6 ms·

Programmers Should Invest

13 points by mojuba 17y ago

motters 17y ago
I tried gambling on the stock market years ago, and only ever lost money. The thing is that the value of stocks has almost nothing to do with the quality, innovativeness or technological superiority of the products being sold by companies, so as such it's very difficult to get a handle on things without delving into the world of rumour and gossip - something which I have very little inclination or aptitude for. I even wrote software to predict stock prices using fancy techniques, but also found that this is no panacea. My conclusion is that the markets are only predictable on a very short time scale, so unless you're investing in large volumes of stock it's unlikely that automated systems are going to help you. Worse, there are many factors of a very human psychological nature which are just extremely difficult to design into the prediction system. Also buying and selling stocks is just another form of gambling - like betting on horses or football teams - so the same rules apply. If you can't afford to lose it, don't gamble it away.
stcredzero 17y ago
It would've been amusing if CmdrTaco had taken his advice and shorted Apple stock.
ig1 17y ago
He's making a fundamental flaw, he's investing on the basis that Google and Apple make good products and that information isn't already reflected in the current price of AAPL or GOOG. Which obviously isn't true, everyone knows Apple and Google make good products. Furthermore you can't assume that a good product means that a company will do well. Plenty of companies launch "better" products that fail, and the technology sector has no lack of examples Betamax, Amiga, BeOS, etc.
- mojuba 17y ago
  The prices of GOOG and AAPL already reflect their brilliance in whatever they are doing, true, but best thing about them is they will innovate more. Apple is not just iPod, it's everything they have done since the 80s and will probably do in the near future. And that in a way explains why sometimes seemingly "good" products like those you mentioned fail: because a given company can't keep up and innovate constantly. Of course there are companies that fall under "constantly innovating" category and yet some of the things they come up with fail. It's hard to tell, or if it was easy, there wouldn't be good or bad investors, but only good ones. That's the whole point of investment: you place your bets using your knowledge and intuition. It's a game in the end.
  - houseabsolute 17y ago
    > but best thing about them is they will innovate more. The price of the stock already reflects this as well (at least to the extent people in the market guess that it is true). When you buy the stock on the basis that the company will innovate more, what you're really betting is that it will innovate not just more, but more than other people thing it will.
  - ggrot 17y ago
    >> That's the whole point of investment: you place your bets using your knowledge and intuition. It's a game in the end. That sounds like a better definition of gambling than investing. To me, the whole point of investing is so that money I don't need at the moment will be worth more when I do need it. That's why I buy low-cost passive index funds and don't try to out analyze the analysts. By buying an index fund, I get the advantages of all of the best analysts out there - I'm effectively crowd-sourcing my investment strategy.
  - pmjordan 17y ago
    You could have said the same thing about Microsoft in the late nineties and few would have doubted you. Yet their stock is now worth somewhat less than in '99 and early 2000. Worst of all, there's been no consistent growth at all during the last 10 years.
- markkanof 17y ago
  Agreed. The movement of stock prices is often not directly or at all related to the quality and demand for a companies products. Often I think we individual investors are getting talked into stocks by analysts for big investment firms, to their benefit, not ours. They sell us the stock itself as a product, independent of the company that the stock represents.
ggrot 17y ago
This is horribly bad. He bought some apple stock, it happened to go up, and he beat the market. I once bought myself black at a roulette table, it happened to be the next color, and I beat the house. Should I write a page about the fundamentals of gambling that I read about and ultimately ignored for the fact that people like black better than red.
- cloudkj 17y ago
  Agreed. It's also important to point out that the timeframe was in the span of weeks, which is minuscule in the scope of typical investing timeframes.
scotty79 17y ago
I highly recommend reading "The Drunkard's Walk: How Randomness Rules Our Lives" People perform worse than monkey while predicting random future events because they search patterns everywhere, they think they 'figured things out' and they choose less randomly which is not a good idea if you are betting on truly random event (such as raise or fall of stocks) since by not betting on outcomes mistakenly identified as unlikely reduces your chances. Investment advice: 1. You can predict nothing so don't play short term and don't watch the stock market information, it doesn't help people that spent entire life trying to predict stock market even a bit so it won't help you but it will take a lot of time and will trash your emotions. 2. Buy whenever you have money. 3. Sell whenever you need money (and by need I mean REALLY need). You may postpone buying a little bit if you see declining trend and loosen up a bit on 'really' in 'REALLY need' if you stock is currently worth much more than some time ago and tighten it up if you lost some money on your investments, but I am not sure if that does any good or harm.
