[HN Gopher] What to know about the stock market (2007)
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What to know about the stock market (2007)
Author : HerrMonnezza
Score : 345 points
Date : 2022-02-14 07:19 UTC (15 hours ago)
(HTM) web link (betterexplained.com)
(TXT) w3m dump (betterexplained.com)
| wcoenen wrote:
| One interesting thing about "highest bid" and "lowest ask" prices
| is that they can sometimes move up and down for days without a
| transaction ever happening.
|
| This can be observed in certain illiquid markets, e.g. for a
| specific bond of a company. In those cases, the "last trade
| price" is meaningless and it's very important to instead look at
| the bids and asks in the order book.
| gokhan wrote:
| Why? Clearly, no one is actually willing to trade at those
| prices. Sometimes, one illogical price in illiquid markets
| drive the orderbook to illogical extremes. Without a
| transaction, all are meaningless.
| benmanns wrote:
| Bids and asks are making bold predictions about the current
| value of an asset. If they are wrong then anyone can enter
| the market and make a profit. Bid/ask of 99.90/100.10 means
| that the true value of the asset is between 99.90 and 100.10,
| because if it was really worth $100.20 someone would come in
| and buy up all the offers through $100.19 (give or take a bit
| for risk management, fees, and minimum profit targets).
| Usually what happens though in these markets is that the
| bid/ask is $95/$105 and true value is something like $101 but
| no buyer wants to pay a $4 spread and no seller wants to pay
| a $6 spread, so no trades happen. The last price could be $90
| from back when the asset was $90/$100 true value around $95
| and someone really needed to get out and was willing to pay
| (or didn't know).
| [deleted]
| nly wrote:
| Yeah kind of. Except market makers can pull liquidity in a
| microsecond and have higher privileges on many exchanges
| that retail investors investing through brokers do not.
|
| The best measure if pricing in my view is "what average
| price would I get or slippage would I see if I sold X
| shares right now?"
| andruby wrote:
| But they _are_ willing to trade at those prices. The person
| who posted the highest bid is willing to buy at that price
| and the person who posted the lowest ask is willing to sell
| at that price. Both regardless of the last trade price.
|
| The lack of "crossing" between those two doesn't mean no one
| is willing to trade.
| jliptzin wrote:
| Not always; they could just be quote stuffing
| baobabKoodaa wrote:
| It doesn't work like that. You can't cancel a bid/ask
| after someone in the market takes you up on it.
| wcoenen wrote:
| The reason I said "it's important to look at the order book"
| is because otherwise you might enter a market order and
| expect to get something near the last trade price. Which you
| won't.
|
| I do think the "correct price" is near the middle of the
| spread though. Because this sort of thing happens not just
| because of illiquidity, but also because everyone involved
| knows what the "correct" price is. (E.g. because bonds have
| very predictable cash flows.) There's no difference in
| opinion large enough to convince a trader to cross the
| spread.
| [deleted]
| khold_stare wrote:
| Really great article! Very well explained.
|
| One small inaccuracy is the claim that there is only one place
| for each stock. That has not been true for many years. In the US
| that was changed by https://en.wikipedia.org/wiki/Regulation_NMS
| . NASDAQ is the primary listing exchange for MSFT, which means
| they will hold the opening and closing auctions, but it can be
| traded on any equities exchange, NYSE, IEX, BATS, EDGE-A, EDGE-X,
| you name it. RegNMS also has rules that if there is a better
| price at another exchange, the order must be routed there. This
| establishes the "NBBO" - National Best Bid and Offer, so in a way
| there is always one best bid and one best ask, but it's an
| aggregate over all the exchanges.
| mypastself wrote:
| Can anyone recommend a quality book with similar content? Mind
| you, not about investing strategies, but just basic facts about
| financial markets (including stocks and bonds). I'm fine with
| textbooks, provided they're relatively easy reads, and under 500
| pages.
| habosa wrote:
| Despite being a "comic book" this is a pretty great choice:
| https://economixcomix.com/
| ra7 wrote:
| I'm also interested in this. I've been looking to understand
| the mechanics of financial markets and I don't know where to
| start.
|
| In particular, I'm really curious about ETFs/mutual funds and
| what exactly happens "behind the scenes" when I buy a share
| i.e. what a share of a fund represents, how it translates to
| individual companies' shares, NAV, creation/redemption etc.
| I've heard these terms before, but I haven't been able to build
| a full picture.
| Foivos wrote:
| One thing is not clear. If person A has 10 items and asks for $10
| per item and person B wants only 7 items for $10 per item, what
| happens? Person A just sells the 7 items and then waits for
| somebody else to pick the remaining ones? And vice versa what
| happens if someone wants to buy more stocks than what is offered?
| vishnugupta wrote:
| I suggest reading up Market Maker [1].
|
| In most scenario (assuming good demand for the stock you are
| buying and a functional market etc.,) a market maker, looking
| at their order book, buys 7 items from A. They sit on it until
| they are able to dispose off them to a buyer. In effect, you,
| as a buyer is buying a stock from market maker.
|
| Most of the equity market is not P2P but mediated by market
| maker. They take the liquidity risk (i.e., holding a bad stock
| if demand plummets) and are rewarded for that by making money
| off of every transaction through bid-ask spread.
|
| Of course I'm greatly simplifying as an equity order goes
| through a bunch of intermediaries but Market Maker play a
| central role here.
|
| [1] https://www.investopedia.com/terms/m/marketmaker.asp
| kbuck wrote:
| The orders are partially filled (either on the buy or sell
| side).
|
| What this means is that the shares eligible to transact do so
| immediately, and the remaining shares sit on the order book and
| wait for someone to be willing to trade at that price.
