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Certainly not all investing is gambling, but picking individual stocks and timing the market are pretty close to gambling. Warren Buffet started and made much

Certainly not all investing is gambling, but picking individual stocks and timing the market are pretty close to gambling. Warren Buffet started and made much of his fortune when there were more inefficiencies in the market. It's not clear that the same method would work today. With all of he data and speed that goes into trading, it's pretty unlikely that you have an informational edge unless you're able to pay for more data sources than everyone else and you have an army of humans looking for patterns for you. That is you need to spend a great deal of money getting that edge. Presumably that is somewhat what Renaissance is doing. Even then you have to deal with the fact that insider trading is essentially instantaneous with modern communication and trading platforms.

javert 7y ago
I think you are not making enough of a distinction between short-term trading based on technical factors and long-term value investing, which is what Warren Buffet did/does.
- dmix 7y ago
  > which is what Warren Buffet did/does. It's what the vast majority of people and businesses do with their money. Only a small percentage are investing in risky trades. And the ones that do that have plenty of money to spare and are well aware of the risk models.
  - stouset 7y ago
    If only that were true. Just look at RobinHood, for starters.
    - dmix 7y ago
      Just look at a rare unicorn in Silicon Valley that immediately drew SEC scrutiny? What does that have to do with the average investor?
      - Nasrudith 7y ago
        I believe the investors were the ones to look at. The infamous /r/wallstreetbets in addition to self-deprecating jokes about themselves being basement dwellers essentially engage in outright gambling on shorter term swings and hunches to make and lose big - mostly the latter.
  - orwin 7y ago
    > It's what the vast majority of people and businesses do with their money. The vast majority of people invest in founds that deals with short-term gambling. Heard of LTCM?
    - javert 7y ago
      > The vast majority of people invest in founds that deals with short-term gambling I really doubt that.
- SquishyPanda23 7y ago
  This is obliquely addressed. The methodology of value investing is well known by now. The goal is to buy underpriced stocks. If you want to play that game you have to compete against large firms that have buildings full of people looking into the fundamentals of the companies. Or you need some other informational advantage. Otherwise you are almost certainly buying correctly-valued stocks. That's not value investing, but you can do something else that is useful, like buy an index.
  - javert 7y ago
    I don't believe that the stock market is efficient in the way you are suggesting. For one thing, there are lots of companies I can buy into that Warren Buffet can't, because he can't take a meaningful (to him) position, because he would end up owning the entire company. And even that may not be enough to be meaningful to him. I suspect this phenomenon also exists for firms and institutions much smaller than Buffet. It may not be that they would own the whole company, but simply that they would own too much of it and/or move the price on their own. For another thing, lots of investors are irrational. They follow fads. There are certainly opportunities for contrarians. Value stocks have underperformed in the last 12 yrs, but these things tend to follow cycles, so I'm guessing they will have a comeback. Here is an article about that: https://www.wsj.com/articles/the-agony-of-hope-postponed-by-a-value-investor-11563109380 https://www.wsj.com/articles/the-agony-of-hope-postponed-by-... > you can do something else that is useful, like buy an index That is precisely not useful in terms of efficient price discovery, though it may be "useful" to the individual investor who has better things to do with his or her time. That is one kind of behavior that causes inefficient markets that careful investors can then exploit.
kirse 7y ago
it's pretty unlikely that you have an informational edge unless you're able to pay for more data sources than everyone else and you have an army of humans looking for patterns for you Not really. Exhibit A: Follow realDonaldTrump on Twitter. Look what happened to the SPY index starting at 13:26 EST on 8/1/2019. [A] https://twitter.com/realDonaldTrump/status/1156979446877962243 https://twitter.com/realDonaldTrump/status/11569794468779622... SPY -> https://i.imgur.com/MDp7zHS.png https://i.imgur.com/MDp7zHS.png Even if it took you 10 minutes to decide to short the SPX/SPY on that information, a leveraged trade made plenty of money over the following days. There is an abundance of free information available these days. To people who hone their market discernment the edge is arguably more accessible than ever.
- stouset 7y ago
  Why do you suppose that people managing significantly larger sums of money than you have available are not also investing based on this information? If they were, your edge would rapidly drop to zero as all of the better connected and better funded investors buy up the over/under-valued assets.
  - lbotos 7y ago
    In trading as an individual, you don't need to beat the big guys, you just need to hit your objectives (hedging/profit targets). If someone moved later than the big guns, but in the same direction, with reasonable risk assessment/management, then it can still be profitable. If they moved against, and had reasonable risk management, it should minimize losses.
  - Nasrudith 7y ago
    It assumes rationality not omniscience or complete understanding and the markets are a big place - not space big but still quite a lot even at the level of public news. Even then it would take time for the easy money arbitrage to stabilize.

