[HN Gopher] Are You Trading or Gambling?
___________________________________________________________________
Are You Trading or Gambling?
Author : christopherjgan
Score : 331 points
Date : 2021-02-27 09:17 UTC (13 hours ago)
(HTM) web link (investinglessons.substack.com)
(TXT) w3m dump (investinglessons.substack.com)
| anm89 wrote:
| People are gambling when the buy assets you don't like and
| investing when they buy assets you do like.
|
| Pretty cool because it is literally impossible to lose money
| investing because if you did lose money it turns out you were
| gambling.
| hckrnrd wrote:
| That others don't see the blatant hypocrisy of the
| gambling/investing false dichotomy speaks more to their _own_
| biases.
| baking wrote:
| You are gambling if you are risk-seeking. You are investing if
| you are risk-adverse.
|
| Gamblers like the thrill of win-it-all or lose-it-all.
|
| Investors minimize risk while accepting some risk as a cost for
| higher return.
|
| Trading can be gambling or investing, or a combination of both.
| [deleted]
| wruza wrote:
| For those not familiar with stock market 101, this article is
| pretty equivalent to <<you can greet the world via echo "Hello,
| World!" in bash>>. Not that it's not worth sharing, but
|
| _Teaching everything I learnt about investing and decision
| making on Wall Street._
|
| Oh, god. Wall Street's not what it used to be, apparently. Sorry
| for a bitter tone, but really?
| choonway wrote:
| trading is gambling. the only difference is the risk and insider
| info.
| curiousgal wrote:
| It's always funny to read such generalizations. You will
| (almost) never find a trading desk at a bank that takes a
| directional position on an asset, i.e. gamble. The entire
| foundation of quantitative finance rests on hedging and
| replication. If I sell an option contract for $x then I must
| use that $x to build a portfolio that would compensate my
| potential loss on the option that I sold you.
| theBobBob wrote:
| Obviously not really adding much real help to the conversation
| but I watched a sketch only a few days ago that seems pretty
| applicable:
|
| https://youtu.be/B_9D5jeby_8
| uyt wrote:
| > A not so obvious result that follows from making successive
| negative expected value bets, is that in the long run you are
| guaranteed to lose all your money (or ruin). Intuitively this
| makes sense as with each bet, you are losing money on average.
|
| Expected value doesn't tell you much about the outcome of
| successive bets. Someone else can probably explain this better
| since it comes up on HN a lot (something about ergodicity and the
| difference between ensemble average and time average).
|
| Quick example is if play a game of double or nothing on coin
| flips. This is a "fair game" because you pay x and get back 2x *
| 0.5 + 0 * 0.5 = x. But if you play more than one game you will
| very quickly get a "nothing" and can't continue.
| chillydawg wrote:
| Kelly staking criteria tells you how much to bet in such
| situations. in this case: nothing since it's a pointless bet,
| economically speaking. you may derive utility from the lols,
| though, in which case probably don't bet the whole bank in one
| go!
| dmurray wrote:
| The Kelly criterion doesn't apply in this scenario. Imagine
| the same game, but it's triple or nothing (so, the odds are
| massively in your favour) and you can walk away at any time
| after resolving a bet, after which you go back to investing
| in Treasuries or low-cost index funds.
|
| How much should you wager? Kelly says 25% (edge of 50% / odds
| of 2). But this is correct only under the assumption that you
| will have infinitely many opportunities to play the same game
| at the same odds _for whatever stake you choose_. If you only
| have one chance, you should bet more. It also assumes a
| linear utility value of money: assuming this is actually
| convex, you should bet less.
| mensetmanusman wrote:
| Everyone is doing both at the same time
| dalbasal wrote:
| This is totally meta but... this style of writing or rhetoric is
| prone to "semantic not concept" problems. Gambling, Trading or
| Investing don't have strict enough meanings to withstand a
| "socrates is a man" analysis...
|
| The author here is trying to make a point about EV. IE, a player
| is gambling, but the house is investing because positive or
| negative EV. I disagree.
|
| IMO, negative or positive EV is not what separates house from
| punter. What separates house from punter is volatility. The
| house's risk is spread over many bets, and so EV (positive or
| negative) is a good predictor of performance. Punters don't
| spread their risk.
|
| Roulette with positive EV is still gambling... it's just a "good
| bet." Obviously, the house tries to only offer bad bets. Skill
| games (both the author and gaming authorities agree) can still be
| gambling... though skill games _can_ give players /gamblers a
| positive EV.
|
| I also, kind of, disagree with the overall sentiment. I think
| ordinary people wanting to get in on r/wallstreebets' action are
| _safer_ adopting a gambler mentality. Don 't bring more than you
| can afford to lose. Bank enough winnings to ensure that this
| condition stays true. Then, feel free to make long odds bets.
| statstutor wrote:
| > The author here is trying to make a point about EV.
|
| This is only the first of their two points (summarised at the
| top and bottom). The second section "Poor Bet Sizing" covers
| what you are trying to say.
|
| They make the second point that _even if_ you have positive EV,
| the size of your bet is relevant - and the Kelly Criterion can
| help you decide how much to stake.
|
| The larger your bankroll, the more volatility you can stomach
| [the smaller your bankroll, the more "good bets" are still a
| personal risk] - you are agreeing with their second point, that
| you should think like a professional gambler.
| dalbasal wrote:
| Not quite. Appropriate bet sizing _is_ related to volatility,
| but that doesn 't make it the same. This is what I meant by
| imprecise definitions. Sure, two small bets are technically
| less volatile than one.
|
| I think this is a tricky road to walk. Whether its a diy
| version of modern portfolio theory, or a day trader's take on
| martingale system... EV doesn't matter if you're not trying
| getting market returns. If you very investment is a
| speculation, a risk.
|
| IDK what you mean specifically by "professional gambler," but
| most pro poker players are staked by others. That basically
| makes a martingale strategy viable... not unlike a "two and
| twenty" wall street trading firm.
|
| "Professional" in both gambling and finance are positions,
| not skillsets. A professional investor invests other people's
| money. Same with pro gamblers, generally
| hahahahe wrote:
| Investment is informed gambling on human behavior. Important to
| note especially for HN crowd, is that Claude Shannon's
| information theory is very much applicable to trading (and
| perhaps this is why he was so interested in trading as well).
| Highly recommend reading The Mathematical Theory of
| Communication, with this lens and focus. It's eye opening.
| hikerclimber wrote:
| its mostly gambling options trading that is.
| runawaybottle wrote:
| Why lecture a subreddit called 'wallstreet bets' on gambling?
| scotty79 wrote:
| Trading is gambling, but slower and more often has positive
| expected value.
| nightski wrote:
| Why is this such an interesting distinction to people? They act
| like by not trading you are not gambling. But at the end of the
| day any investment is about realizing opportunity cost. There is
| an opportunity cost to holding fiat/cash as well. So in a way you
| could argue that holding cash is gambling that the fiat/cash is
| going to provide a better opportunity cost than other
| investments.
|
| What's more interesting to me is focusing on optimizing
| opportunity cost (which is always a gamble at the end of the day,
| it's impossible to NOT gamble).
| monkeyingaround wrote:
| correct. i think it's all just part of a slow narrative shift
| that is seeking to regulate the market away.
| senthil_rajasek wrote:
| This article is the net sum of these two concepts,
|
| https://en.wikipedia.org/wiki/Gambler%27s_ruin
|
| How to Avoid Gambler's Ruin ( using Kelly Criterion) ?
|
| https://en.wikipedia.org/wiki/Kelly_criterion
| [deleted]
| paulcole wrote:
| I feel like here needs to point out the fact that gambling
| (including making -EV bets) isn't necessarily bad and can be a
| lot of _fun_.
|
| You don't always have to make smart decisions and maximize EV.
| YOLO!
|
| Plus like Nick the Greek said, "The next best thing in life to
| gambling and winning is gambling and losing."
| bronlund wrote:
| Everyone is gambling!
| vardaro wrote:
| I am not sure why people are viewing gambling in a negative light
| here. Investing is absolutely gambling but that does not imply
| investing is a bad thing. The reality is that there is no such
| thing as reward without any risk, you need to willing to lose
| something to gain something else.
|
| This is essential to option pricing, it is why low delta options
| are cheap and high delta options are expensive. A high delta
| option will have a high probability of success but will demand
| the investor to risk more on the position.
|
| If there wasn't a gambling aspect to capital markets, there would
| be zero liquidity as nobody would deliberately take the negative
| expected value side of the trade.
| lordnacho wrote:
| This is only scratching the surface of the question.
|
| For interest, there's a very common negative expected value bet
| that almost everyone is required to make: insurance.
|
| We don't consider that gambling, in fact we often tell our
| parents to buy some when they fly on holiday.
|
| Why? The answer touches on the lottery.
|
| We care about not just the average case, we care about what might
| happen.
|
| Regarding Kelly criterion, there's a good reason why people don't
| used exactly the amount it says. If you look at the risk, ie the
| chance your probability is wrong, there's a chance you are
| overbetting.
| xenocyon wrote:
| I agree that expected value (EV) is not necessarily a good
| metric for personal financial decisions. In fact, this applies
| both to EVs greater than and less than 1.
|
| As you point out, insurance is a good example of a <1 EV; its
| purpose is to reduce volatility.
|
| Another example: lottery tickets in the occasional case where
| the EV>1. This is supposed to, for instance, lead a rational
| economist to buy a lottery ticket (or many lottery tickets!)
| when the Powerball jackpot hits some particular threshold, say
| 500 million. However, money isn't linear in terms of value to
| individuals, and for most people the difference in life impact
| between winning a billion dollars vs 500 million is not
| anywhere close to 2x - indeed the two outcomes are more or less
| effectively identical.
|
| tl;dr: because money is not linear in the value it adds, EV is
| not a good optimization metric for highly skewed outcomes.
| hntrader wrote:
| Insurance is negative EV only in dollars, not necessary in
| utility. Since most have a risk averse utility function, it's
| often positive EV in utility.
| ip26 wrote:
| If you assume a well-functioning insurance market, I think the
| argument can be made that the negative expected value should
| however be very small. Then going one step further, I think
| mitigating downside potential is actually the opposite of
| gambling. Driving without insurance is gambling.
| RugnirViking wrote:
| what does "well functioning" mean in this case? The insurance
| market's profits literally are the negative expected value.
| If the negative expected value is very small, there are very
| small profits for the insurance companies. They would only do
| that if there was pressure on them re competition, which is
| the opposite of what is happening nearly everywhere in almost
| every market.
|
| High competition low profits would be well functioning for a
| consumer, low competition high profits would be well
| functioning for an investor
| gen220 wrote:
| Value investors use the insurance example as a plank in their
| argument that "loss avoidance" is the most important value
| investing principle.
|
| Buffet famously said loss avoidance is rule number one, and
| rule two is to remember rule one.
|
| You buy flood insurance every year, even if it only floods once
| every 15 years on average, and even when it hasn't flooded in
| 25 years.
|
| If you make 10% for 9 years and then lose 20% on year 10
| (1,886.36 from 1,000), you'd be better off making 8% for ten
| years (2,158.92 from 1,000).
| RhodoGSA wrote:
| I've seen this sentiment alot and i believe it's mostly right
| but it depends on who you are. There is no 'Best investment
| Strategy' for everyone. Should a 20-something invest all his
| savings into crypto? Sure. Should a 45 year old with kids?
| hell no.
|
| If the 20-something losses all their savings, that sucks. If
| a 45 year old losses all their savings they have people to
| provide for. Which doesn't just suck, it's detrimental to his
| life and hapiness.
|
| A 20 something has 40 years to bounce back, a 45 year old has
| 15. Time horizions dictate risks that can be taken.
| RivieraKid wrote:
| Insurance has a positive expected value if you've made a good
| decision.
| vasco wrote:
| Moreover, insurance is a bet against yourself. When assessing
| insurance I always go through this exercise. For example,
| optional auto insurance when renting a car is routinely
| extremely overpriced. A good way to reason about it is "Would I
| bet $20/day that I'm going to have an accident in this car for
| the next 3 days?"
| rootsofallevil wrote:
| it would be more accurate to say:
|
| Would I bet $20/day that something will happen to this car
| that would make the rental car company want to be reimbursed
| for?
|
| Depending on rental car company the limits of scratches,
| dents etc .. can be very low.
| glandium wrote:
| And those scratches, dents, or even more could be entirely
| not your fault. Heck, they could even happen when you're
| not in the vehicle.
|
| So effectively it's a bet against you, other people and
| more generally the world.
| mushishi wrote:
| I think that for the serious cases of unexpected misfortunes,
| an insurance is a compressor where all population events are
| the whole signal and individuals make the peaks (well sometimes
| many a person are in the same event):
|
| For the subset of people that would need an insurance without
| knowledge that could prevent that, the consequences should be
| distributed among all people. (Sure, there are exceptions if
| taking too big a risk.)
|
| And personally I feel most medical issues and school should be
| paid by the state as it would be too unfortunate if an
| individual should face alone the consequences -- and possibly
| couldn't afford for an insurance, or is likely not to buy it
| because has other monetary issues.
| lend000 wrote:
| Most people making active trades right now are certainly
| gambling, but has society really left them much choice? They
| can't leave their house, and boring investments are significantly
| underperforming because the government has committed to low bond
| rates and printing enough money to dissolve your mattress savings
| and prop up equities at all costs. Add that real estate is
| insanely expensive (also a consequence of artificially low
| interest rates), and it shouldn't be so difficult to imagine why
| even intelligent people are playing the short term trading game
| which is approximately zero sum. It seems like the only way to
| get ahead, and it kind of is true (even though most will fall
| further behind).
| k33n wrote:
| I'm gambling. Have fun trading!
| vmception wrote:
| understanding the expected value of your financial game is
| important
|
| understanding that the distinction between "gambling" and "this
| other respected thing" is purely cultural is even more important
|
| you are facing people, around the world, who do not need to
| rationalize a difference for any cultural, personal, religious,
| legal or future legal reason. even their community does not care
|
| yet you do, you are already disadvantaged by spending any cycles
| on this
| ghjghj666 wrote:
| >So why is bet sizing important? This is an often overlooked
| concept, but it is extremely important to prevent ruin (or losing
| all your money).
|
| The Kelly optimal bet for many popular investments is over 100%
| (not that it's a good idea to invest like that). Understanding
| the KC often leads to less conservative investing, not more.
| xwdv wrote:
| I didn't start making massive amounts of money in trading until I
| realized a simple concept: Don't take risks, _make_ them.
| Essentially you provide an opportunity for others to take risky
| gambles and profit when they lose.
|
| So now I sell way OTM option contracts and make great consistent
| money. Sure a pro day trader might make more, but I make
| consistent money and with much less skill or accuracy required.
| And I still benefit from the rise in my underlying stocks as long
| as they don't get assigned.
