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People absolutely beat the market over time. The investment world when they say no one beats the market, are referring to investment managers moving billions of

People absolutely beat the market over time. The investment world when they say no one beats the market, are referring to investment managers moving billions of dollars. As a regular guy, you can. It’s sad to see this terrible advice repeated ad nauseam

devoutsalsa 5y ago
People who beat the market are lucky.
- deleted 5y ago
  [deleted]
- mettamage 5y ago
  No, the fact is: there is too little objective data to know about either side in the retail sense. And the objective data that is there says that 1% of day traders out perform the market in the shanghai stock exchange (I could misremember). The point is we have too little data to know almost anything. I am on my phone no time for source finding.
  - throw0101a 5y ago
    > And the objective data that is there says that 1% of day traders out perform the market in the shanghai stock exchange (I could misremember). What are the odds that you are of those 1%? (Hint: you're probably not in that group.) Given that I have >20 years until retirement, what are the odds that I will be in that 1% for all of that time? Further most stocks suck: > We study long-run shareholder outcomes for over 64,000 global common stocks during the January 1990 to December 2020 period. We document that the majority, 55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, we find that the top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the US, 1.41% of firms account for the $US 30.7 trillion in net wealth creation. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251 > Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447 What are the odds that you manage to pick those few stocks that produce those returns?
    - DeathArrow 5y ago
      >What are the odds that you manage to pick those few stocks that produce those returns? Aren't most of those stocks the best performers of each industry? Can you fail by buying FAANG?
      - throw0101a 5y ago
        Investing in technology can bite you if you invest at the wrong time: * https://www.pwlcapital.com/investing-technological-revolutions/ https://www.pwlcapital.com/investing-technological-revolutio... * https://en.wikipedia.org/wiki/Technological_Revolutions_and_Financial_Capital https://en.wikipedia.org/wiki/Technological_Revolutions_and_... AMZN dropped 90% after the Dot Com Bubble burst. TSLA in the last five years: > In the past 5 years, there were drawdowns of 30%, 50%, -60% and -35%. This stock was down 60% in 2020! It’s up a cool 1000%+ since then. > And the crazy thing is there were plenty of Tesla shareholders who did hold on for the entire ride. They were true believers in the face of relentless negativity about the company and its founder. > Kudos to them. * https://awealthofcommonsense.com/2021/10/the-10-most-dangerous-words-in-investing/ https://awealthofcommonsense.com/2021/10/the-10-most-dangero... Do you have the mental fortitude to hang on during those times? How do you know when you're wrong? > The first has to do with stock picking. Mr. Housel points out that most public companies are duds, a few do well, and a handful become extraordinary winners that drive the vast majority of the stock market’s returns. He cites data from the Russell 3000 Index that shows, since 1980, forty percent of all Russell 3000 stock components lost at least 70% of their value and never recovered. * https://boomerandecho.com/weekend-reading-the-psychology-of-money-edition/ https://boomerandecho.com/weekend-reading-the-psychology-of-... * Housel's book: https://www.goodreads.com/en/book/show/41881472-the-psychology-of-money https://www.goodreads.com/en/book/show/41881472-the-psycholo... * https://awealthofcommonsense.com/2014/09/stocks-dont-come-back/ https://awealthofcommonsense.com/2014/09/stocks-dont-come-ba... FAANG may be great stocks—right now. But there are plenty of stocks that used to be great as well: > Exxon Mobil replaced by a software stock after 92 years in the Dow is a ‘sign of the times’ * https://www.cnbc.com/2020/08/25/exxon-mobil-replaced-by-a-software-stock-after-92-years-in-the-dow-is-a-sign-of-the-times.html https://www.cnbc.com/2020/08/25/exxon-mobil-replaced-by-a-so... When do you know when a stock you've pick that used to be good stops being good? IBM, AT&T, and GM were in the Top 10 of companies on the S&P 500 for decades: how are they doing now? How do you know when to jump ship? * https://www.dimensional.com/us-en/insights/large-and-in-charge-giant-firms-atop-market-is-nothing-new https://www.dimensional.com/us-en/insights/large-and-in-char... AAPL didn't do very well in the 1990s: when would have dropped them? When should you have picked them up? (After the (in)famous Microsoft investment perhaps?) Further, just because investing in a company on its way up may be give you good returns, does that still apply once it is at the top? > But as