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Your profits on AAPL are nothing to do with you being smarter than the market. You've just presented a strategy of gambling as better than a long term tracker.

Your profits on AAPL are nothing to do with you being smarter than the market. You've just presented a strategy of gambling as better than a long term tracker. I absolutely do not believe you can out perform a tracker long term.

mancerayder 9y ago
How is that gambling? A company has a product, which is sold to consumers. A company has a structure, which includes employee counts, capital expenses, and so forth. A company has a roadmap. And dividends. It's not "zero risk" but to suggest that it's no different than tossing chips on a roulette number or a blackjack dealer is completely absurd.
- mattmanser 9y ago
  It's that it's stacked against you, like this article explains, just like a casino is stacked against you. Also, for you to have made money on AAPL you would have had to gamble on something. You had to have bought at a lower stock price. If you bought recently, it would be that Tim Cook doesn't suck and they don't botch the new iPhone. If you bought 6 years ago, it would be something else. If you bought 10 years ago it's that the iPhone would remain dominant, etc. etc.
- chillydawg 9y ago
  The question isn't whether you like ipods 10 years ago or not. It's what information you had, that you incorporated into a model that you then traded on that gave you a real, statistically valid edge to the market price when making that trade. When you buy a stock, you pay two main fees: the basic broker fee and the market spread to the mid price. The moment you make a trade, you're down. When you toss chips on a roulette number, you pay one fee. You know there's 36-1 chance of your number being chosen but there's also the zeros that give the house the edge, which give you a 36-1 payout on a 38-1 event (depending how many zeros). The fee is 2-3% percent (on a european roulette table). Moreover, you actually KNOW the real probability in the casino and you KNOW the house edge. In the market, you have absolutely no idea what the real price is. Maybe Steve Jobs dies earlier in an alternate universe and the company implodes before the iPhone money press gets going. Maybe in another universe, he lives longer and tanks the company because he starts believing the hype about himself. Who knows? In this universe your AAPL bet paid off wonderfully. Liking a product and buying shares in the company is a completely reasonable thing to do, but unless you genuinely know something others don't it's gambling and convincing yourself otherwise is a really really dangerous thing to do.
  - mancerayder 9y ago
    Liking a product and buying shares in the company is a completely reasonable thing to do, but unless you genuinely know something others don't it's gambling and convincing yourself otherwise is a really really dangerous thing to do. That's an incredibly broad definition of gambling you're offering: if I purchase an asset (from another entity) with the expectation that it will go up, but information I have is at or below what the other players in this 'bet' then it's no different than betting on Black #26 on a roulette wheel? And all this, you suggest, because I can calculate the odds in the latter case, but I'm too unsophisticated to calculate the odds in the stock purchase case? Stock value is based on an underlying asset, which as a whole, is at least expected to go up, as the economy produces more wealth. And anything CAN happen (eg., a company blows up, a product fails, etc.) But a casino, the house is ALWAYS expected to come out ahead. That's why the odds are so long. Moreover, you actually KNOW the real probability in the casino and you KNOW the house edge. By your definition, the house I purchased for investment could fall into this category as there was no way I had all the information the others had (seller, for certain, brokers, and other players). What's your conclusion about gambling, then? That since the odds are known, and they aren't (by myself), in a stock purchase, then __?
    - chillydawg 9y ago
