[kimleebj]

Here is a great book on Market Efficiency:

A Random Walk Down Wall Street, by Burt Malkiel.

The average investor gets the market return by definition. The average professional does not outperform the market. So it is unlikely you will substantially outperform either.

It is very easy to match the market by buying index funds at Vanguard.com. So don't waste your time and money on trading courses. You will just face unnecessary risk, pay transactions costs, and then pay extra taxes on capital gains. My favorite quote:

(01-31-2011 06:02 PM)oldnemesis Wrote:  

You know, if just after reading web sites, books and blogs about trading would be enough to start living exclusively from trading, we'd have a whole country of traders.

[Luckystar]

Great book. Was referred to me many times before I read it. Good recommendation, kimlee

[Cincinnatus]

That quote from oldnemesis is gold.

I tend to keep my investments basic, purchasing stock in companies that are well-known, solid standby brands. General Electric, Kroger, and Procter and Gamble to name a few.

Another favorite is Jarden. I worked for one of their subsidiaries a few years ago; Jarden owns tons of smaller companies and their brands -- Bicycle playing cards, Coleman camping products, etc.

[Irminsul]

The stock market is basically a ponzi scheme. You buy a stock and then hope more people buy in after you do and push the stock higher. At some point, people stop buying in, and the people who buy in last get burned.

It's basically gambling. The stock market is a zero-sum game. It does not produce any wealth. All it does is shift wealth from some people to others. I don't think the average investor gets the market return. I think most people lose money, and a few people make a big profit.

When you take into consideration commissions, taxes, margin interest, money spent on stock advice, and especially the amount of TIME that people spend on stock trading, it's clear that this is a losing proposition for most people.

[Arobin]

Beating market returns is not the impossible task this thread is making it out to be.

I agree that Vanguard is a good investment if you want to do no work. It matches the indices to within tenths of a percentage point and average annual return is around 11%, which is a good ROI for a person who knows nothing about investing.

The reason more people don't make money off investing isn't so much that it's a bad deal, but rather because it requires a significant amount of intelligence, initial capital, and free time that most people don't have.

Yes, the average investor by definition makes the average return. But who cares? The average guy in the U.S. has 7 sexual partners in his lifetime. If you're smart and do your research, you can do better than the average.

The common investor has one useful advantage over the professional, which is that a common investor can invest in small-cap growth stock (which historically give the highest returns). A professional can't make much off small caps because if a guy's managing a $400M portfolio and wants to invest in a company with a market cap of $800M, even a small percentage of his portfolio will drive up the stock price to the point where it's no longer profitable to buy.

Living exclusively from trading is a tall order. Assuming that you can achieve annual average returns of 15% with an investment strategy that doesn't require you to assume a tremendous amount of risk, you'd have to have a few hundred grand. But even if you don't use it as an exclusive income source, picking your own stocks is a good way to earn some extra money if you've got the time and capital for it.

[Agent_GQ]

The stock market in its current form is for suckers.

[thekiller]

(02-07-2011 04:34 AM)Agent_GQ Wrote:  

The stock market in its current form is for suckers.

Compared to what? A savings account that doesn't match inflation?

Arobin is correct, you need a lot of capital to live solely off the market. Most people should get an ETF or mutual fund that's no-load that follows the market's traditional 10% return.
It doesn't take a herculean effort though to do better, just don't expect to live off unless your rich already.

In this economic climate with the Fed printing so much money I'd look at buying physical silver while it's at a relative discount to gold.

[Kaizen]

A very very small % of PROFESSIONAL money managers beat the index over the long run. If you think you can do it good luck that book sums it all up

[redneckpunk]

(02-11-2011 08:27 PM)bigxxx Wrote:  

A very very small % of PROFESSIONAL money managers beat the index over the long run. If you think you can do it good luck that book sums it all up

most money managers are required to be 100% invested, that is why many of them under perform. These cats are smart, but they are taught garbage and often times their returns reflect it.

[hydrogonian]

(02-07-2011 03:42 AM)Arobin Wrote:  

Beating market returns is not the impossible task this thread is making it out to be.

I agree that Vanguard is a good investment if you want to do no work. It matches the indices to within tenths of a percentage point and average annual return is around 11%, which is a good ROI for a person who knows nothing about investing.

The reason more people don't make money off investing isn't so much that it's a bad deal, but rather because it requires a significant amount of intelligence, initial capital, and free time that most people don't have.

Yes, the average investor by definition makes the average return. But who cares? The average guy in the U.S. has 7 sexual partners in his lifetime. If you're smart and do your research, you can do better than the average.

The common investor has one useful advantage over the professional, which is that a common investor can invest in small-cap growth stock (which historically give the highest returns). A professional can't make much off small caps because if a guy's managing a $400M portfolio and wants to invest in a company with a market cap of $800M, even a small percentage of his portfolio will drive up the stock price to the point where it's no longer profitable to buy.

Living exclusively from trading is a tall order. Assuming that you can achieve annual average returns of 15% with an investment strategy that doesn't require you to assume a tremendous amount of risk, you'd have to have a few hundred grand. But even if you don't use it as an exclusive income source, picking your own stocks is a good way to earn some extra money if you've got the time and capital for it.

