33 ms·

"The DAO is just a committee of non-professional voters who have relatively little ability to do proper due diligence." Isn't that true of the stock market too

by dror 10y ago

"The DAO is just a committee of non-professional voters who have relatively little ability to do proper due diligence." Isn't that true of the stock market too? As someone who strongly believes that individuals should invest in indexed funds, probably a similar approach should come into play here, where you don't invest a large amount in any one company, but instead, invest a little in lots of companies. The stock market, of course, has over time had lots of checks and balances applied to it over the years that you're not going to see here, so it's a much more dangerous game.

drcode 10y ago
> Isn't that true of the stock market too? No, the stock market is a system in which 95% of people have "relatively little ability to do proper due diligence" and 5% of people who know what they're doing (or have private information) and eat everyone else's lunch. The reason stock pricing is so accurate and predictive when analyzed scientifically is because that 5% has a disproportionate impact on the marginal price of shares.
- dror 10y ago
  > 5% of people who know what they're doing (or have private information) and eat everyone else's lunch. Ah, the myth of the expert investor. Time and again, it's been proven that the experts don't pick stocks better than an index fund. If they did, managed funds would do better than index funds. http://www.cnbc.com/2015/06/26/index-funds-trounce-actively-managed-funds-study.html http://www.cnbc.com/2015/06/26/index-funds-trounce-actively-...
  - philwelch 10y ago
    Your assumption is that the experts would necessarily be fund managers rather than individual investors or people getting away with insider trading.
  - aminok 10y ago
    Nothing he said is contradicted by the mediocre/sub-par performance of recognized experts. In fact it's explained by it: >that 5% has a disproportionate impact on the marginal price of shares.
  - dsacco 10y ago
    >> Ah, the myth of the expert investor. Time and again, it's been proven that the experts don't pick stocks better than an index fund. "Myth" and "proven" are interesting words to use. Your citation doesn't support the conclusion that experts are proven to perform worse than index funds. What your citation supports is a claim that it is very difficult to beat the market. I see this zeitgeist expressed on Hacker News very frequently, as though we can't simply look at the numbers and find out if there are experts capable of beating the market consistently. In point of fact, whether or not a fund performs better than index funds has nothing to do with whether or not it's managed, but rather with how it is managed. You've made a falsifiable claim here, so let's pursue that: >> If they did, managed funds would do better than index funds. Pick a timeline, ideally one that seems rigorous enough for consistency. How about 15 years? The PRPFX and JENSX funds have both beaten the S&P 500's average annual returns over a 15 year timeline. [1] You might say that 15 years is not long enough to be sure, so let's go with 20 years. The legendary Renaissance Technologies Medallion fund averaged a whopping 71.8% annual return between 1994 and 2014, which trivializes the S&P 500's ~7.4% during that time. [2] How about 30 years, you ask? In that case, Baupost Group has enjoyed a 19% average annual return, soundly defeating the S&P 500's ~7.3% average annual return over the same time span. [3] How many of these can we find? Bridgewater's PureAlpha had an 18% average annual return between 1991 and 2011 [4]. Farallon Capital had a 13.4% average annual return for 27 years, between 1985 and 2012 [5]. This list goes on. One could look at this and say, "but index funds beat most actively managed funds" but that is not at all the same thing as claiming it is a provable fact that experts cannot beat index funds. We do not gasp in awe and terror when software developers are capable of actually writing a for loop despite wide reports that most candidates are unable to complete FizzBuzz in an interview. Successful programming is not a "myth." In the same way, we should not act as though it is impossible to beat the market just because it is difficult and requires effort. --- [1]: http://www.marketwatch.com/story/this-is-how-a-mutual-fund-can-beat-an-index-fund-2015-08-05 http://www.marketwatch.com/story/this-is-how-a-mutual-fund-c... [2]: http://www.bloomberg.com/news/articles/2015-06-16/how-an-exclusive-hedge-fund-turbocharged-retirement-plan http://www.bloomberg.com/news/articles/2015-06-16/how-an-exc... [3]: http://www.wsj.com/articles/SB10001424052748704167704575258442772338282 http://www.wsj.com/articles/SB100014240527487041677045752584... [4]: http://nymag.com/news/business/wallstreet/ray-dalio-2011-4/index1.html http://nymag.com/news/business/wallstreet/ray-dalio-2011-4/i... [5]: http://www.forbes.com/sites/kerryadolan/2012/10/23/california-hedge-fund-billionaire-tom-steyer-to-step-down-at-farallon/#78eade3f6777 http://www.forbes.com/sites/kerryadolan/2012/10/23/californi...
  - drcode 10y ago
    As other posters have said, I did not state that this 5% represents people deemed as "experts" or that there is any objective way of determining which market participants are in that 5%- Just checking performance is not enough because of many false positives due to the large random element and the overwhelming number of less-skilled investors (and because skilled investors have an interest in remaining non-public) In other words, I personally believe in weak forms of EMH, since I believe having an "edge" is very very hard but not impossible. I base this belief on my 15 years of experience investing in the stock market. Without a doubt, the default assumption for any analysis of the markets should be "no one can outperform index funds" but I think there is evidence that reality deviates slightly from this default assumption.