|
| There is a specific option that you can set (usually called
| "all or none") that will prohibit partially filling an order
| and only allow it to execute in entirety.
| rcar1046 wrote:
| Generally...he'll have to lower the price on the remaining 3
| shares to sell them it looks like as there was only demand for
| 7 items @ $10. Or he can simply wait until someone values them
| at $10. Conversely, if someone is willing to buy more than is
| available, people will probably make more available, just at a
| higher price.
| herodotus wrote:
| When you place a buy or sell order, you can specify "all or
| nothing" if that is what you want.
| globular-toast wrote:
| Ah, I never fully understood how the market maker worked. I
| intuitively understood that buying/selling at market price gets
| you an instant trade at a possibly slightly worse price but
| didn't realise the market maker made money from that.
|
| One thing the article doesn't mention is _why_ people buy and
| sell stocks. The stock market used to be for companies to raise
| funds before they turned a profit. Usually for businesses like
| railways which need huge amounts of capital before they can even
| begin to operate. Nowadays it 's usually companies that are
| already profitable. Speculation is also a much bigger concern for
| people than it probably should be. It used to be that just owning
| a share in a company was good because a company is (hopefully)
| productive and pays you a dividend. Now people only seem to think
| about "beating the market" which is a shame, I think.
| cryptojournal wrote:
| I've missed this story!
| nameisname wrote:
| I've seen a lot of pompous threads and misinformation
| masquerading as facts threads but this one takes the cake for
| both on HN for me. I've never seen so many people high on
| themselves for investing in Tesla and Apple. I feel sorry for the
| people who read these comments or have to talk to these people
| about the market. Insufferable.
| mizzao wrote:
| This article explains what the stock market pretends to be.
|
| This book explains what the stock market actually is:
| https://www.amazon.com/Flash-Boys-Wall-Street-Revolt/dp/0393...
|
| It's much less friendly than it seems and only "efficient" for a
| select few.
| khold_stare wrote:
| I greatly enjoy Michael Lewis and his books, but Flash boys was
| extremely inaccurate, full of factual errors. I've worked in
| the finance industry, in HFT at one of the firms mentioned in
| the book. I joined around the time Flash Boys came out, and it
| was required reading in the firm. Here are some points:
|
| - Michael Lewis really only got one side of the story - that of
| Brad Katsuyama, who had a vested interest in casting HFT
| players in a bad light to promote his own business - building
| the new exchange IEX.
|
| - Brad also blamed HFTs for systems at RBC failing to make
| massive trades like they used to. There was nothing nefarious
| here - RBC had just fallen behind the time in technology, like
| trying to send a Fax in a world where everyone already uses
| Email. If Brad, or RBC, or RBC software engineers picked up the
| phone and called any of the exchanges, they would probably
| gladly update them on the industry and save them all the work
| of re-discovering it themselves.
|
| - The claims about front-running are completely false. Front
| running would mean that a market maker somehow knows someone's
| orders at two different exchanges and somehow is able to "get
| in front of the line" or even know that those orders belong to
| the same person. This would mean the exchanges leak information
| or allow certain users "ahead of the queue". None of this is
| true. What Michael Lewis called front-running, was HFT firms
| reducing their risk on other exchanges when they would get
| traded against on one exchange. They did this without any
| knowledge that Brad Katsuyama was on the other end, or that he
| was just late trying to make the same trade at another exchange
| at a later time. There are no guarantees that you can make the
| same trade at different exchanges - the same rules apply to
| everybody.
|
| - Unsurprisingly, IEX as an exchange is no different from
| others, in that they need market makers (a.k.a. HFTs) to
| provide liquidity on their exchange. I wrote the code for the
| FIX gateways to connect our firm to IEX, and it was all
| business as usual.
| Rimpinths wrote:
| I work in the industry too and the things that people
| mislabel as "front running" is really aggravating. At worst,
| you could call it "order anticipating": using publicly
| available knowledge to figure out that if someone hit
| Exchange A and B, they're probably headed to Exchange C next.
| But they have no inside knowledge that the same party will in
| fact send an order to Exchange C next. They're taking a risk
| by anticipating that.
|
| "Front running" as defined by the SEC has a more narrow
| definition. It basically means that you have a customer that
| has placed an order for XYZ and you aware of the order, but
| you placed your own order to be executed in front them, thus
| forcing them to buy it from you at a higher price than if
| their order was executed first. HFTs are not "front running"
| anybody.
| starkd wrote:
| I don't think that's the spirit in which the article was
| introduced. It's an educational piece. Of course, it's about
| the ideal scenario.
| ceasesurthinko wrote:
| The only thing that I need to know about the Stock Market is that
| you should buy SPY, change your brokerage account password, and
| never touch it until retirement age.
| ushakov wrote:
| the only thing you should know about the Stock Market: it favors
| those with more capital, if you don't have much to begin with,
| don't expect making life-changing amounts
| bluecalm wrote:
| Why do you think so? I think it's the opposite. With little
| capital you have way more opportunities in medium/small/micro
| caps while someone like Warren Buffet has limited pool of
| possible investments as you can't pour billions into 100m
| company.
| tiborsaas wrote:
| I thought the same, but then I've seen this article :)
|
| https://12ft.io/proxy?q=https%3A%2F%2Fqz.com%2F2108874%2Fthe...
| WA wrote:
| That article is... useless. But actually, it shows exactly
| what the parent poster said: the real riches came only after
| you had a lot of capital.
|
| Sure, $1,000 to $85,000 is a great performance, but not life
| changing in itself.
