5 ms·

They have a term for this kind of article on Wall Street: Trying to catch a falling knife "<Category> stocks have been beaten up. It's time to buy now!" Like

They have a term for this kind of article on Wall Street: Trying to catch a falling knife "<Category> stocks have been beaten up. It's time to buy now!" Like clockwork, you can count on those stories appearing after a crash.

whatshisface 4y ago
They have a much better term that really captures this stuff it is, "a martingale." Edit: Just to clarify, a martingale is a bet that's equally likely to go either way and has zero expected value.
- extesy 4y ago
  Only if you double your bet every time you lose. Otherwise it's called a dollar cost averaging.
  - User23 4y ago
    The simplest reasonable betting strategy is to bet some fixed percentage of your available stake, which means bet bigger when you win and smaller when you lose. The Kelly criterion might help you compute the optimal amount to bet, but you can do ok just picking an arbitrary small percentage, like 1%. This is a nice strategy if you like casino gambling and focusing on the atmosphere and experience and not going full bore on advantage play. Say you have a $20,000 marker limit. Your starting bet on a game with a reasonable house edge like a player friendly blackjack table should be $200 a hand. Then as you win or lose your bet will grow or shrink respectively. While it's possible with extraordinarily bad luck to blow through your entire bankroll, odds are very good that you'll come home with at least a decent chunk of your stake if you can play basic strategy. Even though with basic strategy on a good table the house has around a half a point of edge, last I knew comps were computed using a 2 point model. So if you value the RFB experience even a basic strategy player can come out "ahead." Of course you should never gamble money you can't afford to lose. It's always possible you will have catastrophically bad luck. Pretty much the same applies to any gambling, including options trading. The main difference there is you probably want a considerably larger stake that you're willing to lose than twenty grand and you need considerably more discipline than you do at a table game. That and of course you want to avoid bets where the potential downside is more than your stake, which isn't a problem that you face at a casino.
- nequo 4y ago
  If stock prices were martingales, you would not be able to predict whether they will continue to drop or rebound after a crash.
  - oytis 4y ago
    Is it not the case?
    - nequo 4y ago
      Yes, I probably botched the grammar. But parent was implying that a martingale means that after a crash, stock prices rebound.
- Jun8 4y ago
  The origins of the word martingale and why it is used to refer to various betting strategies is interesting and obscure: https://ergodicity.net/2012/04/11/the-history-of-the-martingale/ https://ergodicity.net/2012/04/11/the-history-of-the-marting.... Probably the etymology that makes most sense is that it refers to people from Martigues who were considered to be naive. So people knew that the simple strategy of “betting all that was lost” was horrible even in Middle Ages.
burkaman 4y ago
And it's sort of self-fulfilling, right? If these stories have a big enough impact, a lot of people will buy the stocks and they will actually stop falling.
- graeme 4y ago
  Ultimately the stock prices respond to economic reality: profits and interest rates and growth levels The funny thing about headlines though is that often the reverse happens. Once everyone is crying doom, stocks go up. When people say it is time to buy, stocks go down. And in a bear market the bottom usually comes when no one is paying attention anymore. As an example after the financial crisis stocks bottom March 2009, after two years of falling and a good seven months after the big crisis.
  - Cupertino95014 4y ago
    Exactly right. The bull market begins when the last seller has bailed out. So, has that happened yet?
    - medvezhenok 4y ago
      Common quote, doesn't have much to do with reality. Last 3 bottoms (2009, 2018, 2020) were manufactured because of regulatory changes.
      - Cupertino95014 4y ago
        right, politics is one thing that really drives the market, because (usually) you can't predict it. If you could, it would already be reflected in the prices.
  - medvezhenok 4y ago
    March 2009 was not a "natural bottom", it was more of a bailout bottom - we now know it happened because of a change in the mark to market rules on bad assets that made possibility of more bankruptcies much less likely and stemmed contagion. Similarly in 2018 (FED pivot) and 2020 (QE infinity). You'd have to go back to 2002 possibly to find a more "natural", exhaustive bottom where sellers got tired.
jfengel 4y ago
It is true that market timing is always dubious. But that also means that there's never a wrong time to invest in the market as a whole. Individual stocks when crashing are dangerous if you can't outsmart the reason they are crashing, but in aggregate stocks will go up by a modest amount on decade long scales. I felt weird about that advice a few months ago, when the market seemed genuinely overpriced as a whole and due for a correction. But a decade from now the difference between investing six months ago, now, or six months from now will be just part of the noise. The right time is visible in retrospect, but since you can't do that you can at least pat yourself on the back for getting a better deal today than you would have gotten a few months ago.
- User23 4y ago
  > but in aggregate stocks will go up by a modest amount on decade long scales They have in the past. There is no guarantee that they will continue to, although I do personally suspect they will.
- WillPostForFood 4y ago
  in aggregate stocks will go up by a modest amount on decade long scales. There is some truth here, but it isn't entirely true. People who get in the market at their peaks, often see multi decade long negative returns (adjusted for inflation). If you bought the market in 1928, you were negative until the mid-50s. If you bought in the late 60's you were negative until the mid-90s. If you bought in the late 90's, you were negative until the mid 20-teens.
  - whatshisface 4y ago
    That doesn't represent the situation most investors are in: large lumps of cash don't come people's way very often, most of us are paid on a monthly basis.
    - Cupertino95014 4y ago
      True, and regular investing does pay off. Others have pointed that out. However, these evergreen articles (i.e. just dust off the one from the last market crash) are suggesting that you should particularly invest in tech right now, not that you should regularly invest in it. Possibly even with money that was going to be on the sidelines otherwise.
purpleblue 4y ago
I 100% believe in market timing. I usually do extremely well during market crashes, and average during market rises. I missed the dotcom crash because I didn't want to invest at all, but caught all of the 2008-2009 crash and went long on the bottom in March 2009, but was mostly average after the crash. I caught the entire pandemic drop in March 2020 and also got long at the bottom, but again was only average for the last 2 years. I then went extremely short November 2021 and have been short ever since, and have doubled my trading account. I'm still very short, but by rolling over my options and extending the strike price, I've pocketed most of my gains so if the market rips higher from here I'll only lose about 10% of my gains, but I'm also long META and other stocks, so I'll participate on the long side as well.
- lotsofpulp 4y ago
  Have you considered opening up your own hedge fund?
  - purpleblue 4y ago
    No, I'm not that good. I enjoy trading very much for myself and trading with other people's money would be too stressful.
    - medvezhenok 4y ago
      Market timing both works and is bad advice for the average person by definition (it takes being way better than average to be a successful market timer). Also you're competing with people who have access to insider information (even though they're "not supposed to"), so it's kind of tilted against the average person; though not impossible to still come out ahead. It's similar to poker. For the average person playing poker is a -EV game because of rake, but if you're skilled, poker can be very much +EV.
- sumedh 4y ago
  Have you compared your performance with the index?
- 4y ago

