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1. If you're right 51% of the time when you invest you're going to get rich. Unfortunately the odds of you being right 51% of the time are incredibly low. 2. H

1. If you're right 51% of the time when you invest you're going to get rich. Unfortunately the odds of you being right 51% of the time are incredibly low. 2. Heed Rule #1, and put most (if not all) of your money in broad market ETFs. 3. If you DO decide to actively invest, think about your strengths both in terms of character and industry knowledge and play to those. I don't know jack about healthcare and have had my head handed to me in Biotech because I am willing to hold through a lot of pain. What I AM good at is seeing strong secular trends in tech stocks and value discrepancies there. So most of my cash is in broad market ETFs, and I do a small amount of active investing in tech and telecom. And I work in Equity Research.. It astounds me that so many people think they can be great investors. It would be like me trying to build an ark with no experience in carpentry or ship-building. Really it just strikes me as a legal and socially acceptable way to gamble. Please recognize that this is a zero-sum game, and the other person taking your trade is likely a professional who spends their entire work week doing deep analysis.

tosseraccount 10y ago
"this is a zero-sum game" Minor quibble. That is not accurate. You see teenagers buying hotdogs with a credit card. Visa and Mastercard go public, you buy shares, it goes up, up, up. There's no zero sum here and people can spot special values without deep analysis.
- afarrell 10y ago
  But those things will almost certainly be priced into the market already, so you will capture that value with purchases of VOO. (Brexit nonwithstanding) ...actually that is a hole in my argument. Okay: if you can find a cultural trend that you earnestly believe thatFinance people are out of touch with, then it makes sense to do arbitrage there.
- phamilton 10y ago
  You had to buy from someone. Even Visa loses out when going public because they could have offered at a higher price. So in that sense it is a zero sum game. You profit instead of Visa (or whomever the seller is). There are, however, externalities that make it less costly for Visa to sell lower than the theoretical max. Happy investors are easier to manage, market momentum is strong, etc.
- evanpw 10y ago
  If you bought the shares after IPO, then someone sold them to you, and they missed out on all of those gains. Even in the IPO, it's very common that you're buying shares from insiders and private investors rather than from the company itself. (But even if trading is zero-sum in a strict monetary sense, different risk preferences, desire to liquidate positions in order to buy something you value more, etc. mean that it's not zero-sum in a utility sense.)
dharma1 10y ago
+1 on ETFs. And I guess, think about at what point in the cycle you want to invest in equities. They are quite highly priced at the moment.
- kspaans 10y ago
  Market timing is a fool's game. Find out the right asset allocation for your personal risk tolerance and retirement goals, stick your money in, rebalance annually (contribute monthly if fees are low), and then sit and wait.
  - dharma1 10y ago
    As a general rule yes. But if you are thinking of sticking a large amount of cash in the stock market right now and plan to stay in long term, I would at least give it a shot in terms of trying to time it right in the cycle. Right now we are quite high in the cycle - 9 years from the last crisis, end of QE, slowing growth - so at least in my view, it's an asymmetric bet to wait and see. But what do I know.
    - toomuchtodo 10y ago
      > As a general rule yes. But if you are thinking of sticking a large amount of cash in the stock market right now and plan to stay in long term, I would at least give it a shot in terms of trying to time it right in the cycle. Vanguard says you're wrong. https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-c...
      - dharma1 10y ago
        Average
Steuard 10y ago
Ignorant question: Why ETFs rather than the equivalent mutual funds (which I think are usually available)? I have some sense of the differences, but I've never taken the time to figure out the pros and cons. (I've been investing mostly in index funds for the past 15 years or so; ETFs weren't really on my radar when I started.)
- tosseraccount 10y ago
  For most practical purposes, there's not much difference between ETFs and Mutual Funds. Some point out some greater risk in ETFs because they can lend their securities : http://www.etf.com/etf-education-center/21031-understanding-securities-lending.html http://www.etf.com/etf-education-center/21031-understanding-...
  - whamlastxmas 10y ago
    As other person pointed out, mutual funds are much more expensive.
    - xyience 10y ago
      It depends on the mutual fund and the ETF. For Vanguard 500, the VOO ETF and the VFIAX index fund are effectively the same, they even have the same expense ratio. The latter you need $10k upfront though. (VFINX, if you only have between $3k and $10k, has a higher expense ratio.)
