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    WhompaloompaHamilton Nolan
    1/17/14 3:24pm

    If you predict a market crash for long enough, history says you'll be correct eventually, but that doesn't mean we should all move our 401ks into low-yield bonds.

    Generally speaking, over time, it has been better to be invested in the market — downturns, crashes and all — than it has to sit it out and watch your savings get slowly eaten away by inflation.

    It would be great, of course, if you could know when the crash is coming, cash out, and then buy back in when it begins its inevitable climb back up, but outsmarting the market that way is ridiculously difficult.

    I get HamNo's skepticism of Wall Street (which I share) but I don't exactly hear an alternative here.

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      toothpetardWhompaloompa
      1/17/14 3:27pm

      I moved my 401k into my divorce.

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      Cherith CutestoryWhompaloompa
      1/17/14 3:29pm

      No one is suggesting not to invest. Generally, it is better to have a balanced portfolio. But did you miss this part?

      highly leveraged on the long side, with exposure ranging from 150% all the way to 170% net long.

      Taking on a lot of debt to go massively long without hedging is dangerous. First, if you are 150% long with borrowed money you will panic when there is a sustained down turn. Which fuels more panic. Second, the people you owe money to (major banks) will want that money one way or the other. Third, the people whose money you manage will also panic.

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    Jason ChristensenHamilton Nolan
    1/17/14 3:18pm

    So I'm missing the part about why this is terrifying. What are the consequences? That the stock market will go down? If so, isn't that normal based on the long history of the market?

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      CaptainSteubingJason Christensen
      1/17/14 3:29pm

      Where were you in 2008?

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      LPSheaJason Christensen
      1/17/14 3:30pm

      Considering we actually haven't come close to recouping our losses from just 5 years ago, the sudden loss in equity from another crash will leave us, now shall I put it, fucked royally.

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    HeyheyheyheyheyHamilton Nolan
    1/17/14 3:20pm

    "Markets can remain irrational a lot longer than you and I can remain solvent." - John Maynard Keynes

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      Hamilton NolanHeyheyheyheyhey
      1/17/14 3:50pm

      V. important for those people thinking about shorting.

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      MojiMojiHamilton Nolan
      1/18/14 8:10am

      The worst case scenario in a short position (infinite loses) is much worse than the worst case scenario in a long position (losing your whole portfolio). This inherent higher risk in short positions is one of the reasons that bubbles tend to last so long- even if you're 100% certain the market is going to correct it's near impossible to predict the exact timing of a correction.

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    nopunin10didHamilton Nolan
    1/17/14 3:22pm

    Isn't the value of the stock market mostly based on demand, though?

    As long as everyone is convinced the market will go up in the long/short run, then demand stays high, and prices on stocks go up.

    This doesn't preclude another bubble bursting, of course. Eventually someone wisens up about a company or industry that is doing far worse than predicted, and there are cascading effects on stock demand.

    However, so far we've seen that long term investment still wins out stock-wise. The numbers are better now than they were prior to the collapse of 2008.

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      LPSheanopunin10did
      1/17/14 3:29pm

      Did you get your MBA online from the University of Phoenix like I did?

      They taught me that we've entered into a new PARADIGM economy where the old fundamental concepts no longer apply! Demand is limitless! This is the first time anyone's ever come up with this idea so we're on the cutting edge of modern economic thought.

      All our professors used to be in real estate flipping houses before they needed to find a new gig, so they know, this time its DIFFERENT!

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      nopunin10didLPShea
      1/17/14 3:33pm

      Don't be ridiculous. I'm not suggesting any such thing.

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    eataTREEHamilton Nolan
    1/17/14 3:18pm

    So, uh. Is there such a thing as a mutual fund that bets against the market by taking only short positions on everything?

    If so, what is the minimum purchase? Afriendwantstoknow.

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      ThePriceisWrongeataTREE
      1/17/14 3:31pm

      There are plenty of mutual funds you can invest in that diversify either super risky, or super conservatively. It just depends on what you're looking for. Mutual funds don't really "bet against the market", they hedge the market by leveraging different financial tools in order to produce different outcomes.

      If you're looking for one that's cheap to invest in, I would start by looking at some of the more aggressive Vanguard funds (Health Care index is a good one, and is relatively cheap), or DFA Large Cap US Value Fund III. With the health care index you're looking at about $52 to buy in right now, with the DFA you're looking at closer to $30.

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      Lipstick MysticeataTREE
      1/17/14 3:47pm

      Ask about moving your 401k into a bear fund. But if your 401 is through your work some places refuse to allow employees to move their assets into bear funds.

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    Johnny ChundersHamilton Nolan
    1/17/14 3:17pm

    Well, duh. Numbers can only get BIGGER; they cannot get smaller. Where did you learn your math?

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      Loquacious of BorgJohnny Chunders
      1/17/14 3:26pm

      Heck yeah, that's why they had an extra row to our national debt clock: making room for bigger numbers!

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      Johnny ChundersLoquacious of Borg
      1/17/14 3:28pm

      Mathematicians have theorized that an operation they call "subtraction" might be possible, but it's too abstract for most people to grasp.

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    A. Nonie MeusHamilton Nolan
    1/17/14 3:34pm

    The 5th grade teacher in me wants to point out that the word "literally" is used in a so-so manner in two different headlines on the Gawker home page right now.

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      Hamilton NolanA. Nonie Meus
      1/17/14 3:46pm

      Never take "Literally" literally.

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    happyburnercharliebrownHamilton Nolan
    1/17/14 3:18pm

    Hahaha, what will it say about us when the stock market crashes a second time? I'd bet good money on the idea that when OWS2.0 rolls into town, people will once again proclaim "But what does OWS want? They have no purpose!"

    Count me as one of the people who think the world might just have to burn for it to change.

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      Governor McCheesehappyburnercharliebrown
      1/17/14 3:59pm

      A second time? The market crashes like once every decade. It hasn't crashed only one time.

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      happyburnercharliebrownGovernor McCheese
      1/17/14 4:05pm

      I figured, given the context, it would have been obvious I meant second time as in "a second time so soon after this last one" given the piece is touching on having not learned our lesson, but I suppose I shouldn't trust context like that. My mistake.

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    jimboskiHamilton Nolan
    1/17/14 3:47pm

    See: Great Rotation. Interest rates have nowhere to go besides up, so can't own fixed income. Government prints to QE infinity, but not seeing inflation yet, so no reason to own gold. Farmland, bitcoins aren't as easily investable, so that leaves equities.

    Whose equities? Can't trust Chinese accounting or statistics, Europe is still bouncing on the bottom, which broadly leaves US equities. US economy not very good, but seems to have bottomed, may be getting better. Hmm, sounds like a good case for wanting to put your $ in US stocks.

    Then throw in that the US markets just had a very good year which makes those on the sidelines want to jump in to be part of the party. So the markets can very well continue to go up up up until one day they don't anymore.

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      Jerry-NetherlandHamilton Nolan
      1/17/14 3:32pm

      Bubble, bubble toil and trouble. Anyone out there who bought gold at $2k/oz? Who bought a 1 bedroom condo for $750k? Who bought oil futures at $150/bbl? When things are at "all-time highs" , the show has already jumped the shark.

      Those who are in the professional punditry and saying it won't happen are lying and they know it (and probably shorting everything themselves)!

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