ggrot 17y ago
The argument about monkeys beating investors has nothing to do with investor biases. The point is that professional investors charge fees for their stock picking strategies and that due to the fees alone, these returns will be smaller than randomly choosing stocks (market weighted) with no fees. The moral of the story is that few people can successfully beat the market, and if they could they wouldn't be letting you in on their strategy for a reasonable fee.
byrneseyeview 17y ago
If you're going to invest, you might use stocks to hedge instead of doubling down. For example, if you love Apple, you might decide to "invest" 20% of your working hours in building an iPhone app. Since the net present value of your working hours is bigger than the value of your stock portfolio (probably), you are making a massive, undiversified bet on Apple's continued dominance. To hedge, short Apple stock and buy MSFT. That way, as long as you develop a good app, you'll come out okay whether the iPhone gets more popular (you lose money on the short and make money on the app) or less popular (you wasted your time on the app, but made money on your short). In other words, do arbitrage, not directional bets. (Note that this is almost never the right decision to make. The only exception might be if you got most of your income from working on Linux, and you bought shares of a patent troll--the events that make them do well will also hurt your normal income.)
maxklein 17y ago
Don't do this. You don't have any more expert knowledge than the pro investor - he knows a LOT more than you and he has access to the same websites you read. If code clarity were relevant to stock price, then the programmer has an advantage, but it's business sense + consumer perception that is important, and a lot of other people have that advantage. In any case, if you can program, given 4500 you can easily make 20000 in a year by programming something. With stocks, it is VERY difficult for a naive beginner. Put your money in something more fruitful.
ct 17y ago
Just getting lucky with one stock doesn't make you a great investor. Do this a several more times over a period of 5 to 10 yrs then check back. Also with 20 yrs of development experience (and assuming starting to code at 20 yrs old) - I take it he's around 40 and so are now just starting to invest? Kind of late in the game to plan for retirement. But I guess it's better than never.
kees 17y ago
I still don't grasp why a programmer should invest, but the subject is interesting. A programmer could have a better understanding of the computer/tech industry, especially if you see a programmer as a well connected professional. A professional, who knows a lot details about a bunch of different tech companies, who knows the people, the shakers and the movers. But this characteristic is not only related to programmers but to other professionals in the industrie as well. Of course this could lead to a bias, namely that you overestimate yourself and will bet to much on specific companies, what you didn't do when you weren't a professional. A remark must be made. Because the tech sector is so innovative. And still be a dominant factor for productivity growth. The trend on this kind stocks will always be upwards. And there will always be new companies, with a potential of amazing growth and idem dito stock prices. Maybe stockpicking in the the tech fields just gives you better odds. Overall, I think that programmers have an advantage, because most of the time they are early adaptors. They will use products, before these are well known to the public ( and stock analysts) Personally, they're just spending more time on their computer and will always use the products which will increase their productivity, which of course are probably produced by the most succesfull companies. But also, professionally, a lot of professionals are at frontier of their field. Maybe, Non-progammers should observe what all the tech savvy people use to increase their productivity or what kind of gadgets they buy. Or which start-ups are popular by the programmers. And make the decision whether this is business savvy or not. At the end, you should check WHAT you're actually programming, and what you boss want you to do.
bjoernw 17y ago
It's so frustrating when people don't understand that the market has already priced everything into the price of a stock. When someone buys a stock that person thinks he/she knows more about the price of the stock than the rest of the market. There is plenty of academic research that shows stock picking doesn't work and shows that actively managed mutual funds do as well as passively managed funds. No fund manager can create a positive alpha over the long run. I cringed when I read the title...
- xsmasher 17y ago
  The idea is that the techie may have more insight into the value of a company, because of their insight into technology. A techie may value Google over AOL and Apple over Dell, instead of just seeing "two web companies" or "two computer companies." However, a techie isn't in a good position to judge whether a company is overleveraged, etc. if they can't read a balance sheet.