|
| Only reason this isn't more popular is because you really need
| high six figures or over a million in assets to start making
| income you can live off of. The amount of people with that much
| money in liquid assets is already small, and the portion of them
| willing to invest actively is even smaller, so very small target
| audience. Also, perhaps the current market environment lends
| itself better to selling options than it did in the past. I'm
| optimistic, but ready to accept this easy money could end
| someday.
| whatever1 wrote:
| A Positive Expected Valued bet does not mean that it is not
| gambling. A couple of years ago, the MegaMillions prize was so
| large that the expected profit from a lottery ticket was higher
| than the cost of the ticket itself. Buying that ticket was still
| gambling.
|
| The problem with the stock market is that you gamble on
| speculations. And you do so without any connection to the balance
| sheet of the company. Most of the shareholders are not the
| original shareholders, that means that they never invested a
| single penny to the company. They only paid speculators. And
| these speculators paid others etc.
|
| Stock market is mostly* a glorified pump and dump scheme that
| looks for the greatest fool[1].
|
| [1] https://en.wikipedia.org/wiki/Greater_fool_theory
|
| *exluding the IPOs and issuing of new shares where actual money
| flows from the investors to the balance sheets of companies.
| RhodoGSA wrote:
| I've been doing alot of deep dive into 'Technical Analysis',
| picked up a couple text books on the markets and have been
| flipping cryto to great success lately.
|
| I've come to realise that 'Technical Analysis' is just insider
| trading. Us day traders come to this 'Agreement' on which
| technical analysis to buy and sell at. There are thousands of
| different 'methods' to coordinate this insider trading but if a
| boolinger band lines up with the bottom of linear regression
| chart, it's a pretty safe bet to assume other people 'Agree' to
| pump and dump up to some other technical analysis.
|
| Whatever you call technical analysis, I call sophisticated
| insider trading. It's been working out great for me, but i do
| feel alittle gross sometimes.
| jliptzin wrote:
| A negative expected value bet also does not mean that it is
| gambling. For example, buying homeowner's or life insurance.
| This entire article seems to be quite obvious and should be
| easy intuition even for a beginner, and doesn't even try to
| explain how one might be able to tell whether their trading
| profits are due to luck or skill.
| fractionalhare wrote:
| _> And you do so without any connection to the balance sheet of
| the company._
|
| This is incorrect for just about every long/short equity hedge
| fund.
| iambateman wrote:
| The book "What I learned losing a million dollars" talks about
| the difference between trading and gambling in more detail, and
| it changed the way I think about investing.
|
| It's also just a fun read.
| whatever1 wrote:
| Trading stocks in America is state sponsored gambling. All of the
| game is based on the assumption that the stocks will (on average)
| always go up. They dont. Check the European stock markets that
| have been stagnant for 20 years.
|
| Selling lottery tickets with the promise of getting a pension.
| Disgusting.
| anaphor wrote:
| Why has the S&P 500, Russell 2k, etc all gone up over the past
| 20 years on average then?
| pashamur wrote:
| 1) 20 years is a small sample size
|
| 2) The US has enjoyed the status of the world's reserve
| currency since 1945, which literally means the gains of the
| U.S. stock market are partly financed by the whole world
| (note that we used to have a net surplus with other countries
| pre-1970, but now run a deep deficit and have off-shored our
| domestic manufacturing base - as a result of needing to get
| dollars out into the system)
|
| 3) Most stock market analyses on the US stock market are done
| in this 1945-now period when the US has been dominant on the
| world stage; it's a long time in an individual's life but a
| short time historically. If that changes, I expect lots of
| things that were "always true" to no longer be true anymore.
|
| More reading: https://www.lynalden.com/fraying-petrodollar-
| system/
| pensatoio wrote:
| GPD per capita is significantly stronger in the USA than the
| EU. Over the past forty years, growth in the USA has been not
| only been strong, but stable (practically linear.) The EU is a
| very different story.
|
| My point is, I don't think it's fair to justify calling the US
| equity markets "gambling" by comparing them to the EU which is
| a totally different horse.
| ab111111111 wrote:
| "Gambling occurs when you have a poor understanding of risk,
| resulting in either (1) negative expected value bets, or (2) poor
| bet sizing that leads to ruin." Not so. Top poker players are
| still gambling, but have an excellent understanding of the risks.
| Their skill doesn't turn them into investors. Gambling is taking
| a high risk bet. Whether the expected pay off is high enough to
| justify the risk and whether you can afford to lose the bet is a
| separate issue.
| hntrader wrote:
| "Top poker players are still gambling."
|
| This all hinges on how we define "gambling". A lot of top poker
| pros do not subscribe to the definition that includes them as
| gamblers, since colloquially "gambling" isn't always synonymous
| with the game itself but instead connotes reckless abandon and
| negative EV decision making.
| ryandrake wrote:
| Everyone has a different definition of gambling. I don't
| think it has to do with EV. Poker players can definitely
| achieve long-term, sustainable +EV, especially in rake-free
| games, because they are playing against other players and not
| a house. I still think it's gambling (along with the stock
| market), which to me simply means wagering something of value
| on a future event whose outcome is unknown.
| porb121 wrote:
| With a wide interpretation of "wager", your definition
| includes lots of human behavior that no one would
| traditionally call gambling, because all future events have
| unknown outcomes, and most future events have appreciably
| unknown ones.
| PragmaticPulp wrote:
| Anecdotally, a lot of the new stock and crypto investors on the
| internet this year hold no illusions that they're investing.
| The pop-culture mindset is that the stock market is just
| gambling, so they might as well bet big with long shot
| companies and options.
|
| The common sentiments are "I'm only investing what I can afford
| to lose" and "but what if this is the next GameStop/Bitcoin?"
| They're entering with a mindset that betting it all is fine
| because they've mentally written off the money.
|
| I've been using this as an opportunity to introduce friends and
| family to more passive, long-term investment strategies but the
| skepticism is strong.
| eloff wrote:
| Would one expect any different from the instant gratification
| generation? It seems like safer, long term investments that
| require lots of patience are the opposite of what we've been
| trained for by the internet.
|
| Lots of generalizations there, but if it's true that
| millennials have more difficulty embracing delayed
| gratification, which I think is likely, then a riskier more
| speculative investment strategy seems to naturally follow
| from that.
|
| It might also be additionally influenced by record poor
| returns from safer types of investments.
|
| To be clear, I'm allowed to pick on millennials because I am
| one, and I've been burned bad this last week on my
| speculative "investments". So it applies to me as well.
| vmception wrote:
| understanding the expected value of your financial game is
| important
|
| understanding that the distinction between "gambling" and "this
| other respected thing" is purely cultural is even more
| important
|
| you are facing people, around the world, who do not need to
| rationalize a difference for any cultural, personal, religious,
| legal or future legal reason. even their community does not
| care
|
| yet you do, you are already disadvantaged by spending any
| cycles on this
| devoutsalsa wrote:
| Good poker players are good at taking money from not good poker
| players. 2 good poker players going head to head is like Yoda
| dueling Palpatine. 1 good player at a table of not good players
| is like Anakin with a lightsaber in a room full of younglings.
| JoeAltmaier wrote:
| Don't have to be a top player, to be gambling?
| Raidion wrote:
| I (and I think a lot of poker players) would disagree.
|
| Everything in life involves some sort of risk, but doesn't mean
| it's gambling. Gambling is defined exactly by those two
| properties. You could die driving to the store, but the odds
| are tiny and the benefits are huge. Driving to the store isn't
| gambling. Are casinos gambling when they let you play
| blackjack? No, the bets are +EV, even those they are only a few
| % different than the player odds.
|
| You say poker players are gambling and then say gambling is
| taking a high risk bet. Good poker players make positive
| expected value bets, and have correct bet sizing (via Kelly
| Criterion) that means they will be able to survive variance and
| win.
| [deleted]
| ReggieCommaRose wrote:
| I used to play full-time and I currently work in trading.
|
| Poker is definitely gambling. Casinos are gambling, they're
| just doing so with massive volume and tiny risk (afaik).
| Trading is gambling. Gambling well is a subset of gambling.
| sneak wrote:
| > _You could die driving to the store, but the odds are tiny
| and the benefits are huge. Driving to the store isn 't
| gambling._
|
| This statement seems uncontroversial, but I am not sure it is
| true.
|
| Driving to the store is one of the riskiest activities I
| (used to) regularly engage in. Now that I do it (much) less,
| I do indeed perform a risk/reward analysis of getting into a
| car (when before it was automatic, with an assumed zero risk
| due to normalcy bias).
|
| It is possible that under a strict definition we are indeed
| gambling with our lives each time we get in an automobile.
| hgjnhikn wrote:
| Bet sizing in poker is not determined by the Kelly criterion,
| it's determined by maximum expected value with at most a tiny
| penalty for high risk.
|
| Where you could in theory apply the Kelly criterion is in
| selecting which stakes to play at. But in practice it seems
| more chosen through rules of thumb / common sense / feeling
| than an actual application of the Kelly criterion.
| spydum wrote:
| I thought the exact same thing.
|
| I suspect a better definition would be a wager based on random
| chance. Markets aren't "random", they are just suitibly complex
| enough to seem like it. Some people apply algorithms and
| emotional analysis to predict behavior. This might sound like
| poker, but I would argue all of the influences in a market are
| clearly visible. In a game of chance like poker, card ordering
| is still random (yes you have probability of predicting next
| card, but you can't see it until it happens).
| [deleted]
| cblconfederate wrote:
| Comparison with sports and horse betting would be more apt. There
| the line is clearly blurred and there's barely a distinction
| between the two, yet sports betting is regulated as gambling
| cambalache wrote:
| > A not so obvious result that follows from making successive
| negative expected value bets, is that in the long run you are
| guaranteed to lose all your money (or ruin). Intuitively this
| makes sense as with each bet, you are losing money on average.
|
| And this was upvoted all the way to the top. JC this site quality
| is at all-time low.
| Dumblydorr wrote:
| Many are neither trading nor gambling, but spending hundreds on
| meme stocks for the belonging and cultural value.
| hckrnrd wrote:
| Sounds like you're speaking from personal experience.
| emrah wrote:
| Humans are creatures of habit and emotion, so there are some
| patterns one can sort of predict and rely on, but I would argue
| what most people call investing is actually gambling.
|
| In fact, without insider knowledge, I would argue it's not
| possible to invest.
| mgh2 wrote:
| What about investing?
|
| The current narrative is more like "robinhood stealing" by
| whatever means
| tinco wrote:
| If we're investors, and not gamblers, why do we get an
| explanation about negative value bets with only gambling
| examples? It feels like negative value bets don't exist in
| investment.
|
| You can't say a bet is negative value when you don't know the
| odds, and the whole reason people are making so much money market
| making is that no one actually knows the odds, so no one knows
| the "real" value of any instrument.
|
| If you're trying to say we should come up with an expected value
| of the bet before making it, why not give an example on how you'd
| try that?
|
| The reminder of the Kelly Criterion is great, and I think the
| article would have been better with a little more practical
| example of how to apply it. The first half of the article feels
| like it could be condensed to "Gambling is when you pick bad
| investments" which is ridiculous..
| hntrader wrote:
| "You can't say a bet is negative value when you don't know the
| odds"
|
| You can. The whole idea of E(V) in trading, gambling, etc, is
| that V is an unknown distribution, and we're trying to estimate
| the mean of it using a combination of empirical observation and
| priors given to us by experience and expertise.
|
| Nowhere in this conceptual framework is the idea that we know
| for sure what the density of V is.
| jpalomaki wrote:
| You move from "gambling" to "investing" by analyzing the target
| company and coming up with your view of the correct price for
| the stock. You then compare this price to the market price. If
| market price is lower, buy. Otherwise don't.
|
| This is basically the same way professional sports betting
| works. People involved collect information about the teams and
| try to understand how this information affects the outcome of
| the match. Once they have established their own view on the
| probabilities, they check the odds bookmaker if offering and
| calculate the expected outcome, i.e. how much money will this
| bet give me. If your calculations are right, then repeating
| this over and over again will lead to profitable betting in
| long term.
|
| In a sense the gambling/investing distinction is just in your
| own head. Maybe you are so bad at evaluation the companies that
| a coin toss would be better predictor for success than your
| Excel sheets.
| vardaro wrote:
| "It feels like negative value bets don't exist in investment."
|
| Options are deliberately negative EV. They need to be negative
| EV to be long so that there is an incentive for option sellers
| to sell premium. Otherwise option seller would just get
| steamrolled every time.
| Sebb767 wrote:
| > Additionally just because a game involves skill, it doesn't
| mean that it is not gambling, otherwise Lehman Brothers would
| never have collapsed.
|
| Chess involves no random elements and I doubt anyone would call
| it gambling. Yet you can loose in chess.
|
| I agree with his general point, but I don't think you can use the
| Lehman Brothers as a stand-alone gambling argument.
| qwasaw wrote:
| hi
| ctvo wrote:
| Gambling. Especially in this environment, but the financial
| markets are both more available and the games have more depth
| than any casino near me.
|
| The ability to leverage is a lot less frictionless and doesn't
| include fingers getting broken when you can't cover.
| ilaksh wrote:
| It's an artificial distinction. If you are wealthy, you have
| access to opportunities with good odds, call it trading and tell
| everyone about it so they know you are a sophisticated and wise
| investor.
|
| If you are poor, you have few good options and generally wouldn't
| brag about your gambling. If you do, you are labelled
| irresponsible.
| IgorPartola wrote:
| I tend to agree. Trading stocks is essentially gambling but
| almost worse. The odds are rigged but you don't know by whom
| abs how much. It's a game of skill, except not entirely. The
| house always wins except there are multiple houses and you can
| lose to all of them.
|
| I think investing is a different beast: that is going long on a
| company, industry, or the market in general. You reasonably
| know that the market will over time go up. With specific
| industries or stocks you take a bit more risk but you are still
| buying ownership of a thing and things tend to become more
| expensive over time unless a better thing comes along. But
| short term gains chasing, especially as a retail investor is
| just gambling.
| midasuni wrote:
| Stick a 1% tax on all share buys and use to reduce income tax
| for working people, or just issue it as a cheque at the end
| of the year that people can invest.
|
| That doesn't harm investing
| greggyb wrote:
| Sure it does. Any investment with an expected return of <1%
| immediately flips from positive value to negative value for
| an investor.
| catmanjan wrote:
| Uh, that's a great idea, has this ever been proposed
| formally?
| [deleted]
| spiralx wrote:
| Financial transaction taxes have been introduced in any
| number of countries, the majority of which have ended up
| repealing them: the tax raised on transactions is
| outweighed by the loss of capital gains caused by a
| reduced number of transactions occurring. And in today's
| global financial system you could end up like Sweden,
| where introducing an FTT saw 80% of trading move to
| London within a year...
