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Above all, congrats on shipping. The problem I have is, you may have built a better mouse trap here, but for the last 20 years the retail investor -- your cust

Above all, congrats on shipping. The problem I have is, you may have built a better mouse trap here, but for the last 20 years the retail investor -- your customer -- has been the mouse. And few people in your industry acknowledge that. The stock market has a built-in upward bias of 3-5 percent. It represents the premium over the risk free rate that entices people to invest in equity instead of debt (bonds, treasuries). So retail investors don't "lose" money but they have underperformed the market to a extent that is IMO criminal. Literally. All of the education, services and tools (like yours) are teaching investing all wrong. Price targets? Made up numbers by analysts? What were the price targets on Netflix before it fell 100 handles (and then clawed half of it back)? The day before the drop CNBC said $600/share. How about GTAT? Jim Cramer loved that stock. There are some people doing it right, though. Check out TastyTrade.com. These guys have made a massive investment in teaching the retail investor techniques for investing that don't rely on the magic of technical analysis or analyst prophecy. And even more awesome -- they built a trading platform that is free to use and provides tooling to support their principles, which are basically: do many small, high probability trades to give yourself many independent occurrences to smooth statistical variance, and let duration work for you. The platform is Dough.com I'm obviously not affiliated, just a fan. And I don't mean to take away anything from what you've built. But I think we're just doing it wrong and i want to see that changed.

timtamboy63 12y ago
Totally see what you're saying, and we definitely want to get into the educational aspect at some point. But Netflix fell because of earnings, and GTAT was a fundamentally horrible company (our site wouldn't have recommended it). From what we've seen, retail investors tend to lose money when they invest with their gut, and that's the biggest issue. They hear some news and go and buy that company. They don't know how to do the fundamental analysis, and look at income statements, etc - that's what we're really trying to solve. I agree with not really trusting the analyst target price - we were actually debating whether to keep that there or not, but I disagree that technical analysis can't give you good, long term picks along with a little research. I'd love to hear more about your thoughts. Think you could shoot me an email at chintan@capp.io?
- encoderer 12y ago
  Will do. Point about NFLX wasn't the drop -- stocks go down and it's almost always stair-steps up, elevator down. It was that literally just days before ER CNBC put an analyst on TV crowing about $600 PT. How many millions of dollars did that person lose for the total viewership of CNBC and other outlets that carried her advice? You read an analyst report from Goldman saying "we like apple going into the fall, you should buy apple." This is back when Apple is $500-600 a share. That's just the worst advice. You know what would be a lot better for a small investor? If you're bullish on Apple, go buy the at-the-money call spread. It will cost you a fraction of the share price and let you capture $5, 10, 20+ in upside if Apple moves up (depending on how much you want to pay for the spread). Anyway, this is obviously a subject I'm passionate about :) Congrats again, guys. Enjoy the spike today, HN front page is still the 52 week high on all of our traffic charts!
  - coffeejay 12y ago
    Agree with your point on the options spreads, but we wanted to gear our focus towards solely stock investments since that's the majority of the retail investor population. You're right about AAPL being too expensive (back at $600) for the average investor and that's something we're beginning to focus on. We'd like to add more personalization so our recommendations take into account factors such as risk profile, age, account value, etc. Again, our goal is to help less experienced investors make smarter investments over the long term and teach them "why" along the way. Thanks for your feedback again! Definitely points we'll be taking into account.
  - mzzk 12y ago
    Options might not be the best advice for the target audience.
    - encoderer 12y ago
      I can understand why a lot of people think that way. Check out my reply above for more color on the subject.
minimax 12y ago
There are some people doing it right, though. Check out TastyTrade.com. Your solution for retail investors who are getting burned in high beta tech stocks is to go put on a bunch of complicated options positions? That seems like kind of crazy advice. Maybe just buy some SPY and go do something more interesting than stare at options prices all day.
- encoderer 12y ago
  Sure, you can buy an index and forget it. Or, you can buy the index and then sell a covered call on it every month at 1 standard deviation out of the money. You decrease your basis and earn a monthly income, at the risk only of capping your upside if SPY surged upward. One sd out of the money options will expire worthless 85% of the time. No "staring at prices" required. It's not your fault if you're scared of options (or scared for the masses). It's because retail investing has been taught and presented totally backwards for 20 years. Options have the same risk as the underlying. They are only more dangerous because they give you leverage. So you trade 1 lots or 2 lots. Your capital at risk in my apple spread example is an order of magnitude less than buying even 10 shares of Apple stock at the then price of 5000+ The retail investor understands rankings and price targets and no load mutual funds and other things we've said are I,portamt. I can teach you vertical spreads in a few hours and that is all you need to use options in your investment strategy. In a vertical spread I can tell you with certainty that your probability of profit is equal to the max loss divided by the width of the strikes. Max loss is the width of the strikes less the credit you received when you sold the spread. So if you sell the 190-189 put spread on the spy bc you think it will go up, and you receive .35 for the trade, your Max loss is .65 so your probability of success is .65/1=65%. Whether or not that's a good risk to take depends but it's better than buying Netflix because some guy on tv invents a price target.
  - jcdavis 12y ago
    1 or 2 lots? The margins after commissions are going to be crap (if anything) for big indexes. I know the phrase "efficient market" gets thrown a lot but its pretty relevant here - there simply isn't much, if at all, to be made doing this. Lets say you have 100 shares of SPY - $19.6k. You propose what - Writing Nov 22 calls? Look at the chain - $0.31 bid for 204, for instance, which is pretty high-risk already, but 205 is to $0.23, 206 down to $0.15. You can even find an index that does this for you - http://www.cboe.com/micro/bxm/ http://www.cboe.com/micro/bxm/ . I'll save you the looking, but it underperforms SPY at 1,5,10 years + inception. Options are valuable tools for certain situations, but average investors shouldn't touch them with a 10 foot pole.
fasteo 12y ago
As usual in HN, the meat is in the comments. Thanks for the pointers to tastytrade and dough. Great sites.