13 points by mojuba 17y ago

I tried gambling on the stock market years ago, and only ever lost money. The thing is that the value of stocks has almost nothing to do with the quality, innovativeness or technological superiority of the products being sold by companies, so as such it's very difficult to get a handle on things without delving into the world of rumour and gossip - something which I have very little inclination or aptitude for. I even wrote software to predict stock prices using fancy techniques, but also found that this is no panacea. My conclusion is that the markets are only predictable on a very short time scale, so unless you're investing in large volumes of stock it's unlikely that automated systems are going to help you. Worse, there are many factors of a very human psychological nature which are just extremely difficult to design into the prediction system. Also buying and selling stocks is just another form of gambling - like betting on horses or football teams - so the same rules apply. If you can't afford to lose it, don't gamble it away.

stcredzero 17y ago

It would've been amusing if CmdrTaco had taken his advice and shorted Apple stock.

ig1 17y ago

He's making a fundamental flaw, he's investing on the basis that Google and Apple make good products and that information isn't already reflected in the current price of AAPL or GOOG. Which obviously isn't true, everyone knows Apple and Google make good products. Furthermore you can't assume that a good product means that a company will do well. Plenty of companies launch "better" products that fail, and the technology sector has no lack of examples Betamax, Amiga, BeOS, etc.

mojuba 17y ago
The prices of GOOG and AAPL already reflect their brilliance in whatever they are doing, true, but best thing about them is they will innovate more. Apple is not just iPod, it's everything they have done since the 80s and will probably do in the near future. And that in a way explains why sometimes seemingly "good" products like those you mentioned fail: because a given company can't keep up and innovate constantly. Of course there are companies that fall under "constantly innovating" category and yet some of the things they come up with fail. It's hard to tell, or if it was easy, there wouldn't be good or bad investors, but only good ones. That's the whole point of investment: you place your bets using your knowledge and intuition. It's a game in the end.
- houseabsolute 17y ago
  > but best thing about them is they will innovate more. The price of the stock already reflects this as well (at least to the extent people in the market guess that it is true). When you buy the stock on the basis that the company will innovate more, what you're really betting is that it will innovate not just more, but more than other people thing it will.
- ggrot 17y ago
  >> That's the whole point of investment: you place your bets using your knowledge and intuition. It's a game in the end. That sounds like a better definition of gambling than investing. To me, the whole point of investing is so that money I don't need at the moment will be worth more when I do need it. That's why I buy low-cost passive index funds and don't try to out analyze the analysts. By buying an index fund, I get the advantages of all of the best analysts out there - I'm effectively crowd-sourcing my investment strategy.
- pmjordan 17y ago
  You could have said the same thing about Microsoft in the late nineties and few would have doubted you. Yet their stock is now worth somewhat less than in '99 and early 2000. Worst of all, there's been no consistent growth at all during the last 10 years.
markkanof 17y ago
Agreed. The movement of stock prices is often not directly or at all related to the quality and demand for a companies products. Often I think we individual investors are getting talked into stocks by analysts for big investment firms, to their benefit, not ours. They sell us the stock itself as a product, independent of the company that the stock represents.

ggrot 17y ago

This is horribly bad. He bought some apple stock, it happened to go up, and he beat the market. I once bought myself black at a roulette table, it happened to be the next color, and I beat the house. Should I write a page about the fundamentals of gambling that I read about and ultimately ignored for the fact that people like black better than red.

cloudkj 17y ago
Agreed. It's also important to point out that the timeframe was in the span of weeks, which is minuscule in the scope of typical investing timeframes.

scotty79 17y ago

I highly recommend reading "The Drunkard's Walk: How Randomness Rules Our Lives" People perform worse than monkey while predicting random future events because they search patterns everywhere, they think they 'figured things out' and they choose less randomly which is not a good idea if you are betting on truly random event (such as raise or fall of stocks) since by not betting on outcomes mistakenly identified as unlikely reduces your chances. Investment advice: 1. You can predict nothing so don't play short term and don't watch the stock market information, it doesn't help people that spent entire life trying to predict stock market even a bit so it won't help you but it will take a lot of time and will trash your emotions. 2. Buy whenever you have money. 3. Sell whenever you need money (and by need I mean REALLY need). You may postpone buying a little bit if you see declining trend and loosen up a bit on 'really' in 'REALLY need' if you stock is currently worth much more than some time ago and tighten it up if you lost some money on your investments, but I am not sure if that does any good or harm.