| nemo44x wrote:
| The Net Investment Tax is a better way and already exists.
| It taxes actual gains over a threshold so "the little guy"
| is unlikely to pay.
| hntrader wrote:
| "That doesn't harm investing"
|
| Not true. The cost will be largely passed on from market
| maker to investor through bid offer spread.
| naveen99 wrote:
| When you are poor, your discretionary investments are a small
| fraction of your future income. So you can afford to blow out
| your brokerage account a few times. In a way, college,
| marriage, and kids are leveraged bets on your future income so
| they are more risky than gambling past income.
|
| When you are wealthy you have to be more disciplined and pace
| yourself. The only thing you thing that you can't slow down the
| pace of is time.
| rustypython wrote:
| I don't think the odds is really part of the distinction. If
| you find a way to "gamble" with positive expectation, by
| profiting from sports betting markets for example, you are
| still labelled irresponsible and reckless compared to real
| "investors" who buy stocks, even when those bets are clearly
| unwise.
| superbcarrot wrote:
| > If you are poor, you have few good options and generally
| wouldn't brag about your gambling. If you do, you are labelled
| irresponsible.
|
| And rightly so. For two main reasons
|
| - demonstrably negative expected value of the bets (like in
| casino floor games or the lottery)
|
| - relatively high proportion of total net worth wagered
|
| I'm very comfortable with labeling this as irresponsible
| (regardless of levels of wealth). It's not just a case of
| "everyone does it but only poor people are shamed for it",
| there's a clear distinction between the two cases.
| Bakary wrote:
| The more useful interpretation of the argument is that it's
| another form of justifying the social order through cultural
| perception of the inherent worth of people in each class
|
| i.e. everything a wealthy person does thanks to wealth is
| traditionally promoted as a sign of their inherent worth, and
| everything a poor person does out of the conditions of
| poverty is interpreted as a sign of their fundamental
| roughness. This is especially true in a Protestant context of
| wealth being an indication of divine favor.
| randomNumber7 wrote:
| I can recommend this video. I read the article and it came to my
| mind that I have watched it a couple of years ago. The history of
| trading is actually connected with gambling:
|
| https://ocw.mit.edu/courses/sloan-school-of-management/15-s5...
| auntienomen wrote:
| The headline looks like an exception to Betteridge's Law, in that
| the answer is clearly yes.
|
| The crucial thing is that you don't know the true distribution of
| returns when you invest, trade, or speculate. There's always some
| probability that you're gambling, in the sense of this article
| timwaagh wrote:
| You have made quite a few interesting posts, from valuating
| bitcoin to trading strategies. So I subscribed.
| glintik wrote:
| I'm trading, hedging, gambling, gaming and investing.
| tobyhinloopen wrote:
| > This is because on average, you will gain $1 with every
| coinflip. For those interested in the maths, you have a 50%
| chance of winning $2, and a 50% chance of losing $1, 50% * (+2) +
| 50% * (-1) = +$0.50.
|
| Interesting
| TacticalCoder wrote:
| As as already been pointed out it's not correct. Your EV,
| although positive, is +$0.50 cents, not +$1.
|
| Another nitpick: in Poker you'd more see the $1 as the price to
| participate, and $3 as the gain (because in Poker what you put
| in the pot is considered "not yours" anymore).
|
| So the math is ($3 * 0.5 -$1), which also gives 50 cents and
| which, arguably, is more logical (but really it's a minor
| nitpick).
|
| As the problem is presented in the article you wouldn't see it
| that way but then Poker is mentioned so...
| [deleted]
| eterps wrote:
| I think this is an interesting concept for gambling:
| https://pooltogether.com
| scribu wrote:
| Ah, a lottery on a blockchain. Why not!
|
| Except, unlike a national lottery, you can't trust the issuer
| and the value of your prize fluctuates even _after_ you win.
| eterps wrote:
| I was referring to the concept, not whether it is centralized
| or decentralized. Most blockchain applications don't need one
| to function.
| dannyw wrote:
| 1. Blockchains actually allow for "provably-fair"
| (cryptographically determined) lotteries. A lot more fair and
| trasparent than national ones.
|
| 2. This specific lottery uses stablecoins, with a value tied
| to the US dollar.
|
| So both of your points are invalid here.
| TomGullen wrote:
| Working out EV is easy for casino table games, relatively easy
| for poker and extremely difficult for stocks trading.
| tchalla wrote:
| The reason is pretty simple - probability of events are an
| important input to calculation of expected values. If the
| probabilities are off, expected value calculations will differ.
| Also, Expected Value works under the "law of large numbers"
| assumptions. That in turn brings into picture the "sequence of
| return" risk. Two drastically different sequences can lead to
| the same Expected Value but can have serious short term
| implications.
|
| "The market can remain irrational longer than you can remain
| solvent."
| superbcarrot wrote:
| > Also, Expected Value works under the "law of large numbers"
| assumptions.
|
| Technically, EV has nothing to do with sample size. But I get
| your point that in sufficiently small sample sizes and/or
| sufficiently large bet sizes you might need to think about
| utility rather than expectation.
| hntrader wrote:
| "easy for casino table games"
|
| I don't believe EV is easier to estimate in poker than trading.
| You need to estimate hand range and the consequences of actions
| later in the hand. It's extremely complicated.
| oh_sigh wrote:
| Yes...bet sizing is something I worry about a lot, but it isn't
| clear to me how to apply the kelly criterion to a game where
| the risk/reward is mostly unknown and only based on a hunch.
| scribu wrote:
| One better-than-nothing way is to look at historical data:
|
| Looking at the closing price for each trading day, count how
| many times the stock ended higher and how many times it ended
| lower than the previous day.
|
| Then you have your odds.
| hgjnhikn wrote:
| You could make a table where row is guessed probability(input
| to Kelly criterion) and column it's actual probability and
| cells contain expected value and expected log value. And pick
| something which looks reasonable.
| hendler wrote:
| Eric Ries's https://ltse.com/ is one alternative.
| jzer0cool wrote:
| > Don't make negative expected value bets - you are guaranteed to
| lose all your money in the long run.
|
| What are the positive EV values?
| konjin wrote:
| Gambling and I know it.
| paulgb wrote:
| A couple years back I wrote an explorable explanation on the
| Kelly Criterion. I thought I'd share it here as it's not often
| the Kelly Criterion comes up around here :)
|
| https://explore.paulbutler.org/bet/
| gandalfian wrote:
| Gambling is a zero sum game, your win is anothers loss. Investing
| is not. When it works there is literally more stuff, goods and
| services, for everyone! With investing you can win without others
| losing! That is how we all have so much more stuff than a century
| ago without anyone losing, we didn't liberate it from the
| aristocrats we invested and created it.
| hntrader wrote:
| Gambling isn't necessarily zero-sum in utility, which is what
| matters. There's entertainment value for example.
|
| It'd be like saying the foreign exchange market is zero sum,
| because one party loses HKD and another gains USD. This is
| obviously flawed because utility is being gained by both
| parties despite being zero sum in dollars.
| gher-shyu3i wrote:
| Shorting is also gambling, but it is not a zero sum game.
| Because there are now three parties bearing the risk of a
| stock, there are either two "winners" and one "loser", or vice
| versa.
| imutemyteam wrote:
| Investing isnt gambling, trading is.
|
| Atleast buying and selling stock because you think it will go
| up or go down is gambling. Basically you are betting that you
| will outperform the market rate.
|
| If you just want to get the market rate of return by passive
| investing, it is not gambling. This post is talking about
| trading.
| chrisgd wrote:
| But there is a buyer and seller in the transaction regardless
| of whether one person is gambling or investing.
| ptero wrote:
| And for early trades of a stock, in the analogy of the poster
| you replied to, the seller is a creator (inventor, builder,
| etc.) who needs money to build or expand and a buyer provides
| money for him to do that for part of future profit. That
| should be a profitable trade for both sides.
|
| The secondary market (where people just swap ownership)
| serves (spikes and manias aside) to reallocate money to more
| productive companies. This, by the way, is the area that is
| really suffering under current "only invest in indices
| because EMH" mantra. My 2c.
| tekkk wrote:
| True, but when a company sells their stock in for example
| IPO, it is a mutual goal of yours and theirs to see that the
| company rises in value.
| chrisgd wrote:
| Maybe. Or to buy at 19 and sell the next day at 24
| robjan wrote:
| That doesn't make it a zero sum game. The transaction is zero
| sum but not the market. If the market were zero sum, the
| indices would never change.
| gandalfian wrote:
| You buy a share, it goes up. You sell it to me. Share goes up
| more. We have both won. How? Because the company created more
| stuff and injected it into the equation. We can literally get
| more out than we put in.
| chrisgd wrote:
| Me buying a share from you has no impact on the company.
| They only benefit if they can sell primary shares. A
| company's ability to monetize a rising stock price is time
| consuming, you can't decide tomorrow to issue $100m worth
| of shares and be able to sell them
| gretch wrote:
| No, a higher stock price (caused by the demand and
| transaction volume generated) is valued immediately as
| compensation.
|
| If your stock goes up, employee morale is high and ppl
| want to stay the rest of their vesting schedule. If the
| stock goes down you have to compensate employees with
| more cash.
|
| Also, acquisitions are made in stock deals
| chrisgd wrote:
| Doesn't matter, as long as you are making money.
| JacobSuperslav wrote:
| the point is most gamblers aren't
| chrisgd wrote:
| There is no way to prove that. For every story of someone who
| lost $50k there are multiple ppl posting that they made $50k
| 21stio wrote:
| Hey Chris,
|
| thanks for sharing the article. I think I spotted a minor logical
| error in it tho.
|
| > This is because on average, you will gain $1 with every
| coinflip. For those interested in the maths, you have a 50%
| chance of winning $2, and a 50% chance of losing $1. 50% * (+2) +
| 50% * (-1) = +$1.
|
| Isn't it an average gain of $ 50ct per coin flip? That way the
| calculation would be correct aswell.
| TulliusCicero wrote:
| Yeah, I'm also pretty confident it's an average of +50 cents
| per flip.
|
| E.g. if you get 50 heads and 50 tails in 100 flips, that's
| +$50, which maps to 50 cents per flip.
| christopherjgan wrote:
| Good pick up!
| elygre wrote:
| Around 20 years ago, I had the opportunity to listen to a member
| of Nasdaq top management talk about the stock market. It's all a
| _tiny_ bit blurry, being a long time ago, but I remember how he
| talked about three different perspectives for investing in stock:
|
| First, the "company perspective". An investor would buy stock in
| a company they believed in. Maybe they had good products, or good
| management, or something else. The idea was looking at the how
| well the company would perform.
|
| Second, the "stock perspective". An investor would ignore the
| underlying company, but look at the stock itself. It didn't
| really matter if the company was doing good, but only if the
| stock itself had good potential. The idea was looking at how well
| the stock would perform.
|
| Finally, the "game perspective". An investor would not really
| care about the stock, but only about the behavior of other
| investors. Day trading would be the example here, profiting
| mainly on marketplace dynamics, no matter the stock. The idea was
| looking at how to be a better player than the others.
|
| Then he talked about how the game perspective was the only model
| that really matched the marketplace, and how the stock market had
| evolved from being place where people would invest in companies,
| to a place where they would play a game with other peopl.
| dehrmann wrote:
| > the game perspective was the only model that really matched
| the marketplace
|
| I agree, but I suspect the "company" and "stock" investors
| implicitly do, too. They invest with their strategy knowing
| that if they're right, they'll be rewarded by other investors
| demanding more of the stock, driving up the price. The main
| exception is dividend investors who just want their utility
| stock to keep paying the same dividend every quarter--that's a
| true "company perspective."
| criticaljudge wrote:
| I think you can still buy some stock with the intention of
| collecting the dividends or hoping for the stock's value to
| grow over time.
|
| There are simple calculations like Price/Earnings ratio that
| are usually published with every stock, that can help to see if
| it is a "gambling stock".
|
| You will of course hear all sorts of opinions about the stock
| market, including hardcore socialists who believe it is the
| root of all evil and so on. So take everything with a grain of
| salt.
| fakedang wrote:
| P/E has become a rubbish metric now, because there's so much
| money in the market thanks to QE. Most of the money in stocks
| now is money that would have gone into commodity trading and
| bonds, etc. The former's prices have stabilized or declined,
| leading to really poor opportunities, while zero interest
| rates and neg rates battered the market of the latter. Hence
| all that money has entered the stock market, which is why
| past P/E behavior, or any metric's past behavior really,
| cannot be correlated to future behavior.
| jandrewrogers wrote:
| It isn't so much that P/E is rubbish but that its utility
| as a proxy metric assumes approximately flat revenue
| growth. This assumption is no longer true for a significant
| percentage of the largest companies, many of which are
| demonstrating large non-zero revenue growth rates, both
| positive and negative. If you are looking at companies with
| high revenue growth, there are other metrics used to
| determine if they are "cheap" or "expensive". Amazon is a
| great example of a company that is "expensive" by value
| metrics like P/E but actually pretty cheap by metrics with
| more applicability to revenue growth companies.
|
| The problem is that many investors apply metrics, like P/E
| or book value, blindly without understanding the
| assumptions that must be true for the metric to be a
| meaningful measure of value. It is even more complicated
| inasmuch as some companies fall into an ambiguous gray area
| when it comes to appropriate valuation metrics (I'd argue
| Apple is one such company).
|
| Like with any analysis, there is some work to make sure the
| statistical model actually captures what you intend to
| measure.
| criticaljudge wrote:
| But I think the opposite case still kind of holds, that
| with P/E you can at least see if a company is most likely
| not overvalued. And that was the issue in question
| ("everything is just gambling").
| jandrewrogers wrote:
| P/E doesn't even tell you that. Companies with negative
| revenue growth rates often have low P/E ratios but these
| are often overvalued and poor investments even then.
| Sophisticated investors, and therefore market pricing,
| take all of this into account when valuing companies. All
| trivial nominal measures of stock value were completely
| arbitraged out of the market many years ago.
|
| There are still measures that correlate well with low
| risk and strong returns for some subset of companies, but
| identifying a subset and building valuation models for
| them is non-trivial (e.g. I typically use risk models for
| revenue growth in comparative valuation which don't even
| apply to most of the market). If it was as simple as
| looking at a trivial ratio of public numbers, everyone
| would already be doing it.
|
| I've been investing a long time and the markets have
| changed _a lot_ over the decades. At this point, I think
| most of the investing advice from several decades ago is
| obsolete because it is based on assumptions that aren 't
| actually true today. Investment advice and heuristics
| have a shelf-life. Most people aren't going to build a
| portfolio strategy from first principles, it is a lot of
| work, hence the popularity of index funds.
| criticaljudge wrote:
| Granted it was then perhaps a bad example, as it doesn't
| take into account the value of the companies possessions.
