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I don't day trade, I mostly keep my money in ETFs and other dumb securities. But every now and again, I see the market move in such a completely unreasonable wa

I don't day trade, I mostly keep my money in ETFs and other dumb securities. But every now and again, I see the market move in such a completely unreasonable way, most often hammering a stock on some bad, but not awful news. In these cases, I've made small gambles and bought the stock when it's low to see it recover every time. My sample size is small and I'm too conservative to bet the bank, but I haven't been wrong yet.

sumedh 8y ago
> I'm too conservative to bet the bank, but I haven't been wrong yet. You are being cocky because you are dabbling with small money, when you play with big money, your emotions will immediate change and that is when you will make mistakes.
- speedplane 8y ago
  > when you play with big money, your emotions will immediate change and that is when you will make mistakes That's precisely why I don't play with big money, not that I have so much anyway. I wonder though, if I was playing with someone else's "big money", if you could keep those emotions in check.
  - fossuser 8y ago
    That’s the real trick - convince others to give you a lot of money and when you win you get a big cut and when you lose it’s not your money and you just do something else. Seems to be the way all hedge funds operate, maybe can even charge membership fees too.
    - speedplane 8y ago
      Right... most traders get big bonuses when they win, but if they lose, at worst they get fired. If you can win for a while and then get fired eventually, you'll still end up on top.
      - gaius 8y ago
        Trader A makes $10m in year 1 and gets a $1m bonus. She loses $10m in year 2, and gets no bonus so the firm is down her $1m bonus. Trader B makes $1m in years 1 and 2. That’s too low to trigger a bonus, but his firm is up $2m. The system doesn’t reward trader B so he has to choose: do what’s right for the firm, or take big risks in the hope of a bonus (Simplifying dramatically)
      - cheez 8y ago
        Many firms implement clawbacks for this instance
    - Lavery 8y ago
      Part of the trick to convincing people to invest with you is having a significant amount of your own money in the fund. So that's one hurdle here. It's possible to raise enough that your management fee renders irrelevant whatever you might lose trading your own money, but at that point you're in big league hedge fund scale anyway and will be very tightly scrutinized. Also, losing client money is just as emotionally difficult and stressful and guilt inducing--maybe more so--than losing your own for anyone with a half normal sense of responsibility and fiduciary duty.
- skookumchuck 8y ago
  True enough. I've realized that my investment strategy would be completely different if I was using Monopoly money, and I'd probably have made 10x as much money.
- downandout 8y ago
  >and that is when you will make mistakes. While some trades using this method may not work out, the idea that he must make mistakes simply because he is risking larger amounts is not at all a given. Some people have no sensitivity to such things. I know a couple of advantage gamblers that sometimes play $10,000+/hand on blackjack, and it might as well be $5 to them - not because they are super wealthy, but because they know they have an advantage, and understand that the math will work out over the long term. Whether they win or lose on a given hand, or wind up winning or losing on a given day, is meaningless to them and they rarely get emotional about it. The same certainly applies to many stock traders.
luckman212 8y ago
That "strategy" only works when markets are behaving irrationally, such as they have been for the last 10 years, where basically everything just goes up. If you tried that in 2000 (like I did) or 2008, you'd be quickly destroyed.
- closeparen 8y ago
  The business cycle is a thing. Passive investing means expecting that, and not selling at the bottom. (For short-term liquidity needs, you shouldn't be in the stock market at all).
  - paganel 8y ago
    If the cycle is long enough, like in Tokyo, where the Nikkei is only at about 60% compared to its 1989 value, then it is of no use at all, unless we think of the “in the long run we are all going to end up dead” as a good investment strategy. There are also Black Swan-like events of stock exchanges and entire markets disappearing completely, like it happened in Russia after 1917 and in China after WW2.
    - tonyedgecombe 8y ago
      There was a severe bubble leading up to that, characterized by corruption and negligence. I'm not sure it's a good example. If something like the Russian revolution comes along then all bets are off, it pretty much doesn't matter what you did with your money as long as you didn't flaunt it.
      - oillio 8y ago
        Are you sure we are not currently in a “severe bubble characterized by corruption and negligence?” I think I could argue both sides pretty convincingly. It is easy to see in hindsight, not so easy in the thick of it.
    - closeparen 8y ago
      You’d need a fundamentals-based argument like “the economy is all based on lies” and “technological innovation has stopped” to proclaim something like that, not just “there’s usually a downturn every 10 years or so.”
kgwgk 8y ago
So you were able to successfully read the future yourself? Can you predict coin flips as well? ;-)
- michaelscott 8y ago
  A straw man comparison. OP is saying that they can intuitively pick up (sometimes) on unreasonable downtrends (when they occur). These happen because of historical events and market reaction to those events. The probabilities are based on dependent events in the case of the market, and on independent events in the case of a coin flip, which is a critical distinction (but does not mean that OP can predict results 100% in either case).
  - kgwgk 8y ago
    My reply has to be read in the context of other comments from speedplane: “You're still trying to read the future, if you could do that well, you could make money betting on coin flips.”
matwood 8y ago
"But every now and again, I see the market move in such a completely unreasonable way, most often hammering a stock on some bad, but not awful news." These obvious moments do happen sometimes. Not always, but they can give an edge to knowledgable people paying attention (most HNers know tech better than the average stock analyst/trader). I remember the night Trump won, the futures market reacted like the world ended. While the world might end at some point in the future, it certainly was not going to end the next day. With that said, these moments do not happen frequently enough and turn out correctly for the investor to consistently make money.
- qaq 8y ago
  if they are 100% obvious trade options on margin and make a killing :)
  - matwood 8y ago
    That's why I said they a) don't happen that frequently and b) do not always turn out positive. Black swan events do happen. I joke with my currency trading friends about 'picking up nickels in front of a steam roller'. It works great, until suddenly it doesn't and you're broke.
tim333 8y ago
"Observing correctly that the market was frequently efficient, they went on to conclude incorrectly that it was always efficient. The difference between these propositions is night and day." Buffett in 1988 prior to his net worth increasing a lot.

