6 ms·

This is exactly right. If you're upset about this then you should be upset that hedge funds can afford to hire smarter analysts than you, which is just silly.

by vostok 7y ago

davidw 7y ago
I agree, but where's this end up? Why would retail investors play a game where they're almost certain to lose?
- piker 7y ago
  That's the why this isn't a perfect quote. Some proponents of insider trading laws pose that exact question and pursue insider trading violations in the interest of protecting the "fairness" of the markets.
- mrosett 7y ago
  They shouldn’t. Pick a Vanfuard fund, put your money in it, and check back in a couple decades.
  - davidw 7y ago
    That's what I've done, but I still idly (this is not really in the top 100 things I'm concerned about right now) wonder where this ends up if things sort themselves out so much.
    - rolltiide 7y ago
      If this discussion is still narrowly tailored to the securities market, since this discussion was also about "insider trading", which is a unique prohibition to the securities market and not any other capital market then: Retail has no business in the securities market. thats where it ends up. stop playing. retail investors flocking to the stock market is a 40 year old meme that is built upon non-objective thought and gullibility. It is built on laziness. Retail doesn't meme commodities because there is almost no lazy investing approach to it. But the reality is that there are other capital markets. Retail isn't helping the stock market, they aren't helping the companies they like by buying stocks they "recognize", they are MAYBE lowering borrowing costs for the company, its executives and employees, but retail's trading has nothing to do with anything.
      - ebiester 7y ago
        Laziness? It's built on desperation. There were some solid ways to develop retirement strategies with lifelong careers, pensions, and other older retirement vehicles. However, pensions are largely irrelevant outside the public sector now, the older retirement vehicles have stagnated/become poor investments (like annuities, which have become a landmine for terrible fees), and what was left was 401ks and individual retail stocks. Mutual funds are a similar landmine, where transparency is lost and they're often built for the tax particularities of retirement accounts. That leaves retail and... ETFs, which we can only wait for someone to find an angle to extract more value at the expense of small investors' returns.
        rolltiide 7y ago
        Yes, 401ks were hoisted on the public and threw the most responsible one's money into the stock market. Creating reliable liquidity for other institutional firms. It is pretty amazing and ingenious. No, it doesn't undermine the observation that retail shouldn't be playing.
  - deleted 7y ago
    [deleted]
  - gvhst 7y ago
    In this case there still is the discussion of which Vanguard fund to pick. Putting your money into the SP500 is not the “market portfolio” so to speak. In that case you are overweight large-cap and overweight US. In short, picking an index fund is different (and in many cases leas complex) than picking individual stocks, but it’s still not a trivial exercise.
    - nightski 7y ago
      If you want trivial just use a target date fund. Otherwise you are basically just going with a blend of 4-5 index funds and updating the allocation once a year. You can even copy the allocation used by their target date funds. It's not that complicated.
  - TimTheTinker 7y ago
    There are still good reasons to buy-and-hold on single stocks as an individual investor, though doing so increases risk significantly over index and Vanguard-style funds.
- wtvanhest 7y ago
  They absolutely shouldn't play unless they like losing money. It is extremely hard for professional investors to beat the market who spend all day every day working on it. It is basically impossible for a collection of retail investors to beat the market. At best, retail investors are simply gambling.
  - autokad 7y ago
    > "At best, retail investors are simply gambling." that's just not true and is a gross over simplification. for one, not beating the market is NOOOOOT the same as losing money. For another, even if they do not beat the market, there are a lot of other benefits. People gain an understanding of how things like bonds and equities work. I cant tell you how many people (masters degree included) think you can loose more money than you invest by buying a stock. I seen someone literally not participate in 401k matching because of that thought. there is something to be said about having greater control over one's money. When someone says lets eat out at this expensive 150$ plate restaurant, I think gee I can buy X shares of Y stock instead. I personally have already maxed out my 401k, and if I want to retire I need to contribute more. currently I am beating the market, and I have little care if 'the average investor' isn't. it gives me something to do, empowers me, and is not 'at best' gambling.
    - wtvanhest 7y ago
      If you can beat the market over a 10-15 year period, you are in a very small group of extremely fortunate individuals (some of which are simply lucky). If you have beaten the market over the last 1-5 years, you likely invested in particular factors without really knowing it. Once those factors lose favor, you will significantly under perform the market. I personally invest primarily in well diversified, extremely low cost ETFs and I buy 1 - 2 positions a year outside of that portfolio (right now the main one is bitcoin for me). But, I'm always looking around for something that I think can be a 10X return. But... I rely on my primary diversified portfolio for my retirement and the single 1 or 2 investments I make outside of that are for fun, knowledge and I fully acknowledge gambling.
    - lapnitnelav 7y ago
- yellowstuff 7y ago
  I can't think of any reason we'd want to encourage retail investors to buy single name stocks. In days of yore you could argue that it was a good way for them to share in the bounties of economic growth, but with the rise of low-cost passive index funds that's obviously no longer true.
  - bluGill 7y ago
