5 ms·

Many criticize the retail investor for treating the stock market like gambling, but I think it really does resemble gambling more than investing these days. Ho

by habosa 2y ago

Many criticize the retail investor for treating the stock market like gambling, but I think it really does resemble gambling more than investing these days. How many times have we seen a companies value jump or fall by billions based on a tweet? How many meme stocks have we seen? How many pump and dump SPACs have there been? How many companies have never (and likely will never) made a dime in profit but see their market caps continue to climb? “Value investing” is dead for most, picking a company that you believe will generate solid long-term revenue is no longer interesting. You need to figure out what is going to 10x tomorrow. There are things that we could do to slow down the public equity markets and re-establish the relationship between stock price and business fundamentals, but that’s not what almost anyone wants.

mancerayder 2y ago
I agree. I think the reality is the "don't try to be smart, do these low-risk things because statistically you're too stupid to beat the market" has logic to it, and stats to back it up. But the unspoken part is, "let the rich do that stuff, and their wealth advisors and folks on the golf courses". So there's an elitist aspect to telling people to back off. We all know people who made a killing on individual stocks, either because they bought them or they worked at a company that issued them.
- deleted 2y ago
  [deleted]
- joshlemer 2y ago
  It's not really elitist. Picking individual stocks is essentially saying "I have brand new insight that nobody else has, and I'm going to earn profit by incorporating that knowledge into prices and be rewarded forgetting it right". This is clearly a very specialized activity, you shouldn't expect to be able to bring brand new, accurate insight, and out predict everyone else in the world, without a deep understanding of economics, finance, and expertise in the specific industry and the company you're trading in. It's no more elitist to say "most people should just buy index funds" than it is to say "most people should just get root canals done by dentists rather than doing it themselves".
  - mancerayder 2y ago
    > without a deep understanding of economics, finance, and expertise in the specific industry and the company you're trading in. is in contradiction to >It's not really elitist. It's not wrong. But elitist is absolutely is. We're saying, only these people can do these things correctly. Is it true? It's subject to debate. You can be in IT, discover a software product at work and decide you think the company is worth investing in. Don't need an MBA for that.
    - kaibee 2y ago
      > You can be in IT, discover a software product at work and decide you think the company is worth investing in. And then you can be still be wrong because you didn't appreciate that the company is operating a low-trust environment/switching costs are high/they didn't have enough industry contacts/competitors outmarketed.
    - joshlemer 2y ago
      Well, buying stock in a company because you like their product is precisely the kind of bad stock picking strategy I'm talking about. The quality of a company's product is public information, so you should expect it to be priced in. Whether or not to pick any individual stock should be made on the basis of whether that stock is over-valued or under-valued in the market, not if it's a good company overall. Amazing companies can be highly overvalued, and crap companies doing garbage work can be undervalued. Like I say, best to leave it to professionals. For some things it's fine for people to have a DIY spirit, like building a website or a cabinet. For other things, which can harm you if you mess up, it's better to leave it to the pro's... electricians, doctors, etc. We're talking about people's life savings here, they can easily lose everything and ruin their lives, not being able to take care of their family etc.
      - mancerayder 2y ago
        >Amazing companies can be highly overvalued, and crap companies doing garbage work can be undervalued. I'm sorry, but how does value matter? I'm not being flippant - the Mag 7 are not 'value' companies. Are Nvidia, Apple, etc., overvalued? And so we should avoid them or short them? Is Tesla 'priced-in'? There's all sorts of psychology in the market. What does 'priced-in' even mean? What wouldn't be priced in. "Water is wet" is what I think of, a tautology, when I hear that all public information is 'priced in'. Things are incredibly dynamic. Here we have at a minimum: algorithmic trading that bounces on common measures like moving averages, institutions that buy or sell at various points strategically (like the big dump when the BOJ raised rates unexpectedly, tax selling, etc.), elections putting oligarch-ish types that own car companies and pump crypto coins, meme stocks that come and go on big reddit forums, regular buys from 401k's into indexes which move markets, etc. etc. With all that going on, to me it feels more "random" than "priced-in". One more thing. Money is also made not buying and holding, and not trading, but by doing things like 'The Wheel' where you sell puts on something you wouldn't mind holding, monthly, til you get assigned, and sell calls on it, monthly, til it gets called away. In this case, you don't actually have to care very much what the 'value' is, only tracking whether it might have a sudden swing. You don't have to 'time the market' that much either, as you're an insurance salesman. I'm not saying that people should all jump and do this - but when I read about stocks on HN, I always hear the same counter-argument against 'traders' and 'stock pickers' when there are other ways to make money in the market (i.e. collecting premium). It's definitely closer to 'gambling' when I put it that way. But I don't see any value in Efficient Market Hypothesis-speak like "is this stock under or over-valued." For that I let the MBA's / golf course discussions / elite experts with insider information rule.