whatshisface 4y ago

They have a much better term that really captures this stuff it is, "a martingale." Edit: Just to clarify, a martingale is a bet that's equally likely to go either way and has zero expected value.

extesy 4y ago
Only if you double your bet every time you lose. Otherwise it's called a dollar cost averaging.
- User23 4y ago
  The simplest reasonable betting strategy is to bet some fixed percentage of your available stake, which means bet bigger when you win and smaller when you lose. The Kelly criterion might help you compute the optimal amount to bet, but you can do ok just picking an arbitrary small percentage, like 1%. This is a nice strategy if you like casino gambling and focusing on the atmosphere and experience and not going full bore on advantage play. Say you have a $20,000 marker limit. Your starting bet on a game with a reasonable house edge like a player friendly blackjack table should be $200 a hand. Then as you win or lose your bet will grow or shrink respectively. While it's possible with extraordinarily bad luck to blow through your entire bankroll, odds are very good that you'll come home with at least a decent chunk of your stake if you can play basic strategy. Even though with basic strategy on a good table the house has around a half a point of edge, last I knew comps were computed using a 2 point model. So if you value the RFB experience even a basic strategy player can come out "ahead." Of course you should never gamble money you can't afford to lose. It's always possible you will have catastrophically bad luck. Pretty much the same applies to any gambling, including options trading. The main difference there is you probably want a considerably larger stake that you're willing to lose than twenty grand and you need considerably more discipline than you do at a table game. That and of course you want to avoid bets where the potential downside is more than your stake, which isn't a problem that you face at a casino.
nequo 4y ago
If stock prices were martingales, you would not be able to predict whether they will continue to drop or rebound after a crash.
- oytis 4y ago
  Is it not the case?
  - nequo 4y ago
    Yes, I probably botched the grammar. But parent was implying that a martingale means that after a crash, stock prices rebound.
Jun8 4y ago
The origins of the word martingale and why it is used to refer to various betting strategies is interesting and obscure: https://ergodicity.net/2012/04/11/the-history-of-the-martingale/ https://ergodicity.net/2012/04/11/the-history-of-the-marting.... Probably the etymology that makes most sense is that it refers to people from Martigues who were considered to be naive. So people knew that the simple strategy of “betting all that was lost” was horrible even in Middle Ages.