massive as these behemoths became, that has not necessarily made them good long-term investments. For each decade starting 1930, 1940, 1950, and so on through 2010, the 10 largest companies at the start of the decade have made up, on average, 23.6% of the U.S. stock market. But, in the decade that followed, the average annual return of those 10 largest companies has trailed the market by an annualized 1.51% on average. * https://www.pwlcapital.com/are-the-largest-large-cap-growth-stocks-where-its-at/ https://www.pwlcapital.com/are-the-largest-large-cap-growth-... Investing in the "top companies" was a fad in the past—and returns weren't necessary that good over the long-term: * https://en.wikipedia.org/wiki/Nifty_Fifty https://en.wikipedia.org/wiki/Nifty_Fifty Owning the best stocks is hard: * https://awealthofcommonsense.com/2021/03/owning-the-best-stocks-is-hard/ https://awealthofcommonsense.com/2021/03/owning-the-best-sto...
- Silhouette 5y ago
  I know more than one person who has been "lucky" in that way remarkably consistently for decades. At some point you start to ask if they are making their own luck. These are all people who have no-nonsense investing strategies. They don't do anything weird or controversial. They typically look for value and fundamentals and they make their biggest gains simply by buying or selling at a good time by recognising something important before the market. An example I always remember one of them giving me was a company that made building materials. During an exceptionally wet summer a lot of building work stopped because sites were washed out. Stocks in the big homebuilders had fallen heavily and this smaller supplier had tracked them down. However it fell so far that its price-to-book ratio was less than 1. (Roughly speaking that means the cost to buy a share is less than what that share would be worth if you could distribute the current value of the tangible business assets to the shareholders.) My friend invested and after the bad weather passed, trade returned to normal levels, the stock price corrected, and they had made a very good return over a few months.
alecst 5y ago
Doesn't the investment world say something like "no one can beat the market forever?" Of course some people can win sometimes. But to do it consistently is a different story. You have to have some kind of edge: being faster (unlikely), smarter (unlikely), or access to information other people don't have (also unlikely). Or do you really think the average guy can do better than the market, and why or how?
- dninednjwryv 5y ago
  No. Stop it with this mentality. When managing a small portfolio, < 5 million dollars, you can be very agile in how you invest. Small hedge funds in NYC with less than 10 million under management regularly make 50-100% a year. It’s not a controversial opinion. It’s just that the financial industry has pushed this narrative as a way to sell index fund products. Completely diversifying your investments is a terrible way to make money. Warren buffet himself says this all the time. Source is I used to work in finance in NYC
  - alecst 5y ago
    I'm intrigued. 1. How is a regular guy going to achieve the same results as a hedge fund with a 10 million dollar portfolio? 2. Regarding Buffett's quote, do you mean "diversification is protection against ignorance?" I think his point is that if you have special knowledge you can take a concentrated position in a stock, but that for the regular guy, diversification is a hedge. Since most stocks underperform and most gains are from a small fraction of stocks, his quote seems to make sense.
    - DeathArrow 5y ago
      >How is a regular guy going to achieve the same results as a hedge fund with a 10 million dollar portfolio? Maybe by finding a well managed small fund and buying into it?
      - throw0101a 5y ago
        > Maybe by finding a well managed small fund and buying into it? Just because a fund manager is good now, does not mean they'll be good in the future. It's the same situation as with stocks: how do you know when to jump ship? Further, over longer periods of time, most fund managers don't beat the market average: * https://www.ifa.com/articles/despite_brief_reprieve_2018_spiva_report_reveals_active_funds_fail_dent_indexing_lead_-_works/ https://www.ifa.com/articles/despite_brief_reprieve_2018_spi... And just because a few funds do manage to beat the average, it's hard to tell that they are ahead of time. Over the last 40-50 years (in the US) there have been some that have had excellent results—for a while. Until they didn't ("Chasing Top Fund Managers"): * https://www.youtube.com/watch?v=p6HrepdLSu4 https://www.youtube.com/watch?v=p6HrepdLSu4 (18m34s) * https://rationalreminder.ca/podcast/136 https://rationalreminder.ca/podcast/136 (topic starts at ~15m) Plenty of peer-reviewed papers at the bottom of that second (podcast) link.
6gvONxR4sf7o 5y ago
I also thought that it was more that nobody offering active management beats the market after their fees are taken into account.