| tiborsaas wrote:
| How is having $1000 invested proving OP's point? There are
| lots of problems with this article if you take things in it
| at face value, but what you mentioned are not really. Why
| did you cherry-pick the 85k value?
|
| I just posted this to show that at least the math can work
| even with extremely small amounts. Having lots of capital
| only buys you lower and lower risks.
| agumonkey wrote:
| Trading is a clear example of money helping to make money. When
| wealthy you can take more smaller yet useful risks, wait
| longer, have more time to learn from mistakes. Low capital
| means waiting for very long to accrue anything meaningful and
| often you'll lose it all before you get to learn or have to
| sleep/eat less to gain new capital to invest.
| rlayton2 wrote:
| I think like lots of things... If you expect to do better than
| other people, be prepared to know more or do more then them.
| Many people dedicate their lives to learning the stock market
| and what to do. It's unlikely someone can beat them with doing
| the bare minimum research.
|
| Not saying there isn't shady stuff going on too. There
| definitely is, but even if there wasn't it is a skill based
| game.
| alexb_ wrote:
| Monkeys throwing darts have produced better results than most
| hedge funds.
| bidirectional wrote:
| They definitely haven't. The paper I think you're alluding
| to showed that monkeys picking 30 random stocks from a 1000
| stock universe performed better than a capitalisation-
| weighted index of the 1000 stocks. However the former will
| obviously have greater exposure to small-cap stocks, which
| were known to outperform the bigger stocks.
| DoingIsLearning wrote:
| > Many people dedicate their lives to learning the stock
| market and what to do. It's unlikely someone can beat them
| with doing the bare minimum research.
|
| This hints at some sort of deserved meritocracy that just
| doesn't exist. Funding is king nowadays when a large fraction
| of trades happen via HFT. Implying that all you need is
| knowledge in order to reach wealth is misleading at best.
| bidirectional wrote:
| HFT is irrelevant, those firms basically compete with
| themselves and there's really not all that much money in it
| anyway. They're just providing liquidity and can basically
| be ignored 99% of the time.
| nly wrote:
| You realise there are proprietary trading firms with
| algorithms making billions of $ every year just trading
| stocks at high frequency, right?
|
| If anything they actively avoid trading against
| themselves and seek out opportunities in markets where
| retail investment is still at high participation.
| bidirectional wrote:
| Yes, they make a few billion between them in an ultra-
| competitive, expensive to compete in environment. My
| wording wasn't the best, but what I meant is that HFT
| firms only compete with other HFT firms. They're
| basically all battling to offer the cheapest service
| possible to other market participants, and can offer even
| better prices to retail due to the non-toxicity of the
| flow.
|
| Virtu has a market cap of what, 6bn? Citadel was valued
| at 22bn from the recent funding round. Those are the
| biggest players in the space, and it's becoming
| increasingly monopolised. Meanwhile JP Morgan has a
| market cap of 450bn, BlackRock a market cap of 110bn, and
| BlueCrest manages 40bn of its own money. Considering how
| much attention it gets, HFT is pretty innocuous. The
| notororiety is basically because they pay 23 year olds
| 400k/year and it sounds scary to outsiders.
| zirobi wrote:
| Unless you know the market better than everyone else, having
| more capital can just as easily be a way to lose faster.
|
| Most of the smart money is in hedge funds anyway.
| cinntaile wrote:
| But hedge funds don't tend to make a lot of money for the
| investor?
| globular-toast wrote:
| Not just that but if something is on the stock market in 2022,
| the big gains have already been extracted. The people with
| large amounts of capital privately invest then use the stock
| market to cash out.
| codeulike wrote:
| My theory is that finance is all about making things too hard to
| understand, so that fraud, monopolizing/size advantages and
| market manipulation are easier to get away with. Fifty years ago
| that was possible on the stock market because it wasn't open to
| the general public. During the 80s/90s it was opened up to
| consumers and since then (adjusted for inflation) it hasn't
| really gone anywhere. Profits have now moved elsewhere, to where
| the complexity and the hiding places are (hft, crypto,
| derivatives)
| cehrlich wrote:
| This is a great article that explains markets (not just the stock
| market really) in an easy to understand way.
|
| The one thing I believe people should know about the stock market
| is: There are people with more capital, time, and knowledge than
| you who will consistently beat you. Picking individual
| investments is mostly a sucker's game.
|
| Buying tech stocks and/or crypto in the last couple of years has
| been a consistent exception to this, but I worry that many of the
| people who made good money from those investments will now
| believe that they have some superior understanding that lets them
| consistently beat the market. But sooner or later they will find
| themselves in a similar situation as those who thought investing
| in Japanese Tech companies was a surefire way to beat the market
| 20-25 years ago.
|
| So my advice to anyone who already got rich from their
| investments in the last couple of years: Congratulations! Now
| take that money, invest it in the most boring thing possible, and
| enjoy life.
|
| To everyone who is trying to get rich quick now: Do your thing I
| guess, but be aware that you're gambling.
| yourabstraction wrote:
| >So my advice to anyone who already got rich from their
| investments in the last couple of years: Congratulations! Now
| take that money, invest it in the most boring thing possible,
| and enjoy life. To everyone who is trying to get rich quick
| now: Do your thing I guess, but be aware that you're gambling.
|
| That right there is the best advice. If you want to get rich
| quick, you're going to have to make some calculated bets with
| higher return and thus higher risk. However, if those bets work
| out and you do become rich, don't fool yourself into thinking
| you're some kind of super genius that can consistently beat the
| market.
