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The market does seem to be frequently bad at that sort of thing. I've done pretty well (better than my index funds) over the years by reading the news and buyin

The market does seem to be frequently bad at that sort of thing. I've done pretty well (better than my index funds) over the years by reading the news and buying shares in companies that seem to have more wealthy futures. I very rarely sell so I can see how they've done over many years and, by and large, pretty well. Maybe everyone assumes that the market has already factored it all in so they don't bother buying so it isn't factored in because the increased demand never arose. Maybe I'm just out of sync, and as other people start to notice this they'll start buying and it'll turn back around and then the market will have factored these things in because lots of people assume it hasn't.

icebraining 9y ago
Or maybe you got lucky. Not saying you did, but how would you tell the difference?
- lisper 9y ago
  This. If you throw darts at the stock page you have a 50% chance of beating the market.
  - EliRivers 9y ago
    I have thrown a dozen or so darts, and my rate seems to be around 80%. But then, I'm not just throwing darts; I'm reading that companies are going to do better in the future and will see a rise in stock price, and it makes sense, so I sometimes buy them. Maybe I'm just the lucky one. I started with ARM a good eight years ago, when I read that they were going to do really well by supplying Apple. Of course, if I'd done the same thing with Imagination technologies 8 years ago, it would have been a less happy ending; I can only assume that the news I read at the time was more effusive about ARM. Most recently (13 months ago - this isn't a regular thing), a British pasty retail outfit named Greggs. The news said things were looking good, I could see their stores were busy, I bought some shares, they're up about 40% in 13 months (which is unusually good, I freely admit, and I certainly didn't expect that). That's really all I do, and it seems to work out (and it really is rare when I do; typically, I just dump all my pennies into index funds - easily 80% of my pennies are in index funds). I think some of the big name successful investors do something similar, but obviously on a much grander and more informed scale. Plus the British house-builders. Every time the UK government announces another plan to help young people get fifty year mortgages, it's time to buy some more of them! They will crash eventually, I'm sure :(
    - jogjayr 9y ago
      > I'm reading that companies are going to do better in the future and will see a rise in stock price, and it makes sense, so I sometimes buy them. I think that way about my index funds too. But then it's impossible to know the reason for the price rise. Maybe it's because of millions of other guys like me who read the same articles, came to the same conclusion as me, and put their money in too.
      - EliRivers 9y ago
        Either way, those rises don't seem to be "priced in" in any way that means they won't actually go up. Maybe it'll all turn around soon.
    - lisper 9y ago
      > I have thrown a dozen or so darts, and my rate seems to be around 80%. The odds of that happening by chance are <50% but still quite high, about 6-7% depending on exactly how you reckon it. So one person in 15 will get this result purely by chance. There are studies that show that very few (like <<1%) professional money managers can beat the market consistently. You may well be one of those rare people, in which case you could make billions on Wall Street. But until you amass a much longer track record than you have, the odds are much higher that you are just one of the lucky ones. There are a lot more lucky people out there than most people realize.
      - Simon_says 9y ago
        Yea, all that's true, but Eli has a significantly easier job. A professional manager has to make a lot of decisions and still has to invest money even if they don't have any insightful ideas. On the other hand Eli will only invest if he gets a good idea, and if not, then no investment.
        lisper 9y ago
        That's no excuse. Eli can always park his undeployed capital in an index fund. So if he can consistently pick winners 80% of the time he'll still beat the market even if he has fallow periods.
  - jjoonathan 9y ago
    A monkey throwing darts will outperform the market on average. The monkey is giving even weight to each option rather than weighting according to risk. The monkey is picking a riskier portfolio than an index fund, and in compensation for accepting greater downside risk will have greater average returns. Markets are subtle like that =) Of course, the monkey is likely to attribute the difference to skill rather than risk...
    - lisper 9y ago
      That assumes that risk is not symmetrically distributed. That might be the case, but that would be news to me.
      - jjoonathan 9y ago
        Why would it be symmetrically distributed?
        lisper 9y ago
        Good question. It actually doesn't have to be symmetric, it just has to be distributed in such a way that a random sample will not give you a biased return. (A symmetric distribution is sufficient but not necessary.) The reason this has to be the case is that if a random portfolio gave you a biased return, then the sum of random portfolios would give you a biased return. But the limit of the sum of random portfolios is the whole market, and that can't be biased.
        jjoonathan 9y ago
        Perhaps it's easier to see from the other side: the monkey is getting the same expected returns as "buy one of everything on your list," but the index fund is not, because the index fund is employing a different weighting strategy (e.g. buy the 30 or 500 largest companies). Of course, if you define "market" using the same list that an index fund uses, the monkey's expected performance converges with that of the index fund.
- EliRivers 9y ago
  I'll never know for sure, but it's a long run over eight years or so. I rarely buy shares in specific companies, and even more rarely sell, so I can see that they outpace the index funds I buy. I could be just lucky. I buy individual companies basically entirely based on reading the news, and if I'm reading it in the news, the professionals knew it long before I did. I used to assume that if I read it in the news, it was all priced in and there was no point in me buying, but I noticed that often, it wasn't. Maybe I just got lucky and I miss the news reports on the companies that subsequently crash.
  - Tiktaalik 9y ago
    What news you're reading is also relevant. For example if you were closely following video game enthusiast press you may have found out a lot about Nintendo's mobile game plans much sooner than more typical investors which may only read newspapers such as the Financial Times and WSJ, which devote limited column inches to the activities of video game companies.
aetherson 9y ago
Survivorship bias seems worth investigating here. Do people who make bad stock buying decisions come to these threads and comment on them?

