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Teaching People to Trade Stocks Is Like Starting Them on Heroin – Munger

120 points by deegles 8y ago

pspencer 8y ago
It's interesting to read how Buffett and Munger made their money. They definitely didn't make it by investing in index funds. What Munger is really encouraging in his talks is intelligent allocation of money, knowing the boundaries of your knowledge, educating yourself, and recognizing basic human psychological shortcomings (like mistaking speculating for investing).
dont-trd-charts 8y ago
It’s common for a programmer to want to write an algorithm that tries to beat the market. For better or worse, that’s what motivated me to want to learn how to code. The wisdom of driving people away from trading does make sense however
- HenryBemis 8y ago
  Did you learn MQL5 language or something different?
  - dont-trd-charts 8y ago
    No I was a beginner and collected futures tick data and used C++ and Qt to make OHLC data, hack together testing algorithms and charts. This was years ago. It was crude as I was a beginner.
- janee 8y ago
  Haha so true. I found coding my own, albeit stupid, trading strategies quite fun back in the day...sortta similar kind of fun building a borked poker bot. Think it's the combination of money, a bit of math and some cool algos that make it so fun
- AznHisoka 8y ago
  Instead of writing code to beat the market, they are better off writing code to create valuable datasets they can then sell to wall street. Or applications to help Wall street analyze huge datasets, sentiment or news feeds. Selling shovels, so to speak.
  - orojackson 8y ago
    Those same programmers would be better off just following Munger's advice and putting money into index funds. Doesn't require writing any code; all it takes is a few minutes to place an order. I'm not exactly sure why the general sentiment here on HN discourages index funds. It's pretty jarring coming from /r/personalfinance and Bogleheads.
    - AznHisoka 8y ago
      There's nothing wrong with index funds, and I think most people should dump the majority of their money into them as well. However, for those people who feel the obsessive need to game the system, and make money faster, I would suggest not trading, but rather developing tools and gathering data to sell to Wall Street.
- JohnFen 8y ago
  > It’s common for a programmer to want to write an algorithm that tries to beat the market. Is it? I'm pretty sure that I don't personally know a single programmer who has done this.
- meesterdude 8y ago
  I built a backtesting platform and my own DSL to interface with TA I created in SQL. Great learning experience - and humbling.
AlphaWeaver 8y ago
What exactly is the analogy being drawn here?
- pakitan 8y ago
  The more appropriate analogy is that trading stocks is like gambling. And it's not even analogy. Unless you really know what you're doing, trading stocks is gambling, just with less house edge.
  - m3kw9 8y ago
    Not less but unknown
    - pakitan 8y ago
      The house is your broker and their commissions plus the spread - the edge. So, the edge is very well known.
  - deleted 8y ago
    [deleted]
  - walshemj 8y ago
    I think what your talking about is speculating vs investing - the term Benjamin Garnham uses.
    - unforeseen9991 8y ago
      Exactly. Few people get the difference. Speculative trading is not investing. Professional trading, esp with leverage, is extraordinarily difficult to gain the required mentality, discipline, knowledge, and skills be consistently profitable. The common saying is that 90% fail, I believe it's higher, perhaps much higher. Learning trading was the most difficult thing I've done in my life. It's hard in a way most people don't grasp.
    - pakitan 8y ago
      Yes, I'm talking about speculating though the difference is basically just in the holding duration of your stocks. If you're trading every day, that's speculation. If you buy and hold for 10 years, that's investing.
ChuckMcM 8y ago
Well that is a click baity title. What he really meant was that encouraging people to trade stocks is a bad idea period (he is a big proponent of index funds). I can't say I disagree with that, not that I would categorically lump all financial managers into the 'useless' category either. But it is important to note that he uses 'trading' in the sense of actively taking and releasing positions in different stocks in order to capture their short term change in value. Not 'investing' which is buying and holding equity (stocks) in company that are growing or otherwise generating wealth (and ideally paying a dividend).
- usaar333 8y ago
  A follow-up question is if Robinhood (by massively reducing trading costs/friction) is socially positive or not. Their career pitch is that they democratize America's financial system (https://careers.robinhood.com/ https://careers.robinhood.com/), but looking at how the reduced friction just leads to Average Joe losing more money, you could credibly view this as a type of destructive "excessive democracy".
  - RcouF1uZ4gsC 8y ago
    If the Average Joe loses more money, maybe they should rename it SherrifOfNotingham as it would be stealing from the poor to give to the rich.
    - jhsdlkasjHADSJ 8y ago
      Individuals are actively choosing to make investments. Although I will say that it seems that their risk assessment department is seriously lacking. (see: u/1r0nyman)
      - arcticbull 8y ago