- nixosbestos 2y ago
  So... literally survivorship bias, and insider trading. Great, neither of those make me think I'm arrogant or smart enough to day trade. Nothing about this is elitist. I've made a killing on 'X' by getting in early and holding over the years. Not one single person in my life knows the details because I want zero responsibility for them getting wrapped up in it, and I know how hard it is for people to be patient and hold when they're chasing a high, I mean profits.
- ForHackernews 2y ago
  Most of those rich people with their wealth advisors are also underperforming: https://stockanalysis.com/article/can-you-beat-the-market/ https://stockanalysis.com/article/can-you-beat-the-market/ I know people who won big on the ponies or shitcoins, but that doesn't make those smart places to put my money.
onemoresoop 2y ago
Aren't index funds more modest in gains but more safe?
- joshlemer 2y ago
  Yes
- itake 2y ago
  Depends on the index fund. There are triple leveraged funds that can go to zero in a crash
  - kerkeslager 2y ago
    Sure, but the person asking this question is asking from a more beginner level that doesn't need to know that unusual edge case. The answer I'd give is: Yes, index funds made up of stocks are safer than individual stocks, because it's very unlikely all the investments in a large index will go to zero, or even all go down. On average, index funds of stocks aren't more modest in gains than stocks--they do just as well as stocks on average. People think they can pick individual stocks that beat an index, and sometimes they do, but there is good reason to believe that their successes are the product of random chance rather than actual ability. If it is possible at all to pick stocks that beat the market, it is a lot of work. If you're thinking of investing, I'd start with an index.
MichaelDickens 2y ago
> “Value investing” is dead for most, picking a company that you believe will generate solid long-term revenue is no longer interesting. In that sense, value investing has always been dead—most people were never interested in that. That's why value investing worked.
- RandomThoughts3 2y ago
  Technically, value investing still work. The key tenant of value investing is that there exist companies which based on their financial metrics are fundamentally under valued by the market (in opposition to what market price efficiency predicts). From there, an insane market should provide you with even more opportunities to value invest.
  - photonthug 2y ago
    > an insane market should provide you with even more opportunities to value invest This seems like a uniquely bad time to make this sort of argument. There are many old tools for insane markets to perpetuate themselves that are recently stronger (revolving doors between industry/government and other garden variety corruption; all the monopolies we have to tolerate out of fear, convenience or greed; "too big to fail" and trends towards globalism in general). There are also several relatively new tools (algorithmic price-fixing so that industry "competitors" can now collude forever with impunity; total masks-off no-holds-barred corruption where the unelected/unqualified are simply appointed to positions of power regardless of clear conflicts of interest). Add to this what others have observed re: meme-stocks, huge moves based on tweets or concerted disinformation. Or there's the cooked books on a massive scale with Theranos or SBF or the out of control corporate fraud with VW's dieselgate or Boeing's 737 Max, or .. or .. pick your own recent scandal. Value investing seems to need reliable information from somewhere to make informed decisions, but where is that going to come from? Investment in individual companies rather than in diversified aggregates seems nuts if the financial markets are going to be as "post truth" as the political world.
    - RandomThoughts3 2y ago
unyttigfjelltol 2y ago
We'll look back and see with clear eyes the transient phenomena that made strange and magical meme stocks and unicorns what they all were. Somewhere in the last 50 years stock investing turned from green-eye-shade economic analysis to a social phenomena that couldn't be bothered with dividends and profits. I go to the supermarket and milk is on sale, I buy two. But momo clowns go and see milk is on sale and they try to sell the milk they have on hand back to the store. They don't act like the products they buy have fundamental value, because in many cases that value was inflated wildly beyond justification long before the trader ever got started.
- Apocryphon 2y ago
  I mean, it’s widely understood. There was deregulation in the ‘80s that kicked off the financialization trend (along with private industry customs being invented like Jack Welch’s whole chasing shareholder value uber alles shtick), and then the interest rates cuts in the wake of the 2008 recession (and then again during the pandemic) superheated this kind of behavior.
kerkeslager 2y ago
The thing is, picking a company that actually will generate solid long-term revenue isn't really a thing. You can try, but your success rate, if you're good at it, is going to be about equal to the success rate of companies. There are dozens of studies of professional traders showing this. If you're bad at it, you'll buy into the companies that are pure hype and do worse. And... you probably aren't good at it. Most people aren't. The people who beat the market consistently have information you don't. Instances of people who call major trends before they happen and get rich are likely survivor bias and not genius.
rsanek 2y ago
things haven't changed since vanguard started index funds 5 decades ago. buying and holding diversified assets prevents you from thinking "You need to figure out what is going to 10x tomorrow."
snowwrestler 2y ago
Many things look like gambling on short time frames. Investing requires taking a long view that averages out the short-term noise like meme stocks. It does require patience, which is admittedly harder to come by when you’re young.
veunes 2y ago
The best we can do is navigate this landscape with open eyes

