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> When we first started investing, we approached it from two beliefs: 1) you are unlikely to grow a portfolio without a small percentage of it allocated to more

> When we first started investing, we approached it from two beliefs: 1) you are unlikely to grow a portfolio without a small percentage of it allocated to more active investments I wish you all success, but this assumption goes against about a half-century of academic research. You might say "but it's crypto!" But the law of averages is brutal, and it is agnostic to whether we're in a crypto world or not -- if some fraction of market participants get an above-average return, mathematically, some must get a return that is below-average.

ogiberstein 5y ago
Thanks for the feedback. I am not sure if markets are a zero-sum game though? If the sector grows, the whole pie can become bigger, right?
- sadosystems 5y ago
  (I think) His point is not that investing is a zero sum activity but that active trading basically is. For me to make money day trading someone needs to loose money. The total "growth of the pie" is a slow process that you capitalize on by buying and holding.
  - ogiberstein 5y ago
    Fair enough! We do have quite a few users also running medium and longer-term focused strategies such as accumulations on dips
  - kulkarnic 5y ago
    Yes, that is what I meant. Thank you for expressing it more clearly!
lend000 5y ago
Active investing is not the same as day trading. Most people do not realize that "passive investing" is basically zero sum (albeit harder to calculate because of being stretched over long periods where inflation becomes significant), just like short term trading. Value creation only comes from active investing (long term focused, but active and researched). The kind of active investing that Warren Buffett does is more similar to what VC's and private equity firms do than someone who buys and holds an index, spreading their money evenly across all big companies without any regard to which companies are deserving of investment.
- kulkarnic 5y ago
  Passive investing isn't zero sum - it's positive sum. If you could buy a fraction of earnings from every business in the economy (i.e. both businesses that currently exist, and future businesses that are founded in the future), then you get a rate of return that is roughly the growth in GDP. Concentrated portfolios are also positive-sum, and have returns higher than passive investing if you are smart or lucky.
  - lend000 5y ago
    Passive investment has been a good strategy for collecting wealth, but it adds no value to society. Instead of efficiently placing capital to generate new wealth, you are spreading just as much capital to companies that will fail or squander their current valuation as companies that will succeed and should have more capital. It's only more profitable than mutual funds because ETF's have lower fees due to special tax rules around rebalancing. Add in that the capital gains tax bracket is significantly discounted and that the Fed will rescue the stock market at all costs, and you have a solid 8% annual growth (but as a result of a misaligned economic system, not because your money is actually contributing to GDP). Putting your money in the bank is probably a better contribution to the economy (because banks have trading desks dedicated to more efficiently allocating capital), although it is a terrible personal investment strategy in today's low interest, inflationary environment. I just want people who demonize active investing to understand that their passive investment strategies contribute less or equal value to society, contrary to popular belief.
    - lionhead 5y ago
      That makes no sense. Trading desks at the banks are not dedicated to "efficiently allocating capital", they are there to turn a profit no matter what. What's good for a trading desk might not (and often is not) always good for the economy. You say that passive investment provides no value to society because it provides capital for failed and successful businesses equally. But there you said it: it contributes capital to companies that will succeed. How is this "No value to society"? >It's only more profitable than mutual funds because ETF's have lower fees due to special tax rules around rebalancing. No, it's the other way around. It's because ETFs have been found to be more profitable on average than mutual funds, that it was heavily incentivized to invest in them. ETFs are profitable for structural reasons, because it's really hard to beat the market on average.
deleted 5y ago
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ogiberstein 5y ago

Thanks for the feedback. I am not sure if markets are a zero-sum game though? If the sector grows, the whole pie can become bigger, right?

sadosystems 5y ago
(I think) His point is not that investing is a zero sum activity but that active trading basically is. For me to make money day trading someone needs to loose money. The total "growth of the pie" is a slow process that you capitalize on by buying and holding.
- ogiberstein 5y ago
  Fair enough! We do have quite a few users also running medium and longer-term focused strategies such as accumulations on dips
- kulkarnic 5y ago
  Yes, that is what I meant. Thank you for expressing it more clearly!

lend000 5y ago

Active investing is not the same as day trading. Most people do not realize that "passive investing" is basically zero sum (albeit harder to calculate because of being stretched over long periods where inflation becomes significant), just like short term trading. Value creation only comes from active investing (long term focused, but active and researched). The kind of active investing that Warren Buffett does is more similar to what VC's and private equity firms do than someone who buys and holds an index, spreading their money evenly across all big companies without any regard to which companies are deserving of investment.

kulkarnic 5y ago
Passive investing isn't zero sum - it's positive sum. If you could buy a fraction of earnings from every business in the economy (i.e. both businesses that currently exist, and future businesses that are founded in the future), then you get a rate of return that is roughly the growth in GDP. Concentrated portfolios are also positive-sum, and have returns higher than passive investing if you are smart or lucky.
- lend000 5y ago
  Passive investment has been a good strategy for collecting wealth, but it adds no value to society. Instead of efficiently placing capital to generate new wealth, you are spreading just as much capital to companies that will fail or squander their current valuation as companies that will succeed and should have more capital. It's only more profitable than mutual funds because ETF's have lower fees due to special tax rules around rebalancing. Add in that the capital gains tax bracket is significantly discounted and that the Fed will rescue the stock market at all costs, and you have a solid 8% annual growth (but as a result of a misaligned economic system, not because your money is actually contributing to GDP). Putting your money in the bank is probably a better contribution to the economy (because banks have trading desks dedicated to more efficiently allocating capital), although it is a terrible personal investment strategy in today's low interest, inflationary environment. I just want people who demonize active investing to understand that their passive investment strategies contribute less or equal value to society, contrary to popular belief.
  - lionhead 5y ago
    That makes no sense. Trading desks at the banks are not dedicated to "efficiently allocating capital", they are there to turn a profit no matter what. What's good for a trading desk might not (and often is not) always good for the economy. You say that passive investment provides no value to society because it provides capital for failed and successful businesses equally. But there you said it: it contributes capital to companies that will succeed. How is this "No value to society"? >It's only more profitable than mutual funds because ETF's have lower fees due to special tax rules around rebalancing. No, it's the other way around. It's because ETFs have been found to be more profitable on average than mutual funds, that it was heavily incentivized to invest in them. ETFs are profitable for structural reasons, because it's really hard to beat the market on average.

deleted 5y ago

[deleted]