4 ms·

Everything you said could practically be applied to any skilled profession. Being an X is hard, 99% of people fail at X. What makes trading any harder than pr

Everything you said could practically be applied to any skilled profession. Being an X is hard, 99% of people fail at X. What makes trading any harder than programming or engineering or abstract mathematics or physics? Successful traders exist, plenty of people trade for a living. People have to try something to see if it's something they're good at and most people aren't good at most things. Pointing that out X is hard and most people fail is a tautology, it's true of all difficult professions.

lutusp 13y ago
> What makes trading any harder than programming or engineering or abstract mathematics or physics? That's easy to answer -- if you're very smart, you will do better in math and physics, and the positive correlation between intelligence and success actually has meaning. But in equities trading, being very smart does no good at all, and might even represent a handicap. The reason? Equity pricing is mostly random noise, very high entropy. Many very smart people have tried to model and then beat the market, and (apart from chance outcomes) no one has succeeded in the sense that they located a reliable, describable "method" for it. Also, if in principle someone discovered an actual winning system, by publishing the system he would destroy its effectiveness (because once a "system" is put into practice, once everyone uses it, it loses its effectiveness). Obviously for a random collection of investment schemes, half will do better, and half worse, than the average market, but the half that do better will naturally enough claim the outcome resulted from their investment genius -- even if they're smart enough that they should know better. I can use a computer to model a random market and random investors, using random price changes and random trades, and not surprisingly, half the investors will do better than the average outcome. What is surprising is that, when the above-average investors are humans, they invariably try to claim this chance outcome resulted from a winning system that they will sell to you for some princely sum. More here: http://arachnoid.com/equities_myths http://arachnoid.com/equities_myths > Pointing that out X is hard and most people fail is a tautology, it's true of all difficult professions. Yes, but there's a qualitative difference between "hard" and "impossible".
- throwawaymsft 13y ago
  You're basically saying investing is random chance. Ok. What is the p-value that Warren Buffett's random investment plan outperforms the market 39/47 years? http://finance.fortune.cnn.com/2012/02/25/buffett-berkshire-hathaway-results/ http://finance.fortune.cnn.com/2012/02/25/buffett-berkshire-... If a drug beat a placebo in 39/47 experiments, would it be approved by the FDA? :-) There are investors who get lucky, and there are investors with sound strategies. The notion that every winning strategy gets immediately and flawlessly applied by every actor in the market is a fantasy world populated by homo economicus.
  - zeckalpha 13y ago
    That's a fundamental misunderstanding of random. Investing being random chance doesn't mean everyone will do about average. It means that some people will make quite a bit of money and some people will lose quite a bit of money. It just happens that Warren Buffet is an outlier.
    - throwawaymsft 13y ago
      I'm not sure I understand. Buffett has a strategy X, which has defeated strategy Y (buy a market index fund) 39/47 times. We can say any return in strategy X is 1) Due to random chance (i.e., it defeated the market 39 times "randomly") 2) Not due to random chance, and there is an inherent advantage I'm saying the probability of 1) is sufficiently low so as to believe 2).
      - Thrymr 13y ago
        The question is, how many potential Warren Buffets were there in the pool to start with? You can't ask the question "what are the chances that this particular outcome would happen?" with a sample of one, you have to use the population it is drawn from. Otherwise it would be like saying "That's amazing! The lottery numbers today were 56 23 45 12 27 91! What are the chances!" Exactly the same as any other combination (very, very low). The trick is picking them in advance.
      - 13y ago
gbasin 13y ago
Trading liquid and open markets is much harder precisely because its way more competitive and the barriers to entry to compete are non-existent. And the financial rewards for those who compete well are incomparable.
ScottBurson 13y ago
All true, but on top of being hard, trading is a competitive game. It's not just how good you are -- it's how much better or worse you are than everyone else you're trading against. Furthermore, every successful trade puts you in a better position, and every unsuccessful trade in a worse one. I wouldn't say no one should trade -- obviously some people do very well. But most of us, I think, should be very careful, and limit our exposure.
justincormack 13y ago
There appears to be no real evidence that objectively successful traders do exist, other than ones who have non public information (insider dealing, order flow).