by habosa 2y ago

mancerayder 2y ago

I agree. I think the reality is the "don't try to be smart, do these low-risk things because statistically you're too stupid to beat the market" has logic to it, and stats to back it up. But the unspoken part is, "let the rich do that stuff, and their wealth advisors and folks on the golf courses". So there's an elitist aspect to telling people to back off. We all know people who made a killing on individual stocks, either because they bought them or they worked at a company that issued them.

deleted 2y ago
[deleted]
joshlemer 2y ago
It's not really elitist. Picking individual stocks is essentially saying "I have brand new insight that nobody else has, and I'm going to earn profit by incorporating that knowledge into prices and be rewarded forgetting it right". This is clearly a very specialized activity, you shouldn't expect to be able to bring brand new, accurate insight, and out predict everyone else in the world, without a deep understanding of economics, finance, and expertise in the specific industry and the company you're trading in. It's no more elitist to say "most people should just buy index funds" than it is to say "most people should just get root canals done by dentists rather than doing it themselves".
- mancerayder 2y ago
  > without a deep understanding of economics, finance, and expertise in the specific industry and the company you're trading in. is in contradiction to >It's not really elitist. It's not wrong. But elitist is absolutely is. We're saying, only these people can do these things correctly. Is it true? It's subject to debate. You can be in IT, discover a software product at work and decide you think the company is worth investing in. Don't need an MBA for that.
  - kaibee 2y ago
    > You can be in IT, discover a software product at work and decide you think the company is worth investing in. And then you can be still be wrong because you didn't appreciate that the company is operating a low-trust environment/switching costs are high/they didn't have enough industry contacts/competitors outmarketed.
  - joshlemer 2y ago
    Well, buying stock in a company because you like their product is precisely the kind of bad stock picking strategy I'm talking about. The quality of a company's product is public information, so you should expect it to be priced in. Whether or not to pick any individual stock should be made on the basis of whether that stock is over-valued or under-valued in the market, not if it's a good company overall. Amazing companies can be highly overvalued, and crap companies doing garbage work can be undervalued. Like I say, best to leave it to professionals. For some things it's fine for people to have a DIY spirit, like building a website or a cabinet. For other things, which can harm you if you mess up, it's better to leave it to the pro's... electricians, doctors, etc. We're talking about people's life savings here, they can easily lose everything and ruin their lives, not being able to take care of their family etc.
    - mancerayder 2y ago
      >Amazing companies can be highly overvalued, and crap companies doing garbage work can be undervalued. I'm sorry, but how does value matter? I'm not being flippant - the Mag 7 are not 'value' companies. Are Nvidia, Apple, etc., overvalued? And so we should avoid them or short them? Is Tesla 'priced-in'? There's all sorts of psychology in the market. What does 'priced-in' even mean? What wouldn't be priced in. "Water is wet" is what I think of, a tautology, when I hear that all public information is 'priced in'. Things are incredibly dynamic. Here we have at a minimum: algorithmic trading that bounces on common measures like moving averages, institutions that buy or sell at various points strategically (like the big dump when the BOJ raised rates unexpectedly, tax selling, etc.), elections putting oligarch-ish types that own car companies and pump crypto coins, meme stocks that come and go on big reddit forums, regular buys from 401k's into indexes which move markets, etc. etc. With all that going on, to me it feels more "random" than "priced-in". One more thing. Money is also made not buying and holding, and not trading, but by doing things like 'The Wheel' where you sell puts on something you wouldn't mind holding, monthly, til you get assigned, and sell calls on it, monthly, til it gets called away. In this case, you don't actually have to care very much what the 'value' is, only tracking whether it might have a sudden swing. You don't have to 'time the market' that much either, as you're an insurance salesman. I'm not saying that people should all jump and do this - but when I read about stocks on HN, I always hear the same counter-argument against 'traders' and 'stock pickers' when there are other ways to make money in the market (i.e. collecting premium). It's definitely closer to 'gambling' when I put it that way. But I don't see any value in Efficient Market Hypothesis-speak like "is this stock under or over-valued." For that I let the MBA's / golf course discussions / elite experts with insider information rule.
nixosbestos 2y ago
So... literally survivorship bias, and insider trading. Great, neither of those make me think I'm arrogant or smart enough to day trade. Nothing about this is elitist. I've made a killing on 'X' by getting in early and holding over the years. Not one single person in my life knows the details because I want zero responsibility for them getting wrapped up in it, and I know how hard it is for people to be patient and hold when they're chasing a high, I mean profits.
ForHackernews 2y ago
Most of those rich people with their wealth advisors are also underperforming: https://stockanalysis.com/article/can-you-beat-the-market/ https://stockanalysis.com/article/can-you-beat-the-market/ I know people who won big on the ponies or shitcoins, but that doesn't make those smart places to put my money.