        I dunno, he doubled his money — I think his assessment of risk was spot on ;)
  - mandelbrotwurst 8y ago
jppope 8y ago
Super wise gentleman, thoughtful speaker, inspirational story... not always right though... Trading stocks, or active investment is important for the ecosystem, and having people learn hard lessons like not to gamble with money they can't afford to lose is equally valuable. Free Markets depend on willing participants, and progressively greater efficiencies (including in investment) Epsilon Theory has a couple of notes regarding Berkshire => e.g. - https://twitter.com/EpsilonTheory/status/1098596558495453187 https://twitter.com/EpsilonTheory/status/1098596558495453187 - [thread] https://twitter.com/EpsilonTheory/status/1096360266416209920 https://twitter.com/EpsilonTheory/status/1096360266416209920
- longerthoughts 8y ago
  >Trading stocks, or active investment is important for the ecosystem, and having people learn hard lessons like not to gamble with money they can't afford to lose is equally valuable. Free Markets depend on willing participants, and progressively greater efficiencies How do ignorant investors making senseless trades and learning "hard lessons" improve market efficiency?
snazz 8y ago
> “Never underestimate a man who overestimates himself.” Good life advice, especially for dealing with people who have a tendency to boast of their accomplishments.
- repsilat 8y ago
  I totally agree. Also important to note that "always overestimate yourself" and "bank on people who overestimate themselves" are not solid corrolaries. The boastful are high variance, even taking your own judgement into account. And where there are power-law outcomes, exposing yourself to the wrong kind of tail risk can be fatal.
deleted 8y ago
[deleted]
sammycdubs 8y ago
I think that companies like Robinhood gamifying highly risky trading strategies are super irresponsible. There should definitely be a higher burden to educate end users, and to more tightly limit crazy shit like leveraged positions.
- abvdasker 8y ago
  Robinhood sells shares in a bunch of ETFs as well as individual stocks. Their selection isn't as good as a Fidelity or a Vanguard but the value proposition is the lack of transaction fees. There's nothing inherently irresponsible about Robinhood (except maybe how easy it is to get a margin account). It allows individuals to make the same mistakes as any of the larger investment banks.
  - sammycdubs 8y ago
    You can absolutely get lower risk investments through Robinhood, but they actively market things like margin trading under the "Robinhood Gold" banner. I don't think most investment banks would let you do things that risky, and you'd still have an advisor in the middle. You can always lose money while investing, it's just Robinhood makes it feel like you're losing at Candy Crush while you're doing it. Certain financial transactions shouldn't be as frictionless as Robinhood makes them, and I can't help but feel that their platform is irresponsibly built. Their "Checking and Savings" debacle show how fast and loose they play with regulations and educating consumers.
- QuackingJimbo 8y ago
  Thank you -- you're one of the few Robinhood critics who recognizes this (rather than their routing of orders to HFT) as the real problem Robinhood disgusts me. 99% of their users should not be trading individual stocks (or worse)
- njarboe 8y ago
  On the other hand, letting people access cheap trading when they are young might let them learn about the stock market the only way it sticks. The hard way. With the current retirement system in America they will be in control of their, hopefully, very large retirement account at some point. It would be better for people to learn early about trading and experience a few business cycles before they transfer $1 million out of their employees plan into their own E-Trade IRA account at age 55. A lot of older people lost much of their retirement fund in both the dot com and 2008 crashes. Buy high, sell low is the natural behavior of the human animal.
RickJWagner 8y ago
I really like to listen to Munger, Buffett, Dalio and recordings of Jack Bogle. These guys have won the game, they are trying to teach others how to do it. We have much to gain, just by listening.
- ydnaclementine 8y ago
  Non facetious question, did they make their money doing what they're suggesting (passive investing), or do they have the knowledge that for most people passive is the best answer? I guess I answered myself (the second)
BucketSort 8y ago
I heard that if you give opiates to patients at a hospital they don't get addicted because it is in a controlled environment where the patient is not seeking out those drugs for pleasure. If someone is getting heroin off the streets, the are looking to fill a void and it's perfect for that ( not perfect for your health or lifestyle obviously ). Obviously if people are looking to stocks as a gambler does, it can be like an addiction. Whereas if people are looking to trade stocks as a principled investor, this analogy does not apply.
- carbocation 8y ago
  > I heard that if you give opiates to patients at a hospital they don't get addicted because it is in a controlled environment where the patient is not seeking out those drugs for pleasure. I am not sure if this is sarcasm, and I don't think it is, but just want to mention that I can't always tell on the Internet. In-hospital opiate use can be important. But, there is good reason to believe that people using opiates appropriately for pain can still ultimately develop dependence and may develop addiction. Opiates have an important role right now, but the "fifth vital sign" is one of the things that presumably got us into big trouble with the current opiate crisis. We should tread lightly. I know this is slightly off-topic, but if since the whole topic is reasoning by analogy, it seems worth a brief mention.