|
| I just wanted to give an example to say that you can check
| things about a company beyond the stock price, which may be
| inflated by gambling. If a stock is "gambled" to the moon,
| it assume would have a very high P/E. I'm not actually an
| expert on those indicators, haven't looked into them much.
| rjbwork wrote:
| From a socialist (especially labor theory of value)
| perspective, you're buying and selling people's future labor.
| Socialists tend to think that the workers should get all of
| their labor. Obviously "root of all evil" is somewhat
| hyperbolic, but based on even passing knowledge of socialism,
| it is easy to see why a socialist might consider it to be an
| evil game.
|
| Per your previous sentences though, a common refrain on
| /r/WSB is "Sir, this is a casino".
| criticaljudge wrote:
| It doesn't make much sense, as owning a stock does not give
| you any entitlement to the future labor of employees. Also
| employees can buy stock themselves, which arguably is
| superior to forcing them to be stakeholders in the company
| they work for, as it is voluntary. But the labor theory of
| value also doesn't make sense to begin with (if you
| disagree, I'd like you to pay me 10000$ to dig a hole in
| front of your front door, which would be hard work and
| therefore definitely worth 10000$), it's probably moot to
| discuss.
|
| I don't think /r/WSB is representative of the stock market
| as a whole.
|
| The stock market is just people trading. Some do stupid
| trades, some do smart trades. To cherry pick some stupid
| trades and claim it is all a casino is crazy, imo.
|
| Personally, I am a freedom guy - I think people's freedoms
| should be maximized.
|
| The alternative to "letting the people trade" is to
| regulate what people invest in. In my country, it gets
| harder and harder to invest in anything but the government
| pension, as every other asset class is being destroyed with
| taxes and risk of socialist pawning. There are also rules.
| It is just another tentacle of the "nanny state",
| preventing people from making potentially harmful
| decisions. But it limits freedom. Especially people on
| Hacker News (formerly Startup News) should understand.
| Should people be allowed to do Startups? It's a very risky
| undertaking which might lose you money.
| IgorPartola wrote:
| That makes a lot of sense. I think the GME debacle is a good
| demonstration of that. Shorting stocks is a part of the game.
| Some people exploited it, others found a counter move. I don't
| believe GME is worth what the market currently values it at.
| But I also don't see that fundamental value ever matching the
| market value anytime soon because the market has fully embraced
| its non-rationality regarding this stock. We aren't trading
| shares in a specific company here. We are trading Melvin'a
| profits and/or losses.
| TeMPOraL wrote:
| > _But I also don't see that fundamental value ever matching
| the market value(...). We aren't trading shares in a specific
| company here. We are trading Melvin'a profits and /or
| losses._
|
| I think you're still doing L1/L2 thinking.
|
| The way I understand L3, there's no such thing as
| "fundamental value". There's only market value, that's
| determined by what people think the market value is. The
| extent to which it's correlated with real-world performance
| of a company is limited to how likely other people are to
| take that performance into account. Ordinarily, enough
| investors look at the state of the company to give rise to a
| correlation (if only because otherwise there's nothing
| external to look at!). Meme stocks are kind of extreme here,
| in that everyone knows that everyone else knows the stock is
| being traded on its market value. But that feels to me like a
| difference of a degree, not of a kind.
|
| And at this point I ask myself, how any of that is even
| useful to the society? Could we decouple the parts that let
| companies loan money and be accountable to the shareholders,
| separate them from the part where investors just play their
| spreadsheet MMOFPS? Or is the former always inherently going
| to turn into the latter, as people will always game it?
| criticaljudge wrote:
| But it is obviously bullshit, as the real companies behind
| some stocks have a real value. Like for example they might
| own a building that is worth one billion dollars (simple
| example). If you take away all the stock market
| shenanigans, you still own part of that building via your
| stocks.
|
| As for the usefulness question: providing liquidity is
| useful. If an investor considers investing in some project,
| it helps his decision making if they can be reasonably sure
| that they will be able to sell their shares later on.
|
| And even if it wasn't useful, why would you care what other
| people do with their money?
| mancerayder wrote:
| >But it is obviously bullshit, as the real companies
| behind some stocks have a real value. Like for example
| they might own a building that is worth one billion
| dollars (simple example). If you take away all the stock
| market shenanigans, you still own part of that building
| via your stocks.
|
| But as a stock holder even of a public company, your
| shares can get diluted to smithereens when they issue new
| shares to raise money.
|
| For a laugh check out the chart of Helios and Matheson,
| the MoviePass company that had a fly by night stock
| spotlight experience a couple of years ago. It's so
| diluted, the historical price looks like the stock was
| worth bazillions in the past chart numbers.
| criticaljudge wrote:
| I'm not an expert on that, but how can companies simply
| issue new stock? Why wouldn't they simply issue billions
| of shares and dilute everybody else to nothing? (Except
| for the loss of trust, meaning they would only be able to
| do that once)? Can they simply issue new stock in any way
| and amount they want?
| mancerayder wrote:
| I don't know the legal specifics but they absolutely can,
| and do, all the time. It makes the stock sink so it's not
| something you do uncalculated, but struggling or new
| companies do this all the time. It's a way to raise
| capital in the public markets. If people believe in your
| growth, they'll go along and you might not crash too
| badly after dilution. And yes, some dilute and pay their
| executive team handsomely year over year.
| ac29 wrote:
| Companies issue stock all the time. Ideally, if a company
| issues, say, $1B in stock, its so they can use that money
| on projects that will return >$1B in value. In that case,
| everyone's happy because the dilution in shares in more
| than counteracted by the increase in revenue.
|
| There are limits - I would assume the SEC has the ability
| to approve or deny new issuance of shares. If you have 1
| million outstanding shares, they would probably frown
| upon a filing to issue 1 billion more shares.
| j4yav wrote:
| As a shareholder how do you access that value without
| stock market shenanigans coming into play? The only two
| that come to mind are companies about to go bankrupt, or
| a careful focus on dividend value (but dividends may not
| pay out the value of their static assets without having
| to sell them.)
| notahacker wrote:
| If you've got a company which is worth a billion dollars
| in assets but is in too unfashionable an industry to be
| trading at more than half that in stock (and there isn't
| a more obvious problem you've missed like unsustainable
| debt), _someone_ will eventually buy it to liquidate
| those assets, and earn the holders a nice little profit
| on the way. And value investing is all about the other
| side of the beauty contest - looking for the companies
| investors _don 't_ think are handsome which are strong
| enough to end up generating the sort of profits that will
| eventually lead investors to conclude they're not that
| ugly after all.
|
| The irrationality is more on the upside: tech stocks
| whose fundamentals make little sense you suspect will go
| up in value in the short term anyway because of FOMO. A
| lot of people have made fortunes on those kind of bets,
| and there are definitely people day trading WSB hyped
| stocks who don't forget to sell.
| criticaljudge wrote:
| By forming an interest group with other shareholders, so
| that you have enough votes to determine what happens with
| the companies assets (in an extreme case).
|
| You also have some legal rights as a shareholder. I don't
| know about the US, but for example in my country there is
| a LEGAL requirement for companies to maximize shareholder
| value. Few people seem to know when they blame capitalist
| greed, when really it is a government law. So you can sue
| the company if you think they mismanage their assets.
|
| Of course there are ways for companies to rip off
| shareholders. I think there is an old Philip Greenspun
| article about it, iirc he mentions buying expensive
| furniture and artwork for the offices.
|
| I suppose it is part of the due dilligence before
| investing in a company, to check how they spend their
| money.
| drunkpotato wrote:
| I care a lot what other people do with their money. I
| care if they use it to harm people. I care if they use it
| to buy legislation to replace pensions with 401ks. I care
| if they "earned" it through fraudulent means. Some ways
| to use money are beneficial or neutral, but some are
| harmful.
| kortilla wrote:
| > I care if they use it to buy legislation to replace
| pensions with 401ks.
|
| Pensions are terrible (at least based on performance so
| far). Not only do they provide worse returns, many are
| incentivized to lock you into a specific company for many
| years.
|
| An friend of mine retired in 2013 and had pensions from
| the first 3/4 of his career and a 401k from the last 1/4.
| The 401k grew so much it paid out more than all of the
| pensions together when annuitized (even with garbage
| interest rates).
| staticman2 wrote:
| You have to compare the amount of money your buddy paid
| into the pension plan vs 401k to even begin to do an
| alalysis. (With or without the 401k/ employer pension
| match)
|
| I have a pension and if I maxed out a 401k it would grow
| "bigger" but that means I'd be saving more than the
| pension plan payments that come from my salary require me
| to save.
| criticaljudge wrote:
| But do you care if they gamble away their money? Surely,
| with the "fraudulent means" example, you care about the
| fraudulent means, not the money. Can't comment on the
| 401k thing, but I suspect a conspiracy theory. If you
| have proof of people buying legislation, maybe tell CNN?
| avereveard wrote:
| > The way I understand L3, there's no such thing as
| "fundamental value". There's only market value
|
| I think control theory works better at describing these
| factors, as L1-L2-L3 suggest some derivative relations that
| its's not really there.
|
| you have your set point, which is the hard company value.
| you have n proportional forces, each proportional to the
| distance from the company current value and that of every
| put and call on the market. you have a damping effect in
| the form of HFT, and you have an integrative term, which
| acts weird because it's applied inversely proportional to
| the short positions, and it's the lending cost on the short
| positions.
| TeMPOraL wrote:
| Except the whole thing with market being anti-inductive
| is that you have a non-linear term that's a function of
| the state of the control system itself!
|
| (I didn't want to suggest some derivative relation - just
| refer to the "perspectives" mentioned in the topmost
| comment.)
| throw0101a wrote:
| > _Second, the "stock perspective". An investor would ignore
| the underlying company, but look at the stock itself. It didn't
| really matter if the company was doing good, but only if the
| stock itself had good potential._ [...]
|
| > _Finally, the "game perspective". An investor would not
| really care about the stock, but only about the behavior of
| other investors._
|
| Well, momentum investing does give good returns over the market
| average:
|
| > _Momentum investing is a system of buying stocks or other
| securities that have had high returns over the past three to
| twelve months, and selling those that have had poor returns
| over the same period.[1][2]_
|
| * https://en.wikipedia.org/wiki/Momentum_investing
|
| * https://en.wikipedia.org/wiki/Momentum_(finance)
|
| Basically:
|
| > _Every January 1st you look at the newspaper and find the
| best performing stocks of the prior year. You invest your money
| among those stocks and then go about your life for 12 months._
|
| > _On January 1st of the next year you check the newspaper
| again to find the best performing stocks over the past year.
| Any of your current holdings that are no longer on the list are
| sold and any newcomers are added to your portfolio._
|
| > _Repeat every year until rich._
|
| * https://ofdollarsanddata.com/let-them-vote/
|
| Excess returns are respectable:
|
| > _From 1927 to 2011, momentum had a monthly excess return of
| 1.75%, controlling for the Fama and French factors. Moreover,
| momentum is not just a US stock market anomaly. Momentum has
| been shown in European equities, emerging markets, country
| stock indices, industry portfolios, currency markets,
| commodities, and across asset classes._
|
| * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2041429
| ajmadesc wrote:
| I think you can do even better if you reduce the intervals
| spekcular wrote:
| It seems like these excess returns are a special case of the
| general principle that taking on more risk yields higher
| average rewards at the cost of more volatility. (Compare
| stocks vs. bonds, for example [0].)
|
| Quoting from the third link above:
|
| > So it has high excess returns and has worked basically
| everywhere it has been tested, what's not to like? As the
| authors go on to say, this incredible performance is also
| accompanied by periodic, soul-crushing declines:
|
| > "In 1932, the winners-minus-losers (WML) strategy
| [momentum] delivered a -91.59% return in just two months. In
| 2009, momentum experienced a crash of -73.42% in three
| months. Even the large returns of momentum do not compensate
| an investor with reasonable risk aversion for these sudden
| crashes that take decades to recover from."
|
| > This is why momentum investing can be so deadly. When
| things are going right, they can go very right, but when they
| go wrong, it can get ugly fast.
|
| [0] See
| https://www.investopedia.com/terms/e/equityriskpremium.asp or
| the corresponding Wikipedia article.
| YokoZar wrote:
| > An investor would not really care about the stock, but only
| about the behavior of other investors.
|
| This sounds like the idea of a Keynesian Beauty Contest
| (https://en.wikipedia.org/wiki/Keynesian_beauty_contest)
|
| "It is not a case of choosing those [faces] that, to the best
| of one's judgment, are really the prettiest, nor even those
| that average opinion genuinely thinks the prettiest. We have
| reached the third degree where we devote our intelligences to
| anticipating what average opinion expects the average opinion
| to be. And there are some, I believe, who practice the fourth,
| fifth and higher degrees."
| agumonkey wrote:
| And I believe they orbit around the set of self fulfilling
| prophecies described in books. Fibonacci or similar simple
| arithmetic range estimates, deviation from the mean, etc.
| TeMPOraL wrote:
| Isn't this the reverse of a self-fulfilling prophecy? A
| self-fulfilling prophecy attracts reality to the state it
| describes. The stock market, being anti-inductive, attracts
| reality _away_ from whatever predictions being made - that
| is, for example, if I found a pattern that proves $GME
| reaches the Moon on Tuesday, enough other people would find
| that pattern too and start buying early, and $GME would
| reach the Moon on Monday, and probably crash on Tuesday.
| AbrahamParangi wrote:
| That's an artifact of including a specific time in your
| prediction. If you made that same statement time-
| invariant "GME will moon" it becomes a self-fulfilling
| prophecy.
| Udik wrote:
| It's true, but making the statement time-invariant is
| also an oversimplification. Time does not end with the
| fulfillment of the prophecy and everybody knows that.
| Where does $GME go after reaching the moon? It can only
| stay there or go down, and in both cases people would
| start selling it.
| agumonkey wrote:
| I think it does both but oscillates. At first people
| think it's an edge so it emerges as truth, then agents
| realize it's know and tweak around it.. but it's still
| the basis of their action.
|
| All in all, I had the idea that pure chaos cannot be used
| so there will always have weak superstitious held as
| reference points for a game to emerge. The one who can
| play it right (or have enough resources to endure errors)
| or not when it shouldn't will benefit from the others.
| Double_Cast wrote:
| Bubbles are inductive. Arbitrage is anti-inductive.
| rtheunissen wrote:
| This is also how I've experienced primary elections in the
| US: people voting for who they think other people will vote
| for.
| tshaddox wrote:
| General elections too.
| MereInterest wrote:
| Very true, and this is in large part a function of the
| voting system in the US. Suppose you are choosing between
| primary candidates A and B, who will run against C. You'd
| prefer A over B, but B has wider appeal in the general
| election.