onemoresoop 2y ago

Aren't index funds more modest in gains but more safe?

joshlemer 2y ago
Yes
itake 2y ago
Depends on the index fund. There are triple leveraged funds that can go to zero in a crash
- kerkeslager 2y ago
  Sure, but the person asking this question is asking from a more beginner level that doesn't need to know that unusual edge case. The answer I'd give is: Yes, index funds made up of stocks are safer than individual stocks, because it's very unlikely all the investments in a large index will go to zero, or even all go down. On average, index funds of stocks aren't more modest in gains than stocks--they do just as well as stocks on average. People think they can pick individual stocks that beat an index, and sometimes they do, but there is good reason to believe that their successes are the product of random chance rather than actual ability. If it is possible at all to pick stocks that beat the market, it is a lot of work. If you're thinking of investing, I'd start with an index.

MichaelDickens 2y ago

> “Value investing” is dead for most, picking a company that you believe will generate solid long-term revenue is no longer interesting. In that sense, value investing has always been dead—most people were never interested in that. That's why value investing worked.

RandomThoughts3 2y ago
Technically, value investing still work. The key tenant of value investing is that there exist companies which based on their financial metrics are fundamentally under valued by the market (in opposition to what market price efficiency predicts). From there, an insane market should provide you with even more opportunities to value invest.
- photonthug 2y ago
  > an insane market should provide you with even more opportunities to value invest This seems like a uniquely bad time to make this sort of argument. There are many old tools for insane markets to perpetuate themselves that are recently stronger (revolving doors between industry/government and other garden variety corruption; all the monopolies we have to tolerate out of fear, convenience or greed; "too big to fail" and trends towards globalism in general). There are also several relatively new tools (algorithmic price-fixing so that industry "competitors" can now collude forever with impunity; total masks-off no-holds-barred corruption where the unelected/unqualified are simply appointed to positions of power regardless of clear conflicts of interest). Add to this what others have observed re: meme-stocks, huge moves based on tweets or concerted disinformation. Or there's the cooked books on a massive scale with Theranos or SBF or the out of control corporate fraud with VW's dieselgate or Boeing's 737 Max, or .. or .. pick your own recent scandal. Value investing seems to need reliable information from somewhere to make informed decisions, but where is that going to come from? Investment in individual companies rather than in diversified aggregates seems nuts if the financial markets are going to be as "post truth" as the political world.
  - RandomThoughts3 2y ago

unyttigfjelltol 2y ago

We'll look back and see with clear eyes the transient phenomena that made strange and magical meme stocks and unicorns what they all were. Somewhere in the last 50 years stock investing turned from green-eye-shade economic analysis to a social phenomena that couldn't be bothered with dividends and profits. I go to the supermarket and milk is on sale, I buy two. But momo clowns go and see milk is on sale and they try to sell the milk they have on hand back to the store. They don't act like the products they buy have fundamental value, because in many cases that value was inflated wildly beyond justification long before the trader ever got started.

Apocryphon 2y ago
I mean, it’s widely understood. There was deregulation in the ‘80s that kicked off the financialization trend (along with private industry customs being invented like Jack Welch’s whole chasing shareholder value uber alles shtick), and then the interest rates cuts in the wake of the 2008 recession (and then again during the pandemic) superheated this kind of behavior.

kerkeslager 2y ago

The thing is, picking a company that actually will generate solid long-term revenue isn't really a thing. You can try, but your success rate, if you're good at it, is going to be about equal to the success rate of companies. There are dozens of studies of professional traders showing this. If you're bad at it, you'll buy into the companies that are pure hype and do worse. And... you probably aren't good at it. Most people aren't. The people who beat the market consistently have information you don't. Instances of people who call major trends before they happen and get rich are likely survivor bias and not genius.

rsanek 2y ago

things haven't changed since vanguard started index funds 5 decades ago. buying and holding diversified assets prevents you from thinking "You need to figure out what is going to 10x tomorrow."

snowwrestler 2y ago

Many things look like gambling on short time frames. Investing requires taking a long view that averages out the short-term noise like meme stocks. It does require patience, which is admittedly harder to come by when you’re young.

veunes 2y ago

The best we can do is navigate this landscape with open eyes