      - whamlastxmas 10y ago
        VFIAX is not a mutual fund, it's just the "Admiral" class of the VOO ETF. Admirals shares offer lower expense ratios in many instances, but I guess the VOO expense was already at its floor.
        tanderson92 10y ago
        VFIAX is a mutual fund. Vanguard holds a patent which allows a dual share class, where the ETFs and mutual funds share the same pool of securities. This allows share conversions from mutual fund->ETF, interestingly. http://www.ft.com/cms/s/0/3e0cc962-ec0c-11e4-b428-00144feab7de.html http://www.ft.com/cms/s/0/3e0cc962-ec0c-11e4-b428-00144feab7...
charlesdm 10y ago
+1 for using industry knowledge. Most of my money is invested in ETFs, however, I've been able to beat the market by significant amounts when I invested in tech stocks because I understood what drives the price. There are plenty of small cap tech stocks that have doubled / tripled the last few years. Understand the market, understand the product and technology well, and you can do significantly better than any wall street analyst. Don't rush into it, but do your research. Look at the numbers and the growth potential.
- Chris2048 10y ago
  But how do you understand the market? Is looking at the company numbers enough, or do you have to look at companies in detail? Is domain knowledge enough, or do you need to look at corporate culture, people and business plans? How fast do you need to be, in term of reacting to events?
  - kerryfalk 10y ago
    To answer your first question: be a part of it, either as a consumer or a producer. My professional life now revolves around mining. I'm confident to know who to invest in and who not to. My personal life centers around various hobbies - I'm confident I could choose a few companies in those spaces to invest in. Unfortunately, most of those are well performing private companies.
    - planteen 10y ago
      Just curious - are you worried about getting too coupled to the industry you work in? I try not to invest in tech since I work in tech. So a big downturn in tech would not only be bad for my job but also investments. Or would you possibly bet against mining?
      - kerryfalk 10y ago
        I wouldn't put my whole portfolio in it but I'm not really worried about being too tied to the industry I work in. That might also be because it's mining. Mining is a large portion of the world's GDP (estimated to be in the range of 45-60% either directly or as a supplier to others). If mining as an industry suffers, we're all probably in a bit of trouble.
TDL 10y ago
"If you're right 51% of the time when you invest you're going to get rich." I completely disagree with this statement and I've seen it (or a variation of it) many times over the years. You can have a win rate of 99%, but still lose money if the 1% losing trades/investments wipe out all your wins. The win rate isn't what people should be looking, but the profit expectancy. Other than that, I agree with what your are saying, particularly #2. I don't think the majority of people should be actively trading/investing, they don't have the time to build the expertise and will probably not invest the time in learning about their bias.
- dforrestwilson 10y ago
  Yes it was a simplification to explain the main point, which is that it's very very hard to beat the market.
hellofunk 10y ago
> If you're right 51% of the time when you invest you're going to get rich. Sorry, but this is completely incorrect. The approximate formula for success in investing or trading is "percentage right" * "average win profit" - "percentage wrong" * "average loss" = overall profit. Many traders are correct only 20% of the time (I'm looking at you, stock options traders) but make fortunes because they understand this formula. You can also lose a lot of money even if you are right 90% of the time because you fail to manage a big loss properly.
- dforrestwilson 10y ago
  A simplification to explain the main point, which is that it is very hard to beat the market. Even for professionals.
- Coding_Cat 10y ago
  And take in mind, most returns are relative to your initial investment, if you reinvest your profits so you have a static % 'at risk' the bad results will hit you harder than the good ones. Lose 50% and you need to make 100% RoI to get back to the start. Win 100% and you only need to lose 50% to get knocked back. And there are also catastrophic losses, if you play it too risky, where you won't have enough to continue investing after a particular hard hit.
- jgalt212 10y ago
  Yes, and you can also be be right most of the time, and have below market returns because of transaction costs or management fees.
  - jandrese 10y ago
    This is the big point. Investment houses don't start from the same place as an index fund. Their returns are penalized from the start due to the fee structure. So not only do they have to beat the market, they have to do it by a sizeable margin before the end user sees a profit advantage. For a retail investor it is hard to justify not choosing an index fund.
- 10y ago