|
| This can be a hard lesson for people to learn (it took me a
| long time), because in most aspects of life success is more
| skill based. With investing, there is more decoupling between
| action and outcome due to randomness, and you have to always
| consider you may have made the right choice and lost, or you
| may have made the wrong choice and won. In the case of the
| latter, take your winnings and be happy, but don't delude
| yourself into thinking you made a good play. This is extremely
| hard, you have to be willing to put your ego aside and realize
| you actually made a mistake that made you a lot of money.
|
| I think ordinary people with the right knowledge and foresight
| at the right time can beat the market in the short term. The
| trick is to be extremely patient until you have a reasonable
| level of confidence you have an edge in a bet with an
| asymmetrical return, and then take a position with conviction.
| I've done this a few times in my life, and the knowledge,
| timing, and luck all happened to work out for me. I've also had
| that feeling a few other times where things went south. Luckily
| for me the winners far exceeded the losers. However, I wouldn't
| con myself into believing I can consistently generate an edge.
| I simply made a small number of calculated bets when the stars
| all aligned for me. It's very possible the stars will never
| align for me again like that, which is why I've now moved most
| of my money into ETFs and other safe investments.
|
| One way to spot someone who doesn't know what they're doing
| with investing and trading, is you never hear about their
| losses. You never hear about their net gains. You never hear
| them tell you the story of when they drunkenly made a really
| stupid leveraged stock pick that just happened to work out from
| pure luck. No, you hear all about the winners, all about how
| they knew for sure it would work out for all these reasons. You
| just see the overflowing ego that gambling has drummed up,
| rather than the intellectual honestly of someone who has sat
| back and grappled with the tough question, "did I make all this
| money because I'm smart, or am I just a dump and lucky ape?"
| kqr wrote:
| > That right there is the best advice. If you want to get
| rich quick, you're going to have to make some calculated bets
| with higher return and thus higher risk. However, if those
| bets work out and you do become rich, don't fool yourself
| into thinking you're some kind of super genius that can
| consistently beat the market.
|
| Don't fool yourself into that, but as the Kelly criterion
| advises, do play harder with house money.
| Tiktaalik wrote:
| > I worry that many of the people who made good money from
| those investments will now believe that they have some superior
| understanding that lets them consistently beat the market.
|
| lmao god this feels so much like the mindset of so many tech
| people in general. They were right about one thing so naturally
| they're of course right about this next thing...
| notacoward wrote:
| > There are people with more capital, time, and knowledge than
| you who will consistently beat you.
|
| I think it's more than that. There are people with more capital
| etc. who specifically use that to take advantage of people like
| you. I don't just mean pump-and-dump kinds of stuff either. HFT
| exists to take advantage of the arbitrage opportunities created
| by traditional kinds of trading in aggregate (and sometimes to
| take advantage of other HFT bots) creating a kind of "friction"
| that is hard for less capitalized traders to overcome. The
| market is as much of a fight as a race, and it's really hard to
| win against the heavyweights unless you're one yourself.
|
| > Picking individual investments is mostly a sucker's game.
|
| Definitely true in the short term, for the reasons mentioned
| above. Still mostly true in the longer term. At least there's a
| _chance_ that a sufficiently canny investor can pick a basket
| of stocks that will grow over time, but statistically it 's
| almost certain that you'll fall behind the S&P index. Even the
| very best fund managers, with all of the resources at their
| disposal, rarely beat that more than a couple of years in a
| row.
| shoto_io wrote:
| My stock advice for any rookie has always been the same:
|
| - Buy S&P ETFs, most preferably by Vanguard, because they are a
| non-profit and thus have very low fees
|
| - If you have a large sum of cash, go all-in immediately, don't
| wait for the perfect time
|
| - Now, just wait, ideally 10+ years, before looking into your
| account again
| logicalmonster wrote:
| Historically speaking, I think this has been one of the best
| things an average person could do within the context of a
| stable, safe, free, and productive society, but I don't think
| this kind of generic advice is really persuasive in the
| different and more turbulent world that exists right now.
|
| Additionally, because of many societal conditions, right now
| many people think they need to hit on a moonshot to have a
| good life. And given the direction that inflation and many
| other things seem to be headed, it's harder to argue that
| they're wrong. Slightly increasing your financial floor
| matters little if the floor is still dirt.
| adamsmith143 wrote:
| Seems like the solution to the turbulent world we are in
| certainly isn't pick your own stocks or YOLO on crypto.
| logicalmonster wrote:
| What does a broke person who will not be able to pay off
| their student loans for decades and who will never be
| able to afford a house care about being slightly less
| broke? Your life is a painful grind either way where
| you're just barely staying afloat. If you're stuck in
| poverty barring a risky long-shot hitting, then it's
| entirely logical and rational to take big risks with the
| little you do have.
|
| The real problem isn't that stocks or crypto or any other
| financial tools exist, it's that so many Americans lack
| reasonable hope and opportunities for a better future
| outside of seeking out things that seem unthinkably risky
| to many people here.
| adamsmith143 wrote:
| Why not go to Vegas and play roulette then? At least
| there you know exactly what your odds and payouts are and
| there isn't a massive information asymmetry.
|
| I just don't think saying "Don't put your money in ETFs
| where you can get returns of ~10% a year for 40 years
| barring mass catastrophe" is particularly valuable. Even
| someone putting 83$ a month into an SP500 index can
| expect to make almost 400K over 40 years. Whereas I would
| expect a person yolo'ing 1000 a year on random shitcoins
| and memestocks to lose $40K over 40 years.
|
| Maybe I'm crazy but I think if you can find 1000 a year
| to throw away on pure gambles surely its a far better
| choice to invest that in something that's virtually a
| sure thing on long time scales?
|
| Everyone is looking for get rich quick schemes which
| frankly short of starting the next Instagram in your
| basement simply don't exist.
