Frothy times
After an absolutely spectacular few months, stock market valuations have ascended over the past few months to levels never previously seen, outside of a few months in the dotcom era of 1999 and 2000.
This gave rise to an interesting debate online over the past week.
Namely: is the most effective and repeatable path to wealth to develop great skills and career progression, to become an entrepreneur, or to study markets with a view to finding a durable edge and becoming the best possible investor?
A lot of people think they're outstanding investors at the moment - me included, lol! - but in reality pretty much everything has been booming recently, and often even the worst ideas have been achieving the biggest results.
Earning more money and put it into low-cost diversified stocks and index funds is clearly not the type of advice people are that interested in when everything is booming.
Given Buffett accrued 98 per cent of his
wealth after the age of 65 - increasing his wealth by a staggering 10-fold over the past 30 years thanks to the power and multiplying effects of compounding - there's a decent argument to say that you shouldn't worry quite so much about honing your investment skills that much at all under after the age of 50.
It's like reading a book which says: eat less, focus on healthy food, and exercise more.
We know it's not bad advice, per se, but we're just naturally more interested in the short cuts.
However, if you're a multi-cycle investor, it's actually very hard to beat the compounding results of, say, bumping up your income by a third and investing the difference in index funds for the long term.
Beating the averages
The problem with stock-picking these days is that value investing has absolutely sucked for the past 17 years, while any informational advantage which may once have existed has all but been arbitraged away.
In fact, it's been a pretty rubbish 17 years to be anything but long and leveraged, to be fair!
Lately NVIDIA became the most valuable company in history in blazing past a market cap of US$4½ trillion.
And if you didn't own a few of the mega-outperforming tech stocks you've had a very small chance of consistently outperforming without taking on more risk and/or volatility.
Maybe only once the tide goes out in full will we realise how insane the era of 'fart jar NFTs' and the like really was.
Real estate firing up
Real estate hasn't been immune from the market frenzies triggered since the 2020 stimulus, most recently in cities such as Perth, where housing prices have effectively doubled.
The Aussie government poured a bit more fuel on the fire this week by introducing its 5 per cent deposit guarantee for first homebuyers, which will bring practically any first homebuyer who can afford to buy into the market, pushing up prices for entry level homes and segments of the market.
Using leverage sensibly in real estate has been one proven way to get outperforming results over the course of multiple cycles.
But even building a property portfolio these days is to some extent dependent on an ability to earn a decent income to prove serviceability...so don't ignore the income side (as well as honing your investment skills).
Stay safe out there!
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