"Just Stand There" vs. incorporating new info

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000
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Re: "Just Stand There" vs. incorporating new info

Post by 000 »

Would you just stand there if a freight train is coming at you?

Anyway, the bigger concern here is a 95% stock allocation which IMO is simply not suitable for most investors.
Triple digit golfer
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Re: "Just Stand There" vs. incorporating new info

Post by Triple digit golfer »

000 wrote: Mon Dec 06, 2021 8:23 pm Would you just stand there if a freight train is coming at you?

Anyway, the bigger concern here is a 95% stock allocation which IMO is simply not suitable for most investors.
No, but I can see a freight train.
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HomerJ
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Re: "Just Stand There" vs. incorporating new info

Post by HomerJ »

LunarOpal wrote: Mon Dec 06, 2021 6:28 pm The reason Economics is in the same list as Theater Arts isn't because they are all social sciences. It's because you pulled this list from some weird source.
I pulled the source from MIT.

https://shass.mit.edu/undergraduate/majors

How about Harvard?

https://socialscience.fas.harvard.edu/d ... nd-centers

Academic Departments & Degree Committees

• African & African American Studies
• Anthropology
• Economics
• Government
• History
• History of Science
• Psychology
• Social Studies
• Sociology
• Women, Gender & Sexuality Studies


No Theater or Music in that one, but it's included with Gender Studies and Sociology.

Economics is NOT a hard science. There are no natural fixed laws to discern via the scientific method.
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HomerJ
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Re: "Just Stand There" vs. incorporating new info

Post by HomerJ »

000 wrote: Mon Dec 06, 2021 8:23 pm Would you just stand there if a freight train is coming at you?
Come on

The whole point is that there is no freight train. It's not easy to see it coming.

What was your prediction again? You can magically see the freight train right?
Last edited by HomerJ on Mon Dec 06, 2021 8:38 pm, edited 1 time in total.
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000
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Re: "Just Stand There" vs. incorporating new info

Post by 000 »

It's hard to time markets, but that doesn't mean we are completely ignorant of the amount of risk we are taking with our allocations.
Triple digit golfer
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Re: "Just Stand There" vs. incorporating new info

Post by Triple digit golfer »

000 wrote: Mon Dec 06, 2021 8:29 pm It's hard to time markets, but that doesn't mean we are completely ignorant of the amount of risk we are taking with our allocations.
Agreed. That's very different than seeing a freight train and adjusting. To have the appropriate amount of risk requires no ability to see the freight train or know if one is coming.
000
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Re: "Just Stand There" vs. incorporating new info

Post by 000 »

Triple digit golfer wrote: Mon Dec 06, 2021 8:34 pm Agreed. That's very different than seeing a freight train and adjusting. To have the appropriate amount of risk requires no ability to see the freight train or know if one is coming.
No, if you have 95% stocks there is definitely a freight train coming for you at some point.

If it were known to not be so there would be no equity risk premium.
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Re: "Just Stand There" vs. incorporating new info

Post by Nathan Drake »

000 wrote: Mon Dec 06, 2021 8:36 pm
Triple digit golfer wrote: Mon Dec 06, 2021 8:34 pm Agreed. That's very different than seeing a freight train and adjusting. To have the appropriate amount of risk requires no ability to see the freight train or know if one is coming.
No, if you have 95% stocks there is definitely a freight train coming for you at some point.

If it were known to not be so there would be no equity risk premium.
Maybe someone has a risk tolerance for potential 50% drawdowns?

The biggest risk of being 100% stocks is not sticking through it when times are tough

If you are 100% stock, the best way to stick through it is by holding uncorrelated assets that help allow for a reasonable recovery time
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000
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Re: "Just Stand There" vs. incorporating new info

Post by 000 »

Nathan Drake wrote: Mon Dec 06, 2021 8:42 pm Maybe someone has a risk tolerance for potential 50% drawdowns?
50% isn't even close to the floor. We have to stop pretending that it is. If you want to guarantee a 50% floor you will need to buy puts which at 50% OTM currently cost about 70bp / yr. Clearly the options market thinks there is a non-trivial chance of >50% drawdown because insurers are charging for it.

Even excluding deep risks such as losing a war / revolution, asteroid, etc., 80% - 90% drawdown is completely plausible.
The biggest risk of being 100% stocks is not sticking through it when times are tough

If you are 100% stock, the best way to stick through it is by holding uncorrelated assets that help allow for a reasonable recovery time
I don't think other kinds of stocks reliably function as stock diversifiers.
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Re: "Just Stand There" vs. incorporating new info

Post by nigel_ht »

HomerJ wrote: Mon Dec 06, 2021 3:39 pm
nigel_ht wrote: Mon Dec 06, 2021 3:24 pm Social sciences are harder to do well than physical sciences but it doesn't make them not science.
You know what else is a social science?
  • Anthropology
  • Comparative Media Studies
  • Economics (Economics; Mathematical Economics; Computer Science, Economics, and Data Science)
  • Global Languages (French, German, Spanish)
  • History
  • Humanities (African & African Diaspora Studies, American Studies, Ancient and Medieval Studies, Asian and Asian Diaspora Studies, Latin American and Latino/a Studies, Russian and Eurasian Studies, Women's and Gender Studies)
  • Linguistics
  • Literature
  • Music
  • Philosophy
  • Political Science
  • Theater Arts
  • Writing
"Social science" is just a phrase. They are not similar to the "hard" sciences just because they have "science" in the name.

There is a real reason Economics is in the same list as Music and Theater, and not in the list with Physics and Chemistry.
Nope. While sometimes social sciences are grouped into humanities sometimes it’s not.

“social science” IS just a phrase. Just like “physical science” is just a phrase.

And yes, they aren’t similar to hard sciences because they have science in the name but because they use many of the same quantitative research methods.

