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I hear this over and over again. Beating the HFT firms, insiders, big money shops and so forth. It's not a zero sum game necessarily. A stock picker approac

I hear this over and over again. Beating the HFT firms, insiders, big money shops and so forth. It's not a zero sum game necessarily. A stock picker approach that you have as a retail investor that many trading shops do not have is this: time. You can make your bet, and if it fails in the short term you can hold onto the stock long term, unless the company is going bankrupt (which hasn't been a common occurrence up to now, given the overall number of stock symbols). Traders are individuals and groups with books, quarterly numbers to meet and yearly returns to care about. They'll beat you if you're a day trader, sure, but I think it's a false dichotomy to say, you're either a) a day trader or b) a boglehead.

throw0101a 6y ago
> It's not a zero sum game necessarily. It is, actually. William F. Sharpe laid it out in the 1991 paper "The Arithmetic of Active Management": * https://web.stanford.edu/~wfsharpe/art/active/active.htm https://web.stanford.edu/~wfsharpe/art/active/active.htm * https://www.jstor.org/stable/4479386?seq=1 https://www.jstor.org/stable/4479386?seq=1 Sharpe won the 1990 Economics Nobel for other work: * https://en.wikipedia.org/wiki/William_F._Sharpe https://en.wikipedia.org/wiki/William_F._Sharpe The more active a trader is, over a longer time frame, the more likely they are to underperform the market. This has been shown through SPIVA over 15+ years, at least in the US and Canada: * https://www.tma-invest.com/spiva-data-reveals-15-years-of-active-underperformance/ https://www.tma-invest.com/spiva-data-reveals-15-years-of-ac... * https://www.ifa.com/articles/despite_brief_reprieve_2018_spiva_report_reveals_active_funds_fail_dent_indexing_lead_-_works/ https://www.ifa.com/articles/despite_brief_reprieve_2018_spi... As of the end of 2019, internationally active managers didn't do too well either: * https://dividendstrategy.ca/what-is-spiva/ https://dividendstrategy.ca/what-is-spiva/ This has been known to varying degrees since at least the 1970s: * https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
- quotemstr 6y ago
  That can't possibly be true in the limit though. A market with no active management would allocate capital arbitrarily, without an eye to returns. A company burning money on making millions of unwanted skunk-scented bouncy balls would be as likely to attract capital as one that made, say, food or medicine. Resource allocation would break down if nobody made active capital allocation decisions. The question is how high the share of passive investment can go before we see misallocation.
  - mancerayder 6y ago
    Yes, and not only that, but the index funds a skewed towards entities with large market caps. Someone could make their own "index fund" with 10% of it allocated to FAANG, maybe 20% of it in the largest tech names overall, and then a distribution of the largest market cap names, and lo and behold, one has an s&p 500 "index fund". Tesla's about to be added to the S&P 500. There are strong opinions on both sides - it's going up, no, it's going down. You don't have much of a choice if you're a Boglehead who bought into the S&P 500, you're just in it for the ride.
    - throw0101a 6y ago
      > Yes, and not only that, but the index funds a skewed towards entities with large market caps. There are index funds of every publicly traded company in the US: * https://en.wikipedia.org/wiki/Russell_3000_Index https://en.wikipedia.org/wiki/Russell_3000_Index Vanguard themselves have changed things so that employees no longer have the option of choosing the S&P 500 fund in their own retirement accounts, but rather the Total Market fund: * https://www.marketwatch.com/story/vanguard-thinks-its-own-employees-should-own-this-fund-not-the-sp-500-theyre-right-2018-06-08 https://www.marketwatch.com/story/vanguard-thinks-its-own-em... * https://www.marketwatch.com/story/bogle-explains-why-vanguard-employees-wont-have-a-flagship-sp-500-fund-in-their-401k-2018-06-07 https://www.marketwatch.com/story/bogle-explains-why-vanguar... > You don't have much of a choice if you're a Boglehead who bought into the S&P 500, you're just in it for the ride. Anyone investing in equities is just in it for the ride, as it is impossible to predict what will happen: * https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street An individual's best bet, long term: buy as much of 'The Market' as you can. The greater, the better. The S&P 500 is simply a smaller portion of the market, and while not bad, may not be ideal: * https://www.pwlcapital.com/should-you-invest-in-the-sp-500-index/ https://www.pwlcapital.com/should-you-invest-in-the-sp-500-i...
      - itsoktocry 6y ago
        >Anyone investing in equities is just in it for the ride, as it is impossible to predict what will happen So people like Jim Simons are merely the luckiest people alive? The average person earns the average market return, less fees; that's a tautology. Unless you have some reason to believe you aren't average, most people are better off following your advice. It's what I do, personally. But the idea that no one is winning at this game flies in the face of a lot of evidence.
- mancerayder 6y ago
  I'm happy to go through these in some depth, but the most obvious first response to this is, 1991... Is the landscape of 1991 the same as the landscape of 2020, with its 10% of the s&p in just a few companies, with Robin Hood kids, with money printing, with Seeking Alpha and information overload? Talk shows about stocks and news algorithms pumping stocks to the masses? Some of your links are for active fund managers versus passive fund managers. Again, a red herring. No, there's not JUST a choice between bogleheading and day trading, and none of us here are active fund managers? Are fund managers (who have clients) compared to the likes of you and me ? Some individual stocks you buy for the long term, others you trade short term. And sometimes, you can long a stock but only trade a percentage of the holding. You can keep it for a day or for years.
  - throw0101a 6y ago
    > Is the landscape of 1991 the same as the landscape of 2020, with its 10% of the s&p in just a few companies Yes, it is the same: * https://awealthofcommonsense.com/2020/07/the-nifty-fifty-and-the-old-normal/ https://awealthofcommonsense.com/2020/07/the-nifty-fifty-and... * https://theirrelevantinvestor.com/2018/11/26/the-nifty-fifty/ https://theirrelevantinvestor.com/2018/11/26/the-nifty-fifty... * https://en.wikipedia.org/wiki/Nifty_Fifty https://en.wikipedia.org/wiki/Nifty_Fifty * https://etfdb.com/history-of-the-s-and-p-500/ https://etfdb.com/history-of-the-s-and-p-500/ * https://www.qad.com/blog/2019/10/sp-500-companies-over-time https://www.qad.com/blog/2019/10/sp-500-companies-over-time That's the definition of the S&P 500: the largest five hundred companies publicly traded companies. > with money printing, I do not think this actually does what you thinks it does: * https://www.youtube.com/watch?v=K3lP3BhvnSo https://www.youtube.com/watch?v=K3lP3BhvnSo * https://rationalreminder.ca/podcast/109 https://rationalreminder.ca/podcast/109 > […] Talk shows about stocks and news algorithms pumping stocks to the masses? Please see the 1990s and "irrational exuberance". I live in Canada: ask anyone here above a certain age (40s) about Nortel and Bre-X. > Are fund managers (who have clients) compared to the likes of you and me ? Fund managers have more resources than you and me, and thus probably have better information to base decisions on. Unless, of course, you are using satellite imagery in your investing workflow: > Currie’s prediction proved correct. As word spread that satellite images were a reliable predictor of corporate profits, a range of investment funds began buying retail-traffic data from RS Metrics. In the following years, the company expanded, tracking not just parked cars but solar-panel installations, lumber inventory at sawmills, and the mining of metals worldwide. * https://www.theatlantic.com/magazine/archive/2019/05/stock-value-satellite-images-investing/586009/ https://www.theatlantic.com/magazine/archive/2019/05/stock-v...