      Buying a house is gambling. It's a gamble most people take and is usually a good one to make. You're trading one asset (cash) for another (house) hoping that the combination of the house value and your derived utility from that house retain higher value than the cash. This does not always work out in the house owners favour. It's a gamble. It's not a stupid gamble, usually, though. Buying insurance is gambling, as is not buying it. Both courses are sensible in different situations. The trader who buys aapl after massive amounts of research and maybe a new, key insight is STILL gambling. They probably have an edge to the market, though. Let me put it this way: if you only ever buy a couple of stocks in your life then there's really no good way of picking them. The expected variance in the rate of return on those stocks is so high that any edge you may have is effectively lost. If you win, you win. Great. But if you buy and sell 10 stocks a day for years, you have absolutely no chance of making money without a real edge, as your skill (or lack thereof) becomes the main signal, not variance. Your strategy will fail longterm. Buying stocks is the very definition of gambling: buying something hoping it will go up in value. Buying a house is probably a decent bet most of the time. Buying house insurance against fire is a loss making bet when analysed in aggregate (insurers make profit) but so useful to you that it becomes a good bet. Buying mobile phone insurance, if you're not young, drunk and clumsy, is a bad bet. Buying aapl on a hunch is a bad bet, but it paid out. Congratulations.
- danmaz74 9y ago
  > How is that gambling? When you buy the shares of company A instead of company B, because you want to gain more, you are betting that the price of company A is undervalued on the market compared to company B. This is perfectly fine IMHO, but it's still a bet.
  - mancerayder 9y ago
    So then, it logically follows that buying an index fund per your definition is also gambling, because you're betting that the stock market index as a whole will continue to go up. It may be a bet with better odds or worse odds, but it's still a bet.
    - danmaz74 9y ago
      We're entering sorites paradox(1) terrain here. I would say that what differentiates "gambling" from "investing" is the amount of risk you're choosing to take. The lowest risk you can take is distributing your savings between money, stocks, bonds and real estate. For the stocks part, the lowest risk strategy is buying index funds. So, if you distribute your investment and use index funds for stocks, I would definitely say you're not gambling by any reasonable definition of the word. In between, I'll leave it to everybody to decide for themselves where they want to put the threshold. 1) https://en.wikipedia.org/wiki/Sorites_paradox https://en.wikipedia.org/wiki/Sorites_paradox
- lr4444lr 9y ago
  It's not that Apple is unsound. It's that you picked ONE company. If you had said 100 years ago that you would trust not the long term viability of stock in the Pennsylvania Railroad Company (it paid out annual dividends for over 100 years unbroken), people at that time would have called you certifiably insane. Then history unfolded. Will Apple be around in 50 years? 10 years? It's an unfolding probability. Will you correctly get out and find the next such company in a manner that beats low cost passive diversified indexing? Doubtful.
- loeg 9y ago
  http://www.efficientfrontier.com/ef/900/15st.htm http://www.efficientfrontier.com/ef/900/15st.htm Most index return comes from a few stocks that generate extreme returns. By picking a single or a few companies, you're likely to miss out on those outsized returns. Buy the whole market and you can't miss. (Sidenote: clearly, VCs have done the same or very similar calculus with startups.)
  - vobios 9y ago
    By that theory, you should diversify away from those that are not going to be "superstocks" (in the post, Dell grew 550x and pushed up the entire index). For example, HP or Exxon or UPS will probably do okay, but will not outperform the rest of S&P by a huge margin. Therefore, they will only weigh down your big earners.