ggrot 17y ago

The argument about monkeys beating investors has nothing to do with investor biases. The point is that professional investors charge fees for their stock picking strategies and that due to the fees alone, these returns will be smaller than randomly choosing stocks (market weighted) with no fees. The moral of the story is that few people can successfully beat the market, and if they could they wouldn't be letting you in on their strategy for a reasonable fee.

byrneseyeview 17y ago

If you're going to invest, you might use stocks to hedge instead of doubling down. For example, if you love Apple, you might decide to "invest" 20% of your working hours in building an iPhone app. Since the net present value of your working hours is bigger than the value of your stock portfolio (probably), you are making a massive, undiversified bet on Apple's continued dominance. To hedge, short Apple stock and buy MSFT. That way, as long as you develop a good app, you'll come out okay whether the iPhone gets more popular (you lose money on the short and make money on the app) or less popular (you wasted your time on the app, but made money on your short). In other words, do arbitrage, not directional bets. (Note that this is almost never the right decision to make. The only exception might be if you got most of your income from working on Linux, and you bought shares of a patent troll--the events that make them do well will also hurt your normal income.)

maxklein 17y ago

Don't do this. You don't have any more expert knowledge than the pro investor - he knows a LOT more than you and he has access to the same websites you read. If code clarity were relevant to stock price, then the programmer has an advantage, but it's business sense + consumer perception that is important, and a lot of other people have that advantage. In any case, if you can program, given 4500 you can easily make 20000 in a year by programming something. With stocks, it is VERY difficult for a naive beginner. Put your money in something more fruitful.

ct 17y ago

Just getting lucky with one stock doesn't make you a great investor. Do this a several more times over a period of 5 to 10 yrs then check back. Also with 20 yrs of development experience (and assuming starting to code at 20 yrs old) - I take it he's around 40 and so are now just starting to invest? Kind of late in the game to plan for retirement. But I guess it's better than never.

kees 17y ago

I still don't grasp why a programmer should invest, but the subject is interesting. A programmer could have a better understanding of the computer/tech industry, especially if you see a programmer as a well connected professional. A professional, who knows a lot details about a bunch of different tech companies, who knows the people, the shakers and the movers. But this characteristic is not only related to programmers but to other professionals in the industrie as well. Of course this could lead to a bias, namely that you overestimate yourself and will bet to much on specific companies, what you didn't do when you weren't a professional. A remark must be made. Because the tech sector is so innovative. And still be a dominant factor for productivity growth. The trend on this kind stocks will always be upwards. And there will always be new companies, with a potential of amazing growth and idem dito stock prices. Maybe stockpicking in the the tech fields just gives you better odds. Overall, I think that programmers have an advantage, because most of the time they are early adaptors. They will use products, before these are well known to the public ( and stock analysts) Personally, they're just spending more time on their computer and will always use the products which will increase their productivity, which of course are probably produced by the most succesfull companies. But also, professionally, a lot of professionals are at frontier of their field. Maybe, Non-progammers should observe what all the tech savvy people use to increase their productivity or what kind of gadgets they buy. Or which start-ups are popular by the programmers. And make the decision whether this is business savvy or not. At the end, you should check WHAT you're actually programming, and what you boss want you to do.

bjoernw 17y ago

It's so frustrating when people don't understand that the market has already priced everything into the price of a stock. When someone buys a stock that person thinks he/she knows more about the price of the stock than the rest of the market. There is plenty of academic research that shows stock picking doesn't work and shows that actively managed mutual funds do as well as passively managed funds. No fund manager can create a positive alpha over the long run. I cringed when I read the title...

xsmasher 17y ago
The idea is that the techie may have more insight into the value of a company, because of their insight into technology. A techie may value Google over AOL and Apple over Dell, instead of just seeing "two web companies" or "two computer companies." However, a techie isn't in a good position to judge whether a company is overleveraged, etc. if they can't read a balance sheet.