    If you do your own legwork you can find companies that are not going to go up long term. There is as much of this as there was in the past, but there is still a lot of better than market investments for someone who a little money. Personally I find the above work boring - it ends up being a full time job, so once I subtract my salary I'm not really better off financially than an index fund and I'd hate my job. As for why don't the big guys do this: it isn't worth their time to chase a small gain (say $20,000) so there are many things the small guy can do that are more than wroth it that is beneath the notice of the big guy. They know about these things, they need to make more money to pay for their overhead.
- bongobongo 7y ago
  They should not. All that's left to retail investors are mutual funds and index funds, which can be a decent deal but which also tie the interests of retirees to the interests of shareholders, which is kind of dumb and fucked up.
  - javert 7y ago
    Why is trying the interests of retirees to shareholders "kind of dumb and fucked up"? I'm not even sure there is a valid distinction between the two groups. The retirees are shareholders.
    - bongobongo 7y ago
      Gee, I dunno, maybe think about it for a second. What does a 65 year-old lower middle-class retiree with some money stashed in a 401(k) have in common with an ExxonMobil shareholder aside from the need to generate as much profit as possible? Do you really think this makes sense from a public policy perspective, to pit the retirement needs of the old against, e.g., the environmental health of the young? Please spare me the purely symbolic and utterly meaningless "but they are shareholders, too" argument. Sure. Me and Warren Buffet, we're just the same! It is quite literally dumb and fucked up to tie comfortable retirement to things like releasing carbon into the atmosphere, or defense industry profits, or Wal-Mart's quarterly profits, or to the stability of Jeff Bezos' marriage.
      - lovecg 7y ago
        > Do you really think this makes sense from a public policy perspective, to pit the retirement needs of the old against, e.g., the environmental health of the young? But couldn’t you argue in exactly the same way for disenfranchisement? Do you think retired people should be allowed to vote?
        harimau777 7y ago
        I think that argument actually supports their point. I believe that everyone has a human right to vote. However, retired people have generally already established themselves; therefore, the changes that government makes, particularly on social issues, has minimal effect on them. Therefore, I think its unfair for the generation who is still establishing themselves not to be held hostage to the previous generation's vision of society.
- GCA10 7y ago
  The smart hedge funds' edge is pervasive but small. And there are a lot of dumb hedge funds! (Also a lot of scheming hedge funds that are fee maximizers, not investment-return maximizers.) The upshot is that for a year in which market indexes are up 9.1% and the smartest investors do much better, Pat Q. Public can still earn maybe 8% as a retail investor in single stocks if she/he doesn't churn it all away in overly rapid trading. That's not a bad outcome. Stragglers will stay in the game for a long time in such a scenario.
  - aswanson 7y ago
    Right. Even Jim Simons of Renaissance Technologies, has publicly stated that their edge is small. They amplify it with leverage, like all funds do.
    - sokoloff 7y ago
      Though I have a great amount of respect for them, I'll point out that Jim Simons may have multiple motivations to downplay the size of any edge that RenTech has over the averages.
      - aswanson 7y ago
        Obviously, but he stated it indirectly; the way he said it was as an aside. But you're right re: his motivations.
      - rajacombinator 7y ago
        And yet he leaks the returns of their private fund every year...
        sokoloff 7y ago
        The returns of the fund alone don't tell you the level of edge (alpha) of RenTech. Alpha (the skill/edge component) is the excess return on a risk-adjusted basis. Roughly, alpha is total-return - risk-free-rate - porfolio-beta * (market-return - risk-free-rate). You can have a total return of 20%, a risk free rate of 3%, a Beta of 2, and a market return of 13% and you've actually underperformed the market on a risk-adjusted basis. Your alpha would be 20% - 3% - 2 * (13% - 3%) = -3%
- H8crilA 7y ago
  Such behaviour only improves stock pricing. After all if a hedge fund opens a large position based on such data it prices in additional information (satellite imagery). The point of the stock market is not to let small or large investors become rich. It's to provide funding to companies.
- atemerev 7y ago
  Retail investors usually do not day trade, do not do HFT, and do not rely on exotic instruments. Hedge funds do have an edge in some specific fields, but everybody still can do medium-to-long term investing.
- p10_user 7y ago
  Lose is relative. If a retail investor picks a stock that ends up outperforming the market then they’ve still done well, even if the hedge fund bought and sold at better time than the retail investor.
- rz2k 7y ago
  Presumably, there are multiple sophisticated investors competing with each other, and all of their bets affect the market price. There shouldn't be a replicable strategy for beating everyone else if the market is large enough. If there is a distribution of skill in investors, using mutual funds might prevent you from being in the lower percentiles of under-performing investors. However if you really have a strategy that involves taking the market price that manages to consistently under-perform, then you could make money off of that strategy too.
- arawde 7y ago
  https://www.etf.com/docs/IfYouCan.pdf https://www.etf.com/docs/IfYouCan.pdf
- jgalt212 7y ago
  b/c a well diversified portfolio of stocks will, in the aggregate, easily beat HF returns after 2/20 fees and even after 1/10 fees.
- scarejunba 7y ago
  Because retail investors will beat the hedge funds by dumb spending on index funds.
- vostok 7y ago
  I mean they're not almost certain to lose if they are the smarter analyst. If they're not the smarter analyst then yeah they're going to lose i.e. not outperform the market. Of course that doesn't mean that they'll lose money.
dinkudunk 7y ago
Does this feel like a straw man to anyone else?