| epistasis wrote:
| Owning equities (through index funds) is one of the best
| ways to always beat inflation. They are the part of the
| economy that appreciates because of future returns, in
| future money, not past dollar amounts.
|
| That said, most of current CPI "inflation" is not economy
| wide price increases, but comes from 1) car prices, because
| car manufacturers massively messed up and production is way
| down for the past two years, and 2) energy, which is from
| several global market issues. There's also housing, which
| is not in CPI, but that's also easily attributable to
| underproduction of housing since 2008 (and probably even
| for decades before that, honesty).
|
| We are actually in incredibly good economic times,
| especially considering the massive destruction that the
| pandemic has wrought, and in the US, the lowered number of
| workers due to years of reducing immigration. I am glad
| people are not overly exuberant, but I with they were
| focused on the things that mattered more.
| nickpp wrote:
| But most of all, the insane amount of money printing that
| went on during the pandemic.
| epistasis wrote:
| If that were the case that too much money was printed,
| then one might expect broad economy wide price inflation,
| but instead it's really focused only in areas that have
| supply bottlenecks.
|
| But too much money printing wouldn't cause the major auto
| manufacturers to majorly underproduce less than they
| typically do, and it wouldn't cause energy to go up. Of
| the 5.5% "excess" points of inlfation, the breakdown of
| cost areas is:
|
| 2.1 vehicles (of which 1.6 is used cars)
|
| 1.8 energy
|
| 0.7 food
|
| 0.6 housing
|
| And except for food, there are clear supply bottlenecks
| there. For food, beef farmers have been complaining about
| monopsony from meat processing plants for more than a
| decade. There's likely a small amount of rentierism going
| on there. As there is for the housing crunch. (Though
| housing also takes a long time to respond to changes in
| demand patterns, such as the one induced by the pandemic)
| shoto_io wrote:
| That's the story for many decades now. It turned out wrong
| every time.
|
| See for example: https://ritholtz.com/2019/08/death-of-
| equities-40th-annivers...
| SantalBlush wrote:
| Very true. On the other hand, it was previously believed
| that the real estate market could never go down, which
| led to highly leveraged positions in that market from
| homeowners to banks.
| choward wrote:
| > Now, just wait, ideally 10+ years, before looking into your
| account again
|
| That might not be the best idea because of escheat. Here's a
| story about someone who didn't check on their stocks for
| years and the state claimed them.
| https://www.npr.org/transcripts/799345159
| lisper wrote:
| It is also wise to _look_ at your accounts at least once a
| year because some of your investments might pay dividends
| that you have to report on your tax returns.
| cehrlich wrote:
| For most major ETFs there are accumulating versions that
| automatically re-invest any dividends into the ETF. A
| good choice for the lazy investor IMO.
| lisper wrote:
| You still have to pay taxes on those dividends in the
| year they are paid.
| klipt wrote:
| In America, yes. The person you're replying to seems to
| live in Europe. I believe in many European countries
| there's no tax on accumulating ETFs that reinvest
| dividends, until you sell them and realize the capital
| gain.
|
| In a way this erases the tax efficiency difference
| between dividends and buybacks.
| shoto_io wrote:
| Good point... I meant don't touch them :)
| melenaboija wrote:
| The poster says buy S&P ETF and walk away not stocks.
| thebean11 wrote:
| So stocks can be seized and ETFs can't..?
| [deleted]
| nichohel wrote:
| ETFs _do_ pay out dividends from the underlying stocks.
| This does not require you to look at the account (in the
| US you will get a form at the end of the year summarizing
| what you have to pay taxes on).
| hartator wrote:
| > Buy S&P ETFs
|
| Nitpicking but S&P has multiple indexes. And you probably
| mean just a total stock market indexes; not necessary S&P.
| shoto_io wrote:
| Yes absolutely... my fault, should have been more specific.
| I was referring to the S&P500 index.
| cehrlich wrote:
| Agree in almost all ways:
|
| - ETFs, Vanguard is a good choice for most. If you're older
| and might need a large percentage of the money fairly soon,
| consider getting some bonds as well.
|
| - Don't try to time the market
|
| - Don't think you're smart
|
| The only personal difference is I prefer FTSE All World as it
| is diversified into over 4000 global stocks, while the S&P
| 500 is (obviously) 500 American stocks. That being said the
| S&P 500 has been outperforming the FTSE All World for a long
| time, and I certainly don't want to give anyone specific
| investment advice.
| jandrewrogers wrote:
| Many companies in the S&P500 source much of their revenue
| globally. They are registered as US companies but their
| business exposure covers the world, so you achieve much of
| the same diversification but in a US legal framework for
| business and securities.
| lr1970 wrote:
| > Buy S&P ETFs, most preferably by Vanguard, because they are
| a non-profit and thus have very low fees
|
| Vanguard is certainly a for-profit organization [0]. What, I
| think you wanted to say, that many of the Vanguard funds are
| index funds that do not have exuberant management fees.
|
| [0] https://en.wikipedia.org/wiki/The_Vanguard_Group
| shoto_io wrote:
| Yes, you're right, I was not precise. That's what they used
| to say about themselves:
|
| _"The Vanguard Group is truly a mutual mutual fund
| company. It is owned jointly by the funds it oversees and
| thus indirectly by the shareholders in those funds. Most
| other mutual funds are operated by management companies
| that may be owned by one person, by a private group of
| individuals, or by public investors. ... The management
| fees charged by these companies include a profit component
| over and above the companies' cost of providing services.
| By contrast, Vanguard provides services to its member funds
| on an at-cost basis, with no profit component, which helps
| to keep the funds' expenses low."_
| abeppu wrote:
| But they did spend a long time saying that they were
| providing services "at cost", which was eventually removed.