devoutsalsa 5y ago

People who beat the market are lucky.

deleted 5y ago
[deleted]
mettamage 5y ago
No, the fact is: there is too little objective data to know about either side in the retail sense. And the objective data that is there says that 1% of day traders out perform the market in the shanghai stock exchange (I could misremember). The point is we have too little data to know almost anything. I am on my phone no time for source finding.
- throw0101a 5y ago
  > And the objective data that is there says that 1% of day traders out perform the market in the shanghai stock exchange (I could misremember). What are the odds that you are of those 1%? (Hint: you're probably not in that group.) Given that I have >20 years until retirement, what are the odds that I will be in that 1% for all of that time? Further most stocks suck: > We study long-run shareholder outcomes for over 64,000 global common stocks during the January 1990 to December 2020 period. We document that the majority, 55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, we find that the top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the US, 1.41% of firms account for the $US 30.7 trillion in net wealth creation. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251 > Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447 What are the odds that you manage to pick those few stocks that produce those returns?
  - DeathArrow 5y ago
    >What are the odds that you manage to pick those few stocks that produce those returns? Aren't most of those stocks the best performers of each industry? Can you fail by buying FAANG?
    - throw0101a 5y ago
      Investing in technology can bite you if you invest at the wrong time: * https://www.pwlcapital.com/investing-technological-revolutions/ https://www.pwlcapital.com/investing-technological-revolutio... * https://en.wikipedia.org/wiki/Technological_Revolutions_and_Financial_Capital https://en.wikipedia.org/wiki/Technological_Revolutions_and_... AMZN dropped 90% after the Dot Com Bubble burst. TSLA in the last five years: > In the past 5 years, there were drawdowns of 30%, 50%, -60% and -35%. This stock was down 60% in 2020! It’s up a cool 1000%+ since then. > And the crazy thing is there were plenty of Tesla shareholders who did hold on for the entire ride. They were true believers in the face of relentless negativity about the company and its founder. > Kudos to them. * https://awealthofcommonsense.com/2021/10/the-10-most-dangerous-words-in-investing/ https://awealthofcommonsense.com/2021/10/the-10-most-dangero... Do you have the mental fortitude to hang on during those times? How do you know when you're wrong? > The first has to do with stock picking. Mr. Housel points out that most public companies are duds, a few do well, and a handful become extraordinary winners that drive the vast majority of the stock market’s returns. He cites data from the Russell 3000 Index that shows, since 1980, forty percent of all Russell 3000 stock components lost at least 70% of their value and never recovered. * https://boomerandecho.com/weekend-reading-the-psychology-of-money-edition/ https://boomerandecho.com/weekend-reading-the-psychology-of-... * Housel's book: https://www.goodreads.com/en/book/show/41881472-the-psychology-of-money https://www.goodreads.com/en/book/show/41881472-the-psycholo... * https://awealthofcommonsense.com/2014/09/stocks-dont-come-back/ https://awealthofcommonsense.com/2014/09/stocks-dont-come-ba... FAANG may be great stocks—right now. But there are plenty of stocks that used to be great as well: > Exxon Mobil replaced by a software stock after 92 years in the Dow is a ‘sign of the times’ * https://www.cnbc.com/2020/08/25/exxon-mobil-replaced-by-a-software-stock-after-92-years-in-the-dow-is-a-sign-of-the-times.html https://www.cnbc.com/2020/08/25/exxon-mobil-replaced-by-a-so... When do you know when a stock you've pick that used to be good stops being good? IBM, AT&T, and GM were in the Top 10 of companies on the S&P 500 for decades: how are they doing now? How do you know when to jump ship? * https://www.dimensional.com/us-en/insights/large-and-in-charge-giant-firms-atop-market-is-nothing-new https://www.dimensional.com/us-en/insights/large-and-in-char... AAPL didn't do very well in the 1990s: when would have dropped them? When should you have picked them up? (After the (in)famous Microsoft investment perhaps?) Further, just because investing in a company on its way up may be give you good returns, does that still apply once it is at the top? > But as massive as these behemoths became, that has not necessarily made them good long-term investments. For each decade starting 1930, 1940, 1950, and so on through 2010, the 10 largest companies at the start of the decade have made up, on average, 23.6% of the U.S. stock market. But, in the decade that followed, the average annual return of those 10 largest companies has trailed the market by an annualized 1.51% on average. * https://www.pwlcapital.com/are-the-largest-large-cap-growth-stocks-where-its-at/ https://www.pwlcapital.com/are-the-largest-large-cap-growth-... Investing in the "top companies" was a fad in the past—and returns weren't necessary that good over the long-term: * https://en.wikipedia.org/wiki/Nifty_Fifty https://en.wikipedia.org/wiki/Nifty_Fifty Owning the best stocks is hard: * https://awealthofcommonsense.com/2021/03/owning-the-best-stocks-is-hard/ https://awealthofcommonsense.com/2021/03/owning-the-best-sto...
Silhouette 5y ago
I know more than one person who has been "lucky" in that way remarkably consistently for decades. At some point you start to ask if they are making their own luck. These are all people who have no-nonsense investing strategies. They don't do anything weird or controversial. They typically look for value and fundamentals and they make their biggest gains simply by buying or selling at a good time by recognising something important before the market. An example I always remember one of them giving me was a company that made building materials. During an exceptionally wet summer a lot of building work stopped because sites were washed out. Stocks in the big homebuilders had fallen heavily and this smaller supplier had tracked them down. However it fell so far that its price-to-book ratio was less than 1. (Roughly speaking that means the cost to buy a share is less than what that share would be worth if you could distribute the current value of the tangible business assets to the shareholders.) My friend invested and after the bad weather passed, trade returned to normal levels, the stock price corrected, and they had made a very good return over a few months.

