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The important concept to understand about profitable investing is that you have to have a strategy that others are not also using. Sure, investing in companies

The important concept to understand about profitable investing is that you have to have a strategy that others are not also using. Sure, investing in companies in good financial health is profitable. Unless everyone else does it too, and they drive up the price of the profitable companies, until all upside is gone (i.e., price is baked in). You're not better at finding profitable companies than anyone else. Shorting stock on headlines? Sure, if you can beat everyone else. (You can't.) The other is merely stating that, according to his analysis, apparently all these strategies did not bring an edge to the market.

perl4ever 7y ago
"The important concept to understand about profitable investing is that you have to have a strategy that others are not also using." People always say this, but it doesn't make sense to me. If I go to the grocery store and buy produce, and I assume I'm not more knowledgeable than an expert purchaser for a food service business, then am I necessarily better off buying stuff at random without even looking at it? If I'm really clueless, can I not learn to choose good stuff by examining it and trying it, and finding out what other people look for? The problem, I think, is that when people are looking for a way to beat the market, they, pretty much without exception, look for ways to process the predigested information about a select group of companies that is already in a structured form. That stuff is the information that's most absorbed into prices, so why not stop "looking for your keys under the streetlight"? Precisely because the market is very efficient at pricing everything that people can quantify, you don't have to quantify much at all! If you can tell rotten fruit from fresh, then you are adding value and you can assume that everything that you find difficult to evaluate is already factored in. What if you just spent 10 seconds looking at each business description of a public company's 10-K? Instead of looking at numbers at all, just treat your investing like you have a stack of several thousand resumes and you need to hire 20. Of course, you want to look at some numbers later on before buying, just like doing a background check on a prospective employee, but just looking at a broad cross section of what's out there is enough to observe really obvious and educational patterns. Here's something I read in a 10-K recently: "In July 2014 as part of a diversification strategy we acquired companies engaged in the manufacture and marketing of electro-hydraulic servo-valves and the development of optical fiber hardware and software solutions for the security and protection industry. However, in the fourth quarter of 2015, we decided to focus on our hog farming operations, sell our operations in electro-hydraulic servo-valves and optical fiber based security & protection and seek to grow through internal expansion and acquisitions of businesses in the agricultural industry." Now, if the market is efficient, and I am not an expert in hog farming, servo valves, or investing then how can I tell if this company is a better or worse bet (at the current price) than, say, Apple?
- mediaman 7y ago
  I see where you're going with the grocery store produce analogy, but it's not a useful analogy for how markets work. 1. Those grocery store items (let's say tomatoes) are priced equally to each other, by decision of the supermarket. This is not true of securities, which are individually traded and priced separately, which allow differences to be priced in. 2. The market for tomatoes at your local grocery store is geographically constrained, limiting the number of participants. This is not true of publicly traded stocks that nearly anyone in the world can trade. 3. The amount of money that can be put to use finding efficiencies at your local market is small. In global markets, the payoff is in the billions, and so many people are scouring for similar efficiencies - and in the process, eliminating them. 4. The tomato market has high transaction costs. What are you going to do when you find a better tomato for the same price? Sell it to someone else for a higher price? No. The arbitrage opportunity for tomatoes doesn't exist. Efficient markets is not a thesis that is required to be true of all markets by some sort of law. They are a consequence of liquid markets that are large and traded by many well-funded participants. The analogy must have the same factors to be valid.
rocqua 7y ago
> The important concept to understand about profitable investing is that you have to have a strategy that others are not also using. Not quite, because stocks tend to go up. What really is hard is making more profit than just holding stocks would. Because that takes actual new ideas.
- grenoire 7y ago
  Stocks do not tend to go up, that would imply a greater than 0 return average for series. We instead get mean blur and skewness (which is actually often to the left). The aggregate of the traded stocks, i.e. the market, goes up on average. That's why you make money by holding diversified portfolios.

perl4ever 7y ago

"The important concept to understand about profitable investing is that you have to have a strategy that others are not also using." People always say this, but it doesn't make sense to me. If I go to the grocery store and buy produce, and I assume I'm not more knowledgeable than an expert purchaser for a food service business, then am I necessarily better off buying stuff at random without even looking at it? If I'm really clueless, can I not learn to choose good stuff by examining it and trying it, and finding out what other people look for? The problem, I think, is that when people are looking for a way to beat the market, they, pretty much without exception, look for ways to process the predigested information about a select group of companies that is already in a structured form. That stuff is the information that's most absorbed into prices, so why not stop "looking for your keys under the streetlight"? Precisely because the market is very efficient at pricing everything that people can quantify, you don't have to quantify much at all! If you can tell rotten fruit from fresh, then you are adding value and you can assume that everything that you find difficult to evaluate is already factored in. What if you just spent 10 seconds looking at each business description of a public company's 10-K? Instead of looking at numbers at all, just treat your investing like you have a stack of several thousand resumes and you need to hire 20. Of course, you want to look at some numbers later on before buying, just like doing a background check on a prospective employee, but just looking at a broad cross section of what's out there is enough to observe really obvious and educational patterns. Here's something I read in a 10-K recently: "In July 2014 as part of a diversification strategy we acquired companies engaged in the manufacture and marketing of electro-hydraulic servo-valves and the development of optical fiber hardware and software solutions for the security and protection industry. However, in the fourth quarter of 2015, we decided to focus on our hog farming operations, sell our operations in electro-hydraulic servo-valves and optical fiber based security & protection and seek to grow through internal expansion and acquisitions of businesses in the agricultural industry." Now, if the market is efficient, and I am not an expert in hog farming, servo valves, or investing then how can I tell if this company is a better or worse bet (at the current price) than, say, Apple?

mediaman 7y ago
I see where you're going with the grocery store produce analogy, but it's not a useful analogy for how markets work. 1. Those grocery store items (let's say tomatoes) are priced equally to each other, by decision of the supermarket. This is not true of securities, which are individually traded and priced separately, which allow differences to be priced in. 2. The market for tomatoes at your local grocery store is geographically constrained, limiting the number of participants. This is not true of publicly traded stocks that nearly anyone in the world can trade. 3. The amount of money that can be put to use finding efficiencies at your local market is small. In global markets, the payoff is in the billions, and so many people are scouring for similar efficiencies - and in the process, eliminating them. 4. The tomato market has high transaction costs. What are you going to do when you find a better tomato for the same price? Sell it to someone else for a higher price? No. The arbitrage opportunity for tomatoes doesn't exist. Efficient markets is not a thesis that is required to be true of all markets by some sort of law. They are a consequence of liquid markets that are large and traded by many well-funded participants. The analogy must have the same factors to be valid.

rocqua 7y ago

> The important concept to understand about profitable investing is that you have to have a strategy that others are not also using. Not quite, because stocks tend to go up. What really is hard is making more profit than just holding stocks would. Because that takes actual new ideas.

grenoire 7y ago
Stocks do not tend to go up, that would imply a greater than 0 return average for series. We instead get mean blur and skewness (which is actually often to the left). The aggregate of the traded stocks, i.e. the market, goes up on average. That's why you make money by holding diversified portfolios.