4 ms·

I learned enough to know it's a game not worth actively playing. Buy an index fund, do dollar cost averaging, and stay hands off. Why? . Big shot fund managers

by derwiki 17y ago

I learned enough to know it's a game not worth actively playing. Buy an index fund, do dollar cost averaging, and stay hands off. Why? . Big shot fund managers can't consistently beat the market, and they do this 40+ hours a week -- why should you do better? . Stocks should be a long term investment; the market has always had a positive return over any 20 year period. Index fund and don't worry about it. . You'll do a lot better applying energy to your start-up or whatever you're working on than dwelling on ticker prices. . You're probably not playing with enough money to make it worth worrying about Ramit Sethi's "I Will Teach You To Be Rich" book is a great overview of personal finance. He convinced me to automate my investments and not worry about following the market day to day. (UPDATE: fixed formatting, thanks davidw)

natrius 17y ago
Seconded on both index funds and http://www.iwillteachyoutoberich.com/ http://www.iwillteachyoutoberich.com/. If you have a job but haven't thought about retirement accounts, you owe it to yourself to read this today to take advantage of what is basically free money before April 15: http://www.iwillteachyoutoberich.com/blog/the-worlds-easiest-guide-to-understanding-retirement-accounts/ http://www.iwillteachyoutoberich.com/blog/the-worlds-easiest...
davidw 17y ago
I think for me this is the biggest question. Is it worth trying to get involved with something where there are N people who know more, move faster and have better connections that I do? I think the case for 'no' is pretty convincing. BTW, your formatting is messed up, don't indent the points.
- arthurdent 17y ago
  Thats how I feel about web startups sometimes. People who write better code (and faster), know more VC's, first to market. Finance, like startups, is a big world with room for many of players of different flavors.
  - davidw 17y ago
    Trading seems like more of a zero-sum game to me than startups.
    - arthurdent 17y ago
      See above thread. My POV = trading is zero sum (or worse, because transactions take money, and brokers are a guaranteed to win 3rd party in every transaction) However, I don't think thats the right analogy. Every trade in trading is like the credit card transaction you make towards Dropbox every month. That transaction is zero sum (with Amex skimming 1.7% and Spreedly taking some too, just like brokers). I buy a stock, for an agreed upon price. Dropbox gets nothing if they don't provide value to the marketplace. You don't get customers in trading if you don't provide value to the marketplace. Every dropbox competitor takes dollars out of dropbox's pocket (so in that sense is zero sum across strategies). Every trade I take from Citadel is a trade they don't make. There's lots of money flying around, its a big pie, I just want some crumbs. Basically, startups get paid because they fill a market need. Traders get paid because they fill a market need. If I create a strategy that nobody wants to trade against, I'll have no customers, make no trades, and will never get paid. I'm not saying there aren't sketchy strategies (true in finance and web startups). I'm not on top of the whole flash orders story, and I think some people take advantage of weaknesses in the system. Thats true in every industry though.
daydream 17y ago
Yes to everything the parent said. You can learn most of what you need to know from these two books: "The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between" - William J. Bernstein "The Random Walk Guide To Investing" - Burton Malkiel Do I believe that the market is completely efficient, and that it's impossible to beat it over the long term? Absolutely not. But I do believe that there are very few people in this world that can, and I'm darn sure I'm not one of them. Take 80% or 90% of your portfolio, whatever suits you, and follow an index-based approach to investing. Have as much fun as you want with the other 10% or 20%. Best of both worlds.
nearestneighbor 17y ago
> why should you do better? It's a zero sum game, but one might be smarter than others. Some companies doing algorithmic trading consistently skim off their share of the market's inefficiencies. What I'm wondering is how much of an investment it would be to get into high-frequency trading for yourself. Any idea?
- mathgenius 17y ago
  Probably 10 - 50 million. You will need 5 - 10 hard core programmers, a network engineer, a trader or three, a bunch of the fastest servers around, etc. etc. This is an insane idea, I would not recommend it! (The margins are being pushed to zero as more and more companies get into this.)
  - nearestneighbor 17y ago
    I guess I meant excluding human labor (imagine that a bunch of programmers, etc. with the necessary skills wanted to do it). Would they need to rent a building next to the NYSE and put the machines there?
    - hiteshiitk 17y ago
      Yes they need to buy an office nearby to NYSE, to get fastest feeds(~ us).
      - nearestneighbor 17y ago
        Are there no hosting / cloud services for this sort of thing?
        adw 17y ago
        The network latency will kill you. You want to be in the same rack, not just the same colo, as the exchange's endpoints.
arthurdent 17y ago
It blows my mind that this is taken to be true. There is a LOT of literature that "supports" these ideas, but a lot to the contrary as well. And there's lots of garbage out there if your primary source for this data is Google searches or a few free blogs (I like Sethi's blog, just don't buy into a lot of it). >.Big shot fund managers can't consistently beat the market... 1. My understanding is that literature regarding this generally refers to the mutual funds. I've also heard it voiced that the mutual fund community on average doesn't beat the market. That's not the same thing. 2. Renaissance. Quantum Fund. DE Shaw. http://en.wikipedia.org/wiki/Renaissance_Technologies#Investment_returns http://en.wikipedia.org/wiki/Renaissance_Technologies#Invest... I generally thing that HN types are the types who are smarter and likely competitive with the best and the brightest in finance. >. Stocks should be a long term investment; Why? > the market has always had a positive return over any 20 year period. 1. Some people want returns in timespans of shorter than 20 years. 2. Not all markets have had positive returns over all 20 year periods. Even US equity markets have had losing 10 year periods, and inflation adjusted returns make the picture bleaker as well. I'd say the SPX has a good shot at not beating inflation adjusted returns for the 20 year period beginning in 2000. http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm http://www.simplestockinvesting.com/SP500-historical-real-to... 3. "Positive" isn't good enough for everyone. >.You're probably not paying with enough money to make it worth worrying about Gotta start somewhere. My first program was "hello world." Investing time in learning about financial markets isn't for everyone, just like software startups isn't for everyone. Facebook:Renaissance :: <insert YC startup here>:Jane Street Capital :: "hello world":making your first trade Learning to trade or invest or code or build startups is just another skill.
- kneath 17y ago
  I've found that I fall into the "not playing with enough money" camp. The difference between the "gotta start somewhere" attitude of software development is trading costs money. I found I was consistently making 20-30% returns, but after trading fees it was a lot more like 0-5%. You can write as many Hello World programs as you want for no incremental fee — but every trade costs money, so you need to trade enough to offset the feeds.
bitdiddle 17y ago
I'll call total bullshit on the idea that stocks provide positive returns over long time periods. (EDIT: note that you don't always get to pick the time period, life has that nasty habit of forcing the situation) Over the last 25 years, including the recent meltdown, the best investment was long US treasuries. My advice is to do your own research buy a small group of stocks you know very well, preferably that pay a dividend, and hold them. When they go down, if you are still a believer buy more. Stay away from mutual funds, they are loaded with hidden fees, their managers are like cattle, and they typically do well only in bull markets when everyone does well.