icebraining 9y ago

Or maybe you got lucky. Not saying you did, but how would you tell the difference?

lisper 9y ago
This. If you throw darts at the stock page you have a 50% chance of beating the market.
- EliRivers 9y ago
  I have thrown a dozen or so darts, and my rate seems to be around 80%. But then, I'm not just throwing darts; I'm reading that companies are going to do better in the future and will see a rise in stock price, and it makes sense, so I sometimes buy them. Maybe I'm just the lucky one. I started with ARM a good eight years ago, when I read that they were going to do really well by supplying Apple. Of course, if I'd done the same thing with Imagination technologies 8 years ago, it would have been a less happy ending; I can only assume that the news I read at the time was more effusive about ARM. Most recently (13 months ago - this isn't a regular thing), a British pasty retail outfit named Greggs. The news said things were looking good, I could see their stores were busy, I bought some shares, they're up about 40% in 13 months (which is unusually good, I freely admit, and I certainly didn't expect that). That's really all I do, and it seems to work out (and it really is rare when I do; typically, I just dump all my pennies into index funds - easily 80% of my pennies are in index funds). I think some of the big name successful investors do something similar, but obviously on a much grander and more informed scale. Plus the British house-builders. Every time the UK government announces another plan to help young people get fifty year mortgages, it's time to buy some more of them! They will crash eventually, I'm sure :(
  - jogjayr 9y ago
    > I'm reading that companies are going to do better in the future and will see a rise in stock price, and it makes sense, so I sometimes buy them. I think that way about my index funds too. But then it's impossible to know the reason for the price rise. Maybe it's because of millions of other guys like me who read the same articles, came to the same conclusion as me, and put their money in too.
    - EliRivers 9y ago
      Either way, those rises don't seem to be "priced in" in any way that means they won't actually go up. Maybe it'll all turn around soon.
  - lisper 9y ago
    > I have thrown a dozen or so darts, and my rate seems to be around 80%. The odds of that happening by chance are <50% but still quite high, about 6-7% depending on exactly how you reckon it. So one person in 15 will get this result purely by chance. There are studies that show that very few (like <<1%) professional money managers can beat the market consistently. You may well be one of those rare people, in which case you could make billions on Wall Street. But until you amass a much longer track record than you have, the odds are much higher that you are just one of the lucky ones. There are a lot more lucky people out there than most people realize.
    - Simon_says 9y ago
      Yea, all that's true, but Eli has a significantly easier job. A professional manager has to make a lot of decisions and still has to invest money even if they don't have any insightful ideas. On the other hand Eli will only invest if he gets a good idea, and if not, then no investment.
      - lisper 9y ago
        That's no excuse. Eli can always park his undeployed capital in an index fund. So if he can consistently pick winners 80% of the time he'll still beat the market even if he has fallow periods.
- jjoonathan 9y ago
  A monkey throwing darts will outperform the market on average. The monkey is giving even weight to each option rather than weighting according to risk. The monkey is picking a riskier portfolio than an index fund, and in compensation for accepting greater downside risk will have greater average returns. Markets are subtle like that =) Of course, the monkey is likely to attribute the difference to skill rather than risk...
  - lisper 9y ago
    That assumes that risk is not symmetrically distributed. That might be the case, but that would be news to me.
    - jjoonathan 9y ago
      Why would it be symmetrically distributed?
      - lisper 9y ago
        Good question. It actually doesn't have to be symmetric, it just has to be distributed in such a way that a random sample will not give you a biased return. (A symmetric distribution is sufficient but not necessary.) The reason this has to be the case is that if a random portfolio gave you a biased return, then the sum of random portfolios would give you a biased return. But the limit of the sum of random portfolios is the whole market, and that can't be biased.
        jjoonathan 9y ago
        Perhaps it's easier to see from the other side: the monkey is getting the same expected returns as "buy one of everything on your list," but the index fund is not, because the index fund is employing a different weighting strategy (e.g. buy the 30 or 500 largest companies). Of course, if you define "market" using the same list that an index fund uses, the monkey's expected performance converges with that of the index fund.
EliRivers 9y ago
I'll never know for sure, but it's a long run over eight years or so. I rarely buy shares in specific companies, and even more rarely sell, so I can see that they outpace the index funds I buy. I could be just lucky. I buy individual companies basically entirely based on reading the news, and if I'm reading it in the news, the professionals knew it long before I did. I used to assume that if I read it in the news, it was all priced in and there was no point in me buying, but I noticed that often, it wasn't. Maybe I just got lucky and I miss the news reports on the companies that subsequently crash.
- Tiktaalik 9y ago
  What news you're reading is also relevant. For example if you were closely following video game enthusiast press you may have found out a lot about Nintendo's mobile game plans much sooner than more typical investors which may only read newspapers such as the Financial Times and WSJ, which devote limited column inches to the activities of video game companies.

aetherson 9y ago

Survivorship bias seems worth investigating here. Do people who make bad stock buying decisions come to these threads and comment on them?