cde-v 8y ago
It is addictive like any other sort of gambling/speculation.
throwaway-1283 8y ago
More like trading options
dsmithatx 8y ago
People who fail to read and educate themselves will listen to snake oils salesman pitches and trade stocks like a junkie on heroin. I spent years learning industries, learning how to read quarterly report, to identify signs of fraud, and pay attention to the news every single day. Like anything you do you have to be committed and determined to be successful. It's not a dark secret that there are no short cuts in life. This article assumes we are all much dumber than I prefer to believe we are. We being people who have money to trade stocks and suffer from big losses. I learned how to trade stocks by reading books about value investing and accounting practices. Very simple stuff that like anything worth learning takes a bit of time and effort. I don't get the upvotes on this article.
- smileysteve 8y ago
  > I spent years learning industries, learning how to read quarterly report, to identify signs of fraud, and pay attention to the news every single day. How'd that work out for you? Do you beat the S&P 500 YOY with less volatility? If you account for your hours and trading fees? How many years in a row? If your answer is yes, you should start a fund! Because statistically, whether a mutual fund or exclusive hedge fund, you're a miracle. > Like anything you do you have to be committed and determined to be successful. His argument, seemingly based off the Random Walk Down Wall Street data; which basically shows that no matter how committed and determined you are, the broad based index is going to beat you, if not 1 year, year over year.
  - dsmithatx 8y ago
    Today I have 5 stocks i've bought over the past 60 days. I wont take the time to post my past 24 years of investing. I'm doing ok and so is my team of close friends I bounce ideas off of. https://imgur.com/EQ0iWWT https://imgur.com/EQ0iWWT
    - dsmithatx 8y ago
      RHT should make me about $6000. I bought it the day after IBM announced they would pay $190 a share. Disclaimer I'm Redhat Certified.
QuackingJimbo 8y ago
I work in HFT. He is completely correct I always laugh when people say Robinhood is a good thing for society. Their zero fees, cool app, and gamification of trading is simply ushering fools into a casino
- whitepoplar 8y ago
  Cool. What's the best way to minimize transactional costs when buying ETFs (as a buy-and-hold strategy)? E.g. Should I only purchase marketable round lots? Can I do any better than Fidelity/Interactive Brokers for price improvement? Any tips to make my trades as efficient as possible? Or would you avoid ETFs altogether and just purchase mutual funds directly from Vanguard, without any transactional costs? Thanks!
  - QuackingJimbo 8y ago
    You are pretty much already there For the majority of people, I would recommend just buying Vanguard funds If you really want to trade anything else, IB is the way to go
    - whitepoplar 8y ago
      Gotcha, thanks! As for lot size, I know I mentioned round lots, but I typically trade odd lots out of convenience. What does this cost me in practice? Am I missing out on any investor protections that only apply to round lots?
number_six 8y ago
and r/wsb is like the flophouse I guess?
JohnFen 8y ago
Since I know how to trade stocks, but find that activity massively unpleasant, I guess I can assume that I wouldn't like heroin either?
- fucking_tragedy 8y ago
  I don't think anyone goes into heroin liking to put questionable needles into their body, but that's what they usually end up doing.
walamaking 8y ago
Reading posts like these is like eating shit.
latencyloser 8y ago
I feel like there's a lot of misinformation in this thread, not about the article necessarily, but markets and trading in general. Stocks are kind of the "beginner's" asset. They're fairly easy to understand conceptually. "Trading" them is even easier. However, trading them in isolation for a profit _consistently_ is very difficult or just a product of luck. I don't know anyone who does it and wasn't burned eventually. The thing to remember is, people doing funds or "trading" professionally aren't just buying and selling FANG stocks all day. They're balancing these trades with futures and options or options on futures and other alternative assets. They're hedging their positions and setting themselves up so that their probability of coming out ahead is much greater than you're standard "it either goes up or down" stock movement. A simple example is the "wheel" strategy in options. A short put at a .30 delta on the underlying, assuming 1 stddev movements gives about a 70% chance of collecting the premium without assignment (of course this isn't perfectly true, it's an approximation). This is already better than buying the stock, which under the same methodology, would have a 50% chance of profit (either going up or down from the purchase price). When assigned, turn around and open a short call against the assigned shares at a similar delta and repeat. In the flat market we've seen the last year or so, this is reasonably profitable and very low effort. Edit: The reason the "buy and hold an index forever" strategy is recommended is because it's the lowest effort, highest probability of profit strategy one can probably take. I agree with it entirely for 99.9% of people. But that's not to say there isn't other opportunity out there if you're willing to learn about it. Source: spent a few years at the Chicago Mercantile Exchange working on these sorts of things exchange side and now trade regularly on my own.