sumedh 8y ago

> I'm too conservative to bet the bank, but I haven't been wrong yet. You are being cocky because you are dabbling with small money, when you play with big money, your emotions will immediate change and that is when you will make mistakes.

speedplane 8y ago
> when you play with big money, your emotions will immediate change and that is when you will make mistakes That's precisely why I don't play with big money, not that I have so much anyway. I wonder though, if I was playing with someone else's "big money", if you could keep those emotions in check.
- fossuser 8y ago
  That’s the real trick - convince others to give you a lot of money and when you win you get a big cut and when you lose it’s not your money and you just do something else. Seems to be the way all hedge funds operate, maybe can even charge membership fees too.
  - speedplane 8y ago
    Right... most traders get big bonuses when they win, but if they lose, at worst they get fired. If you can win for a while and then get fired eventually, you'll still end up on top.
    - gaius 8y ago
      Trader A makes $10m in year 1 and gets a $1m bonus. She loses $10m in year 2, and gets no bonus so the firm is down her $1m bonus. Trader B makes $1m in years 1 and 2. That’s too low to trigger a bonus, but his firm is up $2m. The system doesn’t reward trader B so he has to choose: do what’s right for the firm, or take big risks in the hope of a bonus (Simplifying dramatically)
    - cheez 8y ago
      Many firms implement clawbacks for this instance
  - Lavery 8y ago
    Part of the trick to convincing people to invest with you is having a significant amount of your own money in the fund. So that's one hurdle here. It's possible to raise enough that your management fee renders irrelevant whatever you might lose trading your own money, but at that point you're in big league hedge fund scale anyway and will be very tightly scrutinized. Also, losing client money is just as emotionally difficult and stressful and guilt inducing--maybe more so--than losing your own for anyone with a half normal sense of responsibility and fiduciary duty.
skookumchuck 8y ago
True enough. I've realized that my investment strategy would be completely different if I was using Monopoly money, and I'd probably have made 10x as much money.
downandout 8y ago
>and that is when you will make mistakes. While some trades using this method may not work out, the idea that he must make mistakes simply because he is risking larger amounts is not at all a given. Some people have no sensitivity to such things. I know a couple of advantage gamblers that sometimes play $10,000+/hand on blackjack, and it might as well be $5 to them - not because they are super wealthy, but because they know they have an advantage, and understand that the math will work out over the long term. Whether they win or lose on a given hand, or wind up winning or losing on a given day, is meaningless to them and they rarely get emotional about it. The same certainly applies to many stock traders.