by derwiki 17y ago

natrius 17y ago

Seconded on both index funds and http://www.iwillteachyoutoberich.com/ http://www.iwillteachyoutoberich.com/. If you have a job but haven't thought about retirement accounts, you owe it to yourself to read this today to take advantage of what is basically free money before April 15: http://www.iwillteachyoutoberich.com/blog/the-worlds-easiest-guide-to-understanding-retirement-accounts/ http://www.iwillteachyoutoberich.com/blog/the-worlds-easiest...

davidw 17y ago

I think for me this is the biggest question. Is it worth trying to get involved with something where there are N people who know more, move faster and have better connections that I do? I think the case for 'no' is pretty convincing. BTW, your formatting is messed up, don't indent the points.

arthurdent 17y ago
Thats how I feel about web startups sometimes. People who write better code (and faster), know more VC's, first to market. Finance, like startups, is a big world with room for many of players of different flavors.
- davidw 17y ago
  Trading seems like more of a zero-sum game to me than startups.
  - arthurdent 17y ago
    See above thread. My POV = trading is zero sum (or worse, because transactions take money, and brokers are a guaranteed to win 3rd party in every transaction) However, I don't think thats the right analogy. Every trade in trading is like the credit card transaction you make towards Dropbox every month. That transaction is zero sum (with Amex skimming 1.7% and Spreedly taking some too, just like brokers). I buy a stock, for an agreed upon price. Dropbox gets nothing if they don't provide value to the marketplace. You don't get customers in trading if you don't provide value to the marketplace. Every dropbox competitor takes dollars out of dropbox's pocket (so in that sense is zero sum across strategies). Every trade I take from Citadel is a trade they don't make. There's lots of money flying around, its a big pie, I just want some crumbs. Basically, startups get paid because they fill a market need. Traders get paid because they fill a market need. If I create a strategy that nobody wants to trade against, I'll have no customers, make no trades, and will never get paid. I'm not saying there aren't sketchy strategies (true in finance and web startups). I'm not on top of the whole flash orders story, and I think some people take advantage of weaknesses in the system. Thats true in every industry though.