|
| https://www.inquirer.com/columnists/john-bogle-vanguard-
| scra...
| tjader wrote:
| He probably meant to say that Vanguard is owned by the
| funds themselves, not by some external private entity. That
| makes their incentives be more aligned with making the
| funds cheap and efficient.
| lvl100 wrote:
| This is such a bad advice. Buying an index is what they want
| you to do. They want you to buy and hold until you retire. Do
| you not see the problem with that logic?
| asimpletune wrote:
| I don't see the logic, can you explain this more?
| bestcoder69 wrote:
| And the sickest part of their whole plan is the part when
| you get to withdraw more money than you put in. Luckily,
| crypto solves this problem.
| Kye wrote:
| One person's hodl is another person's holup.
| cecilpl2 wrote:
| Of course you get to withdraw more money than you put in,
| because you owned productive assets.
|
| Stocks are the middle class's ticket into the ownership
| class.
| xnx wrote:
| I think the previous post was sarcasm.
| cecilpl2 wrote:
| Ah thanks, that flew over my pre-coffee head. :)
| unholiness wrote:
| The stock market is not a zero-sum game. Money-now is worth
| more than money-later to companies offering stocks, who
| know how to earn more money with that money. Long-term
| strategies simply take advantage of this fact to make long-
| term gains. Investments are just codified strategies on
| what ways you can put your idle money to work in someone
| else's hand.
|
| Buying an index fund full of stocks at their current market
| price is no more illogical than running code you didn't
| write yourself. It's way way less work, it probably works
| better.
|
| Better yet, trusting someone else's market price is much
| easier than trusting someone else's code because of the
| thousands of black-hat investors searching for profitable
| vulnerabilities in the market prices.
| shoto_io wrote:
| Who is "they"?
| bestcoder69 wrote:
| Owners of the index funds, like Vanguard. And Vanguard,
| in turn, is owned by... wait a minute... oh no... I'm
| realizing I can't say anymore.
| [deleted]
| lelandfe wrote:
| This is great advice for a young rookie, Bogle would be
| proud. Folks later on in life may not have the timeline to
| stomach that risk, however.
| shoto_io wrote:
| Yeah, right. Older rookies should follow this advice only
| if they want to invest that money for later generations.
| SketchySeaBeast wrote:
| But if those who are older need even less risk, the good
| option still isn't picking individual stock.
| adamsmith143 wrote:
| > I worry that many of the people who made good money from
| those investments will now believe that they have some superior
| understanding that lets them consistently beat the market
|
| This x1000 I've seen plenty of friends of friends who probably
| had issues passing HS Algebra thinking they're "Daytraders"
| because they made some money off BTC or GME in the past few
| years and I just cringe so hard. My index funds consistently
| return ~20% a year lately. If you aren't even matching that you
| aren't a trader you're a sucker.
| 3pt14159 wrote:
| People keep telling me this, but I keep beating the market.
| It's been 20 years or so of applying very basic reasoning and
| getting ahead.
|
| 1. Commodities are bad long term bets because technology gets
| better. I remember people talking my ear off about peak oil and
| then the US turned into a net-exporter. Short term
| inelasticity, yes can sky rocket prices; but long term prices
| go down.
|
| 2. Physics based thinking. I knew electric cars were going to
| work because the math checked out.
|
| 3. Economics of scale works. Find companies that understand
| this and focus on it. When I saw Telsa focussing on a single
| car for a year I knew they would be a winner.
|
| 4. Software scales. People like to make money. Combine the two
| and its a real winner.
|
| 5. Sell when forward price to earnings after cash starts to
| look wonky. Which was 2007 and I think 2019. Covid and the
| direct stimulus kinda messed up the timing, but the market is
| still completely screwed. Either way, sell early and buy the
| crash.
|
| Telsa, Apple, Shopify, Amazon, Google. Only really lost on Etsy
| (I can't believe how much they missed the opportunity to become
| a real platform).
|
| Why bother investing in GM through a broad index fund if I know
| for sure Tesla will eat their lunch?
|
| This isn't really get-rich-quick. This is looking at companies
| rationally and projecting where they will be in a year or two.
| And rationally speaking this market is out of wack and I
| wouldn't advise investing in even my favourite tech companies
| right now. I don't think this is Japanese Tech level of
| readjustment. I think there will be a -%50 S&P500 crash, maybe
| more, and then in 10 years Apple will be worth more than double
| what it is worth today. They have fundamentally better
| technology. Their software competency is below average, but
| their hardware, fit and finish, design, and cultural cache is
| world class and it is hard for me to imagine any scenario where
| they lose other than a US war with China.
| darkerside wrote:
| Did you invest in Toyota for its hydrogen-based battery tech?
| sireat wrote:
| It is easy to say in hindsight but consider the case of
| Iomega.
|
| https://markets.businessinsider.com/news/stocks/big-short-
| in...
|
| In 1997 a friend who worked at Cisco told me to go all out on
| Iomega. He also advised me to invest in some 3D storage
| startup which well went nowhere. No matter how smart you are
| you just have to play percentages.
|
| Even better consider the case of Cisco itself. It reached
| market cap of 500B around 2000 and despite being a solid
| company has not performed too well.
|
| Thus it is quite conceivable that the inevitable market
| correction will bring the high flyers down.
|
| That is Apple will still be extremely strong, Google might
| suffer a bit because of dropping ad spend.
|
| Companies such as Shopify, Tesla will actually need to reach
| reasonable P/E ratios, not the insane ones now.
| gitfan86 wrote:
| Tesla is trading at a 50x PE (2022 consensus) and plans to
| grow 50%+ in 2023, 2024.
