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There’s so much survivor bias in this. For most investors, missing 10x growth of whatever small portfolio weight you would put on Gamestop is totally meaningles

by mlthoughts2018 6y ago

There’s so much survivor bias in this. For most investors, missing 10x growth of whatever small portfolio weight you would put on Gamestop is totally meaningless, ignorable blip. Something is always jumping up, everyone is always telling just-so stories after the fact. Anyone who would put enough portfolio weight on a single stock, whether Tesla or Gamestop or whatever, that mere 10x price appreciation would amount to something significant is failing to diversify and carrying huge huge single name risk. There’s nothing to see here. Put money in a broad basket of stocks and go do something else.

marvin 6y ago
This is a comforting and sensible stance, which is useful for most people and most situations. But you can't rule out the possibility that a few people, who happen to be positioned exactly right at a particular point in time, correctly assess the risk of a certain bet as being much lower than the rest of the market thinks. Gamestop is a good example of this, as was Tesla at multiple points in its history. As was put options on major stock indexes in early February of 2020. And so on. It's very comforting to assess market events as truly random and any success as luck. It's possible to come up with definitions that lead to this conclusion. Personally, I'm fairly certain that this is wrong. But the distinctions are practically by definition so subtle that they seem random to anything but detailed, correctly-informed scrutiny. I'm not saying that you could build a long-term successful career out of this, where you make likely-successful trades every day. But I do claim that you could fruitfully dedicate part of a long-term portfolio -- say 10% -- to make speculative bets on the very occasional situations where you happen to be positioned to see something that isn't yet obvious to others.
- mlthoughts2018 6y ago
  > “ But you can't rule out the possibility that a few people, who happen to be positioned exactly right at a particular point in time, correctly assess the risk of a certain bet as being much lower than the rest of the market thinks.” No, you very much can rule that out. It’s nothing more than “a broken clock is right twice a day.” Lots of people are making lottery like bets on specific stocks, with a just-so story about why they’ve correctly valued it. By random chance, some small subset actually pay off and people falsely mistake the just-so narrative for investor prowess or foresight.

marvin 6y ago

This is a comforting and sensible stance, which is useful for most people and most situations. But you can't rule out the possibility that a few people, who happen to be positioned exactly right at a particular point in time, correctly assess the risk of a certain bet as being much lower than the rest of the market thinks. Gamestop is a good example of this, as was Tesla at multiple points in its history. As was put options on major stock indexes in early February of 2020. And so on. It's very comforting to assess market events as truly random and any success as luck. It's possible to come up with definitions that lead to this conclusion. Personally, I'm fairly certain that this is wrong. But the distinctions are practically by definition so subtle that they seem random to anything but detailed, correctly-informed scrutiny. I'm not saying that you could build a long-term successful career out of this, where you make likely-successful trades every day. But I do claim that you could fruitfully dedicate part of a long-term portfolio -- say 10% -- to make speculative bets on the very occasional situations where you happen to be positioned to see something that isn't yet obvious to others.

mlthoughts2018 6y ago
> “ But you can't rule out the possibility that a few people, who happen to be positioned exactly right at a particular point in time, correctly assess the risk of a certain bet as being much lower than the rest of the market thinks.” No, you very much can rule that out. It’s nothing more than “a broken clock is right twice a day.” Lots of people are making lottery like bets on specific stocks, with a just-so story about why they’ve correctly valued it. By random chance, some small subset actually pay off and people falsely mistake the just-so narrative for investor prowess or foresight.