21 ms·

People keep telling me this, but I keep beating the market. It's been 20 years or so of applying very basic reasoning and getting ahead. 1. Commodities are bad

• gitfan86 5y ago
  I bought GOOG in 2005 and TSLA in 2014. Similarly, I don't see why I would buy Facebook or GM as part of an index fund when their growth potential looks terrible when compared to TSLA and GOOG. If I was 70 and couldn't afford a 5 year correction, things would be different
  • fsckboy 5y ago
    substitute Ford for Tesla in the early part of the last century, and on the timescales you are talking about, General Motors ate Ford's lunch. furthermore, Musk is very impulsive and could already have been cancelled by the SEC for his mistakes: I bring that up to point out that by hitching your wagon to this one individual (or Henry Ford) you are taking on enormous risk, risk that is diversifiable and there's no reward for.
    • gitfan86 5y ago
      I've been hearing about how GM and Toyota will beat Tesla since 2014. GM delivered electric 26 cars last quarter. Toyota "hopes" to make 3.5m EVs in 2030.
      • fsckboy 5y ago
        you missed the point, when GM surpassed Ford a hundred years ago, Ford was as new as Tesla, and GM was a newer player with fresh ideas that better fit the market, and nobody saw it coming, especially Ford. You see, GM was run by a managerial and marketing genius, and Ford was run by Aspergers. (I can say that, I am one)
        • gitfan86 5y ago
          Unfortunately GM went bankrupt. Ford and Tesla are the only US car companies that have never gone bankrupt
          • dragonwriter 5y ago
            Ford is the only one of the so-called “big 3” who hasn't filed for bankruptcy at least once, but there are lots of other US auto manufacturers, and many of them haven't filed for bankruptcy.
• entropi 5y ago
  I think this makes sense. However, I am sure there are many people who have lost money (or made much less) with reasonings that may be at least as sound as this one.
• thoughtstheseus 5y ago
  Commodities are bad long term bets… Commodities are a stabilizer for portfolios… they let you take more risk in other parts of your portfolio because they are easily marketable, non-productive assets. Equities on the other hand have unknown amounts and timing for cash flows. Hence people bid the value of stocks up, down, and all around.
• darkerside 5y ago
  Did you invest in Toyota for its hydrogen-based battery tech?
• Galanwe 5y ago
  There is so much wrong in this post. > People keep telling me this, but I keep beating the market. "Humans keep telling me it's hard to predict football games, but if you just squeeze your tentacles up and down enough you will get it right as I did" -- Paul the Octopus, who predicted all world game results There are millions of people trying to predict the market. Of course there will be people that did good, and these people (such as yourself) will all be convinced that they got it right for a reason. But individual experiences mean nothing against the law of large numbers. You yourself have no way to know whether you're good or lucky, unless you show us an algorithm that consistently achieves the results you claim to enjoy. Remember these simple facts: - the less you trade, the further away you are from your real average predictive power. If the game is a coin toss and you play 2 times, there is a 25% chance that you get a 100% success rate, and go to HN to boast about how guessing a coin flip is easy. Try to keep that performance after 5000 games and it's an other story. - Are you able to compute your idiosyncratic returns correctly? Can you show us that your portfolio returns, once residualized on sector, country and beta, are actually any better than a random pick? - You pretty much only talk about good old common sense fundamental quality / value, which is far from being a major part of equity returns. You reasoning will work for one stock, and not for an other one. A sime value based strategy as you describe is vastly negative on a 20 year period - in absolute terms (not even compared to the market). - You seem to have no understanding of diversification, and idiosyncratic risk. Companies can fail for an infinite amount of reasons. The less positions you have, the more sensible to "single company failure risk" you are exposed to. Very good companies, with solid earning and projections, did fail on the past, for reasons such as "top management scandal", "defective line of product", "banned from operations in a country", etc etc. To anyone reading this comment, just remember that 90% of stocks returns do NOT come from the company itself. It comes from the drive of the market or sector as a whole. By investing in broad index funds you lower your specific risk, and get overall exposure to what drives the vast majority of the stock returns.
• cj 5y ago
  > Either way, sell early and buy the crash. Trying to time the market is akin to individual stock picking. When it works, it’s usually just luck.