Economics can be taken under either a humanities curriculum which means you end up with a BA or MA or a science curriculum where you end up with a BS or MS.

That this school lumps it under humanities is a choice of the school more than definitive proof that it’s not a science.
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Re: "Just Stand There" vs. incorporating new info

Post by nigel_ht »

HomerJ wrote: Mon Dec 06, 2021 8:24 pm Economics is NOT a hard science. There are no natural fixed laws to discern via the scientific method.
You got a nice strawman going there. Nobody has claimed that economics is a hard science.
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Re: "Just Stand There" vs. incorporating new info

Post by Nathan Drake »

000 wrote: Mon Dec 06, 2021 8:50 pm
Nathan Drake wrote: Mon Dec 06, 2021 8:42 pm Maybe someone has a risk tolerance for potential 50% drawdowns?
50% isn't even close to the floor. We have to stop pretending that it is. If you want to guarantee a 50% floor you will need to buy puts which at 50% OTM currently cost about 70bp / yr. Clearly the options market thinks there is a non-trivial chance of >50% drawdown because insurers are charging for it.

Even excluding deep risks such as losing a war / revolution, asteroid, etc., 80% - 90% drawdown is completely plausible.
The biggest risk of being 100% stocks is not sticking through it when times are tough

If you are 100% stock, the best way to stick through it is by holding uncorrelated assets that help allow for a reasonable recovery time
I don't think other kinds of stocks reliably function as stock diversifiers.
50% is a reasonable expectation a few times over one’s investing career.

Worse than 80-90% with a recovery period longer than 10 years is unlikely, but possible. In that scenario the risk is that you didn’t enjoy the money while you had it because whatever caused the drawdown is likely a serious existential threat to all of humanity.

Most liquidity event shocks or bubble’s bursting will be nowhere near as large or drawn out, and diversification across asset class types within stocks can help ensure a reliably expedient recovery.
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Re: "Just Stand There" vs. incorporating new info

Post by stan1 »

nigel_ht wrote: Mon Dec 06, 2021 8:54 pm
HomerJ wrote: Mon Dec 06, 2021 8:24 pm Economics is NOT a hard science. There are no natural fixed laws to discern via the scientific method.
You got a nice strawman going there. Nobody has claimed that economics is a hard science.
It's a great career though. You can build complex equations and models, collect data, present results, identify changes in human behavior, modify the models, collect more data, and present more results on repeat for decades. Throwing in the unpredictability of human behavior really bumps up the job security. If only the head of the Physics department of the university that wins the NCAA National Football Championship Newton's got the privilege of changing Newton's Law of Gravity based on personal whims each year.
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Re: "Just Stand There" vs. incorporating new info

Post by vanbogle59 »

nigel_ht wrote: Mon Dec 06, 2021 8:54 pm Nobody has claimed that economics is a hard science.
Right. So, if not, why not? What does "hard" mean?
In that word is the difference between the chemical certainty of Hydorgen + Oxygen + Spark = Water
and the macroeconomic model that predicts the next recession.

The whole point is one is actionable, genuinely predictive.
The other is an educated, thoughtful, mathematically rigorous.....opinion. At it's very core, uncertain. No way to know if it's gonna turn out to be true in advance.

FWIW, I think it is perfectly sane to think the forecasting of portfolio returns is NOT scientific
AND to think it makes sense for ME to hold 25% SCV (or whatever).

Now I don't think that for me. But I see how someone might think it for themselves.
And, in the context of this thread, I could easily see how someone who started with a 3 fund portfolio, then learned about tilting, might choose to incorporate it into their ISP. I don't find that the least bit insane (so long as one understands the pluses and minuses).

Just don't believe you have been shown the periodic table and now you finally know how it all works. It is NOT chemistry.
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Re: "Just Stand There" vs. incorporating new info

Post by 000 »

Nathan Drake wrote: Mon Dec 06, 2021 9:07 pm Worse than 80-90% with a recovery period longer than 10 years is unlikely, but possible. In that scenario the risk is that you didn’t enjoy the money while you had it because whatever caused the drawdown is likely a serious existential threat to all of humanity.
No. Central banks removing liquidity would not be a serious existential threat to all of humanity, nor would complete collapse of the global financial system.

This notion that we can just kind of brush off stock risk because everything else would be getting wiped out too, which I term Selective Doomism, is false.
Most liquidity event shocks or bubble’s bursting will be nowhere near as large or drawn out, and diversification across asset class types within stocks can help ensure a reliably expedient recovery.
No. SCV has not reliably reduced drawdowns or improved recoveries during great depression type megacrashes. It has worsened them.
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Re: "Just Stand There" vs. incorporating new info

Post by Nathan Drake »

000 wrote: Mon Dec 06, 2021 9:19 pm
Nathan Drake wrote: Mon Dec 06, 2021 9:07 pm Worse than 80-90% with a recovery period longer than 10 years is unlikely, but possible. In that scenario the risk is that you didn’t enjoy the money while you had it because whatever caused the drawdown is likely a serious existential threat to all of humanity.
No. Central banks removing liquidity would not be a serious existential threat to all of humanity, nor would complete collapse of the global financial system.

This notion that we can just kind of brush off stock risk because everything else would be getting wiped out too, which I term Selective Doomism, is false.
Most liquidity event shocks or bubble’s bursting will be nowhere near as large or drawn out, and diversification across asset class types within stocks can help ensure a reliably expedient recovery.
No. SCV has not reliably reduced drawdowns or improved recoveries during great depression type megacrashes. It has worsened them.
Why would central banks remove liquidity if the alternative is Great Depression 2.0?

This is just fear mongering.

