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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 ga

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.
  - mancerayder 9y ago
    Great. So that boils down to "skills." Which is essentially what this very active thread is implicitly all about. But here's the problem. While everyone is arguing back and forth about competing against Wall St., game theory, probability and the quibbling over "gambling" which turns out to be nothing more than a convention in conversation (others below admit that index funds and housing are also betting, but to a lesser degree), what no one is addressing is what specific trading strategies we're competing against here. IF you are a day trader and you compete against other retail day traders and Wall Street trading floors, automated trading systems, high frequency and such, that's one thing. IF you stock pick but pick your stocks for multi-quarter or yearly outlooks, and you absorb information about -- not the stocks -- the companies, following news and understanding what their risks are, then that is a totally different strategy. Much of Wall St. cares across quarters and short-term. Many retail investors too. I would only advocate medium and long-term stock picking. Everyone brings up Buffett and his advocating of index funds. What no one here has mentioned is that he's a value investor, buying up stocks when companies are, in his estimation, undervalued. You folks are guilty of sweeping the individual under the rug in favor of the overall statistics. As if the individual who wishes to buck the trend is, at best, lucky, and at worst, an imbecile. If you're not interested in the area of stock picking, then that's understandable. But if you're pre-emptively convinced that you can never win, because your knowledge is average, well I suggest that if you're an intelligent person that you reconsider. Again, no one here is advocating day trading or beating Wall St at their own game. You are missing out by not taking a chance on companies that you think might expand in the coming years. Nothing is guaranteed, and I think many folks on here seem to miss that part of the equation.

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.
- mancerayder 9y ago
  Great. So that boils down to "skills." Which is essentially what this very active thread is implicitly all about. But here's the problem. While everyone is arguing back and forth about competing against Wall St., game theory, probability and the quibbling over "gambling" which turns out to be nothing more than a convention in conversation (others below admit that index funds and housing are also betting, but to a lesser degree), what no one is addressing is what specific trading strategies we're competing against here. IF you are a day trader and you compete against other retail day traders and Wall Street trading floors, automated trading systems, high frequency and such, that's one thing. IF you stock pick but pick your stocks for multi-quarter or yearly outlooks, and you absorb information about -- not the stocks -- the companies, following news and understanding what their risks are, then that is a totally different strategy. Much of Wall St. cares across quarters and short-term. Many retail investors too. I would only advocate medium and long-term stock picking. Everyone brings up Buffett and his advocating of index funds. What no one here has mentioned is that he's a value investor, buying up stocks when companies are, in his estimation, undervalued. You folks are guilty of sweeping the individual under the rug in favor of the overall statistics. As if the individual who wishes to buck the trend is, at best, lucky, and at worst, an imbecile. If you're not interested in the area of stock picking, then that's understandable. But if you're pre-emptively convinced that you can never win, because your knowledge is average, well I suggest that if you're an intelligent person that you reconsider. Again, no one here is advocating day trading or beating Wall St at their own game. You are missing out by not taking a chance on companies that you think might expand in the coming years. Nothing is guaranteed, and I think many folks on here seem to miss that part of the equation.