2 ms·

If by average you mean 'mean' that is not true - it's very skewed. So most people loose money, and a rather small group (say 10%) is raking up most of the gain

If by average you mean 'mean' that is not true - it's very skewed. So most people loose money, and a rather small group (say 10%) is raking up most of the gains.

AnthonyMouse 3y ago
Do you have any reason to believe that to be true? It could just as easily be the other way. One big fat idiot can lose all their money to a large number of people who then each beat the market by a small margin.
- TheAlchemist 3y ago
  It could indeed. I think it's pretty common knowledge that most funds and stock pickers underperform the benchmarks. I think for retail investors the ballpark figure is like 90% underperformers. Warren Buffett took a bet in 2008 that over the next 10 years, a low cost S&P 500 index fund will outperform active hedge funds - and it did. Granted, it's not a proof or anything, but it's interesting: https://www.investopedia.com/articles/investing/030916/buffetts-bet-hedge-funds-year-eight-brka-brkb.asp https://www.investopedia.com/articles/investing/030916/buffe...
  - AnthonyMouse 3y ago
    Fund managers are a different kind of thing, because it's a principal-agent problem. The fund manager has different incentives than the client. He wants to get a bonus, so he takes risks consistent with the structure of his bonus contract even if they're not aligned with the interests of the investor. It's not surprising that underperforms, it's a textbook perverse incentive. But people often get ahead by understanding an industry. For example, when Stable Diffusion became available last year, someone who was paying attention might have noticed that it was likely to become popular and spike demand for GPUs to run it on. If that person went out and bought some shares of NVDA or AMD at that point, they'd be happy with where it is today compared to an index fund. But a major index fund is unlikely to temporarily change the ratio of those companies in the index in response to that kind of information, so the higher returns are only available to people who are paying attention and willing to take the risk with their own money.
    - TheAlchemist 3y ago
      I think you mix a bit index fund and hedge funds. I completely agree that it is possible to beat the market - it's just that it's very difficult, mostly due to misaligned time horizons. Take your insight here about NVidia - it's false. So far, GPUs sales DID NOT increase, at least not significantly. Go check NVidia sales for past 4 quarters. They said they expect them to increase significantly in the next quarter. Even if it does, and even if it doubles what they say, the valuation of the company is still in the bubble territory. Another great example is Tesla - stock surged on anouncement that GM will use their chargers. When you look at the numbers, they will make an insignificant money on that (optimistic scenarios are between 3-10 billion $, by 2030 !) - yet the stock added more capitalization than ... the entire captialization of GM ! Now, if you say that NVidia has a huge business moat that is untouchable for the next 5 years - that's a different story.
      - AnthonyMouse 3y ago
        > Take your insight here about NVidia - it's false. That seems inconsistent with: > They said they expect them to increase significantly in the next quarter. The beating the market thing is the thing where you figure it out before other people and buy before the price goes up. Or figure out what people will think will be the case in the future. Even if their sales don't go up at all, because large numbers of people now expect them to, someone who came to that conclusion earlier and bought the stock last year will have beat the market between then and now. > Even if it does, and even if it doubles what they say, the valuation of the company is still in the bubble territory. Tech valuations always include the potential for growth. When you make a lot of money and have a hot product to leverage into dominance in other market segments, you have more growth potential. Microsoft now makes more revenue from Azure than Windows. But the reason for that is Windows. They can give you a VM with Windows without paying anyone else for a license, which is a competitive advantage that gets them a huge chunk of a market which is bigger than Windows itself. That is never guaranteed, but the potential for it increases valuations. Then sometimes they crash. But sometimes they go up more, because the potential actually pans out. > Another great example is Tesla - stock surged on anouncement that GM will use their chargers. When you look at the numbers, they will make an insignificant money on that (optimistic scenarios are between 3-10 billion $, by 2030 !) Because it's not about making money on chargers. If more companies use their charging standards, more places will install their chargers because there will be more customers with cars that can use them. With more chargers, more people will find it viable to buy an electric car. Then they sell more cars. And it's the same kind of thing. The valuation includes the potential for growth. Now Tesla is selling a lot of cars, which they're making batteries for, so they're gaining expertise in making cost-effective batteries. If the batteries get cheap enough, they won't just be selling them in cars, it will make Powerwalls and grid storage cost-effective, and that's a big potential market. There is no guarantee this happens, but the potential for it increases their valuation.