SCV has proved valuable in many dead-decade scenarios. Sorry, my data set doesn’t include anything but 1 Great Depression megacrash
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Re: "Just Stand There" vs. incorporating new info

Post by nigel_ht »

HomerJ wrote: Mon Dec 06, 2021 8:24 pm
LunarOpal wrote: Mon Dec 06, 2021 6:28 pm The reason Economics is in the same list as Theater Arts isn't because they are all social sciences. It's because you pulled this list from some weird source.
I pulled the source from MIT.

https://shass.mit.edu/undergraduate/majors
This is a bizarre interpretation that MIT considers everything on that list is a social science when the school is specifically named the School of Humanities, Arts and Social Sciences.

Obviously many of those are Art and Humanities and not Social Sciences or the name of the school would just be The School of Social Sciences.
How about Harvard?

https://socialscience.fas.harvard.edu/d ... nd-centers

Academic Departments & Degree Committees

• African & African American Studies
• Anthropology
• Economics
• Government
• History
• History of Science
• Psychology
• Social Studies
• Sociology
• Women, Gender & Sexuality Studies

No Theater or Music in that one, but it's included with Gender Studies and Sociology.
Hey look…an actual list of social sciences!

Amazing. See what happens when the division or school is actually named something like “Division of Social Sciences”? You actually see a list of social sciences!

As long as Harvard is considered a good source:

In understanding what economics is, it is crucial to keep in mind that economics today is a scientific discipline. Bringing their particular perspective to the questions of social science, economists formulate theories and collect evidence to test these theories against alternative ideas. Doing economic research involves asking questions about the social world and addressing those questions with data and clear-headed logic, employing mathematical and statistical tools whenever appropriate to aid the analysis.”

https://economics.harvard.edu/files/eco ... _18-19.pdf
000
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Re: "Just Stand There" vs. incorporating new info

Post by 000 »

Nathan Drake wrote: Mon Dec 06, 2021 9:24 pm Why would central banks remove liquidity if the alternative is Great Depression 2.0?

This is just fear mongering.
No, it's not.

The fact that there is so much belief in the 50% maximum stock drop idea and so much resistance to the opposing view suggests that the black swan theory about investors underappreciating rare events is still true.
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Re: "Just Stand There" vs. incorporating new info

Post by vanbogle59 »

nigel_ht wrote: Mon Dec 06, 2021 9:28 pm
HomerJ wrote: Mon Dec 06, 2021 8:24 pm
LunarOpal wrote: Mon Dec 06, 2021 6:28 pm The reason Economics is in the same list as Theater Arts isn't because they are all social sciences. It's because you pulled this list from some weird source.
I pulled the source from MIT.

https://shass.mit.edu/undergraduate/majors
This is a bizarre interpretation that MIT considers everything on that list is a social science when the school is specifically named the School of Humanities, Arts and Social Sciences.

Obviously many of those are Art and Humanities and not Social Sciences or the name of the school would just be The School of Social Sciences.
How about Harvard?

https://socialscience.fas.harvard.edu/d ... nd-centers

Academic Departments & Degree Committees

• African & African American Studies
• Anthropology
• Economics
• Government
• History
• History of Science
• Psychology
• Social Studies
• Sociology
• Women, Gender & Sexuality Studies

No Theater or Music in that one, but it's included with Gender Studies and Sociology.
Hey look…an actual list of social sciences!

Amazing. See what happens when the division or school is actually named something like “Division of Social Sciences”? You actually see a list of social sciences!

As long as Harvard is considered a good source:

In understanding what economics is, it is crucial to keep in mind that economics today is a scientific discipline. Bringing their particular perspective to the questions of social science, economists formulate theories and collect evidence to test these theories against alternative ideas. Doing economic research involves asking questions about the social world and addressing those questions with data and clear-headed logic, employing mathematical and statistical tools whenever appropriate to aid the analysis.”

https://economics.harvard.edu/files/eco ... _18-19.pdf
Can I play? This looks like fun!

From MIT:
School of Science
Biology
Brain and Cognitive Sciences
Chemistry
Earth, Atmospheric, and Planetary Sciences
Mathematics
Physics

IOW, those are the sciences. The rest aren't! LOL
Bet that really steams the old Poli Sci faculty. :shock:

This thread has become kind of silly. :beer
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vanbogle59
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Re: "Just Stand There" vs. incorporating new info

Post by vanbogle59 »

000 wrote: Mon Dec 06, 2021 9:46 pm
Nathan Drake wrote: Mon Dec 06, 2021 9:24 pm Why would central banks remove liquidity if the alternative is Great Depression 2.0?

This is just fear mongering.
No, it's not.

The fact that there is so much belief in the 50% maximum stock drop idea and so much resistance to the opposing view suggests that the black swan theory about investors underappreciating rare events is still true.
Turkey has a central bank, right? Venezuela, too.
How is that working out?

I agree with the possibility. I just don't find the information actionable.
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Re: "Just Stand There" vs. incorporating new info

Post by nigel_ht »

vanbogle59 wrote: Mon Dec 06, 2021 9:19 pm
nigel_ht wrote: Mon Dec 06, 2021 8:54 pm Nobody has claimed that economics is a hard science.
Right. So, if not, why not? What does "hard" mean?
In that word is the difference between the chemical certainty of Hydorgen + Oxygen + Spark = Water
and the macroeconomic model that predicts the next recession.

The whole point is one is actionable, genuinely predictive.
The other is an educated, thoughtful, mathematically rigorous.....opinion. At it's very core, uncertain. No way to know if it's gonna turn out to be true in advance.

FWIW, I think it is perfectly sane to think the forecasting of portfolio returns is NOT scientific
AND to think it makes sense for ME to hold 25% SCV (or whatever).

Now I don't think that for me. But I see how someone might think it for themselves.
And, in the context of this thread, I could easily see how someone who started with a 3 fund portfolio, then learned about tilting, might choose to incorporate it into their ISP. I don't find that the least bit insane (so long as one understands the pluses and minuses).

