Finance and Investing
#4148·Dennis Hackethal, 5 days agoWiener’s critique of the dollar applies to gold, too. Both fluctuate. I see no rational preference for gold following from his argument.
The value of gold is anchored, see #4155. The dollar has no such anchor.
#4213·Erik Orrje, 4 days agoI was careful to say "It is important to buy assets for significantly less than you think they are worth". Value is certainly subjective (in the sense that things are valued differently by different people).
It can't only be about what I think an asset is worth though right?🤔 Isn't the important thing to buy assets that people will value higher in the future? And in the process try to explain what people will subjectively value?
If the business is cash-flowing it doesn’t matter if other people in the market don’t bid it up. The business can buy back shares or distribute dividends to enrich shareholders.
Obviously this assumes you’ve invested in a business with competent management.
#4211·Dennis Hackethal, 4 days agoWhat asset you measure in and what asset you trade for don't necessarily need to be related.
What are some cases where they wouldn’t be related?
I don’t see how one could determine a good time to sell an asset without knowing what it’s worth in one’s target asset.
Let’s say you wanted to know if your house was gaining or losing value over time. You can do a calculation using historical gold price records to see how many gold ounces the house cost you (opportunity cost), and how many gold ounces the house is worth now.
This doesn’t mean that if you eventually go to sell it you will only accept gold ounces. You might be happy with dollars because you plan to use the dollars to buy another house.
The point is that you are thinking about the value of things in units of gold, rather than units of dollars.
#4158·Benjamin DaviesOP revised 4 days agoI was careful to say "It is important to buy assets for significantly less than you think they are worth". Value is certainly subjective (in the sense that things are valued differently by different people).
As for methods of valuation, there are many out there, each with their pros and cons. Discounted cashflow (DCF) valuations are my preferred method as they directly address the purpose of investing: giving up value today in exchange for more value in the future. The key problem with this is that the future is inherently unpredictable, so building a DCF involves educated guesswork about the future and is inevitably imprecise (varying massively by the nature of the asset... the USD return from a US govt bond is more predictable than the USD return of a tech stock).
The unavoidable flaws in valuation methods are why we should try to buy assets at steep discounts to our valuations of them. The deeper the discount, the bigger our mistake can be without it hurting us.
I was careful to say "It is important to buy assets for significantly less than you think they are worth". Value is certainly subjective (in the sense that things are valued differently by different people).
It can't only be about what I think an asset is worth though right?🤔 Isn't the important thing to buy assets that people will value higher in the future? And in the process try to explain what people will subjectively value?
#4161·Benjamin DaviesOP, 4 days agoWhat asset you measure in and what asset you trade for don't necessarily need to be related.
There is nothing wrong with trading goods for dollars. This is more an argument against measuring the changing value of assets across time in dollars.
What asset you measure in and what asset you trade for don't necessarily need to be related.
What are some cases where they wouldn’t be related?
I don’t see how one could determine a good time to sell an asset without knowing what it’s worth in one’s target asset.
#4160·Dennis Hackethal, 4 days agoBut if you decided, despite the dollar’s shortcomings, that you want to trade an asset for dollars, you wouldn’t measure your asset in ounces of gold. You’d measure it in dollars, wouldn’t you?
Or are you saying one should never trade assets for dollars?
What asset you measure in and what asset you trade for don't necessarily need to be related.
There is nothing wrong with trading goods for dollars. This is more an argument against measuring the changing value of assets across time in dollars.
#4155·Benjamin DaviesOP revised 4 days agoThinking in terms of gold is less arbitrary than thinking in dollars because gold is anchored in physical reality, whereas the dollar is anchored in political decree. When you choose to measure your wealth in a unit just because you want to trade for it later, you are prioritising the convenience of a transaction over the integrity of the measurement.
Measurement requires a constant. If you measure a table with a rubber band, the "length" of the table changes depending on how hard you pull the band. The US dollar is that rubber band. Its supply and value are subject to the whims of central bankers, interest rate policies, and the shifting needs of government deficit spending. Gold, however, is a physical element with a high stock-to-flow ratio. Its total supply grows at a very slow, predictable rate that no person can speed up by decree. Measuring in gold allows you to see the real change in an asset's value, independent of the currency’s volatility.