luckman212 8y ago

That "strategy" only works when markets are behaving irrationally, such as they have been for the last 10 years, where basically everything just goes up. If you tried that in 2000 (like I did) or 2008, you'd be quickly destroyed.

closeparen 8y ago
The business cycle is a thing. Passive investing means expecting that, and not selling at the bottom. (For short-term liquidity needs, you shouldn't be in the stock market at all).
- paganel 8y ago
  If the cycle is long enough, like in Tokyo, where the Nikkei is only at about 60% compared to its 1989 value, then it is of no use at all, unless we think of the “in the long run we are all going to end up dead” as a good investment strategy. There are also Black Swan-like events of stock exchanges and entire markets disappearing completely, like it happened in Russia after 1917 and in China after WW2.
  - tonyedgecombe 8y ago
    There was a severe bubble leading up to that, characterized by corruption and negligence. I'm not sure it's a good example. If something like the Russian revolution comes along then all bets are off, it pretty much doesn't matter what you did with your money as long as you didn't flaunt it.
    - oillio 8y ago
      Are you sure we are not currently in a “severe bubble characterized by corruption and negligence?” I think I could argue both sides pretty convincingly. It is easy to see in hindsight, not so easy in the thick of it.
  - closeparen 8y ago
    You’d need a fundamentals-based argument like “the economy is all based on lies” and “technological innovation has stopped” to proclaim something like that, not just “there’s usually a downturn every 10 years or so.”

kgwgk 8y ago

So you were able to successfully read the future yourself? Can you predict coin flips as well? ;-)

michaelscott 8y ago
A straw man comparison. OP is saying that they can intuitively pick up (sometimes) on unreasonable downtrends (when they occur). These happen because of historical events and market reaction to those events. The probabilities are based on dependent events in the case of the market, and on independent events in the case of a coin flip, which is a critical distinction (but does not mean that OP can predict results 100% in either case).
- kgwgk 8y ago
  My reply has to be read in the context of other comments from speedplane: “You're still trying to read the future, if you could do that well, you could make money betting on coin flips.”

matwood 8y ago

"But every now and again, I see the market move in such a completely unreasonable way, most often hammering a stock on some bad, but not awful news." These obvious moments do happen sometimes. Not always, but they can give an edge to knowledgable people paying attention (most HNers know tech better than the average stock analyst/trader). I remember the night Trump won, the futures market reacted like the world ended. While the world might end at some point in the future, it certainly was not going to end the next day. With that said, these moments do not happen frequently enough and turn out correctly for the investor to consistently make money.

qaq 8y ago
if they are 100% obvious trade options on margin and make a killing :)
- matwood 8y ago
  That's why I said they a) don't happen that frequently and b) do not always turn out positive. Black swan events do happen. I joke with my currency trading friends about 'picking up nickels in front of a steam roller'. It works great, until suddenly it doesn't and you're broke.

tim333 8y ago

"Observing correctly that the market was frequently efficient, they went on to conclude incorrectly that it was always efficient. The difference between these propositions is night and day." Buffett in 1988 prior to his net worth increasing a lot.