern investing: The lower classes come late to any bubble and get burned.
“The people you are trying to help don’t get the message till the end of move,” Mr. Chanos said. “You keep impoverishing them.”
Anyone know of a good way to watch investment patterns by income level? I bet middle class stock buying is a late bubble signal.
By Randall Parker at 2013 May 15 08:13 PM
Possible sign: Where advertising for said bubble is? If advertising is widespread, then the bubble has reached mass awareness and is in a late phase. That is why gold is not in a bubble as the widespread advertising is still about selling your gold. There are ads for buying gold on select sites, but dwarfed by the TV ads for selling and gold meltdown locations.
Poor people buy late because they're basing their decisions on a combination of fear, greed and herd mentality. They're afraid to buy in at the beginning. But they see everyone else making money and don't want to be left out. So they eventually buy in and make a little money. They hope it goes higher. When the stock takes a hit, they hope it will rebound. Finally, they watch it go lower and end up selling near the bottom.
There's another problem. Buying high and selling low is structural. How can you have a market top until everyone who's going to buy has bought? And how can you have a market bottom until everyone who's going to sell has sold? As long as business cycles exist people will get screwed at both ends of it. The goal is to keep it from happening to you by learning to recognize the indicators that proceed both.
But that wasn't really the point of the article. Basically, the article was about the disagreement over printing cheap money vs inflation. What the author of that article fails to realize is that the fed wants inflation. There's a currency war on. Only most people haven't realized it yet. China has been manipulating its currency for years. And Japan just slashed the yen in a bid to end its decades long slump. Simply, cheap currency makes your goods more affordable to consumers in other countries.
Joe Kennedy claimed that he knew it was time to get out of stocks in 1929 when he received investing tips from a shoeshine boy. So maybe it's not even the middle class that you need to be watching, but the lower class. But in any case, the Fed is operating to keep bubbles inflated, so the signals that might have worked historically may be useless now.
There's an investment strategy, I don't know how old it is, called the odd lot strategy. An 'odd lot' is less than 100 shares (or maybe not an even multiple of 100). The reasoning behind it is that people buying odd lots are not sophisticated investors, so they tend to be wrong. Doing the opposite of wrong is often right. I don't know how that strategy has worked out in the real world.