4 ms·

Not as simple. With buy and hold of index funds, you limit your upside. There is close to zero chance to make 1,000% within a year. Stock picking has potentiall

by WA 6y ago

Not as simple. With buy and hold of index funds, you limit your upside. There is close to zero chance to make 1,000% within a year. Stock picking has potentially a bigger downside, but also more upside. This being a zero-sum game doesn’t matter, if you have either an edge or are simply lucky. So instead of saying it’s all bullshit, it probably makes more sense to put 90% in index funds but expose yourself to a bigger upside with stock picking.

GordonS 6y ago
I think that's kind of the GP's point - they are advocating for not being lured by the (scant) potential for enormous gains, and instead taking the easy route to moderate gains (which will amount to large gains over time, as long as you reinvest). > it probably makes more sense to put 90% in index funds but expose yourself to a bigger upside with stock picking. Does it though? Unless you are an experienced professional financial trader (or are in possession of inside information), you are almost certain to have higher gains over time with indexed funds. If you really want to gamble on individual stocks, you may as well put 90% in index funds and put the rest on a roulette wheel.
- WA 6y ago
  If you think that your chances are higher at roulette, good for you. Other people take other chances. A few more thoughts: - Maybe you don’t have to be THAT smart to beat the index. - Maybe you don’t have to be consistently good or right or lucky, but only once or twice, because money has a nonlinear utility. If you strike it big in your early thirties, you have a different life than if you consistently save up till 65. - Of course, gambling away your small investment in the beginning might give you less to compound over the years, which results in significant less money at age 65. - Maybe stock picking helps you better to stay invested during booms and busts. I have no answers to these questions and I’m in the process to figure things out for myself right now. However, buying puts on DAX and SPX in February 2020 made me a small fortune, which is now a very real house I just bought. YMMV
  - JacobSuperslav 6y ago
    of course it's all possible. but chances are you aren't as bright as you think and just as the other 95-97% of retail investors (actual number based on studies) you won't outgrow the s&p500
FabHK 6y ago
True. Just like in the casino, if you want to make real money, you must put all you have on one lucky number. Betting small amounts on red or black limits your upside severely.
gopalv 6y ago
> This being a zero-sum game doesn’t matter, if you have either an edge or are simply lucky Picking stocks is basically "I'm feeling lucky". People do win the lottery and not buying a ticket prevents you from ever winning it. The upside definitely exists, but you get emotionally invested rather than financially. Picking stocks is good for your sense of agency in investment & feeling connected to the results of your actions - the emotional part of that shouldn't be ignored. Trading stocks at that risk level is very much a tribal gladiatorial feeling, rather than actual financial sense. We're actually seeing that in action recently - poor financial sense, massive entertainment value.
yibg 6y ago
same can be said for investing in lotteries. Also more upside, and if you're lucky, well that's all you need. So why not put 90% of your money into index funds and use the remaining 10% to buy lottery tickets?
- WA 6y ago
  Because the chance for return is so small with lottery tickets. Futhermore: Most people don't need $50 million but rather 50k-500k. It makes sense to pick a bet with better odds. 10% in a stock that has a 50% chance of better performance than the SPX? Sounds reasonable. Or an event-driven trade where you do a short-term bet on a thing. These opportunities don't come very often, but once in a while, they do. Why not expose yourself to them?

by WA 6y ago

GordonS 6y ago

I think that's kind of the GP's point - they are advocating for not being lured by the (scant) potential for enormous gains, and instead taking the easy route to moderate gains (which will amount to large gains over time, as long as you reinvest). > it probably makes more sense to put 90% in index funds but expose yourself to a bigger upside with stock picking. Does it though? Unless you are an experienced professional financial trader (or are in possession of inside information), you are almost certain to have higher gains over time with indexed funds. If you really want to gamble on individual stocks, you may as well put 90% in index funds and put the rest on a roulette wheel.

WA 6y ago
If you think that your chances are higher at roulette, good for you. Other people take other chances. A few more thoughts: - Maybe you don’t have to be THAT smart to beat the index. - Maybe you don’t have to be consistently good or right or lucky, but only once or twice, because money has a nonlinear utility. If you strike it big in your early thirties, you have a different life than if you consistently save up till 65. - Of course, gambling away your small investment in the beginning might give you less to compound over the years, which results in significant less money at age 65. - Maybe stock picking helps you better to stay invested during booms and busts. I have no answers to these questions and I’m in the process to figure things out for myself right now. However, buying puts on DAX and SPX in February 2020 made me a small fortune, which is now a very real house I just bought. YMMV
- JacobSuperslav 6y ago
  of course it's all possible. but chances are you aren't as bright as you think and just as the other 95-97% of retail investors (actual number based on studies) you won't outgrow the s&p500

FabHK 6y ago

True. Just like in the casino, if you want to make real money, you must put all you have on one lucky number. Betting small amounts on red or black limits your upside severely.

gopalv 6y ago

> This being a zero-sum game doesn’t matter, if you have either an edge or are simply lucky Picking stocks is basically "I'm feeling lucky". People do win the lottery and not buying a ticket prevents you from ever winning it. The upside definitely exists, but you get emotionally invested rather than financially. Picking stocks is good for your sense of agency in investment & feeling connected to the results of your actions - the emotional part of that shouldn't be ignored. Trading stocks at that risk level is very much a tribal gladiatorial feeling, rather than actual financial sense. We're actually seeing that in action recently - poor financial sense, massive entertainment value.

yibg 6y ago

same can be said for investing in lotteries. Also more upside, and if you're lucky, well that's all you need. So why not put 90% of your money into index funds and use the remaining 10% to buy lottery tickets?

WA 6y ago
Because the chance for return is so small with lottery tickets. Futhermore: Most people don't need $50 million but rather 50k-500k. It makes sense to pick a bet with better odds. 10% in a stock that has a 50% chance of better performance than the SPX? Sounds reasonable. Or an event-driven trade where you do a short-term bet on a thing. These opportunities don't come very often, but once in a while, they do. Why not expose yourself to them?