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I have had similar discussions with friends who invested their money in single stocks by very few companies (instead of getting, say, ETF shares) and my POV has

I have had similar discussions with friends who invested their money in single stocks by very few companies (instead of getting, say, ETF shares) and my POV has always been this: 1. You cannot beat the market (i.e. ETFs) for two reasons: A) The market consists mostly of institutional investors. Institutional investors spend an enormous amount of time and money on making sure that they come out on top. B) The fact that institutional investors spend so much time and money on evaluating stocks means that all possible information about a company, i.e. all future expectations about the company and all risks have already been priced in and the market is efficient (in the economic sense). In particular, the future stock price development is by definition unpredictable and mostly random because it will be based on future information that does not exist yet. 2. As a corollary of 1), you get profits not for knowing a company well and assessing their valuation accurately (all this has already been priced in at the time you buy the shares!), you reap profits for enduring risk. The higher the risk, the higher the potential profits (or the loss). 3. Sure, arbitrage exists. But again, who is going to be more likely to discover opportunities for arbitrage? An institutional investor or a stay-at-home mom?

gridlockd 6y ago
Efficient market hypothesis is nonsense. A lot of institutional investors are long-only. That is their mandate. All the information they may have does not change that fact. It is unlikely that you will beat the market in the long run and if you do, it may well be down to chance, but it is possible, because the market is not perfect. Furthermore, you can not "buy the market" in the first place. You can buy ETFs replicating stock indices, but that is not the same. If you bought the S&P you will have performed differently than if you had bought MSCI world. Ultimately, stock picking is just a less diversified version of buying an index.
- codethief 6y ago
  > It is unlikely that you will beat the market in the long run and if you do, it may well be down to chance, but it is possible, because the market is not perfect. Sure, I should have phrased my claim more carefully: You cannot beat the market consistently every year. Beating it by chance is irrelevant when what you're looking for are sustainable, continuous profits. > A lot of institutional investors are long-only. That is their mandate. All the information they may have does not change that fact. There are also lots of institutional investors that are involved in day trading. My claim merely was that: 1) There are enough of them for new information to get priced in faster than average private individuals could take advantage of them on a consistent basis. 2) Private individuals are not likely to beat institutional day traders. > Efficient market hypothesis is nonsense. As with all real-world applications of science, the match between theory and practice is not perfect. IMO it is good enough, though. If it were possible to foresee stock prices on a consistent basis, then we'd see tons of successful investors. I have yet to hear of an investor or a fund manager, though, who consistently beats the market. All instances where an investor has been able to do that over, say, a 10-year period can be explained by statistical outliers. (In the sense that, yes, there will always be outliers but unfortunately, it's impossible to predict who it's going to be and how long their run is going to last. There are countless fund managers who were successful for a number of years, only to be very unsuccessful during the following years.) > Furthermore, you can not "buy the market" in the first place. You can buy ETFs replicating stock indices, but that is not the same. If you bought the S&P you will have performed differently than if you had bought MSCI world. That's true, I was being a bit sloppy here. I was referring to MSCI-like indices as, compared to smaller indices, they minimize risk due to additional diversification and still yield higher profits on average. (This is the usual paradox: diversification usually leads to lower risk and higher profits. It's the only free lunch you'll ever get.) > Ultimately, stock picking is just a less diversified version of buying an index. Sure, but in contrast to stock picking, there are 140 years of world market history backing the claim that long-term investments (over at least ~15-20 years) in "the" world market (i.e. MSCI-like indices) will, on average, yield profits in the order of 4-8% p.a., depending on what exactly your definition of "world market" is. There is no such data supporting investments in single stocks.
  - smabie 6y ago
    >I have yet to hear of an investor or a fund manager, though, who consistently beats the market. Renaissance Technologies? Funny enough, it's always the people outside the industry with the least amount of information who believe in EMH. To be clear, there are other great many firms that consistently crush it (including mine), but you probably haven't heard of them, or they are proprietary trading operations vs mutual/hedge funds. But regardless, the point of a hedge fund manager isn't to beat the market anyways: it's to provide uncorrelated return.
  - nerdkid93 6y ago
    > I have yet to hear of an investor or a fund manager, though, who consistently beats the market. Renaissance's Medallion fund is one such outlier. They have averaged crazy returns over decades now, but they are likely only able to achieve such returns by being a small employee-only fund. [0] https://en.wikipedia.org/wiki/Renaissance_Technologies#Medallion_Fund https://en.wikipedia.org/wiki/Renaissance_Technologies#Medal...
ant6n 6y ago
Even Buffett said it’s much easier to invest a million than it is to invest a billion.
- graeme 6y ago
  He also has said anyone without specific skill who can’t devote themselves full time to trading should just buy an index fund.
  - prewett 6y ago
    I don't think Buffett said anything about full-time trading. Considering he's kind of the opposite of a trader, I think his point was if you can't devote yourself to the kind of research necessary, buy an index fund. Buffett steadily reads annual reports, for example.
Metacelsus 6y ago
The $100K I made in January – April from knowing about COVID, says that all possible information isn't priced in.
- daniellarusso 6y ago
  What amount of capital was needed to net $100k?
  - vinceguidry 6y ago
    Don’t forget leverage. Not everyone has equal access to it or has equal appetite to use it.
  - baq 6y ago
    put options during that time had thousands percent ROI. then if you trusted that there will be a quick climb back you could make another crazy return with calls. not recommended if you can't track prices at least hourly, though.
- conjectures 6y ago
  Did you use that one weird trick to make $135.67 per hour?
- ceejayoz 6y ago
  “My gambling strategy of ‘pick the winning numbers’ is perfect!”
- codethief 6y ago
  It should go without saying that all my claims were to be understood in the statistical sense. There will always be outliers but it's impossible to predict who/what those outliers are going to be. It's certainly not a winning strategy.
bhaak 6y ago
> 3. Sure, arbitrage exists. But again, who is going to be more likely to discover opportunities for arbitrage? An institutional investor or a stay-at-home mom? Not every possible arbitrage is suitable for every market participant. But IMO it's more dangerous for the layperson to fall for the "picking up pennies in front of a steamroller" situation. They might be profitable but not assessing the risk involved in their trades and then (for them) all of a sudden they are no longer profitable.