Just don't believe you have been shown the periodic table and now you finally know how it all works. It is NOT chemistry.
:sharebeer
Lol…I’ve been told it’s a bit of an art form
(aka not predictive) to create a complex chemical synthesis at industrial scale given the complexity.

And quantum physics is probabilistic…and depending on viewpoint deterministic or non.

Statistical physics is a probabilistic approach for complex stochastic domains.

If you don’t think this math and science stuff is directly applicable to finance or economics then there’s a whole bunch of folks paying a whole lot of money to quants for no good reason.

Social sciences are soft because people are generally only predictable as a mass and even then the variables are poorly understood so the predictions are often inaccurate.

But it doesn’t make it “not a science” or not useful. The fact is you run into the impact of social science every day.
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Re: "Just Stand There" vs. incorporating new info

Post by mikejuss »

000 wrote: Mon Dec 06, 2021 8:36 pm
Triple digit golfer wrote: Mon Dec 06, 2021 8:34 pm Agreed. That's very different than seeing a freight train and adjusting. To have the appropriate amount of risk requires no ability to see the freight train or know if one is coming.
No, if you have 95% stocks there is definitely a freight train coming for you at some point.

If it were known to not be so there would be no equity risk premium.
I tend to agree with you, that a portfolio of 95% equities is too risky, but that's a personal choice, the ramifications of which should be understood by the OP.
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Re: "Just Stand There" vs. incorporating new info

Post by HomerJ »

vanbogle59 wrote: Mon Dec 06, 2021 9:19 pm And, in the context of this thread, I could easily see how someone who started with a 3 fund portfolio, then learned about tilting, might choose to incorporate it into their ISP. I don't find that the least bit insane (so long as one understands the pluses and minuses).

Just don't believe you have been shown the periodic table and now you finally know how it all works.
This.
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Re: "Just Stand There" vs. incorporating new info

Post by HomerJ »

nigel_ht wrote: Mon Dec 06, 2021 9:58 pm Social sciences are soft because people are generally only predictable as a mass and even then the variables are poorly understood so the predictions are often inaccurate.
Um... that's the point.
But it doesn’t make it “not a science” or not useful.
It absolutely isn't useful. THAT'S. THE. POINT.

The variables are poorly understand, and the predictions are often inaccurate. That's the definition of NOT USEFUL.

You just agreed with us. If you are dying to keep the word "science" in there somewhere, fine. You just agreed that the predictions are often inaccurate. Which means it's not useful.
Last edited by HomerJ on Mon Dec 06, 2021 10:29 pm, edited 1 time in total.
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Re: "Just Stand There" vs. incorporating new info

Post by Nathan Drake »

000 wrote: Mon Dec 06, 2021 9:46 pm
Nathan Drake wrote: Mon Dec 06, 2021 9:24 pm Why would central banks remove liquidity if the alternative is Great Depression 2.0?

This is just fear mongering.
No, it's not.

The fact that there is so much belief in the 50% maximum stock drop idea and so much resistance to the opposing view suggests that the black swan theory about investors underappreciating rare events is still true.
The vast majority of investors have NEVER experienced such an event. Is it possible? Yes. Is it likely? No.

How is it actionable to know that some calamitous event is a possibility? Invest we must. Invest per your risk tolerance. Such a scenario is likely to be so detrimental to society that no flight to safety will save you. Your bond allocation will be the least of your concerns.
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Re: "Just Stand There" vs. incorporating new info

Post by Beensabu »

Here's an anecdote from my real life today that I think applies to this topic.

My kid had a word problem where the answer was:

100 ÷ 10 = 10

But since they're working on two-step word problems right now, the kid was determined that this was a two-step word problem, so the kid's answer that got written down was:

(100 ÷ 10) x 1 = 10

Just because you have new info, and you're excited about that new info, that doesn't mean you need to apply it. And it doesn't necessarily mean that applying it will change much of anything at all. You could just be complicating things for no reason.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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HomerJ
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Re: "Just Stand There" vs. incorporating new info

Post by HomerJ »

Nathan Drake wrote: Mon Dec 06, 2021 10:15 pm
000 wrote: Mon Dec 06, 2021 9:46 pm
Nathan Drake wrote: Mon Dec 06, 2021 9:24 pm Why would central banks remove liquidity if the alternative is Great Depression 2.0?

This is just fear mongering.
No, it's not.

The fact that there is so much belief in the 50% maximum stock drop idea and so much resistance to the opposing view suggests that the black swan theory about investors underappreciating rare events is still true.
The vast majority of investors have NEVER experienced such an event. Is it possible? Yes. Is it likely? No.

How is it actionable to know that some calamitous event is a possibility? Invest we must. Invest per your risk tolerance. Such a scenario is likely to be so detrimental to society that no flight to safety will save you. Your bond allocation will be the least of your concerns.
It's already happened once, the world didn't end, and a bond allocation absolutely did save people.

I don't understand why people say something that has already happened once is impossible. Not likely, sure... but end-of-the-world? When it wasn't end-of the-world the last time?
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Re: "Just Stand There" vs. incorporating new info

Post by Nathan Drake »

HomerJ wrote: Mon Dec 06, 2021 10:28 pm
Nathan Drake wrote: Mon Dec 06, 2021 10:15 pm
000 wrote: Mon Dec 06, 2021 9:46 pm
Nathan Drake wrote: Mon Dec 06, 2021 9:24 pm Why would central banks remove liquidity if the alternative is Great Depression 2.0?

This is just fear mongering.
No, it's not.

The fact that there is so much belief in the 50% maximum stock drop idea and so much resistance to the opposing view suggests that the black swan theory about investors underappreciating rare events is still true.
The vast majority of investors have NEVER experienced such an event. Is it possible? Yes. Is it likely? No.

