Have you guys ever heard of this thing called the Tina Effect? I just learned about it and found it really interesting. It might shed some light on why sometimes the stock market rises, even when global growth slows down. Kind of like now, in this weird pandemic!
Fun fact: Apparently “Tina” is also a slang word for crystal meth! But, we’re not talking about that today – drug addiction is not $exy!
The Tina Effect in the Stock Market
TINA is an acronym that stands for There Is No Alternative. Investors use this term when they refer to stocks as the only good place to invest money, even when the stock market isn’t looking so great. The reason stocks remain so attractive (even when they’re ugly) is because people believe the alternative options are even less desirable. Hence, “there is no alternative.”
It’s kind of like saying “the best of a bad bunch.” We know it’s not great right now, but since nothing else looks great either, we may as well just stay the course.
A funny thing happens when everybody thinks there are no good alternatives to stocks… If people hold their positions and keep investing, the stock market begins to (or continues to) rise without any real underlying economic justification. This is referred to as “The Tina Effect.”
A Tina Market Example
Let’s say we’re in a kick-ass bull market and stock prices are on an absolute tear. Yay – everybody’s portfolio is rising in value! Even if your portfolio isn’t 100% stocks, it’s probably grown way out proportion and your asset allocation is out of whack.
At this point, an investor starts scratching her head thinking, “Stocks are getting way overvalued right now… Maybe it’s time to cash out a bit? Or, at least it’s probably a good time to diversify?”
But, after looking around, the investor discovers:
- Bond yields are way down. Treasury bonds seem crap and corporate bonds seem like they have too much risk. The Fed interest rate is extremely low.
- Real estate also seems expensive. Both physical properties and REITs are at all-time highs. Seems pointless cashing out of a high stock market just to buy into a high real estate market.
- Holding cash is unattractive.
- Commodities and alternatives like gold, silver, oil or crypto seem to have unpredictable futures. Plus, these aren’t supposed to make up a huge % of a portfolio anyway.
Sooo… After this research the investor decides to just stay investing in stocks, thinking there is no reasonable alternative or asset class he likes.
The Tina Effect and the Financial Independence FIRE Movement
So, is the Tina Effect a bad thing? Well, yes and no. It certainly helps create bubbles, and big disconnects between stock prices and their intrinsic values. But, I don’t think it’s necessarily bad if someone wants to favor the stock market over everything else.
Stocks are the most popular investment vehicle for people working towards financial independence. In fact, many peeps in the FIRE space have a 100% equity portfolio, and never plan to change it. Broad and low cost index funds truly are the simplest path to wealth.
The only thing we need to stomach are massive swings in the equity market – making sure we stay the course when a recession hits. Easier said than done, of course. :)
Also, a TINA market bubble isn’t really influenced too much by the few million FIRE nerds out there who love index funds. It’s the massive pension funds and other major investing institutions that have a much bigger sway on this stuff. They’re trying to balance cash flow and future payouts based on today’s available investments. Sometimes bond earnings are so low they literally can’t meet future obligations if they invest in them — making a heavy stock allocation the only option. Cool article and example here if you wanna read more!
Is There Really No Alternative Investment (For You)?
I’ll be the first to admit… When someone says the words to me “there is no alternative,” something inside me starts trying to prove them wrong. Maybe it’s the rebel in me — I don’t like being told that I have no options. It’s my natural instinct to challenge this and think outside the box.
Always searching for alternatives is a blessing and a curse.
It’s a blessing because only following proven methods in life can be boring. Thinking outside the box when investing can lead to some awesome successes. For example, a friend’s dad just bought a bunch of goats and is renting them out for land clearing. He’s making ridiculous money. If you told him “there is no alternative to the stock market,” he would laugh in your face. There are other investments out there, everywhere, particularly if you want to start your own business. You just gotta look for them!
But, it’s a curse because every time I think I’m smarter than the market, I fall flat on my face :)
What do you reckon?
Happy Friday! It’s a great day, to have a great day. 😉
– Joel
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Joel,
Another fantastic post!
The first time I heard the word “TINA” was back in 2016 when it really seemed like there were so many limited market options for investing.
I think you nailed it, though: Investing in low-cost index funds really is the way to go at this point. It’s not really the “sexy” way to invest, but it’s a consistent method. And ultimately, consistency is what can win in the long-run.
Well written!
The Millennial Money Woman
Sometimes the boring ways are the best ways :) Cheers MMW! Have a wicked weekend!
I have learned a lot of new acronyms this year (FOMO, NIMBY, etc.)! This is the first time I have ever heard of TINA. Thanks Joel!! :-)
The first thing I think of Joel is your real estate experience, and that is another investment opportunity. My wife and I are almost done paying off our primary residence ($ 300,000).
When that is paid off we plan to rent it out at $ 1,500 a month, and then build/buy our dream house.
I have also allocated 10 % of my portfolio to GOLD. People may laugh at me but I bought it at $ 350/ounce in 1990s and now it is $ 1,900/ounce. Sure, the stock market does better most of the time, but i sleep well at night knowing I have some money out of the market in a historic “store of wealth”. I would argue that CRYPTO is uncertain future, but Gold has been around for thousands of years. Do you see it going anywhere?
Last, I have a good chunk in broad, diversified low-cost index funds like VINIX or SPDR S&P 500 fund. I think everyone should do this!! However, I am not comfortable dumping everything in these as I prefer an active management.
I also do some swing trading and make some profit off of that. Check out IBD Swing Trader. I only do that with 2 – 3 % of my total portfolio, but I just LOVE it when I get a winner. Recently, AliBaba (BABA) and JD and in the past I did Boeing and made $ 3,000 in 3 days! I don’t recommend this for everyone, but I like dabbling a little.
Anyway, I feel that every good investor should research and read. Also, don’t put all your eggs in one basket!
Cool to hear you’ve got different buckets and some play around funds too. I think the best thing you said was that you “sleep well at night” which is really important, even if people laugh at your strategy.
Congrats on nearly paying off your place and building that dream home!
I’ve been an investor in private mortgages since 1991 (so I’m a bit too old for FIRE ). In 1997 two families (mine and my business partner’s) pooled their cash into a company to do private lending. We’ve averaged around 11.6% on a compound annual basis. We’re mighty proud of that record, and after 24 years (our year end is in 7 weeks) I think it is fair to say that it’s not just because of luck that we’ve had that degree of success.
The vast portion of our near 8 digit net worth has come from private investments in mortgages and real estate. I’m gun shy about buying real estate right now, but I’m not overly worried about mortgages. In lending it is all about the collateral and the loan to value. You can manage your exposure.
For those seeking FIRE I would highly recommend looking for opportunities outside the stock market. For me, the control of direct lending, combined with our outside profits was the key to our achieving our investment goals.
Thanks for sharing Martinus – this is exactly the kind of stuff I’m talking about. Congrats on all your success!
Joel,
We need to get a guest post from your friend’s dad, ASAP.
Give the readers what they want!
Haha! I’ve had more comments and emails about “the goat idea” than anything else. I’ll be looking into this! :)
If only there was something called the alternative investment market (extreme sarcasm notice, there 100% is)
haha! I’m curious what the average returns are for AIM…
There are always alternatives, one only needs to look hard enough
Agreed!
I was glad this wasn’t a post about crystal meth! Indexing really is the best option, and follows the principle of another acronym: KISS (keep it simple, stupid!). Even still, I’m going to look into this goat investment idea…
KISS is a great reminder. Every time I find myself is a hard situation, I eventually realize it’s because I put myself there. K.I.S.S! :)