daydream 17y ago

Yes to everything the parent said. You can learn most of what you need to know from these two books: "The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between" - William J. Bernstein "The Random Walk Guide To Investing" - Burton Malkiel Do I believe that the market is completely efficient, and that it's impossible to beat it over the long term? Absolutely not. But I do believe that there are very few people in this world that can, and I'm darn sure I'm not one of them. Take 80% or 90% of your portfolio, whatever suits you, and follow an index-based approach to investing. Have as much fun as you want with the other 10% or 20%. Best of both worlds.

nearestneighbor 17y ago

> why should you do better? It's a zero sum game, but one might be smarter than others. Some companies doing algorithmic trading consistently skim off their share of the market's inefficiencies. What I'm wondering is how much of an investment it would be to get into high-frequency trading for yourself. Any idea?

mathgenius 17y ago
Probably 10 - 50 million. You will need 5 - 10 hard core programmers, a network engineer, a trader or three, a bunch of the fastest servers around, etc. etc. This is an insane idea, I would not recommend it! (The margins are being pushed to zero as more and more companies get into this.)
- nearestneighbor 17y ago
  I guess I meant excluding human labor (imagine that a bunch of programmers, etc. with the necessary skills wanted to do it). Would they need to rent a building next to the NYSE and put the machines there?
  - hiteshiitk 17y ago
    Yes they need to buy an office nearby to NYSE, to get fastest feeds(~ us).
    - nearestneighbor 17y ago
      Are there no hosting / cloud services for this sort of thing?
      - adw 17y ago
        The network latency will kill you. You want to be in the same rack, not just the same colo, as the exchange's endpoints.

arthurdent 17y ago

It blows my mind that this is taken to be true. There is a LOT of literature that "supports" these ideas, but a lot to the contrary as well. And there's lots of garbage out there if your primary source for this data is Google searches or a few free blogs (I like Sethi's blog, just don't buy into a lot of it). >.Big shot fund managers can't consistently beat the market... 1. My understanding is that literature regarding this generally refers to the mutual funds. I've also heard it voiced that the mutual fund community on average doesn't beat the market. That's not the same thing. 2. Renaissance. Quantum Fund. DE Shaw. http://en.wikipedia.org/wiki/Renaissance_Technologies#Investment_returns http://en.wikipedia.org/wiki/Renaissance_Technologies#Invest... I generally thing that HN types are the types who are smarter and likely competitive with the best and the brightest in finance. >. Stocks should be a long term investment; Why? > the market has always had a positive return over any 20 year period. 1. Some people want returns in timespans of shorter than 20 years. 2. Not all markets have had positive returns over all 20 year periods. Even US equity markets have had losing 10 year periods, and inflation adjusted returns make the picture bleaker as well. I'd say the SPX has a good shot at not beating inflation adjusted returns for the 20 year period beginning in 2000. http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm http://www.simplestockinvesting.com/SP500-historical-real-to... 3. "Positive" isn't good enough for everyone. >.You're probably not paying with enough money to make it worth worrying about Gotta start somewhere. My first program was "hello world." Investing time in learning about financial markets isn't for everyone, just like software startups isn't for everyone. Facebook:Renaissance :: <insert YC startup here>:Jane Street Capital :: "hello world":making your first trade Learning to trade or invest or code or build startups is just another skill.

kneath 17y ago
I've found that I fall into the "not playing with enough money" camp. The difference between the "gotta start somewhere" attitude of software development is trading costs money. I found I was consistently making 20-30% returns, but after trading fees it was a lot more like 0-5%. You can write as many Hello World programs as you want for no incremental fee — but every trade costs money, so you need to trade enough to offset the feeds.

bitdiddle 17y ago

I'll call total bullshit on the idea that stocks provide positive returns over long time periods. (EDIT: note that you don't always get to pick the time period, life has that nasty habit of forcing the situation) Over the last 25 years, including the recent meltdown, the best investment was long US treasuries. My advice is to do your own research buy a small group of stocks you know very well, preferably that pay a dividend, and hold them. When they go down, if you are still a believer buy more. Stay away from mutual funds, they are loaded with hidden fees, their managers are like cattle, and they typically do well only in bull markets when everyone does well.