throw0101a 6y ago

> It's not a zero sum game necessarily. It is, actually. William F. Sharpe laid it out in the 1991 paper "The Arithmetic of Active Management": * https://web.stanford.edu/~wfsharpe/art/active/active.htm https://web.stanford.edu/~wfsharpe/art/active/active.htm * https://www.jstor.org/stable/4479386?seq=1 https://www.jstor.org/stable/4479386?seq=1 Sharpe won the 1990 Economics Nobel for other work: * https://en.wikipedia.org/wiki/William_F._Sharpe https://en.wikipedia.org/wiki/William_F._Sharpe The more active a trader is, over a longer time frame, the more likely they are to underperform the market. This has been shown through SPIVA over 15+ years, at least in the US and Canada: * https://www.tma-invest.com/spiva-data-reveals-15-years-of-active-underperformance/ https://www.tma-invest.com/spiva-data-reveals-15-years-of-ac... * https://www.ifa.com/articles/despite_brief_reprieve_2018_spiva_report_reveals_active_funds_fail_dent_indexing_lead_-_works/ https://www.ifa.com/articles/despite_brief_reprieve_2018_spi... As of the end of 2019, internationally active managers didn't do too well either: * https://dividendstrategy.ca/what-is-spiva/ https://dividendstrategy.ca/what-is-spiva/ This has been known to varying degrees since at least the 1970s: * https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street