gridlockd 6y ago

Efficient market hypothesis is nonsense. A lot of institutional investors are long-only. That is their mandate. All the information they may have does not change that fact. It is unlikely that you will beat the market in the long run and if you do, it may well be down to chance, but it is possible, because the market is not perfect. Furthermore, you can not "buy the market" in the first place. You can buy ETFs replicating stock indices, but that is not the same. If you bought the S&P you will have performed differently than if you had bought MSCI world. Ultimately, stock picking is just a less diversified version of buying an index.

codethief 6y ago
> It is unlikely that you will beat the market in the long run and if you do, it may well be down to chance, but it is possible, because the market is not perfect. Sure, I should have phrased my claim more carefully: You cannot beat the market consistently every year. Beating it by chance is irrelevant when what you're looking for are sustainable, continuous profits. > A lot of institutional investors are long-only. That is their mandate. All the information they may have does not change that fact. There are also lots of institutional investors that are involved in day trading. My claim merely was that: 1) There are enough of them for new information to get priced in faster than average private individuals could take advantage of them on a consistent basis. 2) Private individuals are not likely to beat institutional day traders. > Efficient market hypothesis is nonsense. As with all real-world applications of science, the match between theory and practice is not perfect. IMO it is good enough, though. If it were possible to foresee stock prices on a consistent basis, then we'd see tons of successful investors. I have yet to hear of an investor or a fund manager, though, who consistently beats the market. All instances where an investor has been able to do that over, say, a 10-year period can be explained by statistical outliers. (In the sense that, yes, there will always be outliers but unfortunately, it's impossible to predict who it's going to be and how long their run is going to last. There are countless fund managers who were successful for a number of years, only to be very unsuccessful during the following years.) > Furthermore, you can not "buy the market" in the first place. You can buy ETFs replicating stock indices, but that is not the same. If you bought the S&P you will have performed differently than if you had bought MSCI world. That's true, I was being a bit sloppy here. I was referring to MSCI-like indices as, compared to smaller indices, they minimize risk due to additional diversification and still yield higher profits on average. (This is the usual paradox: diversification usually leads to lower risk and higher profits. It's the only free lunch you'll ever get.) > Ultimately, stock picking is just a less diversified version of buying an index. Sure, but in contrast to stock picking, there are 140 years of world market history backing the claim that long-term investments (over at least ~15-20 years) in "the" world market (i.e. MSCI-like indices) will, on average, yield profits in the order of 4-8% p.a., depending on what exactly your definition of "world market" is. There is no such data supporting investments in single stocks.
- smabie 6y ago
  >I have yet to hear of an investor or a fund manager, though, who consistently beats the market. Renaissance Technologies? Funny enough, it's always the people outside the industry with the least amount of information who believe in EMH. To be clear, there are other great many firms that consistently crush it (including mine), but you probably haven't heard of them, or they are proprietary trading operations vs mutual/hedge funds. But regardless, the point of a hedge fund manager isn't to beat the market anyways: it's to provide uncorrelated return.
- nerdkid93 6y ago
  > I have yet to hear of an investor or a fund manager, though, who consistently beats the market. Renaissance's Medallion fund is one such outlier. They have averaged crazy returns over decades now, but they are likely only able to achieve such returns by being a small employee-only fund. [0] https://en.wikipedia.org/wiki/Renaissance_Technologies#Medallion_Fund https://en.wikipedia.org/wiki/Renaissance_Technologies#Medal...

ant6n 6y ago

Even Buffett said it’s much easier to invest a million than it is to invest a billion.

graeme 6y ago
He also has said anyone without specific skill who can’t devote themselves full time to trading should just buy an index fund.
- prewett 6y ago
  I don't think Buffett said anything about full-time trading. Considering he's kind of the opposite of a trader, I think his point was if you can't devote yourself to the kind of research necessary, buy an index fund. Buffett steadily reads annual reports, for example.

Metacelsus 6y ago

The $100K I made in January – April from knowing about COVID, says that all possible information isn't priced in.

daniellarusso 6y ago
What amount of capital was needed to net $100k?
- vinceguidry 6y ago
  Don’t forget leverage. Not everyone has equal access to it or has equal appetite to use it.
- baq 6y ago
  put options during that time had thousands percent ROI. then if you trusted that there will be a quick climb back you could make another crazy return with calls. not recommended if you can't track prices at least hourly, though.
conjectures 6y ago
Did you use that one weird trick to make $135.67 per hour?
ceejayoz 6y ago
“My gambling strategy of ‘pick the winning numbers’ is perfect!”
codethief 6y ago
It should go without saying that all my claims were to be understood in the statistical sense. There will always be outliers but it's impossible to predict who/what those outliers are going to be. It's certainly not a winning strategy.

bhaak 6y ago

> 3. Sure, arbitrage exists. But again, who is going to be more likely to discover opportunities for arbitrage? An institutional investor or a stay-at-home mom? Not every possible arbitrage is suitable for every market participant. But IMO it's more dangerous for the layperson to fall for the "picking up pennies in front of a steamroller" situation. They might be profitable but not assessing the risk involved in their trades and then (for them) all of a sudden they are no longer profitable.