burkaman 4y ago

And it's sort of self-fulfilling, right? If these stories have a big enough impact, a lot of people will buy the stocks and they will actually stop falling.

graeme 4y ago
Ultimately the stock prices respond to economic reality: profits and interest rates and growth levels The funny thing about headlines though is that often the reverse happens. Once everyone is crying doom, stocks go up. When people say it is time to buy, stocks go down. And in a bear market the bottom usually comes when no one is paying attention anymore. As an example after the financial crisis stocks bottom March 2009, after two years of falling and a good seven months after the big crisis.
- Cupertino95014 4y ago
  Exactly right. The bull market begins when the last seller has bailed out. So, has that happened yet?
  - medvezhenok 4y ago
    Common quote, doesn't have much to do with reality. Last 3 bottoms (2009, 2018, 2020) were manufactured because of regulatory changes.
    - Cupertino95014 4y ago
      right, politics is one thing that really drives the market, because (usually) you can't predict it. If you could, it would already be reflected in the prices.
- medvezhenok 4y ago
  March 2009 was not a "natural bottom", it was more of a bailout bottom - we now know it happened because of a change in the mark to market rules on bad assets that made possibility of more bankruptcies much less likely and stemmed contagion. Similarly in 2018 (FED pivot) and 2020 (QE infinity). You'd have to go back to 2002 possibly to find a more "natural", exhaustive bottom where sellers got tired.

jfengel 4y ago

It is true that market timing is always dubious. But that also means that there's never a wrong time to invest in the market as a whole. Individual stocks when crashing are dangerous if you can't outsmart the reason they are crashing, but in aggregate stocks will go up by a modest amount on decade long scales. I felt weird about that advice a few months ago, when the market seemed genuinely overpriced as a whole and due for a correction. But a decade from now the difference between investing six months ago, now, or six months from now will be just part of the noise. The right time is visible in retrospect, but since you can't do that you can at least pat yourself on the back for getting a better deal today than you would have gotten a few months ago.

User23 4y ago
> but in aggregate stocks will go up by a modest amount on decade long scales They have in the past. There is no guarantee that they will continue to, although I do personally suspect they will.
WillPostForFood 4y ago
in aggregate stocks will go up by a modest amount on decade long scales. There is some truth here, but it isn't entirely true. People who get in the market at their peaks, often see multi decade long negative returns (adjusted for inflation). If you bought the market in 1928, you were negative until the mid-50s. If you bought in the late 60's you were negative until the mid-90s. If you bought in the late 90's, you were negative until the mid 20-teens.
- whatshisface 4y ago
  That doesn't represent the situation most investors are in: large lumps of cash don't come people's way very often, most of us are paid on a monthly basis.
  - Cupertino95014 4y ago
    True, and regular investing does pay off. Others have pointed that out. However, these evergreen articles (i.e. just dust off the one from the last market crash) are suggesting that you should particularly invest in tech right now, not that you should regularly invest in it. Possibly even with money that was going to be on the sidelines otherwise.

purpleblue 4y ago

I 100% believe in market timing. I usually do extremely well during market crashes, and average during market rises. I missed the dotcom crash because I didn't want to invest at all, but caught all of the 2008-2009 crash and went long on the bottom in March 2009, but was mostly average after the crash. I caught the entire pandemic drop in March 2020 and also got long at the bottom, but again was only average for the last 2 years. I then went extremely short November 2021 and have been short ever since, and have doubled my trading account. I'm still very short, but by rolling over my options and extending the strike price, I've pocketed most of my gains so if the market rips higher from here I'll only lose about 10% of my gains, but I'm also long META and other stocks, so I'll participate on the long side as well.

lotsofpulp 4y ago
Have you considered opening up your own hedge fund?
- purpleblue 4y ago
  No, I'm not that good. I enjoy trading very much for myself and trading with other people's money would be too stressful.
  - medvezhenok 4y ago
    Market timing both works and is bad advice for the average person by definition (it takes being way better than average to be a successful market timer). Also you're competing with people who have access to insider information (even though they're "not supposed to"), so it's kind of tilted against the average person; though not impossible to still come out ahead. It's similar to poker. For the average person playing poker is a -EV game because of rake, but if you're skilled, poker can be very much +EV.
sumedh 4y ago
Have you compared your performance with the index?
4y ago