Gold's value is anchored by the arbitrage of mining. If the value of gold rises significantly, it becomes profitable to mine more, which eventually brings the value back into equilibrium with the cost of production. This creates a feedback loop rooted in physics, economics and labour. The dollar has no such anchor; the cost to "produce" a trillion dollars is the same as the cost to produce one dollar: a few keystrokes. Using a unit that costs nothing to create to measure things that require real work is an arbitrary standard.
But if you decided, despite the dollar’s shortcomings, that you want to trade an asset for dollars, you wouldn’t measure your asset in ounces of gold. You’d measure it in dollars, wouldn’t you?
Or are you saying one should never trade assets for dollars?
I was careful to say "It is important to buy assets for significantly less than you think they are worth". Value is certainly subjective (in the sense that things are valued differently by different people).
As for methods of valuation, there are many out there, each with their pros and cons. Discounted cashflow (DCF) valuations are my preferred method as they directly address the purpose of investing: giving up value today in exchange for more value in the future. The key problem with this is that the future is inherently unpredictable, so building a DCF involves educated guesswork and is imprecise.
The flaws in valuation methods are why we should try to buy assets at steep discounts to our valuations of them, in case we are wrong.
I was careful to say "It is important to buy assets for significantly less than you think they are worth". Value is certainly subjective (in the sense that things are valued differently by different people).
As for methods of valuation, there are many out there, each with their pros and cons. Discounted cashflow (DCF) valuations are my preferred method as they directly address the purpose of investing: giving up value today in exchange for more value in the future. The key problem with this is that the future is inherently unpredictable, so building a DCF involves educated guesswork about the future and is inevitably imprecise (varying massively by the nature of the asset... the USD return from a US govt bond is more predictable than the USD return of a tech stock).
The unavoidable flaws in valuation methods are why we should try to buy assets at steep discounts to our valuations of them. The deeper the discount, the bigger our mistake can be without it hurting us.
#4153·Erik Orrje, 5 days agoIt is important to buy assets for significantly less than you think they are worth. The cheaper you buy something, the more margin you have for things to go worse than anticipated.
According to Austrian economics, all value is subjective. How can we then know what an asset is intrinsically worth?
I was careful to say "It is important to buy assets for significantly less than you think they are worth". Value is certainly subjective (in the sense that things are valued differently by different people).
As for methods of valuation, there are many out there, each with their pros and cons. Discounted cashflow (DCF) valuations are my preferred method as they directly address the purpose of investing: giving up value today in exchange for more value in the future. The key problem with this is that the future is inherently unpredictable, so building a DCF involves educated guesswork and is imprecise.
The flaws in valuation methods are why we should try to buy assets at steep discounts to our valuations of them, in case we are wrong.
Thinking in terms of gold is less arbitrary than thinking in dollars because gold is anchored in physical reality, whereas the dollar is anchored in political decree. When you choose to measure your wealth in a unit just because you want to trade for it later, you are prioritising the convenience of a transaction over the integrity of the measurement.
Measurement requires a constant. If you measure a table with a rubber band, the "length" of the table changes depending on how hard you pull the band. The US dollar is that rubber band. Its supply and value are subject to the whims of central bankers, interest rate policies, and the shifting needs of government deficit spending. Gold, however, is a physical element with a high stock-to-flow ratio. Its total supply grows at a very slow, predictable rate that no person can speed up by decree. Measuring in gold allows you to see the real change in an asset's value, independent of the currency’s volatility.
Gold's value is anchored by the arbitrage of mining. If the value of gold rises significantly, it becomes profitable to mine more, which eventually brings the value back into equilibrium with the cost of production. This creates a feedback loop rooted in physics and labor. The dollar has no such anchor; the cost to "produce" a trillion dollars is the same as the cost to produce one dollar: a few keystrokes. Using a unit that costs nothing to create to measure things that require real work is an arbitrary standard.
Thinking in terms of gold is less arbitrary than thinking in dollars because gold is anchored in physical reality, whereas the dollar is anchored in political decree. When you choose to measure your wealth in a unit just because you want to trade for it later, you are prioritising the convenience of a transaction over the integrity of the measurement.
Measurement requires a constant. If you measure a table with a rubber band, the "length" of the table changes depending on how hard you pull the band. The US dollar is that rubber band. Its supply and value are subject to the whims of central bankers, interest rate policies, and the shifting needs of government deficit spending. Gold, however, is a physical element with a high stock-to-flow ratio. Its total supply grows at a very slow, predictable rate that no person can speed up by decree. Measuring in gold allows you to see the real change in an asset's value, independent of the currency’s volatility.