  • andriesm 5y ago
    No it can be skill. Was Warren Buffet and Charlie munger just lucky, year after year? Was Michael Burry of the Big Short just lucky to short the mortgage backed securities market, no he also side stepped the dot com crash and bought value stocks, recently he had very nice shorts on Kathy Woods ARKK... clearly he isn't just lucky, he has skill. I used to think I have skill yet my results were random for about a decade, then I grew a lot emotionally and in wisdom/perspective, and now I too beat the market average in both return and risk.
    • cj 5y ago
      Quoting the original commenter: > There are people with more capital, time, and knowledge than you who will consistently beat you. Maybe you are one of those people, but the point is not everyone is good at it (the majority of people are bad at it)
    • cudgy 5y ago
      Buffet and Munger manage the companies they buy. You, 99.99% of stock purchasers, and I are dependent on the existing management with no control over decisions companies make. Big difference.
      • greedo 5y ago
        Actually they don't. They put managers in place and are largely hands off on the running of their acquisitions.
        • cudgy 5y ago
          They pick the manager and understand their personalities and backgrounds fully. That is far from hands-off.
• JonChesterfield 5y ago
  > Apple ... Their software competency is below average This doesn't sound right. I'd put them as way above average. Possibly leading the pack out of the public companies.
• baobabKoodaa 5y ago
  Since you claimed to have beaten the market for 20 years consistently, would you care to provide evidence for that claim?
  • deleted 5y ago
    [deleted]
  • thrav 5y ago
    Their investment in Tesla alone would be more than enough evidence, if they got in near their IPO. Throw in an investment in Apple when everyone started switching to Mac circa 2006 (I told everyone who would listen to buy it, but I was a college freshman, so no one listened, but it was so obvious), and you got a stew going. It didn’t take anything fancy to crush the market if you started 20 years ago and were dialed into tech.
    • 3pt14159 5y ago
      I also didn't mention buying Bitcoin, which I did on credit. People don't like hearing that the market can be beat because they don't like feeling inadequate. But it can be beat if you understand industries and physics and consumer sentiment. Bonus if you can read financials, but even some basic market indicators are good enough.
      • lotsofpulp 5y ago
        I wonder why people who tell me this do not have a driver, private jet, and a chef, even after telling it to me for over a decade. In the biggest bull market in history. In fact, they all still go to work for someone else.
        • rurp 5y ago
          This is spot on. Everyone who is confident and correct in their ability to consistently beat the market for decades is obscenely wealthy. The math is really straightforward. Even a paltry initial investment will compound massively over the years if it has a high ROI. Some people do have this ability and in fact have become very wealthy, but there are many orders of magnitude more people who think they have an edge but have just had a lucky run.
• llampx 5y ago
  When I was completely new to investing I put my money into AAPL, TSLA, AMD and TSM based on my experiences with them. That portfolio would have done extremely well had I stuck with it. I think the dogmatic "nobody can beat the markets" is hurting people who then think they may as well give up, and patently not true when you look at traders who beat the market year in and year out, and minimize their losses when they do lose.
  • hhmc 5y ago
    It's a stochastic argument though. If, say, 60% of day traders lose money, then 40% necessarily make money -- but it's still EV negative unless you have a strong prior you belong in the 40%.
  • gitfan86 5y ago
    If you drill down into "beat the market" you realize it is a language problem not an investing problem. If "beat the market" means that you can predict exactly if and when Russia invades Ukraine, then the answer is NO, you cannot know if some drunk soldier is going to accidently shoot off a missile and start a war. On the other hand, if "beat the market" means that you invest in companies with solid fundamentals and solid management in areas of the economy that are not shrinking at prices that are historically low, then yes you can beat the market in the long term. Buffet and Munger are obvious examples of this. If "beat the market" means buy everything except NKLA, because that company has obviously been a scam for over a year, then yes "beating the market" is very easy.
  • blurker 5y ago
    Actually I think you have it backwards. The notion that traders consistently beat the market is hurting a lot of people. There are extremely few traders who beat the market year over year. It becomes vanishingly fewer every year you add. Which is what you would expect for a system where luck plays a big role and nobody can actually predict the market. Tldr; way too many people believe that a lot of people can beat the market and that is what actually hurts the most investors. edit: spelling
    • llampx 5y ago
• hhmc 5y ago
  It's worth noting that the game is fundamentally _easier_ if you're not working with an institutionally sized portfolio. 1. You don't have concern yourself with market impact 2. There are niche opportunities that lack the capacity for funds to bother spending their time on.
