Writer, editor, teacher. Expertise in personal finance and habit formation. Full-time freelancer and part-time musician.
Nicole Dieker
Karma: 170
oh oh oh oh I get it, I was reading the current story onto the story you were actually telling
thank you!
Why is selling an investment at the market’s highest value point in history irrational? Because it might be at an even higher value point in history later, and by selling you practically ensure that it’ll take longer to reach the next peak?
(This is a legitimate question, btw—not a bait.)
Also would like clarification here: “have it go back to the previous price level without us needing to collectively find a replacement quantity of cash to put back in the bucket.”
You don’t need a replacement quantity of cash, but you do need a (replacement?) quantity of eager buyers. Value does in fact need to be replaced.
Otherwise, neither Facebook nor GameStop’s stocks will ever go back to the previous price level (and we can be nitpicky and say well, if it’s part of a larger broad-market fund and everyone’s buying the fund but you still need an everyone to buy).
Would it be appropriate to rephrase my original post as follows?
(I’m sticking with the phrase “redeeming” instead of “selling” because that’s how Vanguard describes it [making it sound like a good thing rather than a bad thing].)
(I also know that “market volatility” can describe both up and down, but it’s only ever used to describe down; the point of this initial writing exercise was to describe what was literally happening when the news sites say “we’ve got a volatile market right now.”)
***
For “market volatility,” read people are redeeming their investments at a decreasing cash value, making the total potential cash value of the investment go down.
For “market growth,” read people are purchasing at an increasing cash value, making the total potential cash value of the investment go up.
For continued market growth, you need more people who want to buy at an increasing cash value and fewer people who want to sell at a decreasing cash value.
My investment protects you.
Your investment protects me.
After all, “panicked investors” can also be read as people redeeming value from the market — and if too many people decide to sell their stocks before we get a chance to request buyers, then you and I won’t get as much cash value from our investments as we were hoping to.
At least, not until more people decide that our investments are worth purchasing.
That’s an excellent point—I knew that every buyer required a seller, and that there are (rare) situations in which you could try to sell your investments only to have the brokerage firm say “sorry, no buyers available right now.”
But even though there’s the same amount of cash going to/from buyer/seller in all unique transactions, future transactions either decline or increase in value based on whether more people are trying to buy or sell (as you noted).
So if you want your future transactions to increase in value, you want more people to want to buy than to want to sell.
This is not precisely the same thing as what I originally wrote, which means it is good to clarify my thoughts in this way.
It’s both a CYA and a joke. Anyone who says anything about the stock market online begins with the statement that “this should not be constituted as investment advice,” e.g. here and here (two examples pulled from top of google search).
There is assumedly a legal reason that this disclaimer came into practice, e.g. if I wrote something and you did it and you lost money you might sue me, so I am obliged to tell you that A) I am not giving you advice and B) you should not take it!
agreed agreed agreed
but hey guess what the market rebounded today so yay for that?
That paragraph was meant to be less intuitive and more “wait if you really follow this line of thought it takes you to some nonsensical arenas...”
But we don’t get to say “I’d like to exchange a fractional share of Microsoft for a widget.” You can only exchange a fractional share of Microsoft for A) cash or B) shares in something else, and you can only do so if someone else is willing to make the trade. There are situations in which you could have an asset you want to sell and nobody wants to buy it, which is also true for other assets like houses (and, if you own a business, whatever your business produces [and, if you are a worker with specific skills, the value those skills could bring to an employer]).
As to your last point, there’s a non-trivial reason why some people suggest stockpiling a year’s worth of food...
One note that I wanted to add as we begin the discussion: in the hour it took me to write this post yesterday afternoon, Facebook stock had the largest one-day value drop in the market’s history.
This is what appears to have happened:
Facebook announced that it was losing users
Bots (it’s bots, right?) interpreted this news as “Facebook is going to lose value, better sell my shares while they are still high value”
Bots (right?) sold shares (to whom?)
Share value declined
All of the money-making value was redeemed before people like you and me even had a chance to trade. Right?
I agree with you on ALL OF THIS. Make your evaluation as similar to what you’re actually aiming for as possible, make sure you don’t neglect any sections of music and/or allow previously learned material to degrade, spread effort over time aka spaced repetition.