If by average you mean 'mean' that is not true - it's very skewed. So most people loose money, and a rather small group (say 10%) is raking up most of the gains.

AnthonyMouse 3y ago

Do you have any reason to believe that to be true? It could just as easily be the other way. One big fat idiot can lose all their money to a large number of people who then each beat the market by a small margin.

TheAlchemist 3y ago
It could indeed. I think it's pretty common knowledge that most funds and stock pickers underperform the benchmarks. I think for retail investors the ballpark figure is like 90% underperformers. Warren Buffett took a bet in 2008 that over the next 10 years, a low cost S&P 500 index fund will outperform active hedge funds - and it did. Granted, it's not a proof or anything, but it's interesting: https://www.investopedia.com/articles/investing/030916/buffetts-bet-hedge-funds-year-eight-brka-brkb.asp https://www.investopedia.com/articles/investing/030916/buffe...
- AnthonyMouse 3y ago
  Fund managers are a different kind of thing, because it's a principal-agent problem. The fund manager has different incentives than the client. He wants to get a bonus, so he takes risks consistent with the structure of his bonus contract even if they're not aligned with the interests of the investor. It's not surprising that underperforms, it's a textbook perverse incentive. But people often get ahead by understanding an industry. For example, when Stable Diffusion became available last year, someone who was paying attention might have noticed that it was likely to become popular and spike demand for GPUs to run it on. If that person went out and bought some shares of NVDA or AMD at that point, they'd be happy with where it is today compared to an index fund. But a major index fund is unlikely to temporarily change the ratio of those companies in the index in response to that kind of information, so the higher returns are only available to people who are paying attention and willing to take the risk with their own money.
  - TheAlchemist 3y ago
    I think you mix a bit index fund and hedge funds. I completely agree that it is possible to beat the market - it's just that it's very difficult, mostly due to misaligned time horizons. Take your insight here about NVidia - it's false. So far, GPUs sales DID NOT increase, at least not significantly. Go check NVidia sales for past 4 quarters. They said they expect them to increase significantly in the next quarter. Even if it does, and even if it doubles what they say, the valuation of the company is still in the bubble territory. Another great example is Tesla - stock surged on anouncement that GM will use their chargers. When you look at the numbers, they will make an insignificant money on that (optimistic scenarios are between 3-10 billion $, by 2030 !) - yet the stock added more capitalization than ... the entire captialization of GM ! Now, if you say that NVidia has a huge business moat that is untouchable for the next 5 years - that's a different story.
    - AnthonyMouse 3y ago
      > Take your insight here about NVidia - it's false. That seems inconsistent with: > They said they expect them to increase significantly in the next quarter. The beating the market thing is the thing where you figure it out before other people and buy before the price goes up. Or figure out what people will think will be the case in the future. Even if their sales don't go up at all, because large numbers of people now expect them to, someone who came to that conclusion earlier and bought the stock last year will have beat the market between then and now. > Even if it does, and even if it doubles what they say, the valuation of the company is still in the bubble territory. Tech valuations always include the potential for growth. When you make a lot of money and have a hot product to leverage into dominance in other market segments, you have more growth potential. Microsoft now makes more revenue from Azure than Windows. But the reason for that is Windows. They can give you a VM with Windows without paying anyone else for a license, which is a competitive advantage that gets them a huge chunk of a market which is bigger than Windows itself. That is never guaranteed, but the potential for it increases valuations. Then sometimes they crash. But sometimes they go up more, because the potential actually pans out. > Another great example is Tesla - stock surged on anouncement that GM will use their chargers. When you look at the numbers, they will make an insignificant money on that (optimistic scenarios are between 3-10 billion $, by 2030 !) Because it's not about making money on chargers. If more companies use their charging standards, more places will install their chargers because there will be more customers with cars that can use them. With more chargers, more people will find it viable to buy an electric car. Then they sell more cars. And it's the same kind of thing. The valuation includes the potential for growth. Now Tesla is selling a lot of cars, which they're making batteries for, so they're gaining expertise in making cost-effective batteries. If the batteries get cheap enough, they won't just be selling them in cars, it will make Powerwalls and grid storage cost-effective, and that's a big potential market. There is no guarantee this happens, but the potential for it increases their valuation.