Gold's value is anchored by the arbitrage of mining. If the value of gold rises significantly, it becomes profitable to mine more, which eventually brings the value back into equilibrium with the cost of production. This creates a feedback loop rooted in physics, economics and labour. The dollar has no such anchor; the cost to "produce" a trillion dollars is the same as the cost to produce one dollar: a few keystrokes. Using a unit that costs nothing to create to measure things that require real work is an arbitrary standard.
#4151·Dennis Hackethal, 5 days agoI think it would be arbitrary to measure the value in any unit that you aren’t hoping to trade your asset for.
For example, if you eventually want to get gold in exchange for your asset, measure the number of ounces your asset is worth and sell at an opportune time.
If you want to get dollars, measure your asset in dollars. Etc.
Thinking in terms of gold is less arbitrary than thinking in dollars because gold is anchored in physical reality, whereas the dollar is anchored in political decree. When you choose to measure your wealth in a unit just because you want to trade for it later, you are prioritising the convenience of a transaction over the integrity of the measurement.
Measurement requires a constant. If you measure a table with a rubber band, the "length" of the table changes depending on how hard you pull the band. The US dollar is that rubber band. Its supply and value are subject to the whims of central bankers, interest rate policies, and the shifting needs of government deficit spending. Gold, however, is a physical element with a high stock-to-flow ratio. Its total supply grows at a very slow, predictable rate that no person can speed up by decree. Measuring in gold allows you to see the real change in an asset's value, independent of the currency’s volatility.
Gold's value is anchored by the arbitrage of mining. If the value of gold rises significantly, it becomes profitable to mine more, which eventually brings the value back into equilibrium with the cost of production. This creates a feedback loop rooted in physics and labor. The dollar has no such anchor; the cost to "produce" a trillion dollars is the same as the cost to produce one dollar: a few keystrokes. Using a unit that costs nothing to create to measure things that require real work is an arbitrary standard.
#3959·Benjamin DaviesOP, 15 days agoYou are fallible and the future is unpredictable. It is important to buy assets for significantly less than you think they are worth. The cheaper you buy something, the more margin you have for things to go worse than anticipated. This is called a 'Margin of Safety'. Paying a higher price for something inherently makes the investment more fragile and less profitable.
A crappy business can be a good investment if you get it cheap enough, and a wonderful business can be a terrible investment if you pay too much. (The dream is getting a wonderful business for cheap.)
It is important to buy assets for significantly less than you think they are worth. The cheaper you buy something, the more margin you have for things to go worse than anticipated.
According to Austrian economics, all value is subjective. How can we then know what an asset is intrinsically worth?
Dollar-Cost Averaging
Dollar-cost averaging (DCA) is when you invest a fixed amount on a regular basis regardless of market developments.
This practice can work well long term for assets that reflect the value of the entire stock market (or a big part of it).
Long term, we can expect the stock market as a whole to gain value. So if you invest part of your income every month, say, then your position will grow in the long run.
In the meantime, you get to reduce risk by not investing all your money at once. You also get to react to developments that affect the stock market and can decide to interrupt your investment schedule. But I personally like ‘boring’ investment strategies, meaning strategies that are automated and reliable.
#4143·Benjamin DaviesOP, 8 days agoMeasuring the stock market in fiat is more arbitrary than measuring it in gold.
A short video relating to that:
https://youtu.be/AGNvdN1Lw9A?si=b5vO7kx_pTRgEgrZ
I think it would be arbitrary to measure the value in any unit that you aren’t hoping to trade your asset for.
For example, if you eventually want to get gold in exchange for your asset, measure the number of ounces your asset is worth and sell at an opportune time.
If you want to get dollars, measure your asset in dollars. Etc.
#4149·Dennis Hackethal, 5 days agoBut gold isn’t fiat. The government can’t create more gold out of thin air.
I don’t see how it matters for his argument. The value of anything fluctuates.
#4148·Dennis Hackethal, 5 days agoWiener’s critique of the dollar applies to gold, too. Both fluctuate. I see no rational preference for gold following from his argument.
But gold isn’t fiat. The government can’t create more gold out of thin air.
#4143·Benjamin DaviesOP, 8 days agoMeasuring the stock market in fiat is more arbitrary than measuring it in gold.