tosseraccount 10y ago

"this is a zero-sum game" Minor quibble. That is not accurate. You see teenagers buying hotdogs with a credit card. Visa and Mastercard go public, you buy shares, it goes up, up, up. There's no zero sum here and people can spot special values without deep analysis.

afarrell 10y ago
But those things will almost certainly be priced into the market already, so you will capture that value with purchases of VOO. (Brexit nonwithstanding) ...actually that is a hole in my argument. Okay: if you can find a cultural trend that you earnestly believe thatFinance people are out of touch with, then it makes sense to do arbitrage there.
phamilton 10y ago
You had to buy from someone. Even Visa loses out when going public because they could have offered at a higher price. So in that sense it is a zero sum game. You profit instead of Visa (or whomever the seller is). There are, however, externalities that make it less costly for Visa to sell lower than the theoretical max. Happy investors are easier to manage, market momentum is strong, etc.
evanpw 10y ago
If you bought the shares after IPO, then someone sold them to you, and they missed out on all of those gains. Even in the IPO, it's very common that you're buying shares from insiders and private investors rather than from the company itself. (But even if trading is zero-sum in a strict monetary sense, different risk preferences, desire to liquidate positions in order to buy something you value more, etc. mean that it's not zero-sum in a utility sense.)

dharma1 10y ago

+1 on ETFs. And I guess, think about at what point in the cycle you want to invest in equities. They are quite highly priced at the moment.

kspaans 10y ago
Market timing is a fool's game. Find out the right asset allocation for your personal risk tolerance and retirement goals, stick your money in, rebalance annually (contribute monthly if fees are low), and then sit and wait.
- dharma1 10y ago
  As a general rule yes. But if you are thinking of sticking a large amount of cash in the stock market right now and plan to stay in long term, I would at least give it a shot in terms of trying to time it right in the cycle. Right now we are quite high in the cycle - 9 years from the last crisis, end of QE, slowing growth - so at least in my view, it's an asymmetric bet to wait and see. But what do I know.
  - toomuchtodo 10y ago
    > As a general rule yes. But if you are thinking of sticking a large amount of cash in the stock market right now and plan to stay in long term, I would at least give it a shot in terms of trying to time it right in the cycle. Vanguard says you're wrong. https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-c...
    - dharma1 10y ago
      Average

Steuard 10y ago

Ignorant question: Why ETFs rather than the equivalent mutual funds (which I think are usually available)? I have some sense of the differences, but I've never taken the time to figure out the pros and cons. (I've been investing mostly in index funds for the past 15 years or so; ETFs weren't really on my radar when I started.)

tosseraccount 10y ago
For most practical purposes, there's not much difference between ETFs and Mutual Funds. Some point out some greater risk in ETFs because they can lend their securities : http://www.etf.com/etf-education-center/21031-understanding-securities-lending.html http://www.etf.com/etf-education-center/21031-understanding-...
- whamlastxmas 10y ago
  As other person pointed out, mutual funds are much more expensive.
  - xyience 10y ago
    It depends on the mutual fund and the ETF. For Vanguard 500, the VOO ETF and the VFIAX index fund are effectively the same, they even have the same expense ratio. The latter you need $10k upfront though. (VFINX, if you only have between $3k and $10k, has a higher expense ratio.)
    - whamlastxmas 10y ago
      VFIAX is not a mutual fund, it's just the "Admiral" class of the VOO ETF. Admirals shares offer lower expense ratios in many instances, but I guess the VOO expense was already at its floor.
      - tanderson92 10y ago
        VFIAX is a mutual fund. Vanguard holds a patent which allows a dual share class, where the ETFs and mutual funds share the same pool of securities. This allows share conversions from mutual fund->ETF, interestingly. http://www.ft.com/cms/s/0/3e0cc962-ec0c-11e4-b428-00144feab7de.html http://www.ft.com/cms/s/0/3e0cc962-ec0c-11e4-b428-00144feab7...