lutusp 13y ago

> What makes trading any harder than programming or engineering or abstract mathematics or physics? That's easy to answer -- if you're very smart, you will do better in math and physics, and the positive correlation between intelligence and success actually has meaning. But in equities trading, being very smart does no good at all, and might even represent a handicap. The reason? Equity pricing is mostly random noise, very high entropy. Many very smart people have tried to model and then beat the market, and (apart from chance outcomes) no one has succeeded in the sense that they located a reliable, describable "method" for it. Also, if in principle someone discovered an actual winning system, by publishing the system he would destroy its effectiveness (because once a "system" is put into practice, once everyone uses it, it loses its effectiveness). Obviously for a random collection of investment schemes, half will do better, and half worse, than the average market, but the half that do better will naturally enough claim the outcome resulted from their investment genius -- even if they're smart enough that they should know better. I can use a computer to model a random market and random investors, using random price changes and random trades, and not surprisingly, half the investors will do better than the average outcome. What is surprising is that, when the above-average investors are humans, they invariably try to claim this chance outcome resulted from a winning system that they will sell to you for some princely sum. More here: http://arachnoid.com/equities_myths http://arachnoid.com/equities_myths > Pointing that out X is hard and most people fail is a tautology, it's true of all difficult professions. Yes, but there's a qualitative difference between "hard" and "impossible".

throwawaymsft 13y ago
You're basically saying investing is random chance. Ok. What is the p-value that Warren Buffett's random investment plan outperforms the market 39/47 years? http://finance.fortune.cnn.com/2012/02/25/buffett-berkshire-hathaway-results/ http://finance.fortune.cnn.com/2012/02/25/buffett-berkshire-... If a drug beat a placebo in 39/47 experiments, would it be approved by the FDA? :-) There are investors who get lucky, and there are investors with sound strategies. The notion that every winning strategy gets immediately and flawlessly applied by every actor in the market is a fantasy world populated by homo economicus.
- zeckalpha 13y ago
  That's a fundamental misunderstanding of random. Investing being random chance doesn't mean everyone will do about average. It means that some people will make quite a bit of money and some people will lose quite a bit of money. It just happens that Warren Buffet is an outlier.
  - throwawaymsft 13y ago
    I'm not sure I understand. Buffett has a strategy X, which has defeated strategy Y (buy a market index fund) 39/47 times. We can say any return in strategy X is 1) Due to random chance (i.e., it defeated the market 39 times "randomly") 2) Not due to random chance, and there is an inherent advantage I'm saying the probability of 1) is sufficiently low so as to believe 2).
    - Thrymr 13y ago
      The question is, how many potential Warren Buffets were there in the pool to start with? You can't ask the question "what are the chances that this particular outcome would happen?" with a sample of one, you have to use the population it is drawn from. Otherwise it would be like saying "That's amazing! The lottery numbers today were 56 23 45 12 27 91! What are the chances!" Exactly the same as any other combination (very, very low). The trick is picking them in advance.
    - 13y ago

gbasin 13y ago

Trading liquid and open markets is much harder precisely because its way more competitive and the barriers to entry to compete are non-existent. And the financial rewards for those who compete well are incomparable.

ScottBurson 13y ago

All true, but on top of being hard, trading is a competitive game. It's not just how good you are -- it's how much better or worse you are than everyone else you're trading against. Furthermore, every successful trade puts you in a better position, and every unsuccessful trade in a worse one. I wouldn't say no one should trade -- obviously some people do very well. But most of us, I think, should be very careful, and limit our exposure.

justincormack 13y ago

There appears to be no real evidence that objectively successful traders do exist, other than ones who have non public information (insider dealing, order flow).