|
| A better system would be a voting system that doesn't split
| the vote, because then you could forgo the primaries
| altogether. Have A, B, and C all run against each other
| directly. This is impossible with today's first past the
| post system, because that would immediately hand the
| election to C.
| ramblerman wrote:
| Interesting, given he is such a prominent Economist I'm a
| little surprised by the simplicity of the analogy though.
|
| It seems strange that he has reduced it to one where there is
| no objective value at all. As an equity at the first level is
| still about how the company will perform in the future, no?
| And thus has an objective value.
| tt433 wrote:
| Everything is worth what it's purchaser will pay for it;
| every transaction is subjective
| [deleted]
| brownbat wrote:
| This is a really important puzzle. In other terms,
| basically the efficient markets hypothesis vs, well, a week
| of GameStop prices.
|
| At certain extremes, a stock price is clearly objective.
|
| If the company is bankrupt and wiping all stock, that's
| objective. If the company does so well the shareholders
| demand an immense dividend or buyback, that's objective.
| Those are the fixed points where stock price is set to
| money in hand.
|
| Are the swings in the market just irrational participants
| between those extremes?
|
| We could imagine purely objective superintelligent AI
| dominating a market, investing only to those "true" values.
| Such AIs might determine p(bankruptcy) and p(payout),
| knowing those are the "true" outcomes of the prop bet, and
| set expected price as the ratio of those two probabilities.
|
| But both those p()s are vanishingly small for most
| companies, and infinite precision will be impossible. Even
| if you were nearly omniscient about all current factors
| within a company, the slightest possible change in either
| probability could swing the ratio in dramatic ways.
|
| (Add on to that the graveyard of companies that performed
| well, got fat, and failed to adapt... current performance
| is somewhat but not fully predictive of longevity.)
|
| So basically, what if EMH is true, but stock pricing is a
| debate at an arbitrary level of precision, to make it close
| to meaningless in short time windows?
|
| I'm not an expert so I'm sure professionals or academics
| would roll their eyes and offer something even more
| explanatory, but that's my best hunch at resolving this
| tension so far.
|
| (The upshot of this theory is that it seems to validate
| strategies that help you zoom way out: low fees, broad
| diversified indexes, long time windows... those are the
| real value trades.)
| machiaweliczny wrote:
| Beauty has objective value as defined as such but I leave
| it to you to figure out.
| hirundo wrote:
| Everything subjective is objective. I leave it to you to
| figure out how.
| nikanj wrote:
| And thus, bitcoin. A stock that's guaranteed to provide no
| dividends, do no buy-backs, or deliver any value - aside from
| the ability to sell it to the next fool for an even greater
| value.
| BelenusMordred wrote:
| You forgot no share dilution in this offtopic tangent.
| Every stock out there can double their issuance if they
| want to.
| auc wrote:
| Yeah, but if they did this, they would be raising cash to
| deploy. Presumably in an attempt to grow their business
| and create actual value.
| vermilingua wrote:
| As can bitcoin, and it would only take a soft fork.
| optimiz3 wrote:
| It wouldn't be Bitcoin then; a change in rules creates a
| new coin. There would have to be incredibly strong
| incentives for people to accept a fork that would debase
| their assets.
|
| Nit: it would also require a hard, not a soft fork.
| WrtCdEvrydy wrote:
| Yeah, but you have to have people switch to that chain.
|
| Miners won't because it would devalue their coin.
|
| New buyers might because they can "buy cheap"
| BelenusMordred wrote:
| There's a soft fork coming up for taproot requiring a
| super-consensus of 90% miners. It will likely go through
| and still be bitcoin afterwards. Thinking you might not
| understand the difference between the various types of
| forks the protocol can undergo.
|
| https://taprootactivation.com/
| scatters wrote:
| A share offering doesn't make existing stockholdings
| worth less. Usually, they benefit, because it gives the
| company increased working capital to invest in projects.
| px43 wrote:
| I know this whole "bitcoin is pointles" meme gets
| upchuckles on hacker news all day long, but at this point
| it's pretty embarrassing that this level of ignorance
| continues to persist.
|
| As it turns out "sending money over the internet" is kind
| of an important utility for the modern world, and nothing
| does it as well as Bitcoin. This is why it's now a trillion
| dollar global economy.
|
| That's great for you that you're in a position where you
| never need to send money over the internet, and you have
| people who you trust that can manage all your money for you
| without robbing you, but that's a privilege not everyone in
| this world has.
|
| Please stop denigrating shit that you don't understand.
| Bring proud of ignorance is not a good look, and it really
| is embarrassing that a community that's supposed to be
| somewhat technologically sophisticated has bought in so
| hard to this ignorant-ass take.
| nikanj wrote:
| Transaction costs for sending bitcoin are massively
| larger than sending paypal.
| Bilal_io wrote:
| You're thinking is limited to your experience only.
|
| PayPal charges a big percentage to send money to friends
| overseas. 3.9% + $0.3 in my experience, some countries
| may be higher, how is that lower than Bitcoin's fees?
| minitoar wrote:
| I think I agree with your sentiment, but saying that
| nothing is as good as Bitcoin for sending money over the
| internet, and that's why it has value, is just really not
| a compelling argument.
| toss1 wrote:
| Yup. And that key feature of "sending money over the
| internet" thing hasn't worked out very well so far
|
| I've been in it, found the entire system wanting, and got
| out. May get in again to enjoy gamble in speculative
| bubbles, but as a technology, it is still in the early
| and massively-sucking and increasingly-sucking days.
|
| Like railroads in the 18th century, they utterly changed
| society, but most investors lost their shirts along the
| way.
|
| Scalability, inconvenience, insecurity, and transaction
| fees all suck to varying degrees at varying times.
|
| It used to be that transactions would take 5-10 minutes
| to confirm, and that seemed mildly inconvenient but
| acceptable due to low costs. Now, it varies wildly, e.g.,
| between 61 and 426 minutes in the last week [1]. I just
| bought software last night and the transaction cleared in
| fewer seconds than I could notice, and that network
| handles orders of magnitude more transactions than does
| BTC.
|
| Costs. BTC transaction costs used to be astonishingly
| trivial. Now, they fluctuate wildly depending on network
| congestion, and average well over $20/transaction. [2]
| This is nuts. A BTC transaction has to be over $750 to be
| better than break-even compared to a 3% credit card
| transaction fee. The days of buying a pizza with BTC are
| long gone, unless you want to pay more in fees than for
| the pizza. But it might make sense for buying a Tesla, if
| your fiat-exchange costs on the input side are not too
| high.
|
| Inconvenience and insecurity. You can either keep your
| BTC with someone else, which means you don't control it
| ("Not your keys, not your coin", see also multiple
| exchange hacks and/or exit scams), or you must roll your
| own. This involves first, extensive research to avoid
| selecting a wallet that has either been deliberately
| designed to steal your bitcoin, or just has unknown
| vulnerabilities. Then, you need to have absolutely solid
| key management to avoid both having your BTC stolen bay
| targeted malware attacks, or losing it because you lost
| your key, crashed your drive, etc. I find this daunting
| with a solid tech background, getting individual users to
| successfully and conveniently do it is not going to
| happen.
|
| Paul Graham made an excellent point about this yesterday
| [3]
|
| In short, without MASSIVE improvements, BTC and many
| other cryptos are nothing more than gambling on
| vaporware.
|
| And that is ignoring the deliberately engineered-in
| catastrophic energy consumption, which is literally more
| than the energy consumption of entire countries, when we
| need desperately to be cutting energy usage to minimize
| anthropometric global warning
|
| Sure IFF [4] the system could be scaled to handle
| billions of transactions per day at a cost of pennies per
| transaction (compare with ACH network costs), and with a
| usable and secure UI/UX, sure it WOULD be fantastic.
|
| But over a decade since those promises, all of the
| metrics: scalability, security, transaction time, costs,
| are tracking in the wrong direction.
|
| I really wish someone could point me to some
| cruptocurrency that has these solved. I'd genuinely like
| to see it and would use and advocate for it.
|
| But until then, I can only hope they enjoy their
| gambling.
|
| [1] https://www.blockchain.com/charts/avg-confirmation-
| time
|
| [2] https://ycharts.com/indicators/bitcoin_average_transa
| ction_f...
|
| [3] https://twitter.com/paulg/status/1364986808900202513
|
| [4] If and Only If
| mitchdoogle wrote:
| I know I'm just a single point of data, but I routinely
| buy things on the Internet with Bitcoin that cost
| $200-300 USD. I always set the fee to just under a dollar
| and have never had any issues with the transaction being
| confirmed within 20-30 minutes, including in the last few
| weeks.
|
| Of course, paying with Bitcoin saves the seller about 3%
| of the final cost, and they need not worry about
| chargebacks, which saves them more money in the long run,
| so they offer a discount when crypto is used. It's a win-
| win for me and the seller.
| 8note wrote:
| It's only a win for you if they weren't a scammer, or
| they didnt send you a broken item. Otherwise you've lost
| the chargeback feature
| toss1 wrote:
| Interesting, I was several years ago seeing the
| transaction delays climb into the hours, but not the fees
| (ya, maybe I should have set my fees higher, just went
| for average). I wonder how much variance there is in the
| network and if you are just lucky, or somehow frequently
| get picked up in maybe a less busy part of the network,
| or if there's some attribute you unconsciously use that
| gives your transactions so much better than average
| performance? Either way, enjoy your advantage while it
| lasts!
| udkyo wrote:
| I've done multiple txs in the last few weeks - all with
| "normal fees," 2 took 3 days to get a single
| confirmation. 1 took ~24 hours, although these were the
| outliers, several other txs happened in normal time
| frames.
|
| It's possible the app I use is just bad at calculating
| fees, but I'm thinking yeah that guy got lucky.
| mcguire wrote:
| ...at 4 transactions per second and $20 / transaction.
| Assuming nothing interferes to drop the hash rate; in
| China, transactions have been banned although mining is
| still legal.
| ves wrote:
| Ah yes, the optimal way to send money over the internet
| must surely involve burning up an amount of electricity
| which could've powered my house last week
| rblatz wrote:
| Also you have to have absolutely perfect OpSec at all
| times. Otherwise you run the risk of someone on the other
| side of the world stealing all your money and there is
| absolutely zero recourse.
| randomsearch wrote:
| I'm undecided on Bitcoin. Happy to be called ignorant,
| but only if you can explain why. There are many ways of
| transferring money across the internet. Why is Bitcoin
| special if that's the reason for its value? Genuinely
| want to be won over.
| thebigspacefuck wrote:
| You can buy drugs or a hitman online without being
| traced.
|
| Also ransomware can demand payment in Bitcoin without
| being traced.
| WrtCdEvrydy wrote:
| Also, I can buy a pizza for a coworker in a different
| country without worrying about exchange rates or anything
| else.
|
| FYI, everything you said can be done with cold hard cash.
| np- wrote:
| You can buy your coworker a pizza with your credit card
| today. At most the fee would be 3%. From start to end the
| whole process would take no more than 5 mins. Plus,
| pretty much every decent pizzeria on the planet already
| accepts it as payment.
|
| The BTC transfer fee is something like $20 now, more than
| the cost of a pizza, and the transaction might take like
| an hour to clear? Maybe it's fine if you don't mind
| overpaying, aren't too hungry, or you enjoy cold pizza.
| WrtCdEvrydy wrote:
| > BTC transfer fee is something like $20 now, more than
| the cost of a pizza, and the transaction might take like
| an hour to clear? Maybe it's fine if you don't mind
| overpaying, aren't too hungry, or you enjoy cold pizza.
|
| Segwit transfer is currently at $0.003, and a transaction
| with enough fee processes instantly. It takes 6
| confirmations for a guarantee (but that will settle over
| the next hour). Pizza deliveries get paid in cash through
| many extensions that provide BTC2CASH purchase.
|
| I can bet you buying a pizza in Spain with Spanish
| currency using a US card will charge you a foreign
| exchange fee.
| lottin wrote:
| By design all movements of bitcoins are in the open, so I
| don't know about not being traced.
| SuoDuanDao wrote:
| Most of the other ways require a trusted third party. The
| position of the trusted third party is attractive to
| rent-seekers and often generates conflicts of interest.
| Automating the position of trusted third party with an
| algorithm has value, not because the algorithm works
| better than a reliable third party, but because it
| doesn't have any interests of its own that could come
| into conflict.
|
| Bitcoin itself is not at all the best tool for this job,
| its value comes from the fact that it happened to be
| first. It's valuable for the same reason antiques are
| valuable.
| olalonde wrote:
| > There are many ways of transferring money across the
| internet.
|
| Only through a centralized intermediary (e.g. PayPal),
| which may block the transfer, freeze funds, deny access,
| go bankrupt, etc. Bitcoin allows direct peer-to-peer
| money transfers (a bit like cash but digital).
|
| > Why is Bitcoin special if that's the reason for its
| value?
|
| Personally, I feel that the censorship resistant and
| pseudonymous p2p money transfer is a nice feature but the
| killer feature is that it's a money that can't be
| manipulated by any one entity. Its rules are pretty much
| set in stone. Since it is politically neutral, it is well
| suited for becoming an internationally accepted store of
| value / currency.
| kortilla wrote:
| > Its rules are pretty much set in stone.
|
| Not quite. The miners collectively decide what rules to
| follow. A majority of them forming a cartel to
| collectively skip certifying certain transactions is
| completely in the realm of what's allowed by the network.
| olalonde wrote:
| > Not quite. The miners collectively decide what rules to
| follow.
|
| I don't mind being nitpicked but what you wrote is more
| incorrect. Miners can't unilaterally decide what rules to
| follow even if a majority of the hash power formed a
| cartel. Non-mining nodes also validate the rules and
| would reject mined blocks that violate consensus rules.
| The worse that a majority cartel of miners could do is
| perform a double spend attack or bring the network to a
| halt but that's hardly surprising.
| SuoDuanDao wrote:
| Yes. But if the minority gets wind of that, it could
| create its own hard fork and keep out known members of
| the cartel in the future. Something like the opposite
| happened with Ethereum in response to the DAO hack, when
| the majority rolled back a transfer of ethereum by a
| minority of wallets that followed the rules as written
| but were against the intent of the rules.
|
| Crypto is often sold as 'anarchy with rules' but it's not
| really that. Nor is it oligarchy as is the case with fiat
| and central banks. Crypto is in fact democratic. I wonder
| whether that's why it's unpopular in certain circles.
| colordrops wrote:
| Yes, 11 years after its debut and nearly a trillion in
| valuation, still ridiculously ignorant statements like
| "delivers no value". It delivers no value _you_ care about.
| Many people care about money that can 't be inflated, can't
| be stopped from being traded, and can't be controlled
| across international borders. Those are hugely valuable to
| some people, whether you find it valuable or not.
| orangeoxidation wrote:
| > money
|
| With built in and inevitable deflation. Bitcoin could
| never replace a national currency.