charlesdm 10y ago

+1 for using industry knowledge. Most of my money is invested in ETFs, however, I've been able to beat the market by significant amounts when I invested in tech stocks because I understood what drives the price. There are plenty of small cap tech stocks that have doubled / tripled the last few years. Understand the market, understand the product and technology well, and you can do significantly better than any wall street analyst. Don't rush into it, but do your research. Look at the numbers and the growth potential.

Chris2048 10y ago
But how do you understand the market? Is looking at the company numbers enough, or do you have to look at companies in detail? Is domain knowledge enough, or do you need to look at corporate culture, people and business plans? How fast do you need to be, in term of reacting to events?
- kerryfalk 10y ago
  To answer your first question: be a part of it, either as a consumer or a producer. My professional life now revolves around mining. I'm confident to know who to invest in and who not to. My personal life centers around various hobbies - I'm confident I could choose a few companies in those spaces to invest in. Unfortunately, most of those are well performing private companies.
  - planteen 10y ago
    Just curious - are you worried about getting too coupled to the industry you work in? I try not to invest in tech since I work in tech. So a big downturn in tech would not only be bad for my job but also investments. Or would you possibly bet against mining?
    - kerryfalk 10y ago
      I wouldn't put my whole portfolio in it but I'm not really worried about being too tied to the industry I work in. That might also be because it's mining. Mining is a large portion of the world's GDP (estimated to be in the range of 45-60% either directly or as a supplier to others). If mining as an industry suffers, we're all probably in a bit of trouble.

TDL 10y ago

"If you're right 51% of the time when you invest you're going to get rich." I completely disagree with this statement and I've seen it (or a variation of it) many times over the years. You can have a win rate of 99%, but still lose money if the 1% losing trades/investments wipe out all your wins. The win rate isn't what people should be looking, but the profit expectancy. Other than that, I agree with what your are saying, particularly #2. I don't think the majority of people should be actively trading/investing, they don't have the time to build the expertise and will probably not invest the time in learning about their bias.

dforrestwilson 10y ago
Yes it was a simplification to explain the main point, which is that it's very very hard to beat the market.

hellofunk 10y ago

> If you're right 51% of the time when you invest you're going to get rich. Sorry, but this is completely incorrect. The approximate formula for success in investing or trading is "percentage right" * "average win profit" - "percentage wrong" * "average loss" = overall profit. Many traders are correct only 20% of the time (I'm looking at you, stock options traders) but make fortunes because they understand this formula. You can also lose a lot of money even if you are right 90% of the time because you fail to manage a big loss properly.

dforrestwilson 10y ago
A simplification to explain the main point, which is that it is very hard to beat the market. Even for professionals.
Coding_Cat 10y ago
And take in mind, most returns are relative to your initial investment, if you reinvest your profits so you have a static % 'at risk' the bad results will hit you harder than the good ones. Lose 50% and you need to make 100% RoI to get back to the start. Win 100% and you only need to lose 50% to get knocked back. And there are also catastrophic losses, if you play it too risky, where you won't have enough to continue investing after a particular hard hit.
jgalt212 10y ago
Yes, and you can also be be right most of the time, and have below market returns because of transaction costs or management fees.
- jandrese 10y ago
  This is the big point. Investment houses don't start from the same place as an index fund. Their returns are penalized from the start due to the fee structure. So not only do they have to beat the market, they have to do it by a sizeable margin before the end user sees a profit advantage. For a retail investor it is hard to justify not choosing an index fund.
10y ago