|
| I don't think that you can expect the stock to be where it
| is today in 2024 if the PE actually goes down to 12. You'll
| need to buy it now to lock in that PE of your purchase
| price.
| sireat wrote:
| It is trailing 170 P/E, obviously trailing earnings are
| not so useful for high growth companies but question is
| Tesla really a high growth company any more?
|
| The consensus is that Tesla is not priced just for cars,
| it is priced on some other "intangibles".
| gitfan86 wrote:
| Elon has said that Tesla's advantage will be
| manufacturing. If he is right and the global demand for
| EVs continues to accelerate, TSLA's PE will be below 6 at
| current prices before it is no longer growing 20%+ a
| year.
| dionidium wrote:
| > _I think there will be a -%50 S &P500 crash, maybe more,
| and then in 10 years Apple will be worth more than double
| what it is worth today._
|
| An important point here is that since nobody knows when this
| crash will happen or how long it will last or where the
| bottom will be, you should still keep investing in the
| companies you think are fundamentally strong and avoid trying
| to time the downturn.
| ClumsyPilot wrote:
| "When I saw Telsa focussing on a single car for a year I knew
| they would be a winner."
|
| And they still have terrible quality of assembly.
|
| "Telsa, Apple, Shopify, Amazon, Google."
|
| Isn't this really just 'invest in SV scaleups? What are the
| forecasts for Xiaomi, or s Panasonic?
| taneq wrote:
| > People keep telling me this, but I keep beating the market.
| It's been 20 years or so of applying very basic reasoning and
| getting ahead.
|
| Remember, you don't have to beat those super smart well
| resourced AAA-grade investors. You just have to beat the
| average schmuck with some skin in the game.
| dom96 wrote:
| > I think there will be a -%50 S&P500 crash, maybe more
|
| And this is why I am going against the advice of the
| majority(?) and trying to time buying into the S&P 500. I am
| looking for another crash like the one around when COVID
| started. Am I wrong and should I also not try to time the
| market?
| cecilpl2 wrote:
| One bit you are missing is that it's entirely possible that
| today is the cheapest the S&P 500 will ever be. What if
| your 50% crash only comes after the market has tripled?
|
| Another is this: What if the market crashes 40% but then
| goes back up? Do you buy at 40% down? What about 30% then?
|
| It's easy to say "well I'll just buy at the bottom" but you
| can't know when the bottom is until well after it's
| happened.
|
| The other major piece of the puzzle is that during a 30-50%
| crash, everyone you know and all the media will be
| screaming in your ears about how everyone is losing all
| their money in stocks, and that the only reasonable thing
| to do is sell now so you don't lose it all. Do you have the
| stomach to put all your money _into_ the market in those
| conditions?
| JumpCrisscross wrote:
| > _It 's been 20 years or so of applying very basic
| reasoning_
|
| Would note that we've been in about a single interest rate
| regime for almost precisely that amount of time.
| unyttigfjelltol wrote:
| And 40 years of _declining_ interest rates.
|
| Almost none of the posts talk about what investing
| traditionally has been for-- buying future cash flows at a
| current discount. Sign of the times....
| entropi wrote:
| I think this makes sense.
|
| However, I am sure there are many people who have lost money
| (or made much less) with reasonings that may be at least as
| sound as this one.
| [deleted]
| Tiktaalik wrote:
| > I keep beating the market
|
| I keep "beating the market" too though I calculated my risk
| adjusted return and with that metric I wasn't.
|
| So really I was doing better because I'd cranked up the risk,
| and fortunately we've been experiencing a bull market.
|
| Hard to say whether I've really been making savvy choices or
| if it's just been a bull market trend that has been saving my
| ass.
| JacobThreeThree wrote:
| >fortunately we've been experiencing a bull market
|
| Exactly. Tell me how you did in 2008, not how you're doing
| in a bull market.
| yodsanklai wrote:
| > Physics based thinking. I knew electric cars were going to
| work because the math checked out
|
| Does it mean that the price is going to go up? Suppose
| everybody thinks like you (I assume everybody does), the
| market price may reflect anticipated profits already and
| doesn't necessarily have to go up.
|
| Also success of Tesla isn't the same thing as success of
| electric cars.
| 3pt14159 wrote:
| As of now? I don't think so. But I did that math back in
| 2001 or 2002, way before Tesla was publicly traded.
| d82nsjk9 wrote:
| What's the math?
| mint2 wrote:
| Same math that showed Betamax would dominate?
| Bewelge wrote:
| Not OP but I remember watching a movie "Who killed the
| electric car?" in highschool. It's about the EV1, an
| electric car by GM in the 90s. It had a range of 70-100
| miles. If I remember correctly the movie kind of
| insinuates that the oil lobby ultimately prevented the
| model from releasing/selling well. So just based on that,
| the knowledge that electric cars are a viable substitute
| for a lot (in Europe I'd say most) of use cases has been
| quite readily available.
|
| But that's the problem in OP's reasoning. Simply knowing
| that electric cars will dominate in the future is pretty
| worthless as investment advice. Especially when we are
| talking about tesla, which's stock price is entirely
| decoupled from any fundamental values. Today, I actually
| think that becoming one of many car makers is the best-
| case scenario tesla can hope for. It was always the
| question whether they can get enough of a head start in
| self-driving and battery tech BEFORE traditional car
| makers start making EVs. Those have decades of a head-
| start in every other aspect of car making. And to me it
| seems that most of them fully committed to EVs in the
| last 1-2 years. So will Tesla's advantage in battery tech
| buy them enough time to make cars that are as safe and
| reliable as traditional cars?
