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I do think that limiting yourself to 1 day, 1 week, 1 month horizons is... limiting. Making predictions on that horizon is essentially predicting events (earnin

I do think that limiting yourself to 1 day, 1 week, 1 month horizons is... limiting. Making predictions on that horizon is essentially predicting events (earnings, mergers etc.) and market dynamics. For example, I've worked at a public company who I knew was in trouble from an engineering perspective. I left, over the 3 years before, and 3 years after I left, the stock performed very well. So in terms of stock market predictions, it's not about knowing he underlying performance of the business. It also lends itself to letting Cramer market his own homework - did the stock go up due to his influence for example? Could be the case for smaller cap stocks, and particularly over a 1 day horizon. It's also rather comical that he's right a little over 50% of the time when making a positive prediction and a little less than 50% of the time when making a negative. Or to put it another way, the stock market goes up -so when you predict it goes up, you're generally right.

throw0101a 5y ago
> I do think that limiting yourself to 1 day, 1 week, 1 month horizons is... limiting. The feedback loop on whether you've made a good decision can be a long time: > For example, any competent basketball coach could tell you whether someone was skilled at shooting within the course of 10 minutes. Yes, it’s possible to get lucky and make a bunch of shots early on, but eventually they will trend toward their actual shooting percentage. The same is true in a technical field like computer programming. Within a short period of time, a good programmer would be able to tell if someone doesn’t know what they are talking about. > But, what about stock picking? How long would it take to determine if someone is a good stock picker? > An hour? A week? A year? > Try multiple years, and even then you still may not know for sure. The issue is that causality is harder to determine with stock picking than with other domains. When you shoot a basketball or write a computer program, the result comes immediately after the action. The ball goes in the hoop or it doesn’t. The program runs correctly or it doesn’t. But, with stock picking, you make a decision now and have to wait for it to pay off. The feedback loop can take years. * https://ofdollarsanddata.com/why-you-shouldnt-pick-individual-stocks/ https://ofdollarsanddata.com/why-you-shouldnt-pick-individua... Are you willing to stake your financial future on beating the odds that you're better-than-the-average/market? Especially over the course of multiple decades saving up for (e.g.) retirement, and then keeping your portfolio during the (hopefully) decades of retirement. (Of course you can do good enough to meet your financial goals, even if you could have done better using (say) index funds.)
- early_exit 5y ago
  Do these compare performance before or after fees? Regardless, if you're comparing funds (that contain lower risk investments, like bonds) to the S&P500 then they're going to lose whenever equity markets beat bonds - which is most of the time. If I actually (by picking stocks) have a lower expected return than the S&P, shouldn't I be sending all the hedge funds my stock picks so that they can short them (while being long S&P) - therefore beating the benchmark ~75% of the time?
- Traster 5y ago
  I think one thing that your explanation is missing is that a skilled basketball player has technique. The reason he sinks 50 3 pointers in a row is because he has a technique that minimizes variance and muscle memory that allows him to move in a repeatable and predictable way. That's how you tell the difference between someone who is good and someone who is lucky. With the stock market, sometimes you can do the same thing. The reason that Cramer is famous/infamous is because so often the explanation for his stock picks are just trash. It may well be that he's manipulating the market and helping out his friends, or pumping stock he already owns, and actually in private he's a shrewd individual. The character on screen is a blithering idiot 90% of the time. It's not that we think his results are bad, it's that the method he's using to produce those results seems obviously flawed.
  - throw0101a 5y ago
    > I think one thing that your explanation is missing is that a skilled basketball player has technique. The reason he sinks 50 3 pointers in a row is because he has a technique that minimizes variance and muscle memory that allows him to move in a repeatable and predictable way. The only way the player, and everyone else, knows he has technique because it is obvious right away when the ball goes in the hoop. The point of the author's weblog post is that this instantaneous feedback generally does not occur with evaluating returns. One may have to wait weeks/months/years to see if a particular strategy works / will work out.
klabb3 5y ago
> Or to put it another way, the stock market goes up -so when you predict it goes up, you're generally right. Yes! If you compare to the coin toss baseline, you need to weight it by how the average stock (whatever that means) moves. So the baseline of a 50-50 coin toss is misleading, and should probably be 50+epsilon, 50-epsilon instead, in order to be a fair comparison. However, the S&P 500 baseline is solid, imo.

