A couple of weeks ago I had dinner with some friends, two of whom work in the “financial services” industry. Another friend made a comment that I think is very accurate when he said that “Investing is dead – there is only trading” (I may be paraphrasing). This pretty much summarizes my attitudes about the stock market lately, and caused me to remember a previous post I made about how the stock market has turned into a Ponzi scheme.
In olden days people used to say that “The stock market has higher risk but higher expected return than bonds”. I have come to believe that since the financial services industry has fundamentally been unable to quantify risk any more, this is no longer a meaningful statement. I fully expect that the next crisis will occur in the bond market, since the bond rating agencies have constructed their own house of cards.
Ultimately investing depends on your estimate of the potential upside or downside for an asset that you intend to exchange for something else in the future. There is a surplus of advice on how to assess risk, and a shortage of trustworthy advice.