|
| With transaction times in the tens of minutes and with a
| maximal global transaction rate of 5-10 per second. The
| Blockchain couldn't replace the banking system of single
| mid-sized town.
|
| It's not money. It's at best "digital gold", but more
| realistically it's just a ponzi scheme.
| scsilver wrote:
| Religion is just a ponzi scheme that still underpins most
| of the world's networks and hierarchies.
| tshanmu wrote:
| Care to elaborate? Or you mean christianity? There are
| quite a few other religions that are quite nice. Buddhism
| as practiced in Bhutan comes to mind...
| dosenbrot wrote:
| > With built in and inevitable deflation. Why is everyone
| thinking deflation is a bad thing? "Oh no, how horrible,
| my money isn't loosing value over time so I dont't have
| to buy things I don't need and can start to save money
| without loosing value"
| tsss wrote:
| Because it leads to catastrophic economic crisis and
| starvation of millions. Anyone with half a mind has known
| this since the 1930s at least.
| tfehring wrote:
| Lots of reasons, see e.g. [0] for a brief explanation of
| a few of them.
|
| [0] https://krugman.blogs.nytimes.com/2010/08/02/why-is-
| deflatio...
| conanbatt wrote:
| It needs to have demand to be worth anything at all. At
| that demand in aggregate assigns value to bitcoin.
|
| The fixed emission schedule of BTC means that there is no
| issuer that can capture increased demand in the good, but
| the holders of BTC get that benefit. So the only thing
| you need to bet on is if there will be more aggregate
| demand for the 21 million btc in the future than there is
| today.
|
| With fiat currencies, when there is a crisis like COVID
| and the demand for money skyrockets, the fiat issuer can
| print out the money and do whatever it wants with that
| surplus demand.
|
| If BTC makes it so the aggregate demand in currencies is
| split partially from fiat into BTC itself, then it will
| be a great transfer of wealth from governments into BTC
| owners.
|
| There's your value.
| ac29 wrote:
| > money that can't be inflated
|
| The supply of Bitcoin has been inflated, on average,
| every 10 minutes for the past ~11 years.
| 177tcca wrote:
| And will continue to.
|
| Event-based, surprise inflation is the only negative
| inflation, for the end user.
| solosoyokaze wrote:
| It's known exactly how many Bitcoin will be produced and
| at what rate. There will never be more than 21 million
| BTC. This was known and agreed upon by all participants
| in the system.
|
| How much USD will exist in 10 years?
| [deleted]
| albntomat0 wrote:
| I understand and appreciate the point you're making (I
| want to add this as my response is slightly flippant).
|
| How many BTC will it take to buy a Toyota Corolla in Feb
| 2022?
| solosoyokaze wrote:
| Hopefully less than in Feb 2021.
|
| I think a better question would be, how many BTC will it
| take to buy a house in 2050? I think the three things
| that have experienced the most drastic inflation are:
| housing, healthcare and education. It would be
| interesting to measure Bitcoin's long term value next to
| those highly inflating costs. Say a house now costs 10
| BTC/$500,000 and in 2050 10 BTC/$2,000,000.
| 8note wrote:
| How does Bitcoin continue to have transactions once that
| limit is met? Arent the miners executing transactions in
| exchange for Bitcoin?
|
| When there's no more coins to mine, there's no reason for
| anyone to be running their bitcoin operations. It'll fall
| to governments? At that point, can't they introduce more
| Bitcoin?
| [deleted]
| albntomat0 wrote:
| Each transactions has a fee value set by the sender, that
| goes to the miner. Miners select the top N transactions
| by fee, so miners will still have an incentive.
| tharkun__ wrote:
| The fees are already exorbitant and make no sense if you
| wanted to use Bitcoin for everyday transactions. You
| still see merchants that have something like a 2$ minimum
| for credit card transactions, which charge a percentage
| fee usually.
|
| Looking at https://ycharts.com/indicators/bitcoin_average
| _transaction_f... the average Bitcoin fee seems to be
| somewhere around $22 right now. Just think of the dialog
| occurring once miners have to make all their money from
| fees only:
|
| "Yes sir, I would like to buy this chewing gum for my
| son. Yes I know it costs $0.50. Yes I know it will cost
| me the equivalent fee of $50 to buy it using Bitcoin. Now
| sell it to me already!".
| albntomat0 wrote:
| True. Bitcoin as currently designed doesn't support the
| transaction throughput or latency anyways for folks to
| buy gum, only larger money transfers. (I'm a skeptic,
| FWIW)
|
| Without the presence of transaction fees though, things
| would fall apart once the block reward ran out, as asked
| in the original question.
| [deleted]
| olalonde wrote:
| Wait until you hear about US dollars.
| paulgb wrote:
| There are many differences between the two, but one of
| the more obvious ones is that nobody is running around
| claiming that US dollars are a good investment.
| IgorPartola wrote:
| I lived in Ukraine during a period of like 1000%
| inflation period month. At the time USD was the value
| store or choice. You get paid on the 1st of the month and
| if you don't turn that cash into USD, by the end of the
| month it became almost worthless. Nobody could pay with
| USD (except the bribes), but you wanted to minimize the
| time you held Ukrainian currency as much as possible,
| down to hours if you could.
| WrtCdEvrydy wrote:
| I mean, the US does... every time the question of whether
| US bonds are worth it, the answer is always "sure, it's
| backed by the US government"
| selectodude wrote:
| Bonds are not dollars. Bonds have a positive return.
| Dollars, by design, have a negative return.
| tshaddox wrote:
| My bank offers savings accounts.
| JMTQp8lwXL wrote:
| A 'stock' that has no regulatory environment, either. But
| that's part of the draw.
| phone8675309 wrote:
| Digital tulips, only tulip farming didn't consume the
| same amount of electricity as a small, South American
| country every year.
| zzleeper wrote:
| Argentina is not small. It's the second largest country
| (in pop and area?) after Brazil
| Symbiote wrote:
| Argentina has 45 million people, making it the 31st
| largest country in the world. It's not small by any
| measure.
| JMTQp8lwXL wrote:
| Things only have value because we agree they do. The US
| Dollar is backed by the full faith and trust in the
| government. "Faith and trust" is as much a digital tulip.
| Balgair wrote:
| Sure, but its also backed by a few aircraft carriers,
| ICBMs, ~ 1.3 million warfighters, and a few other things
| ;)
| jrumbut wrote:
| Americans have to pay taxes with them, even if we get
| paid in gold coins or cryptocurrencies. If you don't pay
| you can go to prison. Therefore, owners of dollars can
| know there will be at least some minimal demand for
| dollars in the near future.
| earhart wrote:
| The dollar is also backed by the legal system (which
| gives the general populace a mechanism to redefine who
| owns which dollars, e.g. in case of fraud), and the
| Federal Reserve (which manipulates interest rates and
| dollar supply levels to try to keep the value relatively
| stable over time).
|
| If bitcoin could solve those problems, and the energy
| usage problem, I'd use it. As is, it's solved the double-
| spend problem - admirable and impressive, but it's not a
| substitute for a stable currency yet.
| RhodoGSA wrote:
| DOT, ADA, etc.
| [deleted]
| IgorPartola wrote:
| I find that to be a somewhat reductionist view. First,
| some things have a fundamental energy cost. Food is one
| example. You can't value food for free even if we agree
| to, because it takes kWhs to produce it and they have to
| come from somewhere. I guess you could say your life
| isn't worth the cost of the food to sustain it and stop
| eating it, but not many will do that.
|
| Second, you have natural scarcity: truffles are not
| commonly available. How much you want to eat them may put
| a ceiling on the price, but again there is also a floor
| below which no amount of energy would bring you more
| truffles.
| kqr wrote:
| Exemplified in a competition in -- I think -- The New York
| Times: readers were instructed to guess a number between 1
| and 100, and were told the winning guess would be the one
| closest to 2/3 of the average guess.
| [deleted]
| jariel wrote:
| It's called: Value investing, technical investing, speculating.
|
| 'RobinHood' style 'investing' means that people have access to
| 'data' which makes them feel 'informed' but for the most part
| they are making totally random guesses, which implies a kind of
| distortion of self awareness.
|
| In other words - they are RobinHood fish handed to the sharks
| who have more information, knowledge, and leverage via tech,
| other services and especially access to capital.
|
| But - with the underling caveat that as stocks go up overall,
| even random trading can yield what is perceived to be a slight
| win over time as stocks overall go up in value.
|
| This has the effect of actually making a lot of small winners
| and having retail investors believe they are actually making
| 'smart bets' when really they are just riding the market trend.
|
| Compound this with the fact there is a lot of noise in every
| direction, and that random bets sometimes do turn out
| relatively well - and a 'single win' will be interpreted by
| winners as due to 'intelligence' when really it was just random
| (this happens to everyone, even institutional investors who
| always over-attribute their wins) - making people feel they are
| 'smart'. Of course, the 'bad bets' are attributed due to 'bad
| luck' and not 'bad investing'.
|
| With slack in the economy and enough of the proles playing
| games on the market, it can really do things to stocks (Tesla,
| Nikola, Game Stop obviously).
|
| In the end this means that it's hard to fathom if it's actually
| good or bad for companies, and that the analogy is a little bit
| like playing poker with better players but the pot just
| magically grows a bit without anyone noticing (i.e. market
| rising).
|
| It also creates a little bit of Ponzi-ish mania reminiscent of
| 2000 where the saying used to be 'when your cab driver is
| giving you stock tips it's time to get out' with the major
| caveat that the Fed is creating so much liquidity that is
| getting dumped into stocks ... that it actually just might be
| rational to pick stocks randomly and even trade them, because
| the 'harm' of playing against sharks is less worse than not
| playing at all, and that being 'in' the market, even on
| roughshod terms, is better than holding cash.
|
| It's a whole pile of weird dynamics playing out at the same
| time, and I hope it ends well.
|
| Edit: I was corrected by a commenter below, I may have
| misappropriated 'Value Investing' which can be a form of
| technical investing, but subject to interpretation i.e. Warren
| Buffet doesn't make a pure technical analysis of 'under
| valuation', he's definitely looking at the management team, the
| viability of the company etc. but of course looking at that in
| the context of pricing itself. No investment strategy can avoid
| deferring the price of the stock as many 'great companies' are
| clearly overvalued at any given time.
| koonsolo wrote:
| > It's called: Value investing
|
| I wouldn't call that Value investing. Value investing is
| really about buying undervalued stocks, which really has
| nothing to do whether you think the underlying company is
| doing great. The stock might still be overpriced, and a value
| investor will not buy into that.
| WalterBright wrote:
| > the game perspective was the only model that really matched
| the marketplace
|
| I don't buy that. If a company consistently grows and makes
| money, its stock is going up. The stock value is always going
| to revert to what the company is doing.
| aphextron wrote:
| I'd say this precisely mirrors my journey through day trading.
|
| You start out with the naive mindset, thinking you can make
| money by finding strong undervalued companies and investing in
| them with stocks/LEAPS.
|
| Then when you've lost enough money trying that, you move on to
| technical analysis, thinking you can time the momentum and
| price action of "predictable" securities. Still thinking it's
| the "market" you're trying to figure out.
|
| Then once you've lost enough money trying _that_ , it finally
| hits you. I've been the sucker all along! The way you make
| money at this is by realizing it's all a game that you're
| playing against other individual _people_ , not some abstract
| "market". You buy lots of the underlying stock of something
| that's trending and start selling OTM "lottery ticket"
| contracts to the hapless fools (of which you used to be), and
| you finally start winning.
| wlll wrote:
| > You buy lots of the underlying stock of something that's
| trending and start selling OTM "lottery ticket" contracts to
| the hapless fools (of which you used to be), and you finally
| start winning.
|
| I'm relatively new to the stock market and still learning,
| can you confirm I understand?
|
| You buy (say) n * 100 of the underlying, then you just sell
| OTM options. There's no link between the the underlying and
| the option, it's just collateral for the options in case the
| purchaser decides to exercise?
|
| Your upside is that you make the premium + the strike price.
| You lose out if the share goes up past the strike + premium,
| but you win if it goes down, or not up enough?
|
| So for example with ABNB, last trade 203.25. You buy 100,
| sell one option bundle for Mar'19 '21 202.5 strike for $15.60
| per share.
|
| If the share price goes above $218.85, you lose out on the
| difference, but you still get to keep the premium + strike,
| so you didn't really "lose" anything, you just didn't make as
| much.
|
| If the share never goes above $218.85, you keep the shares,
| and are up by the premium price (in simple terms).
|
| Is that the gist? Are there any other mechanics of this I've
| missed out? It seems Interactive Brokers will let me sell a
| call option without owning the underlying (edit: it seems
| there's a separate "write option" tool), so I guess if the
| option owner decides to exercise your broker somehow either
| just take the shares out of your account or makes you buy
| some?
|
| How far out do you sell OTM options for?
| rtx wrote:
| There is an old saying, two kind of people enter the market
| in the morning, one with money and the other with experience.
| They switch postions by day end.
| dalbasal wrote:
| Well put.
|
| I am picturing as a triangle of three perspectives. That also
| gives you three (or 6) possible cross-perspective stories.
|
| The dynamics between these perspectives are where things start
| to get squirrely. 2021 memestocks like gme are good examples.
| Game perspective (no. 3) was the main story. Short squeezes.
| Retail investors getting cut off, etc. The stock perspective
| (no. 2) is now all about game investors. Can the stock attract
| or sustain all this interest from day traders and such.
|
| Company performance (perspective 1) is affected more by the
| company's stock than the other way around.
| hckrnrd wrote:
| Through technology--global connectivity, mobile
| accessibility, and apps like Robinhood and their global
| counterparts--there's no reason to expect the demand to wane.
|
| https://amp.scmp.com/business/article/3119779/futu-
| restore-t...
| pashamur wrote:
| The most important concept to understand about today's market
| is not short squeeze - it's gamma squeeze (which can lead to
| shorts being squeezed). It's about how traders got their
| hands on an unusual amounts of leverage (when you buy a call
| option, the market maker that sells it to you has to buy
| 5-10x the amount of stock in $$ value that it cost you to buy
| the option in order to hedge, and the closer the stock gets
| to your option price, the more hedging stock they have to
| buy)
|
| GME, Tesla, all of the high-flyers and all the craziness of
| the last few months were driven by gamma squeezes and the
| YOLO call option buying of /wsb (with some hedge funds
| obviously jumping on board)
| imtringued wrote:
| The problem with stock market trading is that the need for
| liquidity grows with the size of the market, not with the
| number of traders. So if traders keep joining the market over
| and over again at some point there will be an excess of
| liquidity and there will be no positive sum money left to earn.
| It's like a real business. Once everyone has a car the only way
| to grow market share is by displacing other manufacturers.