A short video relating to that:
https://youtu.be/AGNvdN1Lw9A?si=b5vO7kx_pTRgEgrZ
Wiener’s critique of the dollar applies to gold, too. Both fluctuate. I see no rational preference for gold following from his argument.
#4145·Dennis Hackethal, 7 days agoWiener says the dollar can go up or down in value (usually down; prices usually rise).
He suggests that, due to this volatility, measuring the value of something in dollars is like measuring the width of a physical object using a rubber band. He implies that this measurement is unreliable and arbitrary because you can ‘stretch’ it just like a rubber band.
He concludes that we should measure the value of something in ounces of gold instead.
Am I understanding Wiener correctly?
Yes I think so.
#4143·Benjamin DaviesOP, 8 days agoMeasuring the stock market in fiat is more arbitrary than measuring it in gold.
A short video relating to that:
https://youtu.be/AGNvdN1Lw9A?si=b5vO7kx_pTRgEgrZ
Wiener says the dollar can go up or down in value (usually down; prices usually rise).
He suggests that, due to this volatility, measuring the value of something in dollars is like measuring the width of a physical object using a rubber band. He implies that this measurement is unreliable and arbitrary because you can ‘stretch’ it just like a rubber band.
He concludes that we should measure the value of something in ounces of gold instead.
Am I understanding Wiener correctly?
#4141·Dennis Hackethal, 8 days agoApparently, stocks have fallen since the dot-com bubble when measured in gold instead of dollars: https://x.com/elerianm/status/1976237139185574170
Some comments suggest measuring stocks in gold is arbitrary, others say this development is simply due to inflation.
Are they right or is this development a deeper sign that the economy is in trouble?
Funny you bring this up the day gold makes its biggest single-day USD move in history 👀
#4141·Dennis Hackethal, 8 days agoApparently, stocks have fallen since the dot-com bubble when measured in gold instead of dollars: https://x.com/elerianm/status/1976237139185574170
Some comments suggest measuring stocks in gold is arbitrary, others say this development is simply due to inflation.
Are they right or is this development a deeper sign that the economy is in trouble?
Measuring the stock market in fiat is more arbitrary than measuring it in gold.
A short video relating to that:
https://youtu.be/AGNvdN1Lw9A?si=b5vO7kx_pTRgEgrZ
#4141·Dennis Hackethal, 8 days agoApparently, stocks have fallen since the dot-com bubble when measured in gold instead of dollars: https://x.com/elerianm/status/1976237139185574170
Some comments suggest measuring stocks in gold is arbitrary, others say this development is simply due to inflation.
Are they right or is this development a deeper sign that the economy is in trouble?
Some added colour:
https://x.com/philippilk/status/2016089604588290348?s=46
Apparently, stocks have fallen since the dot-com bubble when measured in gold instead of dollars: https://x.com/elerianm/status/1976237139185574170
Some comments suggest measuring stocks in gold is arbitrary, others say this development is simply due to inflation.
Are they right or is this development a deeper sign that the economy is in trouble?
This is not exactly true. The business still needs to produce something people want to buy, at a price they will accept. This is separate from competition.
Another way to say that is: all businesses are in competition with all others at the broadest level.
If you liked Snickers bars, but they suddenly 5x in price, it isn’t necessarily true that you will buy a different chocolate bar. You might go to the bakery instead, or use that money to put a little more fuel in your car.
This is not exactly true. The business still needs to produce something people want to buy, at a price they will accept. This is separate from competition.
Another way to say that is: all businesses are in competition with all others at the broadest level.
If you like Snickers bars, but they suddenly 5x in price, it isn’t necessarily true that you will buy a different chocolate bar. You might go to the bakery instead, or use that money to put a little more fuel in your car.
#3991·Zelalem Mekonnen revised 13 days agoCan shorting be a mechanism of error correction?
I've also noticed incumbent advantage in business. Unless a competitor offers a better product, a company can be as corrupt and lazy as possible.
This is not exactly true. The business still needs to produce something people want to buy, at a price they will accept. This is separate from competition.
Another way to say that is: all businesses are in competition with all others at the broadest level.
If you liked Snickers bars, but they suddenly 5x in price, it isn’t necessarily true that you will buy a different chocolate bar. You might go to the bakery instead, or use that money to put a little more fuel in your car.