From: Peter C. McCluskey (pcm@rahul.net)
Date: Wed Mar 29 2000 - 10:54:35 MST
rhanson@gmu.edu (Robin Hanson) writes:
>Steve C. Dotson wrote:
>> >I've revised a short paper I wrote a year and a half ago, wherein
>> >I basically predict a "singularity" in the next century.
>> >http://hanson.gmu.edu/longgrow.html
>>Does this mean you have a rekindled interest in the equity markets as
>>sound investments, or are you still solidly behind certain real estate
>>investments to the exclusion of stocks?
>
>Huh? If investors were rational and equally informed, *all*
You did suggest that many economists are less well informed than you
about the questions you addressed. If Steve thought that that lack of
information was peculiar to economists, he probably wouldn't have asked
that question.
>If people are not rational and if I think I have better info than
>others, then I need to compare the *price* of stocks to future
Don't assume you need to know the price of an investmemt to have
a better than random opinion on that price. A significant fraction
of the investment strategies with good track records simply amount
to observing that others are pessimistic or optimistic (i.e. if
analysts underestimated a company's most recent earnings report,
they were too pessimistic, and pessimism tends not to vanish instantly).
Your observation that few people are interested in the possibility
of a singularity provides a reason for expecting that investors are
too pessimistic about growth rates, and this presumed pessimism
provides information about how investments are likely to be mispriced.
>If I knew we were about to see explosive growth in the next ten
>years, that *still* wouldn't tell me to invest in stocks as
>opposed to all the other forms of investment available. A big
Second-guessing investors about questions which they know are important
is usually less productive than finding questions that they are ignoring.
Lots of attention is currently being focused on whether to buy and hold
the S&P500.
The most obvious implication of pessimism about long-term growth rates
is that people are likely to underestimate what long-term interest rates
should be.
Another possible implication is that investors are underestimating the
industries that would drive the increase in growth rates. If it is
possible to guess what those industries will be, it seems likely that
they are good investments. It also seems likely that there will be many
"old economy" industries which can be expected not to participate in the
increased growth rates, and that rising interest rates will hurt the
prices of these stocks.
Caveat: as long as investors haven't started to notice these effects, it
might be wiser to postpone agressive attempts to exploit these ideas.
-- ------------------------------------------------------------------------------ Peter McCluskey | The US Idea Futures Exchange: speculate on http://www.rahul.net/pcm | political,financial issues at http://www.usifex.com
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