This is exactly right. If you're upset about this then you should be upset that hedge funds can afford to hire smarter analysts than you, which is just silly.

by vostok 7y ago

This is exactly right. If you're upset about this then you should be upset that hedge funds can afford to hire smarter analysts than you, which is just silly.

davidw 7y ago

I agree, but where's this end up? Why would retail investors play a game where they're almost certain to lose?

piker 7y ago
That's the why this isn't a perfect quote. Some proponents of insider trading laws pose that exact question and pursue insider trading violations in the interest of protecting the "fairness" of the markets.
mrosett 7y ago
They shouldn’t. Pick a Vanfuard fund, put your money in it, and check back in a couple decades.
- davidw 7y ago
  That's what I've done, but I still idly (this is not really in the top 100 things I'm concerned about right now) wonder where this ends up if things sort themselves out so much.
  - rolltiide 7y ago
    If this discussion is still narrowly tailored to the securities market, since this discussion was also about "insider trading", which is a unique prohibition to the securities market and not any other capital market then: Retail has no business in the securities market. thats where it ends up. stop playing. retail investors flocking to the stock market is a 40 year old meme that is built upon non-objective thought and gullibility. It is built on laziness. Retail doesn't meme commodities because there is almost no lazy investing approach to it. But the reality is that there are other capital markets. Retail isn't helping the stock market, they aren't helping the companies they like by buying stocks they "recognize", they are MAYBE lowering borrowing costs for the company, its executives and employees, but retail's trading has nothing to do with anything.
    - ebiester 7y ago
      Laziness? It's built on desperation. There were some solid ways to develop retirement strategies with lifelong careers, pensions, and other older retirement vehicles. However, pensions are largely irrelevant outside the public sector now, the older retirement vehicles have stagnated/become poor investments (like annuities, which have become a landmine for terrible fees), and what was left was 401ks and individual retail stocks. Mutual funds are a similar landmine, where transparency is lost and they're often built for the tax particularities of retirement accounts. That leaves retail and... ETFs, which we can only wait for someone to find an angle to extract more value at the expense of small investors' returns.
      - rolltiide 7y ago
        Yes, 401ks were hoisted on the public and threw the most responsible one's money into the stock market. Creating reliable liquidity for other institutional firms. It is pretty amazing and ingenious. No, it doesn't undermine the observation that retail shouldn't be playing.
- deleted 7y ago
  [deleted]
- gvhst 7y ago
  In this case there still is the discussion of which Vanguard fund to pick. Putting your money into the SP500 is not the “market portfolio” so to speak. In that case you are overweight large-cap and overweight US. In short, picking an index fund is different (and in many cases leas complex) than picking individual stocks, but it’s still not a trivial exercise.
  - nightski 7y ago
    If you want trivial just use a target date fund. Otherwise you are basically just going with a blend of 4-5 index funds and updating the allocation once a year. You can even copy the allocation used by their target date funds. It's not that complicated.
- TimTheTinker 7y ago
  There are still good reasons to buy-and-hold on single stocks as an individual investor, though doing so increases risk significantly over index and Vanguard-style funds.
wtvanhest 7y ago
They absolutely shouldn't play unless they like losing money. It is extremely hard for professional investors to beat the market who spend all day every day working on it. It is basically impossible for a collection of retail investors to beat the market. At best, retail investors are simply gambling.
- autokad 7y ago
