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My comment isn’t disingenuous. I’m neutrally presenting the reality that it is possible to beat the market. I’m not saying most people should try it, and in fac

by dsacco 9y ago

My comment isn’t disingenuous. I’m neutrally presenting the reality that it is possible to beat the market. I’m not saying most people should try it, and in fact I specifically stated most people should stick to index funds. I also specifically admitted most people who beat the market are outliers, just like professional athletes. The point here is that it’s dogmatic to continually say, “you won’t beat the market, don’t even try, look what Buffett says about it”. I have laid out, in this thread and others I’ve linked to, how it is possible to beat the market in principle. No, not everyone will do it, but people will want to try anyway, so in my opinion they may as well be equipped for success, insofar as they can be. I haven’t tried to undermine the position that index funds are the best option for most investors. I’m just providing perspective for those who understand that and want to try actively trading anyway. I dislike the blind advocation of index funds in a matter of fact manner - it doesn’t actually improve financial education as poignantly as discussions such as this one do. A complete presentation should include the subject in entirety, not the, “We know what’s best for you” version.

SirLJ 9y ago
I do absolutely agree with dsacco even though I had my share of arguments in the past with him... You can absolutely beat the market, but you have to work on it and put the effort, same as you can heal people (as be a doctor), create awesome businesses (as entrepreneur), etc...
deleted 9y ago
[deleted]
tabeth 9y ago
The part that is disingenuous is this: > There are plenty of hedge funds which beat the market so significantly and so consistently over long timespans (even decades) that choosing any single one of them would have handily won the bet You say there are plenty that would beat the market, OK, sure. How many would not? What percentage of the funds would win? The way you frame the conversation is disingenuous, given this entire conversation (grand parent and post before that) are about retirement strategies, presumably for average folks. Beating the market may not be strictly impossible, but no one here other than you claimed that. The fact that it is improbable is just that, a fact. So yeah, disproving a claim no one made and denouncing dogma is pretty disingenuous, imo.
- dsacco 9y ago
  I’ll repeat, I never made a claim that any percentage other than outliers beat the market. Let me restate my point succinctly for you: I consider it dogmatic to frame the conversation as the grandparent comment did, which is saying, “Don’t even try, you’ll lose.” That is dogmatic, which is dentrimental to financial education in general - the reasoning of facts is as important for independent learning as the facts themselves. I provided nuance in the discussion by explaining how it’s possible to beat the market, without ever disagreeing that the best course of action is to simply invest passively. I’ve actually reiterated several times now that most investors should just invest in index funds. I’m not sure what in particular you’re arguing against, because it doesn’t appear to be relevant to my central point as I’ve explained it in this thread. You act as though I’m saying that it’s easy to beat the market, when my entire thesis here has been that it’s not correct to declare people will fail out of hand. If anything, I think I’ve taken rather extreme pains to tediously and explicitly point out the caveats so as not to be disingenuous in my points. In fact, I literally made a comparison to professional athletics in my first comment, which is (statistically) a lottery. If that isn’t enough, what more do you want? More pertinently, I am focused more on complete education that allows people to be self-sufficient: would you advocate saying to kids, “Don’t even bother trying to go pro, you’ll fail.”, or would you advocate explaining to them the honest chances, encouraging them to have fallback plans for their careers, and then providing them with the best chance they can have for what they already want to do? People respond far more favorably to neutral, complete presentations of facts than they do to imperative statements that don’t provide a clear context for their justification.
  - tabeth 9y ago
    I'm not arguing anything. I'm just expressing an opinion that the comment you made is disingenuous since it's entirely centered around a claim around impossibility that no one made other than you. The original comment that said "you will lose" is in jest, obviously. Someone who's confident that they wouldn't lose wouldn't be here reading a step by step plan to become a millionaire as they'd already be far beyond that.
