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Suppose I want to build a program that trades in the markets to make money. So to do the opposite I would try to lose money as fast as I could, according to th

Suppose I want to build a program that trades in the markets to make money. So to do the opposite I would try to lose money as fast as I could, according to this? But the way to do that is just to churn my book a lot and pay costs and spreads. It's not clear how that illuminates how to make money.

GuB-42 5y ago
It actually illuminates more than you might think. The market is mostly a zero sum game. When someone loses money, someone makes money, and vice versa. Just think about it. I think the best way to lose a lot of money is to fall into scams. And avoiding scams is an important part of investing. It also tell you that scams can be profitable. So the next question is: how to scam and lose money doing it, which will hopefully put you back on the right track... or make you a really good scammer. Back to honest investing, losing a lot of money is not that trivial. It is easy to take risks but you can still get the occasional big payoff and if you think about ways of not getting that payoff, it is the same as thinking about how to get it, just with a different angle. That kind of reverse thinking goes best when you pair it with regular thinking. That's a "meet in the middle" algorithm, kind of like solving a maze by going both forwards from the entrance and backwards from the exit.
probably_wrong 5y ago
You now have your first data point. You now need to come up with a second strategy that loses money while, simultaneously, avoiding those steps. Repeat until you run out of ways of losing money.
deleted 5y ago
[deleted]
tyree731 5y ago
The interesting thing about the markets is that if you had a strategy that consistently lost money, oftentimes you can use the “opposite“ of that strategy, so to speak, to make money. This is one reason why it’s difficult to find these losing strategies.
- JumpCrisscross 5y ago
  > oftentimes you can use the “opposite“ of that strategy, so to speak, to make money The opposite of Robinhooding might be buying a smattering of stocks and holding until infinity. It’s better than constantly trading options, a consistently losing strategy. But I wouldn’t call it a winner.
  - unmole 5y ago
    If buuying OTM options is a consistently losing strategy, the opposite would be selling OTM options. And that's a reasonable way to make money.
    - JumpCrisscross 5y ago
      > the opposite would be selling OTM options. And that's a reasonable way to make money. It's the original "vacuuming up nickels in front of a steamroller" trade. It looks like it works well for a while until it doesn't. Option pricing has many degrees of freedom. Most result in value frittering away. As a result, most options trade participants lose money. (By design. It's a hedging tool.) The alpha bleeds into the underlying market through market makers' hedging.
hamilyon2 5y ago
Strawman. Suppose you are market maker and never have to pay a dime in fees. Morover, anything lost on spread is immediately refunded. If you have strategy that very quickly loses money in this harsh conditions, you have a winner.
- JumpCrisscross 5y ago
  > anything lost on spread is immediately refunded This is unrealistic and produces fantasy strategies. Capping spreads over a unit of time is more realistic. That said, this way of thinking, iterated with discipline, does lead to a decent portfolio strategy. (Though not necessarily an outperforming one.)
iamben 5y ago
I know nothing about trading, so forgive me in advance - but I assumed the point of the article is to break it down a bit more specifically. What causes you to lose money quickly, what's the program doing - how do you stop it from doing those things? If you start to remove the roads to failure you're kind of forced onto the road to success - or at least a place where you're not falling into the places you're planning around.
- WJW 5y ago
  In the case of trading, removing the known roads to failure is no guarantee that you are now on the road to success. There are many MANY ways to fail in finance and more are being invented every day. I suspect (but cannot prove) that this is because financial markets are "PvP" instead of "PvE", you trade against intelligent humans who can and do adapt their strategies to what they observe to be the strategy of other players in the market. If there is any form of rock-paper-scissors dynamic, this means that there will never be a stable strategy that keeps winning and so the method from the article will not work. In most engineering problems OTOH, you are basically fighting against the environment. This can still be very difficult (see rocket science for example) but at least the laws of physics don't change from day to day. So, any progress in solving the problem you made yesterday will remain. Successful application of the TRIZ method requires that the problem remains relatively stable, so that the options you "chip away" remain poor options forever. The markets are not like this and neither, I think, is career design.
kaycebasques 5y ago
> It's not clear how that illuminates how to make money. I mean you did already start to think of some interesting starting points: > But the way to do that is just to churn my book a lot and pay costs and spreads. Don't churn your books, reduce costs, reduce spreads
JumpCrisscross 5y ago
> the way to do that is just to churn my book a lot and pay costs and spreads Iterate the question. Assuming a limited number of trades per quarter and a cap on spreads and commissions, how would one maximally lose money?
throwaway316943 5y ago
Think of it like the weather map that was mentioned. Your job is to fill in all of the parts of the map that will kill the pilot. Once you’ve exhaustively done that, the clear path will be evident.
- WJW 5y ago
  How will you know you have indeed exhaustively done so though? This seems like a strategy that will only work for extremely well understood fields and things like "career development" that the article talks about are definitely not well enough developed that you can exhaustively enumerate all the ways it can go wrong.
  - throwaway316943 5y ago
    Using the weather map analogy again, you’ll only have accurate data for some parts of the map and you’ll need to rely on second hand information or predictive modeling to fill in the other parts and after all of that sometimes you just have to go look for yourself.
buffetknowledge 5y ago
Forgive me, but I think you've illuminated the exact way to be a great investor repeated by buffet ad nauseam. Don't buy and sell repeatedly - you lose on the transaction fees. Act like you have a punch card with 10 holes for your entire life and you use one every time you buy a company. That way you'll really consider you decisions and won't lose money on transaction fees from repeated buying and selling. Buy great companies cheap or at a good price. Only sell if you think they are technologically threatened (horse and cart vs car situation) or have grown to take up too much of your portfolio (like up 50%+ of your portfolio). This is basically how buffet got mega rich. Amex, Coca Cola, Apple, Geico, etc. These few big bets made him a very rich man and he still holds them today. Losing 1% per year to transaction/currency/ management fees per year really adds up over a lifetime. And it doubly matters when you are rich enough to pass the cap gains threshold. 20% lost on every time you sell at a profit in the UK - that compounds too! Or - if you can't be bothered with the effort to try and beat the market - you've also illuminated another bit of buffets advice. Invest in and hold an s&p ETF through your whole life. In fact Munger is one of the biggest proponents of "invert, always invert"
ajuc 5y ago
> But the way to do that is just to churn my book a lot and pay costs and spreads. It's not clear how that illuminates how to make money. Well it suggests to invest long-term?