- thoughtstheseus 8y ago
  Picking up those pennies in front of a bulldozer... Agreed, you can structure trades to greatly improve your risk/return. There are whole other levels of investing like selecting how to interact with capital structures or even the market microstructure of how the trades work.
  - latencyloser 8y ago
    > Picking up those pennies in front of a bulldozer That is not what I'm advocating at all.
hristov 8y ago
This obsession with index funds is getting a little out of hand. Sure for many people buying an index might be a good idea. I myself recommend that many people buy an S&P 500 index. But to criticize all active managers is a little wrong. For one, Warren Buffet and Charlie Munger are active managers themselves, you do not see them buying an index fund. Lets think about what happens when you buy the S&P 500 index. This is usually the most recommended index, and the one I recommend too. You basically give your money to own stocks of the 500 biggest publicly listed companies in the US. If a company is big enough and it gets their stock listed on the major markets it usually gets included in the S&P 500. (There are some exceptions but generally this is the way it works). Does that make these companies good investments? Not necessarily. There is a way to get big without being especially good at what you do (through mergers). It is possible that certain companies were very good investments before, had their stock appreciate, got into the S&P 500, had a change of management or experienced a change of end markets, and became bad investments. This is what happened to GE, for example. The theory of indexing says that, yes there will be some companies in the S&P 500 that are not very good, but others will be excellent and it will all even itself out and you will make money in general as the economy grows. But that will only work if there are no secondary effects. If putting all money in indexes becomes the usual course of action for institutions as well as individuals then it would be very easy to exploit this. A company just needs to get large enough to get send to the S&P 500 (again this can be done with mergers and without necessarily being very successful or profitable) and then they get a bunch free money send their way by way of indexing. And if you get a bunch of badly run companies merging together to get into the index, indexing will certainly become a rather money losing proposition. The reason why indexing tends to work and it has worked so far, is that indexers are kind of free riding on active investors. Active investors buy and sell stocks and they thus cause the price to move up and down. The price of the most wanted companies moves up and they get put into the top indexes, where the free riding index investors buy their shares. The active investors do not mind because they were first into the shares, and the free riders just increase the value of their holdings. The free riders do not mind because the active investors in a way pick stocks for them. This all works fine but the whole system relies on there being enough active investors to free ride upon. And if this whole buying indexes trend goes out of hand there might not be. Buffet and Munger have some good cause to criticize active managers. Many of them have not been very good at all. Money management is one of those professions where it is not easy to determine ahead of time where someone is good or bad at it. Even excellent money managers can have a couple of bad years and terrible money managers can get lucky once or twice. Thus, you have to wait several years to see whether someone is actually good at managing money and during that time they actually have to have money to manage. So to even test whether someone is a good money manager requires taking on a lot of risk. And because being a money manager can be so very lucrative and glamorous and because it is so hard to distinguish the good ones from the bad ones the whole field attracts a lot of smooth operators that know how to ape the look and talk of a person the public would expect to be a successful money manager but they do not know how to do it. This is a problem with many other professions that are glamorous but where it is hard to initially tell the good from the bad. These include TV/Movie director, TV/Movie writer, politician, newspaper column writer, artist etc. That being said there are money managers that are undoubtedly very good. Buffet and Munger are themselves a couple of examples. There are many others. Perhaps there aren't enough of them. Perhaps we as an economy are having a problem of not being able to train and recognize able money managers. That may be the case, but that does not mean we should abandon the concept of an active investor. The world actually needs active investors, money managers and asset alocators in general. The dream of simple, cheap and easy passive investing cannot work without them.
LeicaLatte 8y ago
What about equity to employees? founders?
deleted 8y ago
[deleted]