hyperpallium 9y ago
If they're "outliers", their success can be explained by chance. With many people tossing coins, some will do very well by the laws of probability. The other problem is you're measuring success in hindsight, not from the beginning. (You could restate it as if from the beginning if you had the full list of initial hedge funds - including those that no longer exist). The point is that you can't predict which funds will be successful. Buffett beats the market - but he does it by understanding the businesses behind their stocks, their value and prospects, compared with their present price. He buys value for money, and generally holds it for the long term. He isn't an active trader, which to him is speculation.
- dsacco 9y ago
  > If they're "outliers", their success can be explained by chance. With many people tossing coins, some will do very well by the laws of probability. No, they cannot be. I meant outlier in the sense of a probability distribution with e.g. standard deviations, not to imply randomness. I’ll start by quoting what I wrote the last time this topic came up on HN: “Virtu only lost money trading one day out of 1278 trading days between 2009 and 2014. In the most uncharitable analysis (1278/2; or the lost day happened in the middle), they had a 0.5^639 chance of doing that. Maybe you disagree with 0.5 per day. Let's make it 0.9! ...But that's still 5.7 x 10^-30. How many firms do we need to exist for this to emerge by chance?” Draw up a probability space for me and actually quantify what you’re asserting. What is an event? Is it a single trade? A trading day? A trading year? How many of these events are there, total, in that timespan? Of those, how many win? Can you map each of these events to a boolean function, such as a coin toss, or are the chances more nuanced? This is before we even get to the issue of quantifying risk as a metric. How about we make the event a trading year; how many funds would need to exist to explain hedge funds like RenTech or Baupost? Moreover, can you explain three decades of extraordinary returns in a single fund as an outcome consistent with a uniform distribution across all eligible hedge funds? This armchair probability analysis turns up every so often on HN, but to be blunt, the onus is on the analysis to actually make it empirical. You can’t just say “well, they’re doing this by chance, we can expect some of these to eventually emerge because statistics and coin tosses” without formally proving that there are actually sufficiently many hedge funds and criteria to satisfy that claim. > Buffett beats the market - but he does it by understanding the businesses behind their stocks, their value and prospects, compared with their present price. He buys value for money, and generally holds it for the long term. He isn't an active trader, which to him is speculation. This is false. Buffett is, by his own admission, an active investor. He picks stocks - what is your definition of an “active investor” if not someone who makes active decisions about how to invest? His letter, “The Superinvestors of Graham and Doddsville”, specifically outlines his investing and describes it as an active strategy.[1] In fact, the way you’ve described his work is an investment thesis consistent with modern trading strategies. At their core, statistical arbitrage and high frequency methods seek to identify price inefficiencies just as Buffett does, but on much smaller timescales. It’s a difference of degree, not category. ______________________ 1. https://www8.gsb.columbia.edu/rtfiles/cbs/hermes/Buffett1984.pdf https://www8.gsb.columbia.edu/rtfiles/cbs/hermes/Buffett1984...
eli 9y ago
Isn't this basically the Texas Sharpshooter Fallacy? There are how many thousands of hedge funds? Of course some of them will beat the market. (And some will not beat the market, and all of them will charge fees far greater than an index fund.) If most of them don't beat an index fund and there's no way to tell winning funds from losing funds in advance, then the smart money is to never invest in a hedge fund.
- dsacco 9y ago
  No, it’s not the Texas Sharpshooter Fallacy. See my response to the other commenter in this thread forwarding (essentially) the same argument. You cannot claim that some event is reducible to chance just because it’s in a small minority of successes out of many more failures. There are stat arb funds which have beaten the market for decades consistently. HFT firms make millions of trades per day with a consistently positive win rate. No matter what you define as a trading event, the probablity analysis is not going to hold up.