GuB-42 5y ago

It actually illuminates more than you might think. The market is mostly a zero sum game. When someone loses money, someone makes money, and vice versa. Just think about it. I think the best way to lose a lot of money is to fall into scams. And avoiding scams is an important part of investing. It also tell you that scams can be profitable. So the next question is: how to scam and lose money doing it, which will hopefully put you back on the right track... or make you a really good scammer. Back to honest investing, losing a lot of money is not that trivial. It is easy to take risks but you can still get the occasional big payoff and if you think about ways of not getting that payoff, it is the same as thinking about how to get it, just with a different angle. That kind of reverse thinking goes best when you pair it with regular thinking. That's a "meet in the middle" algorithm, kind of like solving a maze by going both forwards from the entrance and backwards from the exit.

probably_wrong 5y ago

You now have your first data point. You now need to come up with a second strategy that loses money while, simultaneously, avoiding those steps. Repeat until you run out of ways of losing money.

deleted 5y ago

[deleted]

tyree731 5y ago

The interesting thing about the markets is that if you had a strategy that consistently lost money, oftentimes you can use the “opposite“ of that strategy, so to speak, to make money. This is one reason why it’s difficult to find these losing strategies.

JumpCrisscross 5y ago
> oftentimes you can use the “opposite“ of that strategy, so to speak, to make money The opposite of Robinhooding might be buying a smattering of stocks and holding until infinity. It’s better than constantly trading options, a consistently losing strategy. But I wouldn’t call it a winner.
- unmole 5y ago
  If buuying OTM options is a consistently losing strategy, the opposite would be selling OTM options. And that's a reasonable way to make money.
  - JumpCrisscross 5y ago
    > the opposite would be selling OTM options. And that's a reasonable way to make money. It's the original "vacuuming up nickels in front of a steamroller" trade. It looks like it works well for a while until it doesn't. Option pricing has many degrees of freedom. Most result in value frittering away. As a result, most options trade participants lose money. (By design. It's a hedging tool.) The alpha bleeds into the underlying market through market makers' hedging.

hamilyon2 5y ago

Strawman. Suppose you are market maker and never have to pay a dime in fees. Morover, anything lost on spread is immediately refunded. If you have strategy that very quickly loses money in this harsh conditions, you have a winner.