Listening to this guys logic is a good way to lose your money.

To put it simply: Its about your information relative to the information held by the rest of the market.

If you think that you somehow know more than most full time investors about the actual value of a stock vs. its current price, then invest.

If there is no reason to believe that you have more information than the average investor, then don't invest. If you do invest regardless, then be aware that you are gambling in the truest sense, and likely with the house odds stacked against you more than would be in an average casino game.

[Arobin]

(02-12-2011 09:31 AM)hydrogonian Wrote:  

Listening to this guys logic is a good way to lose your money.

To put it simply: Its about your information relative to the information held by the rest of the market.

If you think that you somehow know more than most full time investors about the actual value of a stock vs. its current price, then invest.

If there is no reason to believe that you have more information than the average investor, then don't invest. If you do invest regardless, then be aware that you are gambling in the truest sense, and likely with the house odds stacked against you more than would be in an average casino game.

It's really not all about information. I agree that the professional investor will always have better and faster access to information and research about a stock than the casual investor. And if you're day trading, then yeah, that kind of disadvantage will probably kill you. But if you're buying stocks and holding them for the long term, analysis of a stock becomes much more important than quick access to information. So the information disadvantage to the casual investor shrinks.

Yeah, full time investors on average underperform the market. 80% of mutual funds (run by full time, professional investors) underperform the market each year. But investment clubs, which are made up of mostly non-professional, casual investors, consistently outperform the market. A survey by the National Association of Investment Clubs a few years ago had the average investment club outperforming the market by over 4% annually.

Again, I'm not saying that investing in stock is for everyone. I am saying that if you enjoy stocks and are willing to put in the work, stocks are a good place to put your money.

[hydrogonian]

(02-12-2011 11:01 AM)Arobin Wrote:  

It's really not all about information. I agree that the professional investor will always have better and faster access to information and research about a stock than the casual investor. And if you're day trading, then yeah, that kind of disadvantage will probably kill you. But if you're buying stocks and holding them for the long term, analysis of a stock becomes much more important than quick access to information. So the information disadvantage to the casual investor shrinks.

And I'm saying that you are wrong, with all due respect.

You just don't fully understand how it works. However, your perspective is common to 99.5% of investors out there. A perspective that is propagated by the industry that makes money from you believing what you believe. That's why most investors lose over even the long term, unless they become adept at trend following or have access to information that no one else has. Trend following isn't investing based on value, but a technique used to make money from the short term movement of the herd. Some people are successful at this, and most are not. But we aren't talking about trend following.

Saying that the market "isn't really about information" is like saying "living isn't really about breathing oxygen". Both substances are the very essence of the subject in question.

The market is information. Prices are set and move based on information, or perceived(false) information. No more and no less.You have to understand that the price currently reflects all information about a stock held by the general market. That includes all information about the possible future value of a stock. Its all built in to the current price, unless you have information about the future value that no one else has.

The price is risk adjusted for all well known information about the current and future value. This means that the market assures that there is no positive expectation of future increase in value for any stock, unless the market is very inefficient for that stock ie: the information does not spread rapidly enough (rare), the industry is new and isn't well understood (rare), or there is a significant piece of information that someone knows that no one else does (time to invest if you are this person - often insider trading).

This is also why trend following is so difficult and inconsistent. Because it is a technique that is behind the information that the market has, not in front of it. By the time trend followers have moved, placing their bets based on the past, the information and the market has already changed.

If you want to invest based on quantifiable risk, in other words a real investment, then learn how to trade derivatives. It will be excessively difficult to learn, but you will actually be an "investor" after that. Stocks are not for investors. Stocks are for gamblers, the market makers who bet against the gamblers, and inside traders.

(02-12-2011 11:01 AM)Arobin Wrote:  

Yeah, full time investors on average underperform the market. 80% of mutual funds (run by full time, professional investors) underperform the market each year. But investment clubs, which are made up of mostly non-professional, casual investors, consistently outperform the market. A survey by the National Association of Investment Clubs a few years ago had the average investment club outperforming the market by over 4% annually.

Again, I'm not saying that investing in stock is for everyone. I am saying that if you enjoy stocks and are willing to put in the work, stocks are a good place to put your money.

That sounds like complete nonsense to me. Both paragraphs. Go read "Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street" by Poundstone and then come back and tell me about the probability of the investment clubs averaging 4% over the market. Its the history of the brightest minds in the country (MIT scientists) unsuccessfully trying to beat the market, and the genesis of the modern hedge fund. Common sense and history says that the claim of that survey just isn't true. Remember, the market is even more efficient and difficult to exploit today than at the time that story takes place. I recommend that book as good reading for investors even if they aren't necessarily interested in the history. Context is everything.

[HD668B]

(01-31-2011 06:02 PM)oldnemesis Wrote:  

You know, if just after reading web sites, books and blogs about trading would be enough to start living exclusively from trading, we'd have a whole country of traders.

Same thing could be said about getting rich on your own business no?



You guys have some good discussions about the financial world in rooshforum, but it seems to me you always have a defeatist attitude. Yes all the market is against you, but the gains are immense if you succeed.