120 points by deegles 8y ago

It's interesting to read how Buffett and Munger made their money. They definitely didn't make it by investing in index funds. What Munger is really encouraging in his talks is intelligent allocation of money, knowing the boundaries of your knowledge, educating yourself, and recognizing basic human psychological shortcomings (like mistaking speculating for investing).

dont-trd-charts 8y ago

It’s common for a programmer to want to write an algorithm that tries to beat the market. For better or worse, that’s what motivated me to want to learn how to code. The wisdom of driving people away from trading does make sense however

HenryBemis 8y ago
Did you learn MQL5 language or something different?
- dont-trd-charts 8y ago
  No I was a beginner and collected futures tick data and used C++ and Qt to make OHLC data, hack together testing algorithms and charts. This was years ago. It was crude as I was a beginner.
janee 8y ago
Haha so true. I found coding my own, albeit stupid, trading strategies quite fun back in the day...sortta similar kind of fun building a borked poker bot. Think it's the combination of money, a bit of math and some cool algos that make it so fun
AznHisoka 8y ago
Instead of writing code to beat the market, they are better off writing code to create valuable datasets they can then sell to wall street. Or applications to help Wall street analyze huge datasets, sentiment or news feeds. Selling shovels, so to speak.
- orojackson 8y ago
  Those same programmers would be better off just following Munger's advice and putting money into index funds. Doesn't require writing any code; all it takes is a few minutes to place an order. I'm not exactly sure why the general sentiment here on HN discourages index funds. It's pretty jarring coming from /r/personalfinance and Bogleheads.
  - AznHisoka 8y ago
    There's nothing wrong with index funds, and I think most people should dump the majority of their money into them as well. However, for those people who feel the obsessive need to game the system, and make money faster, I would suggest not trading, but rather developing tools and gathering data to sell to Wall Street.
JohnFen 8y ago
> It’s common for a programmer to want to write an algorithm that tries to beat the market. Is it? I'm pretty sure that I don't personally know a single programmer who has done this.
meesterdude 8y ago
I built a backtesting platform and my own DSL to interface with TA I created in SQL. Great learning experience - and humbling.

AlphaWeaver 8y ago

What exactly is the analogy being drawn here?

pakitan 8y ago
The more appropriate analogy is that trading stocks is like gambling. And it's not even analogy. Unless you really know what you're doing, trading stocks is gambling, just with less house edge.
- m3kw9 8y ago
  Not less but unknown
  - pakitan 8y ago
    The house is your broker and their commissions plus the spread - the edge. So, the edge is very well known.
- deleted 8y ago
  [deleted]
- walshemj 8y ago
  I think what your talking about is speculating vs investing - the term Benjamin Garnham uses.
  - unforeseen9991 8y ago
    Exactly. Few people get the difference. Speculative trading is not investing. Professional trading, esp with leverage, is extraordinarily difficult to gain the required mentality, discipline, knowledge, and skills be consistently profitable. The common saying is that 90% fail, I believe it's higher, perhaps much higher. Learning trading was the most difficult thing I've done in my life. It's hard in a way most people don't grasp.
  - pakitan 8y ago
    Yes, I'm talking about speculating though the difference is basically just in the holding duration of your stocks. If you're trading every day, that's speculation. If you buy and hold for 10 years, that's investing.

ChuckMcM 8y ago

Well that is a click baity title. What he really meant was that encouraging people to trade stocks is a bad idea period (he is a big proponent of index funds). I can't say I disagree with that, not that I would categorically lump all financial managers into the 'useless' category either. But it is important to note that he uses 'trading' in the sense of actively taking and releasing positions in different stocks in order to capture their short term change in value. Not 'investing' which is buying and holding equity (stocks) in company that are growing or otherwise generating wealth (and ideally paying a dividend).