JumpCrisscross 5y ago
> anything lost on spread is immediately refunded This is unrealistic and produces fantasy strategies. Capping spreads over a unit of time is more realistic. That said, this way of thinking, iterated with discipline, does lead to a decent portfolio strategy. (Though not necessarily an outperforming one.)

iamben 5y ago

I know nothing about trading, so forgive me in advance - but I assumed the point of the article is to break it down a bit more specifically. What causes you to lose money quickly, what's the program doing - how do you stop it from doing those things? If you start to remove the roads to failure you're kind of forced onto the road to success - or at least a place where you're not falling into the places you're planning around.

WJW 5y ago
In the case of trading, removing the known roads to failure is no guarantee that you are now on the road to success. There are many MANY ways to fail in finance and more are being invented every day. I suspect (but cannot prove) that this is because financial markets are "PvP" instead of "PvE", you trade against intelligent humans who can and do adapt their strategies to what they observe to be the strategy of other players in the market. If there is any form of rock-paper-scissors dynamic, this means that there will never be a stable strategy that keeps winning and so the method from the article will not work. In most engineering problems OTOH, you are basically fighting against the environment. This can still be very difficult (see rocket science for example) but at least the laws of physics don't change from day to day. So, any progress in solving the problem you made yesterday will remain. Successful application of the TRIZ method requires that the problem remains relatively stable, so that the options you "chip away" remain poor options forever. The markets are not like this and neither, I think, is career design.

kaycebasques 5y ago

> It's not clear how that illuminates how to make money. I mean you did already start to think of some interesting starting points: > But the way to do that is just to churn my book a lot and pay costs and spreads. Don't churn your books, reduce costs, reduce spreads

JumpCrisscross 5y ago

> the way to do that is just to churn my book a lot and pay costs and spreads Iterate the question. Assuming a limited number of trades per quarter and a cap on spreads and commissions, how would one maximally lose money?

throwaway316943 5y ago

Think of it like the weather map that was mentioned. Your job is to fill in all of the parts of the map that will kill the pilot. Once you’ve exhaustively done that, the clear path will be evident.

WJW 5y ago
How will you know you have indeed exhaustively done so though? This seems like a strategy that will only work for extremely well understood fields and things like "career development" that the article talks about are definitely not well enough developed that you can exhaustively enumerate all the ways it can go wrong.
- throwaway316943 5y ago
  Using the weather map analogy again, you’ll only have accurate data for some parts of the map and you’ll need to rely on second hand information or predictive modeling to fill in the other parts and after all of that sometimes you just have to go look for yourself.

buffetknowledge 5y ago

Forgive me, but I think you've illuminated the exact way to be a great investor repeated by buffet ad nauseam. Don't buy and sell repeatedly - you lose on the transaction fees. Act like you have a punch card with 10 holes for your entire life and you use one every time you buy a company. That way you'll really consider you decisions and won't lose money on transaction fees from repeated buying and selling. Buy great companies cheap or at a good price. Only sell if you think they are technologically threatened (horse and cart vs car situation) or have grown to take up too much of your portfolio (like up 50%+ of your portfolio). This is basically how buffet got mega rich. Amex, Coca Cola, Apple, Geico, etc. These few big bets made him a very rich man and he still holds them today. Losing 1% per year to transaction/currency/ management fees per year really adds up over a lifetime. And it doubly matters when you are rich enough to pass the cap gains threshold. 20% lost on every time you sell at a profit in the UK - that compounds too! Or - if you can't be bothered with the effort to try and beat the market - you've also illuminated another bit of buffets advice. Invest in and hold an s&p ETF through your whole life. In fact Munger is one of the biggest proponents of "invert, always invert"

ajuc 5y ago

> But the way to do that is just to churn my book a lot and pay costs and spreads. It's not clear how that illuminates how to make money. Well it suggests to invest long-term?