5 ms·

Should you be trying to pick stocks?

3 points by jfi 16y ago

jfi 16y ago
One of my biggest regrets was giving into fear when the market tipped down in 08 / 09 and not scooping up equities that would likely return to paying out dividends (I wrote my senior thesis on this investment concept, after all). I heard it a hundred times on the trading floor but it now very much rings true: "Buy into Fear and Sell into Greed"
- gojomo 16y ago
  Dividends, sure. But also: AAPL at 83! Barely 17 months ago!
  - czhiddy 16y ago
    To be fair, just about any tech stock you bought at that time period would have had similar returns. (Even MSFT doubled from it's low of 15)
- alanthonyc 16y ago
  You just had another chance the past few days.
- rmorrison 16y ago
  You shouldn't regret "giving into fear". These are the types of things that appear obvious in hindsight, but are nearly impossible to foresee with a high degree of confidence.
- gcheong 16y ago
  In order to "Buy into Fear and Sell into Greed" you have to be able to disconnect yourself emotionally enough to rationally asses whether the market is truly panicking on or overvaluing a particular asset. Not an easy thing to do.
- fleitz 16y ago
  If you want to buy into fear find a bank with large exposure to Greek debt.
jrockway 16y ago
What's the source of "investors as an aggregate never beat the market"? I used to believe this, but as I've learned about options and futures, I don't buy it anymore. (If we weren't beating the market, what would be paying my salary at an investment bank?) Even the simplest options strategies can give you a fair return on your money in a very short time, certainly better than a 5% APY savings account or a 10% annual return on your index funds. (And, you can use options as security on your stock positions, and you can use them to make money on your safe stock positions.) Anyway, not buying it. You can beat the market.
- wisty 16y ago
  Presumably because "investors as an aggregate" is the market. The Efficient Market Hypothesis is pretty much a tautology, and is therefore completely useless.
- yongqli 16y ago
  Exactly. Market = Investors + Hedgers. Hedgers are willing to lose money in exchange for less risk. It's like car insurance, you know the expected value is negative but you buy it anyway.
- aresant 16y ago
  "even the simplest of options strategies" - can you provide a link to a good resource?
- deleted 16y ago
  [deleted]
- loganfrederick 16y ago
  I generally enjoy your posts, but a couple points: 1. As another commenter wrote, investors as an aggregate are the market (hedgers, as another listed, are also considered, or could be considered investors who are investing for reasons other than direct belief in the individual companies/stocks). 2. Investment banks don't need to be investing. It's not their business, which is underwriting securities or acting as broker-dealers for M&A work. What we've seen in recent years are investment banks with trading divisions, but the act of investment banking is a separate business, and it's the performance of the investment banking team that should be compensating them. 3. You talk about option strategies, but for every move you make, say buying a call, another party had to have written the option. For individual investors, your point could still be very accurate. However, at some scale (though ridiculously large these days), this will break down. That said, I do agree with your final point. An individual can beat the market.
zach 16y ago
Apart from the reasons in the article, I'm going to go ahead and say that, if you're on Hacker News, you should be learning how to if you don't know already. If it gets you rooting around the balance sheets of publicly-traded companies, that has got to be a good thing for understanding how a company like Apple or Yahoo runs. You should at least get a sense of why someone would pick a stock. It's a great way to turn analytical interest into business knowledge. And beating the averages picking stocks is not that different than doing so with a startup. Startup founders, in aggregate, never outperform their opportunity cost. Is that going to discourage you? I really hope not. Besides, when you learn about this kind of stuff, sometimes you happen upon gems like this: http://paste.lisp.org/display/14576 http://paste.lisp.org/display/14576

3 points by jfi 16y ago

jfi 16y ago

One of my biggest regrets was giving into fear when the market tipped down in 08 / 09 and not scooping up equities that would likely return to paying out dividends (I wrote my senior thesis on this investment concept, after all). I heard it a hundred times on the trading floor but it now very much rings true: "Buy into Fear and Sell into Greed"

gojomo 16y ago
Dividends, sure. But also: AAPL at 83! Barely 17 months ago!
- czhiddy 16y ago
  To be fair, just about any tech stock you bought at that time period would have had similar returns. (Even MSFT doubled from it's low of 15)
alanthonyc 16y ago
You just had another chance the past few days.
rmorrison 16y ago
You shouldn't regret "giving into fear". These are the types of things that appear obvious in hindsight, but are nearly impossible to foresee with a high degree of confidence.
gcheong 16y ago
In order to "Buy into Fear and Sell into Greed" you have to be able to disconnect yourself emotionally enough to rationally asses whether the market is truly panicking on or overvaluing a particular asset. Not an easy thing to do.
fleitz 16y ago
If you want to buy into fear find a bank with large exposure to Greek debt.

jrockway 16y ago

What's the source of "investors as an aggregate never beat the market"? I used to believe this, but as I've learned about options and futures, I don't buy it anymore. (If we weren't beating the market, what would be paying my salary at an investment bank?) Even the simplest options strategies can give you a fair return on your money in a very short time, certainly better than a 5% APY savings account or a 10% annual return on your index funds. (And, you can use options as security on your stock positions, and you can use them to make money on your safe stock positions.) Anyway, not buying it. You can beat the market.

wisty 16y ago
Presumably because "investors as an aggregate" is the market. The Efficient Market Hypothesis is pretty much a tautology, and is therefore completely useless.
yongqli 16y ago
Exactly. Market = Investors + Hedgers. Hedgers are willing to lose money in exchange for less risk. It's like car insurance, you know the expected value is negative but you buy it anyway.
aresant 16y ago
"even the simplest of options strategies" - can you provide a link to a good resource?
deleted 16y ago
[deleted]
loganfrederick 16y ago
I generally enjoy your posts, but a couple points: 1. As another commenter wrote, investors as an aggregate are the market (hedgers, as another listed, are also considered, or could be considered investors who are investing for reasons other than direct belief in the individual companies/stocks). 2. Investment banks don't need to be investing. It's not their business, which is underwriting securities or acting as broker-dealers for M&A work. What we've seen in recent years are investment banks with trading divisions, but the act of investment banking is a separate business, and it's the performance of the investment banking team that should be compensating them. 3. You talk about option strategies, but for every move you make, say buying a call, another party had to have written the option. For individual investors, your point could still be very accurate. However, at some scale (though ridiculously large these days), this will break down. That said, I do agree with your final point. An individual can beat the market.

zach 16y ago

Apart from the reasons in the article, I'm going to go ahead and say that, if you're on Hacker News, you should be learning how to if you don't know already. If it gets you rooting around the balance sheets of publicly-traded companies, that has got to be a good thing for understanding how a company like Apple or Yahoo runs. You should at least get a sense of why someone would pick a stock. It's a great way to turn analytical interest into business knowledge. And beating the averages picking stocks is not that different than doing so with a startup. Startup founders, in aggregate, never outperform their opportunity cost. Is that going to discourage you? I really hope not. Besides, when you learn about this kind of stuff, sometimes you happen upon gems like this: http://paste.lisp.org/display/14576 http://paste.lisp.org/display/14576