  • 3pt14159 5y ago
    Cuts both ways, in my opinion. Institutional portfolios have access to more opportunities and talent than retail investors.
    • hhmc 5y ago
      The market impact point doesn't cut both ways though, and it's crucial.
      • 3pt14159 5y ago
        > institutionally sized portfolio Is the part that cuts both ways.
        • hhmc 5y ago
          Not in the ways that matter to the point I'm making
• bradfa 5y ago
  I've invested in GM and avoided investing in Tesla. Mostly just because I understand GM, their business and financials and stock price history makes sense to me. I do not understand the valuations on Tesla, and hadn't even long before COVID and the most recent run-up in value. Clearly I've missed out on massive earnings if I had invested in Tesla instead of GM (although GM's done decently lately). To me looking at the stock pricing, Tesla looks like a software company where tremendous growth has been occurring and is expected to continue for some time. To some extent they are a software company, but that software so far has seemed to me to require quite an expensive set of hardware to be sold with it in order to get the software and continuing monthly/yearly/feature revenues sales. This has worked for Apple, so it's not unprecedented, but it'll be interesting to watch how long it can last. SpaceX makes more sense to me with having high valuations relative to revenues, it's a services company. The service is getting things to space and now also providing internet access. Tesla doesn't look like a software or services company to me, at least not yet. But maybe I'm looking at it wrong?
  • bradfa 5y ago
    Possibly the reason I don't see Tesla as a services or software company is because I have very little faith that level 5 autonomous driving is going to be a thing in the near future. I could be very wrong, and if Tesla's existing hardware on the road can do it, then THAT would be a game changer and very easily justify the current stock price to me.
  • gitfan86 5y ago
    Forget the stock price. Look at operating margins, operating leverage, delivery volume, trailing delivery volume growth, battery supply, dealership contracts.
    • Thrymr 5y ago
      > Forget the stock price. Look at operating margins, operating leverage, delivery volume, trailing delivery volume growth, battery supply, dealership contracts. All of these things can be good and the company could be set up for profitability and success, and yet the stock price is _still_ overpriced.
• yodsanklai 5y ago
  > Physics based thinking. I knew electric cars were going to work because the math checked out Does it mean that the price is going to go up? Suppose everybody thinks like you (I assume everybody does), the market price may reflect anticipated profits already and doesn't necessarily have to go up. Also success of Tesla isn't the same thing as success of electric cars.
  • 3pt14159 5y ago
    As of now? I don't think so. But I did that math back in 2001 or 2002, way before Tesla was publicly traded.
    • d82nsjk9 5y ago
      What's the math?
      • Bewelge 5y ago
        Not OP but I remember watching a movie "Who killed the electric car?" in highschool. It's about the EV1, an electric car by GM in the 90s. It had a range of 70-100 miles. If I remember correctly the movie kind of insinuates that the oil lobby ultimately prevented the model from releasing/selling well. So just based on that, the knowledge that electric cars are a viable substitute for a lot (in Europe I'd say most) of use cases has been quite readily available. But that's the problem in OP's reasoning. Simply knowing that electric cars will dominate in the future is pretty worthless as investment advice. Especially when we are talking about tesla, which's stock price is entirely decoupled from any fundamental values. Today, I actually think that becoming one of many car makers is the best-case scenario tesla can hope for. It was always the question whether they can get enough of a head start in self-driving and battery tech BEFORE traditional car makers start making EVs. Those have decades of a head-start in every other aspect of car making. And to me it seems that most of them fully committed to EVs in the last 1-2 years. So will Tesla's advantage in battery tech buy them enough time to make cars that are as safe and reliable as traditional cars? Also: I really don't know much about cars, so I might be wrong about pretty much everything I just said :) But it shows nicely that you can find logically sound arguments about future developments which are worth absolutely nothing on the stock market. Just look at the stock market since the beginning of Covid.