by dsacco 9y ago

SirLJ 9y ago

I do absolutely agree with dsacco even though I had my share of arguments in the past with him... You can absolutely beat the market, but you have to work on it and put the effort, same as you can heal people (as be a doctor), create awesome businesses (as entrepreneur), etc...

deleted 9y ago

[deleted]

tabeth 9y ago

The part that is disingenuous is this: > There are plenty of hedge funds which beat the market so significantly and so consistently over long timespans (even decades) that choosing any single one of them would have handily won the bet You say there are plenty that would beat the market, OK, sure. How many would not? What percentage of the funds would win? The way you frame the conversation is disingenuous, given this entire conversation (grand parent and post before that) are about retirement strategies, presumably for average folks. Beating the market may not be strictly impossible, but no one here other than you claimed that. The fact that it is improbable is just that, a fact. So yeah, disproving a claim no one made and denouncing dogma is pretty disingenuous, imo.

dsacco 9y ago
I’ll repeat, I never made a claim that any percentage other than outliers beat the market. Let me restate my point succinctly for you: I consider it dogmatic to frame the conversation as the grandparent comment did, which is saying, “Don’t even try, you’ll lose.” That is dogmatic, which is dentrimental to financial education in general - the reasoning of facts is as important for independent learning as the facts themselves. I provided nuance in the discussion by explaining how it’s possible to beat the market, without ever disagreeing that the best course of action is to simply invest passively. I’ve actually reiterated several times now that most investors should just invest in index funds. I’m not sure what in particular you’re arguing against, because it doesn’t appear to be relevant to my central point as I’ve explained it in this thread. You act as though I’m saying that it’s easy to beat the market, when my entire thesis here has been that it’s not correct to declare people will fail out of hand. If anything, I think I’ve taken rather extreme pains to tediously and explicitly point out the caveats so as not to be disingenuous in my points. In fact, I literally made a comparison to professional athletics in my first comment, which is (statistically) a lottery. If that isn’t enough, what more do you want? More pertinently, I am focused more on complete education that allows people to be self-sufficient: would you advocate saying to kids, “Don’t even bother trying to go pro, you’ll fail.”, or would you advocate explaining to them the honest chances, encouraging them to have fallback plans for their careers, and then providing them with the best chance they can have for what they already want to do? People respond far more favorably to neutral, complete presentations of facts than they do to imperative statements that don’t provide a clear context for their justification.
- tabeth 9y ago
  I'm not arguing anything. I'm just expressing an opinion that the comment you made is disingenuous since it's entirely centered around a claim around impossibility that no one made other than you. The original comment that said "you will lose" is in jest, obviously. Someone who's confident that they wouldn't lose wouldn't be here reading a step by step plan to become a millionaire as they'd already be far beyond that.

hyperpallium 9y ago

If they're "outliers", their success can be explained by chance. With many people tossing coins, some will do very well by the laws of probability. The other problem is you're measuring success in hindsight, not from the beginning. (You could restate it as if from the beginning if you had the full list of initial hedge funds - including those that no longer exist). The point is that you can't predict which funds will be successful. Buffett beats the market - but he does it by understanding the businesses behind their stocks, their value and prospects, compared with their present price. He buys value for money, and generally holds it for the long term. He isn't an active trader, which to him is speculation.

dsacco 9y ago
> If they're "outliers", their success can be explained by chance. With many people tossing coins, some will do very well by the laws of probability. No, they cannot be. I meant outlier in the sense of a probability distribution with e.g. standard deviations, not to imply randomness. I’ll start by quoting what I wrote the last time this topic came up on HN: “Virtu only lost money trading one day out of 1278 trading days between 2009 and 2014. In the most uncharitable analysis (1278/2; or the lost day happened in the middle), they had a 0.5^639 chance of doing that. Maybe you disagree with 0.5 per day. Let's make it 0.9! ...But that's still 5.7 x 10^-30. How many firms do we need to exist for this to emerge by chance?” Draw up a probability space for me and actually quantify what you’re asserting. What is an event? Is it a single trade? A trading day? A trading year? How many of these events are there, total, in that timespan? Of those, how many win? Can you map each of these events to a boolean function, such as a coin toss, or are the chances more nuanced? This is before we even get to the issue of quantifying risk as a metric. How about we make the event a trading year; how many funds would need to exist to explain hedge funds like RenTech or Baupost? Moreover, can you explain three decades of extraordinary returns in a single fund as an outcome consistent with a uniform distribution across all eligible hedge funds? This armchair probability analysis turns up every so often on HN, but to be blunt, the onus is on the analysis to actually make it empirical. You can’t just say “well, they’re doing this by chance, we can expect some of these to eventually emerge because statistics and coin tosses” without formally proving that there are actually sufficiently many hedge funds and criteria to satisfy that claim. > Buffett beats the market - but he does it by understanding the businesses behind their stocks, their value and prospects, compared with their present price. He buys value for money, and generally holds it for the long term. He isn't an active trader, which to him is speculation. This is false. Buffett is, by his own admission, an active investor. He picks stocks - what is your definition of an “active investor” if not someone who makes active decisions about how to invest? His letter, “The Superinvestors of Graham and Doddsville”, specifically outlines his investing and describes it as an active strategy.[1] In fact, the way you’ve described his work is an investment thesis consistent with modern trading strategies. At their core, statistical arbitrage and high frequency methods seek to identify price inefficiencies just as Buffett does, but on much smaller timescales. It’s a difference of degree, not category. ______________________ 1. https://www8.gsb.columbia.edu/rtfiles/cbs/hermes/Buffett1984.pdf https://www8.gsb.columbia.edu/rtfiles/cbs/hermes/Buffett1984...

eli 9y ago

Isn't this basically the Texas Sharpshooter Fallacy? There are how many thousands of hedge funds? Of course some of them will beat the market. (And some will not beat the market, and all of them will charge fees far greater than an index fund.) If most of them don't beat an index fund and there's no way to tell winning funds from losing funds in advance, then the smart money is to never invest in a hedge fund.

dsacco 9y ago
No, it’s not the Texas Sharpshooter Fallacy. See my response to the other commenter in this thread forwarding (essentially) the same argument. You cannot claim that some event is reducible to chance just because it’s in a small minority of successes out of many more failures. There are stat arb funds which have beaten the market for decades consistently. HFT firms make millions of trades per day with a consistently positive win rate. No matter what you define as a trading event, the probablity analysis is not going to hold up.