  > "At best, retail investors are simply gambling." that's just not true and is a gross over simplification. for one, not beating the market is NOOOOOT the same as losing money. For another, even if they do not beat the market, there are a lot of other benefits. People gain an understanding of how things like bonds and equities work. I cant tell you how many people (masters degree included) think you can loose more money than you invest by buying a stock. I seen someone literally not participate in 401k matching because of that thought. there is something to be said about having greater control over one's money. When someone says lets eat out at this expensive 150$ plate restaurant, I think gee I can buy X shares of Y stock instead. I personally have already maxed out my 401k, and if I want to retire I need to contribute more. currently I am beating the market, and I have little care if 'the average investor' isn't. it gives me something to do, empowers me, and is not 'at best' gambling.
  - wtvanhest 7y ago
    If you can beat the market over a 10-15 year period, you are in a very small group of extremely fortunate individuals (some of which are simply lucky). If you have beaten the market over the last 1-5 years, you likely invested in particular factors without really knowing it. Once those factors lose favor, you will significantly under perform the market. I personally invest primarily in well diversified, extremely low cost ETFs and I buy 1 - 2 positions a year outside of that portfolio (right now the main one is bitcoin for me). But, I'm always looking around for something that I think can be a 10X return. But... I rely on my primary diversified portfolio for my retirement and the single 1 or 2 investments I make outside of that are for fun, knowledge and I fully acknowledge gambling.
  - lapnitnelav 7y ago
yellowstuff 7y ago
I can't think of any reason we'd want to encourage retail investors to buy single name stocks. In days of yore you could argue that it was a good way for them to share in the bounties of economic growth, but with the rise of low-cost passive index funds that's obviously no longer true.
- bluGill 7y ago
  If you do your own legwork you can find companies that are not going to go up long term. There is as much of this as there was in the past, but there is still a lot of better than market investments for someone who a little money. Personally I find the above work boring - it ends up being a full time job, so once I subtract my salary I'm not really better off financially than an index fund and I'd hate my job. As for why don't the big guys do this: it isn't worth their time to chase a small gain (say $20,000) so there are many things the small guy can do that are more than wroth it that is beneath the notice of the big guy. They know about these things, they need to make more money to pay for their overhead.
bongobongo 7y ago
They should not. All that's left to retail investors are mutual funds and index funds, which can be a decent deal but which also tie the interests of retirees to the interests of shareholders, which is kind of dumb and fucked up.
- javert 7y ago
  Why is trying the interests of retirees to shareholders "kind of dumb and fucked up"? I'm not even sure there is a valid distinction between the two groups. The retirees are shareholders.
  - bongobongo 7y ago
    Gee, I dunno, maybe think about it for a second. What does a 65 year-old lower middle-class retiree with some money stashed in a 401(k) have in common with an ExxonMobil shareholder aside from the need to generate as much profit as possible? Do you really think this makes sense from a public policy perspective, to pit the retirement needs of the old against, e.g., the environmental health of the young? Please spare me the purely symbolic and utterly meaningless "but they are shareholders, too" argument. Sure. Me and Warren Buffet, we're just the same! It is quite literally dumb and fucked up to tie comfortable retirement to things like releasing carbon into the atmosphere, or defense industry profits, or Wal-Mart's quarterly profits, or to the stability of Jeff Bezos' marriage.
    - lovecg 7y ago
      > Do you really think this makes sense from a public policy perspective, to pit the retirement needs of the old against, e.g., the environmental health of the young? But couldn’t you argue in exactly the same way for disenfranchisement? Do you think retired people should be allowed to vote?