usaar333 8y ago
A follow-up question is if Robinhood (by massively reducing trading costs/friction) is socially positive or not. Their career pitch is that they democratize America's financial system (https://careers.robinhood.com/ https://careers.robinhood.com/), but looking at how the reduced friction just leads to Average Joe losing more money, you could credibly view this as a type of destructive "excessive democracy".
- RcouF1uZ4gsC 8y ago
  If the Average Joe loses more money, maybe they should rename it SherrifOfNotingham as it would be stealing from the poor to give to the rich.
  - jhsdlkasjHADSJ 8y ago
    Individuals are actively choosing to make investments. Although I will say that it seems that their risk assessment department is seriously lacking. (see: u/1r0nyman)
    - arcticbull 8y ago
      I dunno, he doubled his money — I think his assessment of risk was spot on ;)
- mandelbrotwurst 8y ago

jppope 8y ago

Super wise gentleman, thoughtful speaker, inspirational story... not always right though... Trading stocks, or active investment is important for the ecosystem, and having people learn hard lessons like not to gamble with money they can't afford to lose is equally valuable. Free Markets depend on willing participants, and progressively greater efficiencies (including in investment) Epsilon Theory has a couple of notes regarding Berkshire => e.g. - https://twitter.com/EpsilonTheory/status/1098596558495453187 https://twitter.com/EpsilonTheory/status/1098596558495453187 - [thread] https://twitter.com/EpsilonTheory/status/1096360266416209920 https://twitter.com/EpsilonTheory/status/1096360266416209920

longerthoughts 8y ago
>Trading stocks, or active investment is important for the ecosystem, and having people learn hard lessons like not to gamble with money they can't afford to lose is equally valuable. Free Markets depend on willing participants, and progressively greater efficiencies How do ignorant investors making senseless trades and learning "hard lessons" improve market efficiency?

snazz 8y ago

> “Never underestimate a man who overestimates himself.” Good life advice, especially for dealing with people who have a tendency to boast of their accomplishments.

repsilat 8y ago
I totally agree. Also important to note that "always overestimate yourself" and "bank on people who overestimate themselves" are not solid corrolaries. The boastful are high variance, even taking your own judgement into account. And where there are power-law outcomes, exposing yourself to the wrong kind of tail risk can be fatal.

deleted 8y ago

[deleted]

sammycdubs 8y ago

I think that companies like Robinhood gamifying highly risky trading strategies are super irresponsible. There should definitely be a higher burden to educate end users, and to more tightly limit crazy shit like leveraged positions.

abvdasker 8y ago
Robinhood sells shares in a bunch of ETFs as well as individual stocks. Their selection isn't as good as a Fidelity or a Vanguard but the value proposition is the lack of transaction fees. There's nothing inherently irresponsible about Robinhood (except maybe how easy it is to get a margin account). It allows individuals to make the same mistakes as any of the larger investment banks.
- sammycdubs 8y ago
  You can absolutely get lower risk investments through Robinhood, but they actively market things like margin trading under the "Robinhood Gold" banner. I don't think most investment banks would let you do things that risky, and you'd still have an advisor in the middle. You can always lose money while investing, it's just Robinhood makes it feel like you're losing at Candy Crush while you're doing it. Certain financial transactions shouldn't be as frictionless as Robinhood makes them, and I can't help but feel that their platform is irresponsibly built. Their "Checking and Savings" debacle show how fast and loose they play with regulations and educating consumers.
QuackingJimbo 8y ago
Thank you -- you're one of the few Robinhood critics who recognizes this (rather than their routing of orders to HFT) as the real problem Robinhood disgusts me. 99% of their users should not be trading individual stocks (or worse)
njarboe 8y ago
On the other hand, letting people access cheap trading when they are young might let them learn about the stock market the only way it sticks. The hard way. With the current retirement system in America they will be in control of their, hopefully, very large retirement account at some point. It would be better for people to learn early about trading and experience a few business cycles before they transfer $1 million out of their employees plan into their own E-Trade IRA account at age 55. A lot of older people lost much of their retirement fund in both the dot com and 2008 crashes. Buy high, sell low is the natural behavior of the human animal.

RickJWagner 8y ago

I really like to listen to Munger, Buffett, Dalio and recordings of Jack Bogle. These guys have won the game, they are trying to teach others how to do it. We have much to gain, just by listening.

ydnaclementine 8y ago
Non facetious question, did they make their money doing what they're suggesting (passive investing), or do they have the knowledge that for most people passive is the best answer? I guess I answered myself (the second)

BucketSort 8y ago

I heard that if you give opiates to patients at a hospital they don't get addicted because it is in a controlled environment where the patient is not seeking out those drugs for pleasure. If someone is getting heroin off the streets, the are looking to fill a void and it's perfect for that ( not perfect for your health or lifestyle obviously ). Obviously if people are looking to stocks as a gambler does, it can be like an addiction. Whereas if people are looking to trade stocks as a principled investor, this analogy does not apply.