throw0101a 5y ago

> I do think that limiting yourself to 1 day, 1 week, 1 month horizons is... limiting. The feedback loop on whether you've made a good decision can be a long time: > For example, any competent basketball coach could tell you whether someone was skilled at shooting within the course of 10 minutes. Yes, it’s possible to get lucky and make a bunch of shots early on, but eventually they will trend toward their actual shooting percentage. The same is true in a technical field like computer programming. Within a short period of time, a good programmer would be able to tell if someone doesn’t know what they are talking about. > But, what about stock picking? How long would it take to determine if someone is a good stock picker? > An hour? A week? A year? > Try multiple years, and even then you still may not know for sure. The issue is that causality is harder to determine with stock picking than with other domains. When you shoot a basketball or write a computer program, the result comes immediately after the action. The ball goes in the hoop or it doesn’t. The program runs correctly or it doesn’t. But, with stock picking, you make a decision now and have to wait for it to pay off. The feedback loop can take years. * https://ofdollarsanddata.com/why-you-shouldnt-pick-individual-stocks/ https://ofdollarsanddata.com/why-you-shouldnt-pick-individua... Are you willing to stake your financial future on beating the odds that you're better-than-the-average/market? Especially over the course of multiple decades saving up for (e.g.) retirement, and then keeping your portfolio during the (hopefully) decades of retirement. (Of course you can do good enough to meet your financial goals, even if you could have done better using (say) index funds.)

early_exit 5y ago
Do these compare performance before or after fees? Regardless, if you're comparing funds (that contain lower risk investments, like bonds) to the S&P500 then they're going to lose whenever equity markets beat bonds - which is most of the time. If I actually (by picking stocks) have a lower expected return than the S&P, shouldn't I be sending all the hedge funds my stock picks so that they can short them (while being long S&P) - therefore beating the benchmark ~75% of the time?
Traster 5y ago
I think one thing that your explanation is missing is that a skilled basketball player has technique. The reason he sinks 50 3 pointers in a row is because he has a technique that minimizes variance and muscle memory that allows him to move in a repeatable and predictable way. That's how you tell the difference between someone who is good and someone who is lucky. With the stock market, sometimes you can do the same thing. The reason that Cramer is famous/infamous is because so often the explanation for his stock picks are just trash. It may well be that he's manipulating the market and helping out his friends, or pumping stock he already owns, and actually in private he's a shrewd individual. The character on screen is a blithering idiot 90% of the time. It's not that we think his results are bad, it's that the method he's using to produce those results seems obviously flawed.
- throw0101a 5y ago
  > I think one thing that your explanation is missing is that a skilled basketball player has technique. The reason he sinks 50 3 pointers in a row is because he has a technique that minimizes variance and muscle memory that allows him to move in a repeatable and predictable way. The only way the player, and everyone else, knows he has technique because it is obvious right away when the ball goes in the hoop. The point of the author's weblog post is that this instantaneous feedback generally does not occur with evaluating returns. One may have to wait weeks/months/years to see if a particular strategy works / will work out.

klabb3 5y ago

> Or to put it another way, the stock market goes up -so when you predict it goes up, you're generally right. Yes! If you compare to the coin toss baseline, you need to weight it by how the average stock (whatever that means) moves. So the baseline of a 50-50 coin toss is misleading, and should probably be 50+epsilon, 50-epsilon instead, in order to be a fair comparison. However, the S&P 500 baseline is solid, imo.