• onlyrealcuzzo 5y ago
  > Software scales. People like to make money. Combine the two and its a real winner. There were plenty of tech losers. You still had to pick the winners. > Physics based thinking. I knew electric cars were going to work because the math checked out. Electric cars were obvious, but Tesla was not an obvious play. In hindsight, it might seem so, but in the beginning it was far from clear that Tesla would dominate the space. Additionally, time will tell if Tesla's stock stays 8x higher than its pre-pandemic price. > Sell when forward price to earnings after cash starts to look wonky. Which was 2007 and I think 2019. This happened many more times than the two massive crashes. If you actually followed this advice, you'd probably be worse off than investing in the s&p - even if you did pick good stocks. -- As others have mentioned, beating the market with $1M invested is much easier than beating the market with $10B invested. Especially when your appetite for potentially losing money is much higher. Let's naively assume that you actually can pick stocks. At $10Bn - you need to pick more stocks - otherwise you would drive up the price too much in buying that much of the stock - unless you only picked Apple and Google and MSFT and Amazon.
  • ionwake 5y ago
    Driving the price of a stock higher is a bad thing? Also why are you calling his actions naive ? He made money as did others.
    • MichaelBurge 5y ago
      The goal is to buy the largest percentage of the company with as little money as possible. If the asks in an order book are (price, quantity) pairs of (p0, q0), (p1, q1), etc. with p0 < p1 < ... and you have $C in capital, then ignoring the "driving price of a stock higher" effect(i.e. if C/p0 < q0) you could buy floor(C/p0) shares. However, if you purchase more than q0 shares, those will be priced at p1, p2, etc. and you'll instead buy C/(weighted_average([p0, p1, ...], [q0, q1, ... q_remainder]) shares(where the weights are the quantities). And because p0 < p1 < p2 ..., this will be fewer shares than C/p0. At the extreme end, if you try to "clear out the order book", a stock that is nominally $10 you'd be paying $1 million per share to someone that put in a joke order to sell. So you'd be getting 100,000x fewer shares per marginal capital deployed compared to a smaller investor.
• frogpelt 5y ago
  I would never argue with your success. And I do think you can pick solid companies and beat the market in the long run (mostly by avoiding the big losses). But it’s not enough to pick winning industries. In every industry there are winners and losers. You have to pick winning industries and winning companies. And sometimes winners become losers. So there’s a timing aspect also. EVs are going to succeed but I don’t think Tesla was ever a guaranteed success. And Tesla is not guaranteed to keep winning (though they have a great head start and very strong moat).
• solatic 5y ago
  > Why bother investing in GM through a broad index fund if I know for sure Tesla will eat their lunch? Because even bad stocks are an essential component of a balanced portfolio if they reduce overall portfolio beta (volatility). The name of the game isn't pure gains, because the gains are not guaranteed. You want to make gains and hold onto them. And no, you don't know for sure that Tesla will eat their lunch. You have a very high level of confidence that they will. So does the rest of the market, that's why Tesla is trading at a huge premium relative to its financial fundamentals. But this wasn't always the case, and there were more than a few times when Elon Musk brought Tesla to the brink of bankruptcy. If you were confident that Tesla was going to pull through, even back then, you either a) knew something the market didn't, b) were mistaken/wrong (but luck pulled through for you in the end), or c) you were reckless / irrational.
• taneq 5y ago
  > People keep telling me this, but I keep beating the market. It's been 20 years or so of applying very basic reasoning and getting ahead. Remember, you don't have to beat those super smart well resourced AAA-grade investors. You just have to beat the average schmuck with some skin in the game.
• JumpCrisscross 5y ago
  > It's been 20 years or so of applying very basic reasoning Would note that we’ve been in about a single interest rate regime for almost precisely that amount of time.
  • unyttigfjelltol 5y ago
    And 40 years of declining interest rates. Almost none of the posts talk about what investing traditionally has been for-- buying future cash flows at a current discount. Sign of the times....
• sireat 5y ago
  It is easy to say in hindsight but consider the case of Iomega. https://markets.businessinsider.com/news/stocks/big-short-investor-michael-burry-warns-day-traders-iomega-stocks-2021-1-1030019077 https://markets.businessinsider.com/news/stocks/big-short-in... In 1997 a friend who worked at Cisco told me to go all out on Iomega. He also advised me to invest in some 3D storage startup which well went nowhere. No matter how smart you are you just have to play percentages. Even better consider the case of Cisco itself. It reached market cap of 500B around 2000 and despite being a solid company has not performed too well. Thus it is quite conceivable that the inevitable market correction will bring the high flyers down. That is Apple will still be extremely strong, Google might suffer a bit because of dropping ad spend. Companies such as Shopify, Tesla will actually need to reach reasonable P/E ratios, not the insane ones now.