|
| If you want to make a living as a trader you are supposed to
| look for very volatile and iliquid stocks. Traders make money
| off the difference of the current price and the actual value of
| the underlying company and in volatile markets that difference
| is very high.
| hef19898 wrote:
| The reason I will never touch day trading is, that it is
| basically the same thing HF traders do. Only 1000 times slower.
| So I will loose against these guys every single time. And even
| HF traders loose money.
|
| The only single stock investments I have came from employment,
| either through RSUs or employer sponsored stock buying
| programs. RSUs are just coming to you, and why would I not take
| stock at 50% discount?
|
| The only exception would be money I don't need. So gambling, as
| I don't care if I loose it or not. But usually I do other stuff
| with that money.
| DSingularity wrote:
| You are wrong. HF traders front run to profit off individual
| trades by beating them to better prices. Day traders try to
| get an edge and exploit it to profit intraday by simply
| selling higher than they bought.
| andi999 wrote:
| And why would that be sustainably possible?
| DSingularity wrote:
| HF firms? Or pattern traders?
|
| I'm not sure if my answer is good enough but the
| volatility is always there to exploit.
| BasedInfra wrote:
| Front running is illegal.
|
| Its payment for order flow which is earning off the spread
| while also keep it tight and liquidity in the market.
| DSingularity wrote:
| So... basically front running ?? That's what it seems
| like you are describing. They make money when they manage
| to get ahead and provide the liquidity needed to fill the
| orders. What am I missing?
| porb121 wrote:
| a market maker by law has to provide prices better than
| offered by the current market. frontrunning does not do
| that.
| hellbannedguy wrote:
| Nothing. I can't believe it's legal. And yes, I know
| about the free trading it has supposedly provided. Maybe
| free trades are dangerous to to most retail traders?
| seabird wrote:
| It is not front running, and can only be conflated with
| it if you don't know what front running actually is,
| don't know what PFOF actually is, or both. Firms that pay
| for order flow are paying to be the counterparty to
| transactions that have razor-thin arbitrage
| opportunities. They are not placing orders with advance
| knowledge of upcoming orders; they are reacting extremely
| quickly to fraction-of-a-cent spreads in the price of a
| security and pocketing the difference.
| CuriouslyC wrote:
| There are a number of different "day trading" strategies,
| some are easier and more reliable than others. Different
| strategies will work for different stocks, so it's really
| just a matter of getting to know the stock.
|
| Big institutional traders are limited by risk, the fact that
| they are market makers for stocks in many cases, and the
| returns required need to be high, since their salaries are
| pretty ridiculous. Because of this, the fact that you're
| generally worse than them isn't a dealbreaker, just find a
| mid volume niche and learn it really well, then trade around
| general market volatility.
| bidirectional wrote:
| That's really not true. Most HFT firms are running strategies
| which are completely unrelated to anything a day trader would
| do, and most of the time they're helping you by being market
| makers rather than competing with you.
|
| If what you said was true, no bank or hedge fund would run a
| trading desk. HFT captures just a slice of overall trading
| profits.
| auxym wrote:
| I'd argue that the reason why HFTs don't do day trading
| strategies, is because it's not profitable in the long run
| (ie, negative expected value).
|
| Which backs GPs point.
| Anon1096 wrote:
| Hedge funds engage in day trading, and there's many
| successful hedge funds. So the expected value can be
| positive if you're sufficiently skilled.
| yomly wrote:
| I always find these kinds of thought processes
| interesting "day trading always leads to losses". As with
| poker, anything which is predictable can lead to meta
| strategy which can be gamed: this is why GTO players can
| be outplayed by player-focused players, at least on
| occasion.
|
| But occasion matters! Life isn't a nice continuous
| stream, it's lumpy. Circumstantial performance makes a
| difference - and that's why Greece could win the Euros
| despite probably not being a good football team.
|
| Day trading is probably quite a hard discipline to
| follow, but that doesn't mean that everyone who does it
| is destined to fail.
|
| Anecdotally 50% of marriages end in divorce but that
| apparently doesn't stop most people getting married...
| [deleted]
| sweetheart wrote:
| Day trading is difficult and requires a lot of practice,
| knowledge, and patience, but saying you'll lose every time
| isn't always true. There are many many profitable retail day
| traders. HFT don't really compete too much because they look
| to scalp differently.
| swader999 wrote:
| A three to five percent success rate applied to a large
| population will produce "many many" winners. This is true.
| dannyw wrote:
| The people who make money tend to put in more money.
| bidirectional wrote:
| You can apply the same logic to suggest no one should
| start a business.
| Spivak wrote:
| Business is a field where we know for sure that being
| better at it increases your chances to the point where
| your expected profit is positive.
|
| Individual day trading is less clear. Sure, you can get
| better at it to increase your odds but it seems like that
| isn't enough to make those skilled people in aggregate
| make money.
|
| The analogy in a casino is that perfect play means you'll
| do better but there's still house advantage and so on
| average perfect players will still lose money.
| swader999 wrote:
| Yes, if it's business is day trading. The success rates
| of other kinds of businesses vary.
| WJW wrote:
| That would be appropriate advice for a large slice of the
| population, so I don't see the problem there.
| Spivak wrote:
| And you have to be able to correlate their success rate
| with some measure of skill or else you're basically
| saying that not everyone loses the lottery.
|
| The claim to prove is that having some level of knowledge
| or skill makes the expected gains of day trading
| positive.
| NOTaCODERR wrote:
| I guess you mean High Frequency Trading, but I don't
| understand your reasoning. I'm an old school day trader as I
| execute my trades by hand.
| waynesonfire wrote:
| Another way that I like to think about this is that if you
| think of a stock price as following brownian motion (e.g.
| follows a random, well defined process), then it follows that
| the stock price has a scaling-invariance property. In other
| words, the stock prices follows the same process regardless
| of the time window.. e.g. a day for day traders, milliseconds
| for HF, or years for long term value holders.
|
| Now, brownian motion is just a model for a stock price so
| YMMV, but still an interesting idea. An investor can pick
| whatever time horizon interests them and that they're most
| suitable to take advantage of; e.g. HF traders take advantage
| of low latencies, technical analysis for day traders, and
| macro / micro economic analysis for value.
|
| As the OP said, there are these three ways to look at this
| and at the end of the day, all are gambling with different
| time-horizons and this is possible because of this scale-
| invariance property.
| bonestamp2 wrote:
| > I will lose against these guys every single time
|
| It's true that you will not outperform HFTs consistently. But
| that's fine, you don't have to outperform them to make money.
| That's because the stock market is not just you and the HFTs,
| there are hundreds of thousands of other traders.
|
| If there's enough liquidity, you and the HFT can make the
| exact same trade and have the exact same profit (percentage).
| The HFT is not necessarily against you. You might buy low and
| sell high to an HFT, and the HFT might sell even higher and
| make additional profit. Again, you both made money and
| weren't against each other.
| papito wrote:
| HF traders DO NOT lose money. They see the trading world a
| few milliseconds into the future. The whole game is rigged in
| a way where they cannot lose. They only lose if someone
| screws up, human error, all that.
| bidirectional wrote:
| How do you explain all of the HFT firms that have gone out
| of business over the years? They're competing with each
| other, it's a very competitive space that doesn't even
| capture that much value compared to the people they
| replaced.
| yummypaint wrote:
| To win at HFT you have to have lower latency than your
| competitors. The NYSE rents server space in their
| building for this very purpose and makes alot of money
| doing so. If you don't have hardware there you will go
| out of business trying to compete with those who do. From
| a broad perspective it kind of looks like companies being
| allowed to skim freely from the market so long as the
| right people get their cut.
| kortilla wrote:
| Getting early views of an order book and trades does not
| allow you to skim. No matter how close you are to the
| servers, you're still seeing the data after the order has
| gone in and has either been matched or entered into the
| order book. There is no way for them to beat the order.
| necrotic_comp wrote:
| This is 100% not true. As mentioned below, HFT competes
| against itself, and there are measures to protect against
| latency manipulation.
| chasebank wrote:
| I'm only correcting you because I'd want to be corrected.
|
| Loose = Not firmly fixed into place.
|
| Lose = Cease to retain.
|
| Lose is the verb you want to use here.
| dustingetz wrote:
| The idea of "game" is emergent from "competition" which is the
| bottom principle of markets. Further, markets discover "price"
| which is a measurement of "balance of power" or simply "power"
| which is a base principle of "people"
| hourislate wrote:
| I believe "Market Wizards - Jack D. Schwager" highlights this.
| When speaking with some of the best and most successful traders
| in the markets, he found that the one common thing between them
| was "Game Perspective". They understood human emotion and had
| this desire to be the best at the game. The money/wealth was
| not the focus but the reward. If I remember correctly (read the
| book a couple of decades ago), most did not even have much of a
| Financial background if any.
|
| I recently read a blog post by Martin Shkreli who wrote that he
| was really bad at trading and doesn't participate. It takes
| very unique individual to be successful at trading and he is
| not one of them. He used the analogy where you can think of
| trading like a professional sport. Could you get into the
| Octagon with a UFC Fighter and expect to win because that is
| what you're doing when you try to trade.
|
| My take away is if a person like Shkreli doesn't stand a
| chance, then how would I....
| VectorLock wrote:
| Being amoral loses its advantage when every other player is
| similarly feckless.
| DataWorker wrote:
| Your point is that everyone who buys or sells assets is
| implicitly amoral? That seems a bit extreme though you are
| not the first to say it. One wonders how you can escape
| such condemnation yourself. Everything is a marketplace in
| some sense.
| jw1224 wrote:
| I'm a terrible trader, and had no shame in admitting it. The
| moment I saw red, I panicked and sold. If I had open orders
| on the market, I couldn't concentrate on anything else. I
| found trading to be all-consuming, exhausting, and completely
| demoralising.
|
| But I also couldn't bear to just let my hard-earned savings
| sit there, wasting away. A cup of coffee cost more than I was
| earning in annual interest!
|
| About 3 months ago, it suddenly dawned on me... If I know I'm
| too emotionally volatile to trade effectively, why not get an
| algorithm to do it for me? I don't know much about the stock
| market, but I'm good with statistics and can write code. Why
| should the hedge funds have all the fun?
|
| I spent a month researching technical indicators and
| quantitative analysis, then another few weeks building my
| automated trading system from scratch. I put it on a server
| last week, and it's been chugging along quietly, 24/7, ever
| since.
|
| I don't have to get involved in any way -- it picks stocks
| automatically, A/B tests different algorithms against one
| another, and manages its own budgets. I just set it and
| forget it.
|
| The only time I hear from it is when it sends me a Slack
| notification -- with moneybags emoji, of course -- whenever
| it makes a profitable trade.
|
| Honestly, it's been the most fun I've had on a personal
| project for years. It's taught me lots, kept me busy during
| lockdown, and might one day provide a little extra cash.
| We'll see!
| Ntrails wrote:
| Active investing is a negative sum game. Even if your
| broker is not directly charging you comms, they exist. So,
| the average trade is a loss.
|
| However, I don't even think that is the main insight here.
| No single trade is really profitable. There is one
| conceptual entity, your portfolio. There is a benchmark (An
| index representing your investing universe).
|
| As a straw man: Making 20% on every trade when you always
| have half your portfolio in cash _feels good_ but is not a
| useful perspective.
|
| Don't focus on the micro, analyse overall performance
| dispassionately vs an equivalent level of risk and discover
| whether you actually have an edge.
|
| Good luck!
| benibela wrote:
| Are you going to make it open-source?
|
| I need something like that. I started trading this month,
| and the first thing I did was putting $1000 on AMC shares
| which then lost half their value :/
| MajorSauce wrote:
| I recently made a bot to find profitable cryptocurrency
| pairs loops and while most exchanges already have dozens of
| users doing exactly the same thing (if the exchange itself
| is not doing it), I really liked the motivation it gave me
| to start a new coding project in a language I did not touch
| for some time (C#) instead of my traditional python
| approach.
|
| You post just inspired me to make something similar
| (whether stocks or crypto) and I wanted to thank you for
| that. I too see trading as pretty stressful and
| demoralising (even for trivial amounts) and implementing my
| own stocks/crypto manager could transform those failed
| trades into "that's interesting" moments.
| gerritsg wrote:
| Are you having much success with it? What platform are
| you using? I've wanted to do something similar in Rust.
|
| Or if your bot is just _finding_ the pairs now but not
| trading, is there a platform you plan to use?
| chrchang523 wrote:
| I assume you've heard of index funds; out of curiosity,
| what makes that investing choice unappealing to you?
| jw1224 wrote:
| Oh yeah, I'm well aware there are probably far more
| sensible ways to invest my money. This sort of thing just
| really suits my personality type -- it was an exciting
| idea, and I just ran with it.
|
| I have my own business too, which needs investment every
| so often, so that'll always be the first priority for me.
| optimiz3 wrote:
| Cliche but the best investment is in yourself. The
| parents project was a form of this. Doesn't mean they
| don't also have a percent of portfolio in other asset
| classes like indexes.
| bredren wrote:
| Sounds like a fun project. How much rope does your bot
| have? What did you write it in / what's the deployed stack?
| jw1224 wrote:
| I was really hoping nobody would ask me about the
| stack... because... it's PHP! Hahahaha!
|
| Most hobbyists write these things in Python, which I did
| give some serious consideration to learning... But I know
| what I'm like -- my interest in anything is very short-
| lived (ADHD!), so I wanted to get a prototype built with
| a language I'm already proficient in.
|
| It's built with Laravel 8, and hosted on DigitalOcean. It
| stores and analyses market data in PostgreSQL, and uses
| Redis for queue management with Laravel Horizon.
|
| Would you believe PHP has its own TA-Lib implementation?
| https://www.php.net/manual/en/intro.trader.php -- that
| was a nice surprise to discover. This gave me a good
| head-start on running actual analysis, although my
| algorithms are pretty simple and only use a few basic
| indicators to filter out any potential mistakes.
|
| There's no web UI (maybe one day), but it has some simple
| controls and and reports available through an SSH
| console. Ideally I won't need to interact with it at all,
| so Slack notifications keep me informed when anything
| interesting happens.
|
| I wrote a custom backtester, which runs through the
| console. There's no pretty graphs or anything, it's basic
| but makes it extremely easy to experiment with strategy
| variations on historical data.
|
| I ran it for a week making the smallest trades possible
| (~$10) whilst I ironed out some kinks and made sure
| things were working smoothly. It's now week 3, and I'm
| trusting it with $1500. I'll keep increasing that over
| time as I make improvements. Individual trades vary from
| ~$50 to ~$250, depending on algorithmic confidence and
| profit/loss from the previous day's trading (those
| margins are pretty meaningless at this level, but it's
| built to scale nicely in future).
| IIAOPSW wrote:
| I've done something similar but the actual moves are
| still entered manually. What API do you use that lets you
| do algorithmic trades?