How is it actionable to know that some calamitous event is a possibility? Invest we must. Invest per your risk tolerance. Such a scenario is likely to be so detrimental to society that no flight to safety will save you. Your bond allocation will be the least of your concerns.
It's already happened once, the world didn't end, and a bond allocation absolutely did save people.

I don't understand why people say something that has already happened once is impossible. Not likely, sure... but end-of-the-world? When it wasn't end-of the-world the last time?
How did a bond allocation save anyone? Most had no savings whatsoever and were significantly unemployed with the world at or on the verge of war. My point being, your savings during a time this will NOT be anywhere near your primary concern.

You are a big believer in "PE doesn't matter! and it always goes up!" to which I reply, there's a reason why it goes up - because the world and its institutions are structured in a way that is LESS risky than in the past. With less risk, comes less return. The world we are in today is nothing like it was in 1929.

Which isn't to say it is without risk, but Central banks will do everything in their power to prevent a scenario that is being described. And in the end, they still may not be able to do anything if the world comes to nuclear war, or a plague like illness that is much more lethal than COVID, or fertility rates suddenly decline to extremely low levels as Grantham discusses.

But I'm not going to invest under the assumption that some mega depression will likely occur in my lifetime. If it does, plan B is to just survive like everyone else.
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Re: "Just Stand There" vs. incorporating new info

Post by Marseille07 »

vanbogle59 wrote: Mon Dec 06, 2021 9:53 pm
000 wrote: Mon Dec 06, 2021 9:46 pm
Nathan Drake wrote: Mon Dec 06, 2021 9:24 pm Why would central banks remove liquidity if the alternative is Great Depression 2.0?

This is just fear mongering.
No, it's not.

The fact that there is so much belief in the 50% maximum stock drop idea and so much resistance to the opposing view suggests that the black swan theory about investors underappreciating rare events is still true.
Turkey has a central bank, right? Venezuela, too.
How is that working out?

I agree with the possibility. I just don't find the information actionable.
Their stock market is actually through the roof: https://tradingeconomics.com/turkey/stock-market

Weak lira is good for equities (in this case, anyway).
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Re: "Just Stand There" vs. incorporating new info

Post by nigel_ht »

HomerJ wrote: Mon Dec 06, 2021 10:11 pm
nigel_ht wrote: Mon Dec 06, 2021 9:58 pm Social sciences are soft because people are generally only predictable as a mass and even then the variables are poorly understood so the predictions are often inaccurate.
Um... that's the point.
But it doesn’t make it “not a science” or not useful.
It absolutely isn't useful. THAT'S. THE. POINT.

The variables are poorly understand, and the predictions are often inaccurate. That's the definition of NOT USEFUL.

You just agreed with us. If you are dying to keep the word "science" in there somewhere, fine. You just agreed that the predictions are often inaccurate. Which means it's not useful.
I will tell you that human factors is useful having been part of the research and seen the results. Did we understand all of the variables? Nope. Did we correctly predict the outcomes? Nope. Did we use scientific methods and create a robust and rigorous experiment? Yep. Did we measurably reduce cognitive load and improve retention? Yep. Was the results statistically significant? Yep. Was it science? Yep.

Do I care if you call me a scientist? Nope. But I would be annoyed if you claimed my colleagues weren’t, not that they would care.

The behavioral science used in advertising and product development…especially for food…works very very well.

Psychology has made many positive and measurable impact on peoples lives without pharmacological help.

Just because you don’t think any of this is useful just because it isn’t an exact science isn’t a mark on the value of social sciences but merely a poor reflection on you.
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Re: "Just Stand There" vs. incorporating new info

Post by nigel_ht »

Nathan Drake wrote: Mon Dec 06, 2021 10:37 pm
How did a bond allocation save anyone? Most had no savings whatsoever and were significantly unemployed with the world at or on the verge of war. My point being, your savings during a time this will NOT be anywhere near your primary concern.
WWII wouldn’t start until 1936 for Japan and China and 1939 for Europe.

I dunno that a decade later is considered “verge”.
But I'm not going to invest under the assumption that some mega depression will likely occur in my lifetime. If it does, plan B is to just survive like everyone else.
Well, if you can amass a certain amount of wealth your plan B can be to retreat to an island lifeboat like the other wealthy folks safe from any ugly social disruption or food scarcity with solar and wind to power your luxury green retreat…
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Re: "Just Stand There" vs. incorporating new info

Post by Nathan Drake »

nigel_ht wrote: Mon Dec 06, 2021 10:59 pm
Nathan Drake wrote: Mon Dec 06, 2021 10:37 pm
How did a bond allocation save anyone? Most had no savings whatsoever and were significantly unemployed with the world at or on the verge of war. My point being, your savings during a time this will NOT be anywhere near your primary concern.
WWII wouldn’t start until 1936 for Japan and China and 1939 for Europe.

I dunno that a decade later is considered “verge”.
But I'm not going to invest under the assumption that some mega depression will likely occur in my lifetime. If it does, plan B is to just survive like everyone else.
Well, if you can amass a certain amount of wealth your plan B can be to retreat to an island lifeboat like the other wealthy folks safe from any ugly social disruption or food scarcity with solar and wind to power your luxury green retreat…
I said "at or on the verge", and it was very much a double dip depression...
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Re: "Just Stand There" vs. incorporating new info

Post by Apathizer »

Nathan Drake wrote: Mon Dec 06, 2021 9:24 pmSCV has proved valuable in many dead-decade scenarios. Sorry, my data set doesn’t include anything but 1 Great Depression megacrash.
This what so here many don't seem to understand about factors. Since factors are potential return sources independent of the market having some degree of factor slant improves risk adjusted returns. During the 2000-2009 'lost decade' when the US TSM return was effectively 0%, US SCV returned about 9%.