mancerayder 9y ago

How is that gambling? A company has a product, which is sold to consumers. A company has a structure, which includes employee counts, capital expenses, and so forth. A company has a roadmap. And dividends. It's not "zero risk" but to suggest that it's no different than tossing chips on a roulette number or a blackjack dealer is completely absurd.

mattmanser 9y ago
It's that it's stacked against you, like this article explains, just like a casino is stacked against you. Also, for you to have made money on AAPL you would have had to gamble on something. You had to have bought at a lower stock price. If you bought recently, it would be that Tim Cook doesn't suck and they don't botch the new iPhone. If you bought 6 years ago, it would be something else. If you bought 10 years ago it's that the iPhone would remain dominant, etc. etc.
chillydawg 9y ago
The question isn't whether you like ipods 10 years ago or not. It's what information you had, that you incorporated into a model that you then traded on that gave you a real, statistically valid edge to the market price when making that trade. When you buy a stock, you pay two main fees: the basic broker fee and the market spread to the mid price. The moment you make a trade, you're down. When you toss chips on a roulette number, you pay one fee. You know there's 36-1 chance of your number being chosen but there's also the zeros that give the house the edge, which give you a 36-1 payout on a 38-1 event (depending how many zeros). The fee is 2-3% percent (on a european roulette table). Moreover, you actually KNOW the real probability in the casino and you KNOW the house edge. In the market, you have absolutely no idea what the real price is. Maybe Steve Jobs dies earlier in an alternate universe and the company implodes before the iPhone money press gets going. Maybe in another universe, he lives longer and tanks the company because he starts believing the hype about himself. Who knows? In this universe your AAPL bet paid off wonderfully. Liking a product and buying shares in the company is a completely reasonable thing to do, but unless you genuinely know something others don't it's gambling and convincing yourself otherwise is a really really dangerous thing to do.
- mancerayder 9y ago
  Liking a product and buying shares in the company is a completely reasonable thing to do, but unless you genuinely know something others don't it's gambling and convincing yourself otherwise is a really really dangerous thing to do. That's an incredibly broad definition of gambling you're offering: if I purchase an asset (from another entity) with the expectation that it will go up, but information I have is at or below what the other players in this 'bet' then it's no different than betting on Black #26 on a roulette wheel? And all this, you suggest, because I can calculate the odds in the latter case, but I'm too unsophisticated to calculate the odds in the stock purchase case? Stock value is based on an underlying asset, which as a whole, is at least expected to go up, as the economy produces more wealth. And anything CAN happen (eg., a company blows up, a product fails, etc.) But a casino, the house is ALWAYS expected to come out ahead. That's why the odds are so long. Moreover, you actually KNOW the real probability in the casino and you KNOW the house edge. By your definition, the house I purchased for investment could fall into this category as there was no way I had all the information the others had (seller, for certain, brokers, and other players). What's your conclusion about gambling, then? That since the odds are known, and they aren't (by myself), in a stock purchase, then __?
  - chillydawg 9y ago
    Buying a house is gambling. It's a gamble most people take and is usually a good one to make. You're trading one asset (cash) for another (house) hoping that the combination of the house value and your derived utility from that house retain higher value than the cash. This does not always work out in the house owners favour. It's a gamble. It's not a stupid gamble, usually, though. Buying insurance is gambling, as is not buying it. Both courses are sensible in different situations. The trader who buys aapl after massive amounts of research and maybe a new, key insight is STILL gambling. They probably have an edge to the market, though. Let me put it this way: if you only ever buy a couple of stocks in your life then there's really no good way of picking them. The expected variance in the rate of return on those stocks is so high that any edge you may have is effectively lost. If you win, you win. Great. But if you buy and sell 10 stocks a day for years, you have absolutely no chance of making money without a real edge, as your skill (or lack thereof) becomes the main signal, not variance. Your strategy will fail longterm. Buying stocks is the very definition of gambling: buying something hoping it will go up in value. Buying a house is probably a decent bet most of the time. Buying house insurance against fire is a loss making bet when analysed in aggregate (insurers make profit) but so useful to you that it becomes a good bet. Buying mobile phone insurance, if you're not young, drunk and clumsy, is a bad bet. Buying aapl on a hunch is a bad bet, but it paid out. Congratulations.
danmaz74 9y ago
> How is that gambling? When you buy the shares of company A instead of company B, because you want to gain more, you are betting that the price of company A is undervalued on the market compared to company B. This is perfectly fine IMHO, but it's still a bet.
- mancerayder 9y ago
  So then, it logically follows that buying an index fund per your definition is also gambling, because you're betting that the stock market index as a whole will continue to go up. It may be a bet with better odds or worse odds, but it's still a bet.
  - danmaz74 9y ago
    We're entering sorites paradox(1) terrain here. I would say that what differentiates "gambling" from "investing" is the amount of risk you're choosing to take. The lowest risk you can take is distributing your savings between money, stocks, bonds and real estate. For the stocks part, the lowest risk strategy is buying index funds. So, if you distribute your investment and use index funds for stocks, I would definitely say you're not gambling by any reasonable definition of the word. In between, I'll leave it to everybody to decide for themselves where they want to put the threshold. 1) https://en.wikipedia.org/wiki/Sorites_paradox https://en.wikipedia.org/wiki/Sorites_paradox
lr4444lr 9y ago
It's not that Apple is unsound. It's that you picked ONE company. If you had said 100 years ago that you would trust not the long term viability of stock in the Pennsylvania Railroad Company (it paid out annual dividends for over 100 years unbroken), people at that time would have called you certifiably insane. Then history unfolded. Will Apple be around in 50 years? 10 years? It's an unfolding probability. Will you correctly get out and find the next such company in a manner that beats low cost passive diversified indexing? Doubtful.
loeg 9y ago
http://www.efficientfrontier.com/ef/900/15st.htm http://www.efficientfrontier.com/ef/900/15st.htm Most index return comes from a few stocks that generate extreme returns. By picking a single or a few companies, you're likely to miss out on those outsized returns. Buy the whole market and you can't miss. (Sidenote: clearly, VCs have done the same or very similar calculus with startups.)
- vobios 9y ago
  By that theory, you should diversify away from those that are not going to be "superstocks" (in the post, Dell grew 550x and pushed up the entire index). For example, HP or Exxon or UPS will probably do okay, but will not outperform the rest of S&P by a huge margin. Therefore, they will only weigh down your big earners.