| gerritsg wrote:
| Also curious about the platform you're using, because I
| was kind of dissuaded from using Alpaca when I learned
| about the good old pattern day trading rule. Are you
| trading with > 25k in whatever platform you use, or do
| you have a limited number of trades you execute to stay
| away from PDT?
| gen220 wrote:
| The value investor type (buffet etc) would call this
| speculation, not investing.
|
| Speculators control all of the short term movements (everything
| on a time scale of <1 year). Sometimes when new financial
| instruments (what value investors would call fads) are created,
| they can control it for years (securitized junk bonds, in the
| 80s, sub prime mortgages in the 2000s).
|
| But the pricing of securities in the market has always
| regressed to fundamentals in the long arc of history.
|
| The value investor types agree with the nasdaq guy, though. All
| institutional investors (even the pension fund managers!)
| behave like speculators, since at least the 80s. It's just how
| the incentives are structured.
|
| It's important to understand how they think, because you don't
| want to be trampled by them. But playing their game is not the
| way to win in the long term.
| guerrilla wrote:
| > But the pricing of securities in the market has always
| regressed to fundamentals in the long arc of history.
|
| I don't doubt this but got any good references?
| shawnz wrote:
| I think a better distinction would simply be whether you are
| aiming to profit from speculative movements (gambling) or risk
| premiums (investing).
|
| Any kind of technical analysis, fundamental analysis, day
| trading, etc falls into the first category. Passive investing,
| factor investing, investing in ETFs, etc falls into the second.
| Closi wrote:
| Technical analysis is definitely part of long-term investing
| (e.g. at the most basic, work out how much profit the company
| is making compared to the market cap and what dividends will
| be paid over the investment period)
| acover wrote:
| Technical analysis refers to only looking at the price
| history of a stock. You are referring to fundamental
| analysis.
|
| https://en.m.wikipedia.org/wiki/Technical_analysis
|
| Fundamental analysis still requires you have an edge over
| other investors. Passive does not.
| Closi wrote:
| Doh.
| mgh2 wrote:
| What about "ethical" investing?
|
| A company can perform good long term without regards to the
| negative externalities of its business
| RivieraKid wrote:
| The correct perspective, aka reality, is that market value
| gravitates towards the intrinsic value in the long-term.
|
| And if you're a very long-term investor, you can ignore the
| market price and just collect the dividends.
|
| By intrinsic value I mean the sum of all expected future cash-
| flows where each cash flow is adjusted for time and variance
| (risk).
| throw14082020 wrote:
| This is the conventional retail investor perspective. But
| also, its a tautology. gravitates toward intrinsic value? The
| current price is the intrinsic value, the market prices in
| all durations, short or long run.
|
| What you're trying to say long term market value correlates
| with technical analysis, but is this true? You can't prove/
| disprove this, because its "intrinsic value" can just be
| replaced with "price".
|
| So IMHO, your words are equivalent to: "The correct
| perspective, aka reality, is that _price_ gravitates towards
| the _price_ in the long-term. "
| RivieraKid wrote:
| I would say that what you're saying is the typical retail
| perspective, this view is common.
|
| Market price and intrinsic value are different concepts.
| Google Aswath Damodaran's writing on this topic. When
| GameStop was $400, the price was well above intrinsic value
| for example so I knew it would gravitate down.
| rdtwo wrote:
| That's fundamentally true because all stock values tend to go
| to zero over a long enough period of time. Not a lot of
| companies survive 100 years for example
| RivieraKid wrote:
| If a company goes bankrupt, you can get a good estimate of
| the true intrinsic value at a previous point in time by
| summing all cash flows paid to shareholders adjusted for
| time and estimated risk.
| Galanwe wrote:
| > The correct perspective, aka reality, is that market value
| gravitates towards the intrinsic value in the long-term.
|
| What makes that the "correct perspective"? If you started
| doing value investing in 1990 and stopped 30Y later today,
| you would have perform less than the benchmark, so your
| definition of "long term" could very well be longer than the
| whole investment horizon of some people.
|
| > And if you're a very long-term investor, you can ignore the
| market price and just collect the dividends.
|
| Except few companies pay dividends that would even beat
| inflation nowadays. The trend is more towards share buybacks.
| In that world, your intrinsic value does not exist, your only
| way to make a profit is to sell.
| RivieraKid wrote:
| I never mentioned value investing (not sure what it means),
| only intrinsic value.
|
| Dividend growth of S&P easily beats inflation. Share
| buybacks are similar to dividends. If you have 100 shares,
| you can sell few shares to the company and treat it as a
| dividend.
| dfgdghdf wrote:
| Another way of describing the "game perspective" is simply: "a
| stock is worth what someone else will pay for it". This sounds
| obvious, but the implication is that the stock price has no
| direct connection to how a company performs.
| imutemyteam wrote:
| and not just that, it is literally an information game. You
| hear that the company's latest car model failed after seeing
| the quarterly figures.
|
| Obviously, the stock price will go down?
|
| Wrong, the market already knew that the car model failed, and
| the current price is already adjusted for that.
|
| Stock market trading is only worth it if you have an
| information advantage. And obviously it is the one with the
| most capital that has the highest information advantage.
|
| Anyone debating on the internet that "one could make money in
| the stock market by studying books" is such a joke. Who is
| going to have more information, the average joe with a book
| he read; or the guy with a billion dollars with information
| streaming into his AI.
| opportune wrote:
| This is, IMO, the hardest part about the stock market to
| explain to new people.
|
| I work with a guy who otherwise seems smart but who just
| can't wrap his head around information being priced in. His
| ideas are things like buy retailers right before Christmas
| and sell soon after, or to buy stocks in cyclical
| industries because they have low P/Es (at the peak of their
| cycle). And he is quite confused when market movements fail
| to match official earnings results.
|
| The people with all the money hire the most
| knowledgeable/experienced people and invest in the best
| technology, which end up making a retail investor's ideas
| of why to invest in stocks look pea-brained. That doesn't
| mean (IMO) investing in the stock market is entirely a
| fool's errand for those without that info, but it does mean
| you should probably educate yourself (not necessarily with
| books - would a book enumerate all the different ways
| information can be "priced in"?) as much as possible and,
| most importantly, stay away from things you don't
| understand.
|
| There is also a considerable amount of stock market results
| which you can ascribe to things that an AI-based trading
| systems, or purely fundamentals-based trading system,
| couldn't capture. For example if your thesis was that the
| Internet would grow to encompass a large part of the
| economy, you would have made a killing investing in
| promising Internet companies (post dot-com bubble :)) with
| a long term view and completely ignoring anything like
| fundamentals. But I suppose that is the difference between
| investing and trading.
| rtx wrote:
| It's even simpler, you need to invest in things which all
| of us agree too.
| rtx wrote:
| Billionaire dosent even need the AI. The CEO of any company
| will spill out everything.
| dasil003 wrote:
| Yes but what information is important enough to move the
| stock price? I agree it's foolish for individuals to try to
| compete with professionals, especially on a short-term
| window. For longer-term investing I believe the playing
| field is more level because once you go 5+ years out no one
| really has an information advantage and a huge proportion
| of traders aren't even thinking on that horizon.
| vasco wrote:
| Piggy backing on OP, if you're new to these topics and are
| interested in a more in-depth explanation about these stages as
| well as a number of other really interesting history check out
| https://en.wikipedia.org/wiki/How_Markets_Fail
| Galanwe wrote:
| This all looks like some kind of simple analogy to explain the
| factor model.
|
| The overall idea is that the price of a stock is explained by
| information (price, earnings, estimates, whatever...).
|
| If you then try to reduce the dimensions of this information,
| you could find various underlying drivers of the stock price.
|
| One could do that with a PCA, but the sheer amount of data,
| potential high collinearity between them, and difficulty of
| then making sense of the resulting coefficients is not
| practical. So traditionally the drivers are explained by
| carefully crafted factors defined by economists, and it works
| rather well.
|
| Some of these factors exist since a long time, and have proven
| to be persistent across decades.
|
| Interestingly, most of these factors are not tied to companies
| themselves (idiosyncratic) but rather on whole groups of
| stocks.
|
| Beta, country, sector, explain the vast majority of stock price
| movements.
|
| Your first quote seems to sort of describe fundamental factors
| (quality, value). The underlying idea being that fundamental
| indicators of the company (price of the stock versus amount of
| assets, versus earnings, etc), while compared one against each
| other, should tell you which stocks will perform better than
| others. These factors have proven to be less and less
| predictive in the last 20 years, with "value" even being
| notoriously a "bad bet". It's cyclic though, and we could
| expect (and it starts to be the case since some month now) a
| come back.
|
| Your second quote seems to describe more technical factors,
| such as momentum/reversal. The main idea being that there is
| inertia and correction in the way stock returns fluctuate. If a
| stock performs well, it will continue to do so, until some
| correction happens and it will revert to its short term mean,
| then it will restart, etc. Funds focused on these strategies
| are often labeled "CTAs" or "trend followers".
|
| The last part of the quote seems to describe well more modern
| factors, such as those found in "behavioral finance". The
| underlying idea being that actors of the stock market are
| humans, and as such are not fully rational and exhibit bias. If
| you understand these biases, you can benefit from them.
| sandworm101 wrote:
| Following that model, the variety of crypto currencies is the
| next evolution. The game can now be played as a pure game,
| without the economic uncertainties that come with underlying
| companies. All that matters are the actions of the other
| gamers. The gamestop fiasco would be an incidence of that
| crypto market mentality bkeeding back into a market not
| designed to handle such games.
| DSingularity wrote:
| GameStop price spiked because of a short squeeze. Short
| squeeze happened because hedgefunds over extended in their
| short positions.
|
| Do you think GameStop was shorted more than float because of
| games learned by cryptocurrency traders? That's a stretch.
| sandworm101 wrote:
| No. I think making decisions only on the basis of other
| players has driven gamestop. That is what a squeeze is.
| That play style, action only ever taken in relation to
| other players, is how cryptocurrency markets work.
| WJW wrote:
| Actions taken based on the actions of other players in
| the market without (much) regard to the underlying
| companies has been a factor in the wider markets for
| decades, if not centuries. See the entire field of
| technical analysis for example. It's hard to argue that
| the wider stock market is "not designed" for such
| speculation. GME had a bit of a wobble, but the wider
| stock market is absolutely fine. (Actually, GME itself is
| also still fine. The stock trades just fine and the
| company is still around)
| NOTaCODERR wrote:
| It's really interesting seeing how HN can be so uninformed
| when the topic changes to their area of expertise, this
| thread is insightful and I'll use the search button to get
| an understanding of how many morons are on this forum, this
| is great for me as I'm not a coder and thought this crowd
| was 'smart'.
| krapp wrote:
| I don't know why Hacker News has a reputation for
| particularly high intelligence or technical expertise
| relative to other forums with similar interests. It's not
| as if anyone had to submit their CV and reverse a linked
| list on a whiteboard to join.
|
| Unless you can independently verify someone's credentials
| and area of expertise, it's safe to assume they don't
| know what they're talking about. I've seen it happen too
| often that someone will make a claim in absolute
| confidence only to be corrected by an actual expert in
| the field, usually the person who invented the
| technology/language/algorithm being discussed. If that
| happens with _technical_ discussion, imagine how wrong HN
| can be about everything else.
|
| Sturgeon's Law always applies. The people most worth
| reading and talking to here also tend to who post the
| least, the more confident someone is, the more likely it
| is they simply can't fathom the depths of their own
| ignorance.
| mancerayder wrote:
| What would motivate someone to go on a forum and tell
| everyone they're "morons"? You wish to express your
| feelings anonymously? Is this some indicator of mental
| state in the moment you wrote that?
| [deleted]
| np- wrote:
| Eh, in general it's a common fallacy that just because
| somebody is especially good at one thing, they're good at
| everything. This is a hard pill for many to swallow,
| especially if they excel in their field. You'd take
| basketball advice from LeBron James, but probably should
| be skeptical about anything else he says. Best to learn
| that lesson sooner rather than later.
| ves wrote:
| HN is not a smart crowd, but there are smart people on
| it.
| hckrnrd wrote:
| Can you define "smart crowd"? It seems like all large
| gatherings are by definition "dumb" due to group dynamics
| that add friction to challenge existing norms. The
| "smartest crowd" may be the America due to the freedoms
| to create as many crowds--within reason--as one wants. A
| crowd of crowds as it were.
| DSingularity wrote:
| You are pretty limited if you don't think that a short
| squeeze occurred when an activist investor brute forced
| his way onto a board by buying shares. Not to mention
| tens of thousands of teenagers taking the opposite end of
| the trade whether they knew it or not. The percent of
| shares sold short is verifiable. If you know know how the
| basic arithmetic necessary to realize how the short
| squeeze conditions were there then... who is
| unintelligent again?
|
| Also who makes a throwaway to call HN stupid?
| koboll wrote:
| It's odd to read this, since so much of my money is parked in
| index funds, probably for decades, simply because stocks are
| more likely to perform well over the long term than other asset
| classes.
|
| I guess this can be read as an outgrowth of the "company
| perspective" in the sense that I think the American economy is
| fundamentally sound, but it's odd to call it that, since I
| couldn't care less about individual companies for the most
| part.
| dmos62 wrote:
| I'd say that the second and third perspectives are really the
| same. You'd be left with the actual in-world company vs. the
| in-market stock. The duality stems from a stock having two
| values that can be at odds with each other: real-world value
| and market value. In some circles the two perspectives are
| called fundamental trading and technical trading. One extreme
| of technical analysis is looking only at price and volume
| charts, sometimes even vertically flipping the chart to more
| completely detach from any real-world notions you might have
| about the instrument.
| anonu wrote:
| I 100% agree with that breakdown. But I disagree that the game
| perspective "matches the market".
|
| The beauty of the marketplace is that there are all types of
| people in the sandbox: fundamentals, macro, hedgers, short-
| sellers, punters, high-frequency traders, mean-reverters, money
| managers, pension plan managers. And all of these people have
| slightly different time horizons ranging from microseconds to
| years.
|
| The market concept is this beautiful thing that supports all
| these people: aided by strong regulation, strong oversight, and
| better technology.
| ilkan wrote:
| One could say marketplace is a category of game field where
| the rules and objectives are different for many participants.
| I want to sell my apples for the maximum possible profit
| today; she wants to sell both her apples at max profit and
| lettuce at max speed within its shelf life; the customer
| wants a decent lunch. Different measures for success,
| different time limits, different strategies in the common
| marketplace.
| JohnJamesRambo wrote:
| I think the problem with this is it works great in a bull
| market but when the recession man comes the stock values get
| pared down to what the companies are really worth.
| GuB-42 wrote:
| It is the same thing with a bear market, that's the reason
| why shorts exist.
|
| It I think people will think a company is overvalued, then I
| can short a very good company and make money.
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