alecst 5y ago

Doesn't the investment world say something like "no one can beat the market forever?" Of course some people can win sometimes. But to do it consistently is a different story. You have to have some kind of edge: being faster (unlikely), smarter (unlikely), or access to information other people don't have (also unlikely). Or do you really think the average guy can do better than the market, and why or how?

dninednjwryv 5y ago
No. Stop it with this mentality. When managing a small portfolio, < 5 million dollars, you can be very agile in how you invest. Small hedge funds in NYC with less than 10 million under management regularly make 50-100% a year. It’s not a controversial opinion. It’s just that the financial industry has pushed this narrative as a way to sell index fund products. Completely diversifying your investments is a terrible way to make money. Warren buffet himself says this all the time. Source is I used to work in finance in NYC
- alecst 5y ago
  I'm intrigued. 1. How is a regular guy going to achieve the same results as a hedge fund with a 10 million dollar portfolio? 2. Regarding Buffett's quote, do you mean "diversification is protection against ignorance?" I think his point is that if you have special knowledge you can take a concentrated position in a stock, but that for the regular guy, diversification is a hedge. Since most stocks underperform and most gains are from a small fraction of stocks, his quote seems to make sense.
  - DeathArrow 5y ago
    >How is a regular guy going to achieve the same results as a hedge fund with a 10 million dollar portfolio? Maybe by finding a well managed small fund and buying into it?
    - throw0101a 5y ago
      > Maybe by finding a well managed small fund and buying into it? Just because a fund manager is good now, does not mean they'll be good in the future. It's the same situation as with stocks: how do you know when to jump ship? Further, over longer periods of time, most fund managers don't beat the market average: * https://www.ifa.com/articles/despite_brief_reprieve_2018_spiva_report_reveals_active_funds_fail_dent_indexing_lead_-_works/ https://www.ifa.com/articles/despite_brief_reprieve_2018_spi... And just because a few funds do manage to beat the average, it's hard to tell that they are ahead of time. Over the last 40-50 years (in the US) there have been some that have had excellent results—for a while. Until they didn't ("Chasing Top Fund Managers"): * https://www.youtube.com/watch?v=p6HrepdLSu4 https://www.youtube.com/watch?v=p6HrepdLSu4 (18m34s) * https://rationalreminder.ca/podcast/136 https://rationalreminder.ca/podcast/136 (topic starts at ~15m) Plenty of peer-reviewed papers at the bottom of that second (podcast) link.

6gvONxR4sf7o 5y ago

I also thought that it was more that nobody offering active management beats the market after their fees are taken into account.