Challenging Investment Maxims
These are true despite the conventional disagreement.
You are meaningfully long and short some combination of exposures well beyond those you are aware of.
Every investment position is itself a bundle of predictions about the future.
All money and monetary systems are ultimately based on faith. All. Of. Them.
There is no such thing as intrinsic asset value. All assets have subjective values at their core. Some are closer to the idea of a concrete, intrinsic, natural value, but none actually possess this mythical foundation.
There is no such thing as “money on the sidelines”. It is always invested in one form or another. More correctly stated: wealth always exists in one form or another with it being subject to relative valuation change one way or another. Cash depreciates (appreciates) because of inflation (deflation), and there are a great many ways to measure this change. None of them is singularly superior or complete.
It is extremely likely the counterparty on the other side of your trade (i.e., the person buying from or selling to you) knows more about the asset being traded than you do. This is a paradox perhaps understood through a paraphrased quote: “Out of all the trades in all the bourses in the world, she was the counterparty to mine.” Another way to think about it is as a Monty Hall Problem.
Certain assets have value by adding value to other assets whose purpose is to seek out, identify, and destroy the very value possessed by those original assets. This is my delineation between static and dynamic assets. Since the goal of one is to destroy the value of the other, at some point you cannot be profitably long both of the assets.1
For an investment to have a positive real return, something has to change in your favor from the time you buy it.
Known, certain cash flows cannot have a positive net present value.2
Any single factor or dimension can only be exclusively favorable or unfavorable to an investment. In and of itself it cannot be both. It is possible but rare that it could be neutral. For example, time per se can only be working for you or against you. Therefore, more time is either good or bad—don’t confuse not knowing the impact by assuming there is not a single direction of impact.
You are choosing to (re)purchase any currently held position that could be traded away. “Hold” means “buy again right now”—albeit at near-zero trading cost.
Admittedly, this could take a really, really long time in many cases. But the time line is much shorter once we consider risk-adjusted returns and opportunity cost.
That is in equilibrium at least.