BTW, in our house we’re building a “piano performance ladder” (house concert, smaller venue, bigger venue, duets with other musicians, etc.). My mom used to teach this kind of thing to kids—play for parents first, then grandparents, then church or nursing home, etc. It holds up for adults too...
What I’m seeing in the comments, btw, is something I’ve been curious about testing next—whether the ideal scenario is something like “identify single problem, solve single problem, repeat solution five times perfectly consecutively (if you can’t do that, you haven’t solved the problem yet)” and then move on to the next problem.
At the end of your practice session you can test your work by playing all of the measures you’ve solved in current or previous sessions (the whole piece, if possible, or just the parts you’ve been able to address so far). If you win that attempt, STOP. If not, add failed measures to the next session’s problem-work-set...
But the probability of success increases as you accumulate previous successes, right?
And there’s a difference between “play 5 times perfectly” and “play 5 times perfectly consecutively.” Much more randomness (and potential regression to the mean) if you are allowed to have imperfect runs between your perfect ones.
Yep, that sounds like a reasonable strategy. Repeat the parts to perfect the whole...
I will say that L clarified this morning that “repetition begins when something is learned,” which is to say that once you know something, the next step is to repeat what you know.
More on all of this as I continue to collect data...
All good all good, initial results here...
The flip-a-coin experiment is a very good idea. Are you predicting that the result will look something like this:
Win, flip coin, heads
Win
Stop
Win (first try next session), flip coin, follow heads/tails instructions
vs.
Win, flip coin, tails
Stop
Fail (first try next session)
That’s worth testing, and I can start tomorrow.
Will be interesting to see if it devolves to this:
Win, flip coin, heads
Fail
Fail
Fail
[...]
Win, flip coin, follow heads/tails instructions
Or resolves to this:
Win, flip coins, tails
Stop
Win (first try next session)
Spaced repetition (stopping after win and coming back next session) is a thing, more info here including a downloable white paper with a bibliography of resources.
That said, the standard practice (pun intended) is also a thing.
As L told me last night, “just because you’ve found something that works better than what you were doing before doesn’t mean you’ve found the best thing yet...”
BTW I could learn something even more useful than “stop after win” with another month of metrics; maybe “immediately redefine more sophisticated win condition and work towards that” is the real key. But the data I’ve got now suggests that just repeating something you’ve already practiced to a defined win condition is counterproductive.
If you define your win condition and achieve it, your next step is to define a new win condition and achieve it as well. That means you could go from “play passage all notes accurate from memory” to “play passage all notes accurate from memory without curling 5th finger.”
I’m going to write a post on Tuesday about reps reps reps vs. mindful repetition, and why a rep where you pay attention to why you’re failing is just as valuable as a win.
I think the real question is whether the traditional approach to shooting a 3-pointer works. Do people who shoot shoot shoot shoot land more 3-pointers than people who prep, define, shoot, evaluate, prep with new information, etc.? And do the best players do all of that so quickly (and so integratedly) that it looks like rep rep rep?
That’s how I’ve done it, too. Once you know what pitch your favorite song starts on, for example, or what key it’s in, learning pitches becomes much easier.
This assumes that you can recall music from memory in its original key, of course. If you can’t, your first step might involve strengthening that kind of recall.
Thank you! Have you read Make It Stick: The Science of Successful Learning? That’s where I stole all of the ideas that I didn’t steal from Chessable...
I agree, with a caveat. There’s overeating in terms of food volume (bigger portions, eating past fullness, however you’d like to look at it), and there’s “eating the same volume as you did before, except much of the food is more calorically dense.”
As I commented on the Hyperpalatable Food Hypothesis post, you can actually compare recipes from then and now to see what’s going on:
At 201 grams of sugar per cup, you get 22 grams of sugar per brownie in today’s recipe vs. 12.5 grams of sugar per brownie in the 1969 recipe.
Today’s brownie recipe yields brownies that are 5 square inches and the 1969 recipe yields brownies that are 3.65 square inches, but even if you cut today’s brownies to the size of yesterday’s brownies you’d still get 16 grams of sugar per brownie.