by dror 10y ago

drcode 10y ago

> Isn't that true of the stock market too? No, the stock market is a system in which 95% of people have "relatively little ability to do proper due diligence" and 5% of people who know what they're doing (or have private information) and eat everyone else's lunch. The reason stock pricing is so accurate and predictive when analyzed scientifically is because that 5% has a disproportionate impact on the marginal price of shares.

dror 10y ago
> 5% of people who know what they're doing (or have private information) and eat everyone else's lunch. Ah, the myth of the expert investor. Time and again, it's been proven that the experts don't pick stocks better than an index fund. If they did, managed funds would do better than index funds. http://www.cnbc.com/2015/06/26/index-funds-trounce-actively-managed-funds-study.html http://www.cnbc.com/2015/06/26/index-funds-trounce-actively-...
- philwelch 10y ago
  Your assumption is that the experts would necessarily be fund managers rather than individual investors or people getting away with insider trading.
- aminok 10y ago
  Nothing he said is contradicted by the mediocre/sub-par performance of recognized experts. In fact it's explained by it: >that 5% has a disproportionate impact on the marginal price of shares.
- dsacco 10y ago
  >> Ah, the myth of the expert investor. Time and again, it's been proven that the experts don't pick stocks better than an index fund. "Myth" and "proven" are interesting words to use. Your citation doesn't support the conclusion that experts are proven to perform worse than index funds. What your citation supports is a claim that it is very difficult to beat the market. I see this zeitgeist expressed on Hacker News very frequently, as though we can't simply look at the numbers and find out if there are experts capable of beating the market consistently. In point of fact, whether or not a fund performs better than index funds has nothing to do with whether or not it's managed, but rather with how it is managed. You've made a falsifiable claim here, so let's pursue that: >> If they did, managed funds would do better than index funds. Pick a timeline, ideally one that seems rigorous enough for consistency. How about 15 years? The PRPFX and JENSX funds have both beaten the S&P 500's average annual returns over a 15 year timeline. [1] You might say that 15 years is not long enough to be sure, so let's go with 20 years. The legendary Renaissance Technologies Medallion fund averaged a whopping 71.8% annual return between 1994 and 2014, which trivializes the S&P 500's ~7.4% during that time. [2] How about 30 years, you ask? In that case, Baupost Group has enjoyed a 19% average annual return, soundly defeating the S&P 500's ~7.3% average annual return over the same time span. [3] How many of these can we find? Bridgewater's PureAlpha had an 18% average annual return between 1991 and 2011 [4]. Farallon Capital had a 13.4% average annual return for 27 years, between 1985 and 2012 [5]. This list goes on. One could look at this and say, "but index funds beat most actively managed funds" but that is not at all the same thing as claiming it is a provable fact that experts cannot beat index funds. We do not gasp in awe and terror when software developers are capable of actually writing a for loop despite wide reports that most candidates are unable to complete FizzBuzz in an interview. Successful programming is not a "myth." In the same way, we should not act as though it is impossible to beat the market just because it is difficult and requires effort. --- [1]: http://www.marketwatch.com/story/this-is-how-a-mutual-fund-can-beat-an-index-fund-2015-08-05 http://www.marketwatch.com/story/this-is-how-a-mutual-fund-c... [2]: http://www.bloomberg.com/news/articles/2015-06-16/how-an-exclusive-hedge-fund-turbocharged-retirement-plan http://www.bloomberg.com/news/articles/2015-06-16/how-an-exc... [3]: http://www.wsj.com/articles/SB10001424052748704167704575258442772338282 http://www.wsj.com/articles/SB100014240527487041677045752584... [4]: http://nymag.com/news/business/wallstreet/ray-dalio-2011-4/index1.html http://nymag.com/news/business/wallstreet/ray-dalio-2011-4/i... [5]: http://www.forbes.com/sites/kerryadolan/2012/10/23/california-hedge-fund-billionaire-tom-steyer-to-step-down-at-farallon/#78eade3f6777 http://www.forbes.com/sites/kerryadolan/2012/10/23/californi...
- drcode 10y ago
  As other posters have said, I did not state that this 5% represents people deemed as "experts" or that there is any objective way of determining which market participants are in that 5%- Just checking performance is not enough because of many false positives due to the large random element and the overwhelming number of less-skilled investors (and because skilled investors have an interest in remaining non-public) In other words, I personally believe in weak forms of EMH, since I believe having an "edge" is very very hard but not impossible. I base this belief on my 15 years of experience investing in the stock market. Without a doubt, the default assumption for any analysis of the markets should be "no one can outperform index funds" but I think there is evidence that reality deviates slightly from this default assumption.