carbocation 8y ago
> I heard that if you give opiates to patients at a hospital they don't get addicted because it is in a controlled environment where the patient is not seeking out those drugs for pleasure. I am not sure if this is sarcasm, and I don't think it is, but just want to mention that I can't always tell on the Internet. In-hospital opiate use can be important. But, there is good reason to believe that people using opiates appropriately for pain can still ultimately develop dependence and may develop addiction. Opiates have an important role right now, but the "fifth vital sign" is one of the things that presumably got us into big trouble with the current opiate crisis. We should tread lightly. I know this is slightly off-topic, but if since the whole topic is reasoning by analogy, it seems worth a brief mention.

cde-v 8y ago

It is addictive like any other sort of gambling/speculation.

throwaway-1283 8y ago

More like trading options

dsmithatx 8y ago

People who fail to read and educate themselves will listen to snake oils salesman pitches and trade stocks like a junkie on heroin. I spent years learning industries, learning how to read quarterly report, to identify signs of fraud, and pay attention to the news every single day. Like anything you do you have to be committed and determined to be successful. It's not a dark secret that there are no short cuts in life. This article assumes we are all much dumber than I prefer to believe we are. We being people who have money to trade stocks and suffer from big losses. I learned how to trade stocks by reading books about value investing and accounting practices. Very simple stuff that like anything worth learning takes a bit of time and effort. I don't get the upvotes on this article.

smileysteve 8y ago
> I spent years learning industries, learning how to read quarterly report, to identify signs of fraud, and pay attention to the news every single day. How'd that work out for you? Do you beat the S&P 500 YOY with less volatility? If you account for your hours and trading fees? How many years in a row? If your answer is yes, you should start a fund! Because statistically, whether a mutual fund or exclusive hedge fund, you're a miracle. > Like anything you do you have to be committed and determined to be successful. His argument, seemingly based off the Random Walk Down Wall Street data; which basically shows that no matter how committed and determined you are, the broad based index is going to beat you, if not 1 year, year over year.
- dsmithatx 8y ago
  Today I have 5 stocks i've bought over the past 60 days. I wont take the time to post my past 24 years of investing. I'm doing ok and so is my team of close friends I bounce ideas off of. https://imgur.com/EQ0iWWT https://imgur.com/EQ0iWWT
  - dsmithatx 8y ago
    RHT should make me about $6000. I bought it the day after IBM announced they would pay $190 a share. Disclaimer I'm Redhat Certified.

QuackingJimbo 8y ago

I work in HFT. He is completely correct I always laugh when people say Robinhood is a good thing for society. Their zero fees, cool app, and gamification of trading is simply ushering fools into a casino

whitepoplar 8y ago
Cool. What's the best way to minimize transactional costs when buying ETFs (as a buy-and-hold strategy)? E.g. Should I only purchase marketable round lots? Can I do any better than Fidelity/Interactive Brokers for price improvement? Any tips to make my trades as efficient as possible? Or would you avoid ETFs altogether and just purchase mutual funds directly from Vanguard, without any transactional costs? Thanks!
- QuackingJimbo 8y ago
  You are pretty much already there For the majority of people, I would recommend just buying Vanguard funds If you really want to trade anything else, IB is the way to go
  - whitepoplar 8y ago
    Gotcha, thanks! As for lot size, I know I mentioned round lots, but I typically trade odd lots out of convenience. What does this cost me in practice? Am I missing out on any investor protections that only apply to round lots?

number_six 8y ago

and r/wsb is like the flophouse I guess?

JohnFen 8y ago

Since I know how to trade stocks, but find that activity massively unpleasant, I guess I can assume that I wouldn't like heroin either?

fucking_tragedy 8y ago
I don't think anyone goes into heroin liking to put questionable needles into their body, but that's what they usually end up doing.

walamaking 8y ago

Reading posts like these is like eating shit.

