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Investing for the Long Slump

Eliezer: the economic foo-far-raw has drained away minds and resources, made genuine progress and productivity less attractive, and distracted world leaders and opinion. Why invest in a start up venture when Maddof and his pals can offer you 28% every year?

Investing for the Long Slump

There is no magic bullet now, more than any other time. If there is, people all jump on it, and it stops becoming a magic bullet. Gold is the perfect example: it's being pumped up so high by speculation and 'safety' investors that it's intrinsic worth is no longer relevant - it's in a bubble.

I believe that the effect of this downturn on technology research will be tempered somewhat by this fact: if 'safe' investments are more risky, more speculative endeavours become >relatively< less risky. Furthermore, human resources become more plentiful (half of silicon valley will be sitting around with nothing to do, and willing to work for cheap). Of course, this put much of dent into the problem - no money to invest means no money to invest, but some calculations of comparative ROIs and risk would be useful to bring up in any investment pitch these days :>

I'm also not convinced that we will have a Japan style downturn. Why? Certainly not because anyone is doing anything to stop it, but because emergent technologies have such potential for wealth creation in the medium term. For instance (just one instance from many): how long until we get GM biofuels online? 5 years? Certainly less than ten.

In regards to investment, there are several strategies that might make sense that have been suggested to me. Here are a couple, off the top of my head:

  • wait until after the slowdown is in full force (ie - after the market downturn that we keep kicking down the line, a few months at a time)
  • identify 20 or more companies whose stock is cheap (>$10/share) and have even or better odds of surviving this downturn.
  • invest a small amount of your portfolio (5-10%) evenly among them.

Half of these companies will go to zero. The other half (or less, in all likelihood) will, just by the nature of surviving the downturn, pick up other business and increase in value and make up the loss. This worked well during the dot-com crash, as long as you did a good job of identifying the companies that would survive.

Real Estate:

At some point RE will become attractive again: quite likely obscenely attractive - so attractive that no one will go near it. You would need to be prepared to sit on them for a good long while though, and be very careful where you buy - entire cities are in danger of going down the tubes, which will postpone their real estate recovery into post-singularity era, whatever millennia that happens to occur in.

Of course, neither of these are investment strategies for before the slow down occurs. At this point, if you aren't trading, you are best keeping your money out of the market. Buy and hold is dead.

Naturally, this is just my two cents, and is opinion, not investment advice.

The Dilemma: Science or Bayes?

"Um... there really aren't any extremely strong arguments for majoritarianism. That position confuses conclusions with evidence."

What's more, it implies that human beliefs are normally distributed. I posit they are not, with extra weight being given to concepts that are exciting/emotional or arousing. We have a built in bias in the direction of things that are evolutionarily important (ie - babies, scarey stuff).

"I'm trying to comprehend how this is a dilemma... Science supposedly teaches that for any two theories that explain the same data, the simplest one is correct. Bayes can't talk about explaining data without invoking the science that collected the data... Can he?"

That's Occam's razor, not Science. The scientific method >is taken to suggest< that an untestable theory is of no use. This isn't the case, since every theory starts out untestable, until someone devises a test for it. What's more, Occam's razor isn't some unmutable natural law: it's just a probability - the simplest explanation is >usually< the right one, and so why not start there and move up the ladder of complexity as required: that way, you can cover the most likely (all other aspects being equal) explanations with the minimum amount of work.

I call false dichotomy on this Bayes vs Science lark. It's perfectly reasonable to work with untestable theories, even ones that remain implicitly untestable, and even ones that go against observed phenomenon, as long as one recognizes that, somewhere, there is hole in the grand equation. "Spooky action at a distance", anyone?