A TSM index only provides the market return. Admittedly this is the most significant factor, but over-weighting the other 4 factors produces higher, more consistent long-term expected returns.
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Re: "Just Stand There" vs. incorporating new info

Post by BalancedJCB19 »

Didn't read the replies yet, but Bogle also said quite often. The enemy of a good plan is the dream of a perfect plan. With personal finance and investing, simple is better. You are not running a hedge fund, you are saving for the future, a basic 3 fund portfolio will get you there and you won't be constantly wondering what you are missing. Be happy the market returns and over the years you will built wealth and buy your freedom.

Good Luck.
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Re: "Just Stand There" vs. incorporating new info

Post by muffins14 »

This exchange on “is economics a science” is kind of ridiculous. Economics is a very broad discipline… it’s not about only predicting stock returns. Economists use statistical tools, data, models, experiments etc to measure many things… like impact of cheaper healthcare on public health, impact of education on earnings, impact of charter school attendance on education achievement, changes in X on Y in general.

They are often rigorous controlled experiments or when they are “natural” experiments or observational causal inference a lot of thought and discussion of assumptions and sensitivity analyses about possible weaknesses occur.

For example, is there an underlying law of nature that offering more access to healthcare makes people healthier? Who knows, but if the data show there to be a relationship and you have to decide how much to invest in healthcare, it’s better to look at the data as opposed to just guess because “nobody knows nothing, right?”

This extends to other applications
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Re: "Just Stand There" vs. incorporating new info

Post by Apathizer »

BalancedJCB19 wrote: Mon Dec 06, 2021 11:41 pm Didn't read the replies yet, but Bogle also said quite often. The enemy of a good plan is the dream of a perfect plan. With personal finance and investing, simple is better. You are not running a hedge fund, you are saving for the future, a basic 3 fund portfolio will get you there and you won't be constantly wondering what you are missing. Be happy the market returns and over the years you will built wealth and buy your freedom.

Good Luck.
That a perfectly fine approach. But it's not so much a good v a hypothetical dream plan. It's TSM simplicity vs factor slant. The former is simpler while the latter has higher expected long-term returns, but is more complex, so individual investors need to determine if it's worth it or not.

BTW, single auto re-balancing asset allocation and target date funds like VT/VTWAX, VASGX, VSMGX, provide global diversification, so you don't even need 3 fund; only one.
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Re: "Just Stand There" vs. incorporating new info

Post by 000 »

Nathan Drake wrote: Mon Dec 06, 2021 10:15 pm The vast majority of investors have NEVER experienced such an event. Is it possible? Yes. Is it likely? No.

How is it actionable to know that some calamitous event is a possibility? Invest we must. Invest per your risk tolerance. Such a scenario is likely to be so detrimental to society that no flight to safety will save you. Your bond allocation will be the least of your concerns.
HomerJ gets it:
HomerJ wrote: Mon Dec 06, 2021 10:28 pm It's already happened once, the world didn't end, and a bond allocation absolutely did save people.

I don't understand why people say something that has already happened once is impossible. Not likely, sure... but end-of-the-world? When it wasn't end-of the-world the last time?
How is it actionable? I think it's actionable to have some non-equities in the portfolio. Even 20% in something else provides significant preservation during such a scenario. And the return delta between long term bonds and stocks (or gold and stocks) hasn't been huge.
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Re: "Just Stand There" vs. incorporating new info

Post by Nathan Drake »

000 wrote: Tue Dec 07, 2021 12:51 am
Nathan Drake wrote: Mon Dec 06, 2021 10:15 pm The vast majority of investors have NEVER experienced such an event. Is it possible? Yes. Is it likely? No.

How is it actionable to know that some calamitous event is a possibility? Invest we must. Invest per your risk tolerance. Such a scenario is likely to be so detrimental to society that no flight to safety will save you. Your bond allocation will be the least of your concerns.
HomerJ gets it:
HomerJ wrote: Mon Dec 06, 2021 10:28 pm It's already happened once, the world didn't end, and a bond allocation absolutely did save people.

I don't understand why people say something that has already happened once is impossible. Not likely, sure... but end-of-the-world? When it wasn't end-of the-world the last time?
How is it actionable? I think it's actionable to have some non-equities in the portfolio. Even 20% in something else provides significant preservation during such a scenario. And the return delta between long term bonds and stocks (or gold and stocks) hasn't been huge.
The return delta between long stocks and bonds is enormous.

I’m not saying you’re wrong and that having 20% in bonds is a safer route, but if someone wants to be 100% equity and understands the risks, including a massive black swan, that’s fine as well

I believe the likelihood of another scenario like that to be extremely low and it’s not even worth entertaining because bonds would be the least of my concerns in such a scenario

To each their own
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Re: "Just Stand There" vs. incorporating new info

Post by vanbogle59 »

nigel_ht wrote: Mon Dec 06, 2021 9:58 pm Lol…I’ve been told it’s a bit of an art form
(aka not predictive) to create a complex chemical synthesis at industrial scale given the complexity.
Of course. Every science has it's limits.
nigel_ht wrote: Mon Dec 06, 2021 9:58 pm And quantum physics is probabilistic…and depending on viewpoint deterministic or non.