  • gitfan86 5y ago
    Tesla is trading at a 50x PE (2022 consensus) and plans to grow 50%+ in 2023, 2024. I don't think that you can expect the stock to be where it is today in 2024 if the PE actually goes down to 12. You'll need to buy it now to lock in that PE of your purchase price.
    • sireat 5y ago
      It is trailing 170 P/E, obviously trailing earnings are not so useful for high growth companies but question is Tesla really a high growth company any more? The consensus is that Tesla is not priced just for cars, it is priced on some other "intangibles".
      • gitfan86 5y ago
        Elon has said that Tesla's advantage will be manufacturing. If he is right and the global demand for EVs continues to accelerate, TSLA's PE will be below 6 at current prices before it is no longer growing 20%+ a year.
• dionidium 5y ago
  > I think there will be a -%50 S&P500 crash, maybe more, and then in 10 years Apple will be worth more than double what it is worth today. An important point here is that since nobody knows when this crash will happen or how long it will last or where the bottom will be, you should still keep investing in the companies you think are fundamentally strong and avoid trying to time the downturn.
• dom96 5y ago
  > I think there will be a -%50 S&P500 crash, maybe more And this is why I am going against the advice of the majority(?) and trying to time buying into the S&P 500. I am looking for another crash like the one around when COVID started. Am I wrong and should I also not try to time the market?
  • cecilpl2 5y ago
    One bit you are missing is that it's entirely possible that today is the cheapest the S&P 500 will ever be. What if your 50% crash only comes after the market has tripled? Another is this: What if the market crashes 40% but then goes back up? Do you buy at 40% down? What about 30% then? It's easy to say "well I'll just buy at the bottom" but you can't know when the bottom is until well after it's happened. The other major piece of the puzzle is that during a 30-50% crash, everyone you know and all the media will be screaming in your ears about how everyone is losing all their money in stocks, and that the only reasonable thing to do is sell now so you don't lose it all. Do you have the stomach to put all your money into the market in those conditions?
• koonsolo 5y ago
  So how do you know if all of your reasoning hasn't been calculated into the price yet? Maybe everybody knows Tesla is going to win out, therefore everybody wants it, and the price rises like crazy. And then the stock is way overpriced for what you get, and people like you still keep buying it. There is a reason why Buffet needs to look into the numbers before deciding if something is a good buy or not. You buy underpriced, and sell overpriced. And you just cannot make that judgement without looking at the numbers. There is another simple theory about your single stocks outperforming the index: smaller cap stocks generally outperform the index. As shown in this video, a monkey can pick stocks and outperform the index just because of this simple reason: https://www.youtube.com/watch?v=5_3Ra-Q6vK4 https://www.youtube.com/watch?v=5_3Ra-Q6vK4.
  • rlewkov 5y ago
    You can be assured that all the known public information is reflected in a stock's price at a given point in time. Which doesn't mean that profits can't be made in the market.
• Tiktaalik 5y ago
  > I keep beating the market I keep "beating the market" too though I calculated my risk adjusted return and with that metric I wasn't. So really I was doing better because I'd cranked up the risk, and fortunately we've been experiencing a bull market. Hard to say whether I've really been making savvy choices or if it's just been a bull market trend that has been saving my ass.
  • JacobThreeThree 5y ago
    >fortunately we've been experiencing a bull market Exactly. Tell me how you did in 2008, not how you're doing in a bull market.
• kqr 5y ago
  > 1. Commodities are bad long term bets because technology gets better. I remember people talking my ear off about peak oil and then the US turned into a net-exporter. Short term inelasticity, yes can sky rocket prices; but long term prices go down. You can make money on things that go down as long as they are not too strongly correlated with other things, and you maintain a constant fraction portfolio. One of the search terms here is "volatility pumping", I believe.
  • 3pt14159 5y ago
    That's true. Not my game, but it is true.
• rurp 5y ago
  What's your thesis for why rules such as these haven't been discovered and automated out of existence by the legions of smart well capitalized investors?
• odonnellryan 5y ago
  what is your return for each year over the last 20 years?
• deleted 5y ago
  [deleted]
• ClumsyPilot 5y ago
  "When I saw Telsa focussing on a single car for a year I knew they would be a winner." And they still have terrible quality of assembly. "Telsa, Apple, Shopify, Amazon, Google." Isn't this really just 'invest in SV scaleups? What are the forecasts for Xiaomi, or s Panasonic?