5 ms·

The core of the article, for me: Now that quants have discovered them and attempted to profit from them, there’s a risk that those effects will be arbitraged a

The core of the article, for me: Now that quants have discovered them and attempted to profit from them, there’s a risk that those effects will be arbitraged away. But the sheer durability of the factors does imply there is something to factor investing. Can someone who has made money in finance or knows how it works, explain how/why short term gain/loss doesn't translate into long term gain/loss? It seems like if there was any signal left above the noise, that trading bots would exploit it. But that's obviously not the case, because I could hop on Robinhood today and make a quick 2% riding the daily heartbeat of the stock. My last experience with this was 18 years ago with my dad where we day traded Apple and got up about 40% or $40,000 over 4 months between the dot bomb and 9/11 (which lead to subsequently wiped out all our gains in a week). If things have changed so much that this is no longer possible, then I apologize. But the article suggests that finding correlations still works. I fundamentally don't understand how people on Wall Street can make hundreds of thousands of dollars per year investing (with other people's money, I guess?), but meanwhile the average return of the stock market is only 10% per year. What I'm getting at is that either: 1) there is predictability in investing (meaning that we could all profit if we just had the money to trade, which is inherently discriminatory against the poor) or: 2) there is no predictability in investing (meaning that it is gambling and should perhaps be regulated or banned as such) I'm getting the feeling that all of this has fingers in issues like wealth inequality and generational wealth. Perhaps this is simply a "because that's the way it is" situation, but that was said about stuff like slavery and child marriage.

Chickenality 8y ago
> (which lead to subsequently wiped out all our gains in a week) This is the key point. Many strategies that yield above-market returns often do so only because they're taking on large amounts of risk, even if that risk isn't immediately apparent. Think about trading cryptocurrencies, buying penny stocks, selling naked options, etc. You _can_ make a lot of money doing any of these things, but you'll be exposed to quite a bit of downside along the way, and most people who try will end up in the red.
- drharby 8y ago
  ...given sufficient hours/time in the game. Just to bring the thought home. Im a blackjack player, and i calculate my returns at 100hours of play because of this manifestation of the law of large numbers
- FabHK 8y ago
  Aka “picking up pennies in front of a steamroller” or “selling insurance” or “writing naked options” etc.
everdev 8y ago
> there is predictability in investing Even if you could predict the future of your investment the market will eventually catch on. Let's say you can accurately predict the market's up or down direction a week in advance. You know it will go up so you start buying. The act of you buying drives prices up until even you don't think it's a good investment. Essentially, you've accelerated your future prediction to become today's reality. Markets suck up information. Maybe you could make predictions in secret but as soon as you start publicizing those predictions or acting on the market, you've already changed the conditions. All it takes is a bug in a financial model for someone to start dumping shares and affecting the market. While markets are self correcting, they are not predictable or guaranteed to be rational. Many people who are predicting markets are getting lucky or hoping to do it so publicly that it becomes a set fulfilling profacy.
- module0000 8y ago
  I disagree - if "The act of you buying drives prices up", then you are making the market, not speculating about the future. Trying to predict markets has a high risk of ruin.
  - bob_theslob646 8y ago
    >"The act of you buying drives prices up", then you are making the market, not speculating about the future. You seem a tad anal here, what is the difference here?
pjc50 8y ago
> we could all profit if we just had the money to trade, which is inherently discriminatory against the poor Well, this is capitalism 101: if you have capital you can get returns on capital (with a risk/reward tradeoff, but there is such a thing as a "riskfree" return), and people have been complaining about this since before Marx. Predictability: you should see it more as a competitive sport. Nobody can predict who's going to win reliably, but being informed and doing the work will give you better results than not. (Also, not everybody is a "trader"; quite a lot of people are effectively commissioned salesmen for either the buy side or the sell side)
colechristensen 8y ago
There is a vast difference between short term and long term investing. Short term investing is cutthroat competition to take advantages of the slight gap between the market and pure unpredictable behaviors. Long term investing is buying a portion of future profits. There is still uncertainty but much less especially for properly researched and diversified portfolios. Of course you shouldn't make major financial decisions based on what you read from internet strangers, do your own research. A book I recommend is A Random Walk Down Wall Street https://www.amazon.com/gp/product/0393246116 https://www.amazon.com/gp/product/0393246116

Chickenality 8y ago

> (which lead to subsequently wiped out all our gains in a week) This is the key point. Many strategies that yield above-market returns often do so only because they're taking on large amounts of risk, even if that risk isn't immediately apparent. Think about trading cryptocurrencies, buying penny stocks, selling naked options, etc. You _can_ make a lot of money doing any of these things, but you'll be exposed to quite a bit of downside along the way, and most people who try will end up in the red.

drharby 8y ago
...given sufficient hours/time in the game. Just to bring the thought home. Im a blackjack player, and i calculate my returns at 100hours of play because of this manifestation of the law of large numbers
FabHK 8y ago
Aka “picking up pennies in front of a steamroller” or “selling insurance” or “writing naked options” etc.

everdev 8y ago

> there is predictability in investing Even if you could predict the future of your investment the market will eventually catch on. Let's say you can accurately predict the market's up or down direction a week in advance. You know it will go up so you start buying. The act of you buying drives prices up until even you don't think it's a good investment. Essentially, you've accelerated your future prediction to become today's reality. Markets suck up information. Maybe you could make predictions in secret but as soon as you start publicizing those predictions or acting on the market, you've already changed the conditions. All it takes is a bug in a financial model for someone to start dumping shares and affecting the market. While markets are self correcting, they are not predictable or guaranteed to be rational. Many people who are predicting markets are getting lucky or hoping to do it so publicly that it becomes a set fulfilling profacy.

module0000 8y ago
I disagree - if "The act of you buying drives prices up", then you are making the market, not speculating about the future. Trying to predict markets has a high risk of ruin.
- bob_theslob646 8y ago
  >"The act of you buying drives prices up", then you are making the market, not speculating about the future. You seem a tad anal here, what is the difference here?

pjc50 8y ago

> we could all profit if we just had the money to trade, which is inherently discriminatory against the poor Well, this is capitalism 101: if you have capital you can get returns on capital (with a risk/reward tradeoff, but there is such a thing as a "riskfree" return), and people have been complaining about this since before Marx. Predictability: you should see it more as a competitive sport. Nobody can predict who's going to win reliably, but being informed and doing the work will give you better results than not. (Also, not everybody is a "trader"; quite a lot of people are effectively commissioned salesmen for either the buy side or the sell side)

colechristensen 8y ago

There is a vast difference between short term and long term investing. Short term investing is cutthroat competition to take advantages of the slight gap between the market and pure unpredictable behaviors. Long term investing is buying a portion of future profits. There is still uncertainty but much less especially for properly researched and diversified portfolios. Of course you shouldn't make major financial decisions based on what you read from internet strangers, do your own research. A book I recommend is A Random Walk Down Wall Street https://www.amazon.com/gp/product/0393246116 https://www.amazon.com/gp/product/0393246116