quotemstr 6y ago
That can't possibly be true in the limit though. A market with no active management would allocate capital arbitrarily, without an eye to returns. A company burning money on making millions of unwanted skunk-scented bouncy balls would be as likely to attract capital as one that made, say, food or medicine. Resource allocation would break down if nobody made active capital allocation decisions. The question is how high the share of passive investment can go before we see misallocation.
- mancerayder 6y ago
  Yes, and not only that, but the index funds a skewed towards entities with large market caps. Someone could make their own "index fund" with 10% of it allocated to FAANG, maybe 20% of it in the largest tech names overall, and then a distribution of the largest market cap names, and lo and behold, one has an s&p 500 "index fund". Tesla's about to be added to the S&P 500. There are strong opinions on both sides - it's going up, no, it's going down. You don't have much of a choice if you're a Boglehead who bought into the S&P 500, you're just in it for the ride.
  - throw0101a 6y ago
    > Yes, and not only that, but the index funds a skewed towards entities with large market caps. There are index funds of every publicly traded company in the US: * https://en.wikipedia.org/wiki/Russell_3000_Index https://en.wikipedia.org/wiki/Russell_3000_Index Vanguard themselves have changed things so that employees no longer have the option of choosing the S&P 500 fund in their own retirement accounts, but rather the Total Market fund: * https://www.marketwatch.com/story/vanguard-thinks-its-own-employees-should-own-this-fund-not-the-sp-500-theyre-right-2018-06-08 https://www.marketwatch.com/story/vanguard-thinks-its-own-em... * https://www.marketwatch.com/story/bogle-explains-why-vanguard-employees-wont-have-a-flagship-sp-500-fund-in-their-401k-2018-06-07 https://www.marketwatch.com/story/bogle-explains-why-vanguar... > You don't have much of a choice if you're a Boglehead who bought into the S&P 500, you're just in it for the ride. Anyone investing in equities is just in it for the ride, as it is impossible to predict what will happen: * https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street An individual's best bet, long term: buy as much of 'The Market' as you can. The greater, the better. The S&P 500 is simply a smaller portion of the market, and while not bad, may not be ideal: * https://www.pwlcapital.com/should-you-invest-in-the-sp-500-index/ https://www.pwlcapital.com/should-you-invest-in-the-sp-500-i...
    - itsoktocry 6y ago
      >Anyone investing in equities is just in it for the ride, as it is impossible to predict what will happen So people like Jim Simons are merely the luckiest people alive? The average person earns the average market return, less fees; that's a tautology. Unless you have some reason to believe you aren't average, most people are better off following your advice. It's what I do, personally. But the idea that no one is winning at this game flies in the face of a lot of evidence.
mancerayder 6y ago
I'm happy to go through these in some depth, but the most obvious first response to this is, 1991... Is the landscape of 1991 the same as the landscape of 2020, with its 10% of the s&p in just a few companies, with Robin Hood kids, with money printing, with Seeking Alpha and information overload? Talk shows about stocks and news algorithms pumping stocks to the masses? Some of your links are for active fund managers versus passive fund managers. Again, a red herring. No, there's not JUST a choice between bogleheading and day trading, and none of us here are active fund managers? Are fund managers (who have clients) compared to the likes of you and me ? Some individual stocks you buy for the long term, others you trade short term. And sometimes, you can long a stock but only trade a percentage of the holding. You can keep it for a day or for years.
- throw0101a 6y ago
  > Is the landscape of 1991 the same as the landscape of 2020, with its 10% of the s&p in just a few companies Yes, it is the same: * https://awealthofcommonsense.com/2020/07/the-nifty-fifty-and-the-old-normal/ https://awealthofcommonsense.com/2020/07/the-nifty-fifty-and... * https://theirrelevantinvestor.com/2018/11/26/the-nifty-fifty/ https://theirrelevantinvestor.com/2018/11/26/the-nifty-fifty... * https://en.wikipedia.org/wiki/Nifty_Fifty https://en.wikipedia.org/wiki/Nifty_Fifty * https://etfdb.com/history-of-the-s-and-p-500/ https://etfdb.com/history-of-the-s-and-p-500/ * https://www.qad.com/blog/2019/10/sp-500-companies-over-time https://www.qad.com/blog/2019/10/sp-500-companies-over-time That's the definition of the S&P 500: the largest five hundred companies publicly traded companies. > with money printing, I do not think this actually does what you thinks it does: * https://www.youtube.com/watch?v=K3lP3BhvnSo https://www.youtube.com/watch?v=K3lP3BhvnSo * https://rationalreminder.ca/podcast/109 https://rationalreminder.ca/podcast/109 > […] Talk shows about stocks and news algorithms pumping stocks to the masses? Please see the 1990s and "irrational exuberance". I live in Canada: ask anyone here above a certain age (40s) about Nortel and Bre-X. > Are fund managers (who have clients) compared to the likes of you and me ? Fund managers have more resources than you and me, and thus probably have better information to base decisions on. Unless, of course, you are using satellite imagery in your investing workflow: > Currie’s prediction proved correct. As word spread that satellite images were a reliable predictor of corporate profits, a range of investment funds began buying retail-traffic data from RS Metrics. In the following years, the company expanded, tracking not just parked cars but solar-panel installations, lumber inventory at sawmills, and the mining of metals worldwide. * https://www.theatlantic.com/magazine/archive/2019/05/stock-value-satellite-images-investing/586009/ https://www.theatlantic.com/magazine/archive/2019/05/stock-v...