timtamboy63 12y ago

Totally see what you're saying, and we definitely want to get into the educational aspect at some point. But Netflix fell because of earnings, and GTAT was a fundamentally horrible company (our site wouldn't have recommended it). From what we've seen, retail investors tend to lose money when they invest with their gut, and that's the biggest issue. They hear some news and go and buy that company. They don't know how to do the fundamental analysis, and look at income statements, etc - that's what we're really trying to solve. I agree with not really trusting the analyst target price - we were actually debating whether to keep that there or not, but I disagree that technical analysis can't give you good, long term picks along with a little research. I'd love to hear more about your thoughts. Think you could shoot me an email at chintan@capp.io?

encoderer 12y ago
Will do. Point about NFLX wasn't the drop -- stocks go down and it's almost always stair-steps up, elevator down. It was that literally just days before ER CNBC put an analyst on TV crowing about $600 PT. How many millions of dollars did that person lose for the total viewership of CNBC and other outlets that carried her advice? You read an analyst report from Goldman saying "we like apple going into the fall, you should buy apple." This is back when Apple is $500-600 a share. That's just the worst advice. You know what would be a lot better for a small investor? If you're bullish on Apple, go buy the at-the-money call spread. It will cost you a fraction of the share price and let you capture $5, 10, 20+ in upside if Apple moves up (depending on how much you want to pay for the spread). Anyway, this is obviously a subject I'm passionate about :) Congrats again, guys. Enjoy the spike today, HN front page is still the 52 week high on all of our traffic charts!
- coffeejay 12y ago
  Agree with your point on the options spreads, but we wanted to gear our focus towards solely stock investments since that's the majority of the retail investor population. You're right about AAPL being too expensive (back at $600) for the average investor and that's something we're beginning to focus on. We'd like to add more personalization so our recommendations take into account factors such as risk profile, age, account value, etc. Again, our goal is to help less experienced investors make smarter investments over the long term and teach them "why" along the way. Thanks for your feedback again! Definitely points we'll be taking into account.
- mzzk 12y ago
  Options might not be the best advice for the target audience.
  - encoderer 12y ago
    I can understand why a lot of people think that way. Check out my reply above for more color on the subject.

minimax 12y ago

There are some people doing it right, though. Check out TastyTrade.com. Your solution for retail investors who are getting burned in high beta tech stocks is to go put on a bunch of complicated options positions? That seems like kind of crazy advice. Maybe just buy some SPY and go do something more interesting than stare at options prices all day.

encoderer 12y ago
Sure, you can buy an index and forget it. Or, you can buy the index and then sell a covered call on it every month at 1 standard deviation out of the money. You decrease your basis and earn a monthly income, at the risk only of capping your upside if SPY surged upward. One sd out of the money options will expire worthless 85% of the time. No "staring at prices" required. It's not your fault if you're scared of options (or scared for the masses). It's because retail investing has been taught and presented totally backwards for 20 years. Options have the same risk as the underlying. They are only more dangerous because they give you leverage. So you trade 1 lots or 2 lots. Your capital at risk in my apple spread example is an order of magnitude less than buying even 10 shares of Apple stock at the then price of 5000+ The retail investor understands rankings and price targets and no load mutual funds and other things we've said are I,portamt. I can teach you vertical spreads in a few hours and that is all you need to use options in your investment strategy. In a vertical spread I can tell you with certainty that your probability of profit is equal to the max loss divided by the width of the strikes. Max loss is the width of the strikes less the credit you received when you sold the spread. So if you sell the 190-189 put spread on the spy bc you think it will go up, and you receive .35 for the trade, your Max loss is .65 so your probability of success is .65/1=65%. Whether or not that's a good risk to take depends but it's better than buying Netflix because some guy on tv invents a price target.
- jcdavis 12y ago
  1 or 2 lots? The margins after commissions are going to be crap (if anything) for big indexes. I know the phrase "efficient market" gets thrown a lot but its pretty relevant here - there simply isn't much, if at all, to be made doing this. Lets say you have 100 shares of SPY - $19.6k. You propose what - Writing Nov 22 calls? Look at the chain - $0.31 bid for 204, for instance, which is pretty high-risk already, but 205 is to $0.23, 206 down to $0.15. You can even find an index that does this for you - http://www.cboe.com/micro/bxm/ http://www.cboe.com/micro/bxm/ . I'll save you the looking, but it underperforms SPY at 1,5,10 years + inception. Options are valuable tools for certain situations, but average investors shouldn't touch them with a 10 foot pole.

fasteo 12y ago

As usual in HN, the meat is in the comments. Thanks for the pointers to tastytrade and dough. Great sites.