      - harimau777 7y ago
        I think that argument actually supports their point. I believe that everyone has a human right to vote. However, retired people have generally already established themselves; therefore, the changes that government makes, particularly on social issues, has minimal effect on them. Therefore, I think its unfair for the generation who is still establishing themselves not to be held hostage to the previous generation's vision of society.
GCA10 7y ago
The smart hedge funds' edge is pervasive but small. And there are a lot of dumb hedge funds! (Also a lot of scheming hedge funds that are fee maximizers, not investment-return maximizers.) The upshot is that for a year in which market indexes are up 9.1% and the smartest investors do much better, Pat Q. Public can still earn maybe 8% as a retail investor in single stocks if she/he doesn't churn it all away in overly rapid trading. That's not a bad outcome. Stragglers will stay in the game for a long time in such a scenario.
- aswanson 7y ago
  Right. Even Jim Simons of Renaissance Technologies, has publicly stated that their edge is small. They amplify it with leverage, like all funds do.
  - sokoloff 7y ago
    Though I have a great amount of respect for them, I'll point out that Jim Simons may have multiple motivations to downplay the size of any edge that RenTech has over the averages.
    - aswanson 7y ago
      Obviously, but he stated it indirectly; the way he said it was as an aside. But you're right re: his motivations.
    - rajacombinator 7y ago
      And yet he leaks the returns of their private fund every year...
      - sokoloff 7y ago
        The returns of the fund alone don't tell you the level of edge (alpha) of RenTech. Alpha (the skill/edge component) is the excess return on a risk-adjusted basis. Roughly, alpha is total-return - risk-free-rate - porfolio-beta * (market-return - risk-free-rate). You can have a total return of 20%, a risk free rate of 3%, a Beta of 2, and a market return of 13% and you've actually underperformed the market on a risk-adjusted basis. Your alpha would be 20% - 3% - 2 * (13% - 3%) = -3%
H8crilA 7y ago
Such behaviour only improves stock pricing. After all if a hedge fund opens a large position based on such data it prices in additional information (satellite imagery). The point of the stock market is not to let small or large investors become rich. It's to provide funding to companies.
atemerev 7y ago
Retail investors usually do not day trade, do not do HFT, and do not rely on exotic instruments. Hedge funds do have an edge in some specific fields, but everybody still can do medium-to-long term investing.
p10_user 7y ago
Lose is relative. If a retail investor picks a stock that ends up outperforming the market then they’ve still done well, even if the hedge fund bought and sold at better time than the retail investor.
rz2k 7y ago
Presumably, there are multiple sophisticated investors competing with each other, and all of their bets affect the market price. There shouldn't be a replicable strategy for beating everyone else if the market is large enough. If there is a distribution of skill in investors, using mutual funds might prevent you from being in the lower percentiles of under-performing investors. However if you really have a strategy that involves taking the market price that manages to consistently under-perform, then you could make money off of that strategy too.
arawde 7y ago
https://www.etf.com/docs/IfYouCan.pdf https://www.etf.com/docs/IfYouCan.pdf
jgalt212 7y ago
b/c a well diversified portfolio of stocks will, in the aggregate, easily beat HF returns after 2/20 fees and even after 1/10 fees.
scarejunba 7y ago
Because retail investors will beat the hedge funds by dumb spending on index funds.
vostok 7y ago
I mean they're not almost certain to lose if they are the smarter analyst. If they're not the smarter analyst then yeah they're going to lose i.e. not outperform the market. Of course that doesn't mean that they'll lose money.

dinkudunk 7y ago

Does this feel like a straw man to anyone else?