Statistical physics is a probabilistic approach for complex stochastic domains.
And yet, when we study high energy particles, we don't have to fake them into thinking we are playing a game so we can draw conclusions about how they follow orders. And, somehow, the experiments performed by rich scientists in California can be duplicated by poor ones in Slovenia. And if they can't, they are discarded. See the difference?
nigel_ht wrote: Mon Dec 06, 2021 9:58 pm If you don’t think this math and science stuff is directly applicable to finance or economics then there’s a whole bunch of folks paying a whole lot of money to quants for no good reason.
I didn't say math wasn't applicable. I said it was fundamentally different in its application and in the nature of the conclusions you can draw from the math. Of course it's applicable.
nigel_ht wrote: Mon Dec 06, 2021 9:58 pm Social sciences are soft because people are generally only predictable as a mass and even then the variables are poorly understood so the predictions are often inaccurate.
I disagree. I would say, "social sciences are 'soft' because we are not studying cause and effect". What we are studying is better called influence or incentive... I would go so far as to say humans have free will (heresy, I know. I told you I was in the minority). But, even if free will is denied as a concept, the appearance of free will needs to be accounted for.
The break at the beginning of a game of pool is too complex to be described "completely" in any real engineering sense. Yet we can do it for a human? or, worse, a group of humans? Please. No we cannot.
nigel_ht wrote: Mon Dec 06, 2021 9:58 pm But it doesn’t make it “not a science” or not useful. The fact is you run into the impact of social science every day.
I never said it wasn't useful. Many things that aren't scientific are still useful.
nigel_ht wrote: Mon Dec 06, 2021 9:58 pm The fact is you run into the impact of social science every day.
True. For good and ill.
I also run into the impact of [insert pet peeve hated social phenomenon of someone else's tribe here] every day.
They ain't science either.

Why in the world do the people who spend their entire lives studying the most complex thing imaginable (the interactions of human beings) feel the need to declare their work "the same" as chemists? If it were me, I would just celebrate that the field was more difficult, more important.... Not "solvable" like those silly chemists with their powders and solutions.
Maybe it's harder to get grants (or justify mutual fund commissions)?
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Re: "Just Stand There" vs. incorporating new info

Post by mr_brightside »

is it truly 'news' or just 'noise'

wisdom is knowing the difference

-------------------------------------------
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Re: "Just Stand There" vs. incorporating new info

Post by RubyTuesday »

Ramjet wrote: Mon Dec 06, 2021 9:39 am Unpopular opinion: I personally think the "nobody knows nuthin'" (similar to "just stand there") replies are largely silly and gives people a reason to turn their brain off and not think through challenges to conventional wisdom or new information
IMO “nobody knows nuthin” is an acknowledgment that most “new information” is more noise and speculation than valuable information.

And I always saw Jack’s “just stand there” as a challenge to the conventional wisdom that you should do something in reaction to noise and speculation.
“Doing nothing is better than being busy doing nothing.” – Lao Tzu
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Re: "Just Stand There" vs. incorporating new info

Post by RubyTuesday »

marcopolo wrote: Mon Dec 06, 2021 1:14 pm
burritoLover wrote: Mon Dec 06, 2021 9:12 am
goingup wrote: Mon Dec 06, 2021 9:08 am I like Rick Ferri's observation:

The Education of an Index Investor:
1. Born in darkness;
2. Finds indexing enlightenment;
3. Over-complicates everything;
4. Embraces simplicity.

Maybe you're at #3? :D
I've seen that before and I'm probably a bit of a hypocrite in that I tell others the same thing when they are adopting the latest fad. But I try to think that I'm adopting evidenced-based info into these changes, not something that has back-tested well recently. But maybe I'm deluding myself.
What is the difference between "evidence based" and "back tested well"? Aren't most of the academic studies based on back testing whatever theory is being put forth?
What other "evidence" is there?
My thought exactly.
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Re: "Just Stand There" vs. incorporating new info

Post by burritoLover »

ivgrivchuck wrote: Mon Dec 06, 2021 8:07 pm
burritoLover wrote: Mon Dec 06, 2021 8:20 am I feel like I'm doing more harm than good but I can't seem to stick with one portfolio.
Maybe you are doing changes too quickly and without careful consideration?

Adding a SCV tilt to a 3-funder is one thing. Jumping between different funds and gold is another.

I've now considered adding a small SCV tilt for around a year. I'll be considering it for at least 6 more months before making any moves. I will carefully analyze all the options (VBR, VIOV, AVUV)

I'm also considering going for a golden butterfly style of portfolio near retirement, which is around 20 years from now. Plenty of time to consider and do research.

What I'm trying to say is: It's okay to educate oneself and evaluate all the options, but any changes have to be done after very careful consideration and not by going back and forth, and especially not acting on impulses.

P.S. In this board there is a bit too much fanaticism about the 3-fund portfolio. It's a nice portfolio for sure, but there are many other very good ways to build one's portfolio...
Yeah, I think you're right. I am doing it too quickly. I should let things marinate for longer - perhaps a year or more.
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Re: "Just Stand There" vs. incorporating new info

Post by burritoLover »

RubyTuesday wrote: Tue Dec 07, 2021 6:59 am
Ramjet wrote: Mon Dec 06, 2021 9:39 am Unpopular opinion: I personally think the "nobody knows nuthin'" (similar to "just stand there") replies are largely silly and gives people a reason to turn their brain off and not think through challenges to conventional wisdom or new information
IMO “nobody knows nuthin” is an acknowledgment that most “new information” is more noise and speculation than valuable information.

And I always saw Jack’s “just stand there” as a challenge to the conventional wisdom that you should do something in reaction to noise and speculation.
There's a distinction between what is new and what is new to me. The concept of small-cap value premium is nearly 30 years old when I decided to add a tilt to it. Early on, with my only TDF portfolio, I wasn't aware of factors. I'm not reacting to market or economic conditions, valuations, or forecasts.
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Re: "Just Stand There" vs. incorporating new info

Post by UpperNwGuy »

000 wrote: Mon Dec 06, 2021 8:50 pm
Nathan Drake wrote: Mon Dec 06, 2021 8:42 pm Maybe someone has a risk tolerance for potential 50% drawdowns?
50% isn't even close to the floor. We have to stop pretending that it is. If you want to guarantee a 50% floor you will need to buy puts which at 50% OTM currently cost about 70bp / yr. Clearly the options market thinks there is a non-trivial chance of >50% drawdown because insurers are charging for it.