latencyloser 8y ago

I feel like there's a lot of misinformation in this thread, not about the article necessarily, but markets and trading in general. Stocks are kind of the "beginner's" asset. They're fairly easy to understand conceptually. "Trading" them is even easier. However, trading them in isolation for a profit _consistently_ is very difficult or just a product of luck. I don't know anyone who does it and wasn't burned eventually. The thing to remember is, people doing funds or "trading" professionally aren't just buying and selling FANG stocks all day. They're balancing these trades with futures and options or options on futures and other alternative assets. They're hedging their positions and setting themselves up so that their probability of coming out ahead is much greater than you're standard "it either goes up or down" stock movement. A simple example is the "wheel" strategy in options. A short put at a .30 delta on the underlying, assuming 1 stddev movements gives about a 70% chance of collecting the premium without assignment (of course this isn't perfectly true, it's an approximation). This is already better than buying the stock, which under the same methodology, would have a 50% chance of profit (either going up or down from the purchase price). When assigned, turn around and open a short call against the assigned shares at a similar delta and repeat. In the flat market we've seen the last year or so, this is reasonably profitable and very low effort. Edit: The reason the "buy and hold an index forever" strategy is recommended is because it's the lowest effort, highest probability of profit strategy one can probably take. I agree with it entirely for 99.9% of people. But that's not to say there isn't other opportunity out there if you're willing to learn about it. Source: spent a few years at the Chicago Mercantile Exchange working on these sorts of things exchange side and now trade regularly on my own.

thoughtstheseus 8y ago
Picking up those pennies in front of a bulldozer... Agreed, you can structure trades to greatly improve your risk/return. There are whole other levels of investing like selecting how to interact with capital structures or even the market microstructure of how the trades work.
- latencyloser 8y ago
  > Picking up those pennies in front of a bulldozer That is not what I'm advocating at all.

hristov 8y ago

This obsession with index funds is getting a little out of hand. Sure for many people buying an index might be a good idea. I myself recommend that many people buy an S&P 500 index. But to criticize all active managers is a little wrong. For one, Warren Buffet and Charlie Munger are active managers themselves, you do not see them buying an index fund. Lets think about what happens when you buy the S&P 500 index. This is usually the most recommended index, and the one I recommend too. You basically give your money to own stocks of the 500 biggest publicly listed companies in the US. If a company is big enough and it gets their stock listed on the major markets it usually gets included in the S&P 500. (There are some exceptions but generally this is the way it works). Does that make these companies good investments? Not necessarily. There is a way to get big without being especially good at what you do (through mergers). It is possible that certain companies were very good investments before, had their stock appreciate, got into the S&P 500, had a change of management or experienced a change of end markets, and became bad investments. This is what happened to GE, for example. The theory of indexing says that, yes there will be some companies in the S&P 500 that are not very good, but others will be excellent and it will all even itself out and you will make money in general as the economy grows. But that will only work if there are no secondary effects. If putting all money in indexes becomes the usual course of action for institutions as well as individuals then it would be very easy to exploit this. A company just needs to get large enough to get send to the S&P 500 (again this can be done with mergers and without necessarily being very successful or profitable) and then they get a bunch free money send their way by way of indexing. And if you get a bunch of badly run companies merging together to get into the index, indexing will certainly become a rather money losing proposition. The reason why indexing tends to work and it has worked so far, is that indexers are kind of free riding on active investors. Active investors buy and sell stocks and they thus cause the price to move up and down. The price of the most wanted companies moves up and they get put into the top indexes, where the free riding index investors buy their shares. The active investors do not mind because they were first into the shares, and the free riders just increase the value of their holdings. The free riders do not mind because the active investors in a way pick stocks for them. This all works fine but the whole system relies on there being enough active investors to free ride upon. And if this whole buying indexes trend goes out of hand there might not be. Buffet and Munger have some good cause to criticize active managers. Many of them have not been very good at all. Money management is one of those professions where it is not easy to determine ahead of time where someone is good or bad at it. Even excellent money managers can have a couple of bad years and terrible money managers can get lucky once or twice. Thus, you have to wait several years to see whether someone is actually good at managing money and during that time they actually have to have money to manage. So to even test whether someone is a good money manager requires taking on a lot of risk. And because being a money manager can be so very lucrative and glamorous and because it is so hard to distinguish the good ones from the bad ones the whole field attracts a lot of smooth operators that know how to ape the look and talk of a person the public would expect to be a successful money manager but they do not know how to do it. This is a problem with many other professions that are glamorous but where it is hard to initially tell the good from the bad. These include TV/Movie director, TV/Movie writer, politician, newspaper column writer, artist etc. That being said there are money managers that are undoubtedly very good. Buffet and Munger are themselves a couple of examples. There are many others. Perhaps there aren't enough of them. Perhaps we as an economy are having a problem of not being able to train and recognize able money managers. That may be the case, but that does not mean we should abandon the concept of an active investor. The world actually needs active investors, money managers and asset alocators in general. The dream of simple, cheap and easy passive investing cannot work without them.

LeicaLatte 8y ago

What about equity to employees? founders?

deleted 8y ago

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