javert 7y ago

I think you are not making enough of a distinction between short-term trading based on technical factors and long-term value investing, which is what Warren Buffet did/does.

dmix 7y ago
> which is what Warren Buffet did/does. It's what the vast majority of people and businesses do with their money. Only a small percentage are investing in risky trades. And the ones that do that have plenty of money to spare and are well aware of the risk models.
- stouset 7y ago
  If only that were true. Just look at RobinHood, for starters.
  - dmix 7y ago
    Just look at a rare unicorn in Silicon Valley that immediately drew SEC scrutiny? What does that have to do with the average investor?
    - Nasrudith 7y ago
      I believe the investors were the ones to look at. The infamous /r/wallstreetbets in addition to self-deprecating jokes about themselves being basement dwellers essentially engage in outright gambling on shorter term swings and hunches to make and lose big - mostly the latter.
- orwin 7y ago
  > It's what the vast majority of people and businesses do with their money. The vast majority of people invest in founds that deals with short-term gambling. Heard of LTCM?
  - javert 7y ago
    > The vast majority of people invest in founds that deals with short-term gambling I really doubt that.
SquishyPanda23 7y ago
This is obliquely addressed. The methodology of value investing is well known by now. The goal is to buy underpriced stocks. If you want to play that game you have to compete against large firms that have buildings full of people looking into the fundamentals of the companies. Or you need some other informational advantage. Otherwise you are almost certainly buying correctly-valued stocks. That's not value investing, but you can do something else that is useful, like buy an index.
- javert 7y ago
  I don't believe that the stock market is efficient in the way you are suggesting. For one thing, there are lots of companies I can buy into that Warren Buffet can't, because he can't take a meaningful (to him) position, because he would end up owning the entire company. And even that may not be enough to be meaningful to him. I suspect this phenomenon also exists for firms and institutions much smaller than Buffet. It may not be that they would own the whole company, but simply that they would own too much of it and/or move the price on their own. For another thing, lots of investors are irrational. They follow fads. There are certainly opportunities for contrarians. Value stocks have underperformed in the last 12 yrs, but these things tend to follow cycles, so I'm guessing they will have a comeback. Here is an article about that: https://www.wsj.com/articles/the-agony-of-hope-postponed-by-a-value-investor-11563109380 https://www.wsj.com/articles/the-agony-of-hope-postponed-by-... > you can do something else that is useful, like buy an index That is precisely not useful in terms of efficient price discovery, though it may be "useful" to the individual investor who has better things to do with his or her time. That is one kind of behavior that causes inefficient markets that careful investors can then exploit.

kirse 7y ago

it's pretty unlikely that you have an informational edge unless you're able to pay for more data sources than everyone else and you have an army of humans looking for patterns for you Not really. Exhibit A: Follow realDonaldTrump on Twitter. Look what happened to the SPY index starting at 13:26 EST on 8/1/2019. [A] https://twitter.com/realDonaldTrump/status/1156979446877962243 https://twitter.com/realDonaldTrump/status/11569794468779622... SPY -> https://i.imgur.com/MDp7zHS.png https://i.imgur.com/MDp7zHS.png Even if it took you 10 minutes to decide to short the SPX/SPY on that information, a leveraged trade made plenty of money over the following days. There is an abundance of free information available these days. To people who hone their market discernment the edge is arguably more accessible than ever.

stouset 7y ago
Why do you suppose that people managing significantly larger sums of money than you have available are not also investing based on this information? If they were, your edge would rapidly drop to zero as all of the better connected and better funded investors buy up the over/under-valued assets.
- lbotos 7y ago
  In trading as an individual, you don't need to beat the big guys, you just need to hit your objectives (hedging/profit targets). If someone moved later than the big guns, but in the same direction, with reasonable risk assessment/management, then it can still be profitable. If they moved against, and had reasonable risk management, it should minimize losses.
- Nasrudith 7y ago
  It assumes rationality not omniscience or complete understanding and the markets are a big place - not space big but still quite a lot even at the level of public news. Even then it would take time for the easy money arbitrage to stabilize.