Even excluding deep risks such as losing a war / revolution, asteroid, etc., 80% - 90% drawdown is completely plausible.
The biggest risk of being 100% stocks is not sticking through it when times are tough

If you are 100% stock, the best way to stick through it is by holding uncorrelated assets that help allow for a reasonable recovery time
I don't think other kinds of stocks reliably function as stock diversifiers.
If 50% isn't even close to the floor, what is the floor? When did we last reach that floor? What is the probability that we will reach it again?
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Re: "Just Stand There" vs. incorporating new info

Post by vanbogle59 »

UpperNwGuy wrote: Tue Dec 07, 2021 8:17 am If 50% isn't even close to the floor, what is the floor? When did we last reach that floor? What is the probability that we will reach it again?
Ask AIG. They are experts at insuring against these sorts of things. :oops:
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Re: "Just Stand There" vs. incorporating new info

Post by HomerJ »

Nathan Drake wrote: Mon Dec 06, 2021 10:37 pm
HomerJ wrote: Mon Dec 06, 2021 10:28 pm
Nathan Drake wrote: Mon Dec 06, 2021 10:15 pm
000 wrote: Mon Dec 06, 2021 9:46 pm
Nathan Drake wrote: Mon Dec 06, 2021 9:24 pm Why would central banks remove liquidity if the alternative is Great Depression 2.0?

This is just fear mongering.
No, it's not.

The fact that there is so much belief in the 50% maximum stock drop idea and so much resistance to the opposing view suggests that the black swan theory about investors underappreciating rare events is still true.
The vast majority of investors have NEVER experienced such an event. Is it possible? Yes. Is it likely? No.

How is it actionable to know that some calamitous event is a possibility? Invest we must. Invest per your risk tolerance. Such a scenario is likely to be so detrimental to society that no flight to safety will save you. Your bond allocation will be the least of your concerns.
It's already happened once, the world didn't end, and a bond allocation absolutely did save people.

I don't understand why people say something that has already happened once is impossible. Not likely, sure... but end-of-the-world? When it wasn't end-of the-world the last time?
How did a bond allocation save anyone?
Read a history book.

U.S. bonds did just fine during the Great Depression. They went up in value, when stocks crashed.

Someone withdrawing 4% a year with a 60/40 portfolio had their money last 30 years, while those with a 100% stock portfolio would have gone broke.
You are a big believer in "PE doesn't matter! and it always goes up!"
I have never said that P/E always goes up. Prices, the value of the stock market, continue to go up, over the long-run, even when P/E remains the same.

But I've never said valuations (P/E) "always go up".

I've said, so far, valuations (P/E) don't matter in the long-run. Valuations go up, valuations go down, but in the long-run, so far, the stock market still returns 9%-10% nominal annual returns.

This is undisputed. You think this could change in the future, and you may be right. But, so far, P/E and valuations absolutely HAVE NOT MATTERED, in the long-run.

They may matter in the short-run (unfortunately, they are not very predictive), which is why bonds are important. The U.S. stock market does crash, even 80%-90%. It's happened before. But, so far, it has always recovered in the long-run, and gone on to new heights, and the long-term returns, even including those crashes and bad years, have still been excellent.
Last edited by HomerJ on Tue Dec 07, 2021 8:41 am, edited 1 time in total.
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Re: "Just Stand There" vs. incorporating new info

Post by mikejuss »

burritoLover wrote: Tue Dec 07, 2021 7:59 am
RubyTuesday wrote: Tue Dec 07, 2021 6:59 am
Ramjet wrote: Mon Dec 06, 2021 9:39 am Unpopular opinion: I personally think the "nobody knows nuthin'" (similar to "just stand there") replies are largely silly and gives people a reason to turn their brain off and not think through challenges to conventional wisdom or new information
IMO “nobody knows nuthin” is an acknowledgment that most “new information” is more noise and speculation than valuable information.

And I always saw Jack’s “just stand there” as a challenge to the conventional wisdom that you should do something in reaction to noise and speculation.
There's a distinction between what is new and what is new to me. The concept of small-cap value premium is nearly 30 years old when I decided to add a tilt to it. Early on, with my only TDF portfolio, I wasn't aware of factors. I'm not reacting to market or economic conditions, valuations, or forecasts.
Are you sure you're not overweighing the VSIAX results from just the past year? I agree that they look better than those of VTSAX, but, taking the long view, do the two funds represent a distinction without much of a difference? I wouldn't expect meaningfully higher results by choosing VSIAX.
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Re: "Just Stand There" vs. incorporating new info

Post by etfan »

burritoLover wrote: Tue Dec 07, 2021 7:59 am There's a distinction between what is new and what is new to me.
There's also sometimes the "fresh perspective" factor. You read an article or a post about something you were already aware of, but this time the way the argument or data was presented provided a fresh perspective, and something clicks.
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Re: "Just Stand There" vs. incorporating new info

Post by Ramjet »

RubyTuesday wrote: Tue Dec 07, 2021 6:59 am
Ramjet wrote: Mon Dec 06, 2021 9:39 am Unpopular opinion: I personally think the "nobody knows nuthin'" (similar to "just stand there") replies are largely silly and gives people a reason to turn their brain off and not think through challenges to conventional wisdom or new information
IMO “nobody knows nuthin” is an acknowledgment that most “new information” is more noise and speculation than valuable information.

And I always saw Jack’s “just stand there” as a challenge to the conventional wisdom that you should do something in reaction to noise and speculation.
Agree. I often find that people don't use the quote that way though
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