|
| Also: I really don't know much about cars, so I might be
| wrong about pretty much everything I just said :) But it
| shows nicely that you can find logically sound arguments
| about future developments which are worth absolutely
| nothing on the stock market. Just look at the stock
| market since the beginning of Covid.
| cj wrote:
| > Either way, sell early and buy the crash.
|
| Trying to time the market is akin to individual stock
| picking.
|
| When it works, it's usually just luck.
| 3pt14159 wrote:
| You don't miss all the crashes, but there are some
| fundamentals that when they get out of whack at best you
| get a flat market for years and at worse you see a crash.
| Why buy into an overhyped market?
| lottin wrote:
| Because you don't know if it's overhyped or not.
| andriesm wrote:
| No it can be skill. Was Warren Buffet and Charlie munger
| just lucky, year after year? Was Michael Burry of the Big
| Short just lucky to short the mortgage backed securities
| market, no he also side stepped the dot com crash and
| bought value stocks, recently he had very nice shorts on
| Kathy Woods ARKK... clearly he isn't just lucky, he has
| skill. I used to think I have skill yet my results were
| random for about a decade, then I grew a lot emotionally
| and in wisdom/perspective, and now I too beat the market
| average in both return and risk.
| cj wrote:
| Quoting the original commenter:
|
| > There are people with more capital, time, and knowledge
| than you who will consistently beat you.
|
| Maybe you are one of those people, but the point is not
| everyone is good at it (the majority of people are bad at
| it)
| cudgy wrote:
| Buffet and Munger manage the companies they buy. You,
| 99.99% of stock purchasers, and I are dependent on the
| existing management with no control over decisions
| companies make. Big difference.
| greedo wrote:
| Actually they don't. They put managers in place and are
| largely hands off on the running of their acquisitions.
| cudgy wrote:
| They pick the manager and understand their personalities
| and backgrounds fully. That is far from hands-off.
| xfitm3 wrote:
| You cite emotional and wisdom/perspective growth, can you
| opine on that further?
| lotsofpulp wrote:
| Buffet's last good move was the deal he got for Goldman
| Sachs in 2007. Then he said he was not going to invest in
| tech companies because he did not invest in businesses he
| did not understand, then he dumped a bunch of money in
| IBM which obviously did terrible, then he relented and
| finally bought a ton of Apple in 2014 or 2015, which has
| single-handedly saved Berkshire and kept it relevant.
|
| I also would like to see objective proof of how well
| Burry has done since 2008 compared to the basically risk-
| less and cost-less VOO or VTI.
| christophilus wrote:
| Apple, in absolute terms, has been his best investment
| (iirc). But yeah. The law of large numbers has gotten
| him. When you have to invest hundreds of billions, it's
| impossible to keep compounding at high rates. I'd put a
| lot of money on Buffett beating the market if he was
| managing $50M.
| lotsofpulp wrote:
| It is possible the parameters of the world changed so
| much that Buffett's expertise is not as useful as it once
| was.
| JumpCrisscross wrote:
| One of Buffett's built-in edges is access to cheap
| capital through his insurance companies [1]. That matters
| less in a low-interest rate environment, which has been
| the dominant regime for the last 20 years.
|
| [1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3
| 197185
| christophilus wrote:
| It's possible. It'll take another decade of Guy Spier and
| friends underperforming for me to be convinced of it.
| waffle_maniac wrote:
| Better than Coke?
| HPsquared wrote:
| These days Apple is not really a "growth" prospect
| developing something speculative, it's more of a "cash
| cow" collecting rents.
|
| The former would be the kind of "tech stock" he would
| avoid; the Apple of today (the latter) is the kind of
| predictable business Buffett does invest in.
| thoughtstheseus wrote:
| Commodities are bad long term bets...
|
| Commodities are a stabilizer for portfolios... they let you
| take more risk in other parts of your portfolio because they
| are easily marketable, non-productive assets.
|
| Equities on the other hand have unknown amounts and timing
| for cash flows. Hence people bid the value of stocks up,
| down, and all around.
| kqr wrote:
| > 1. Commodities are bad long term bets because technology
| gets better. I remember people talking my ear off about peak
| oil and then the US turned into a net-exporter. Short term
| inelasticity, yes can sky rocket prices; but long term prices
| go down.
|
| You can make money on things that go down as long as they are
| not too strongly correlated with other things, and you
| maintain a constant fraction portfolio. One of the search
| terms here is "volatility pumping", I believe.
| 3pt14159 wrote:
| That's true. Not my game, but it is true.
| onlyrealcuzzo wrote:
| > Software scales. People like to make money. Combine the two
| and its a real winner.
|
| There were plenty of tech losers. You still had to pick the
| winners.
|
| > Physics based thinking. I knew electric cars were going to
| work because the math checked out.
|
| Electric cars were obvious, but Tesla was not an obvious
| play. In hindsight, it might seem so, but in the beginning it
| was far from clear that Tesla would dominate the space.
| Additionally, time will tell if Tesla's stock stays 8x higher
| than its pre-pandemic price.
|
| > Sell when forward price to earnings after cash starts to
| look wonky. Which was 2007 and I think 2019.
|
| This happened many more times than the two massive crashes.
| If you actually followed this advice, you'd probably be worse
| off than investing in the s&p - even if you did pick good
| stocks.
|
| --
|
| As others have mentioned, beating the market with $1M
| invested is much easier than beating the market with $10B
| invested. Especially when your appetite for potentially
| losing money is much higher.
|
| Let's naively assume that you actually can pick stocks. At
| $10Bn - you need to pick more stocks - otherwise you would
| drive up the price too much in buying that much of the stock
| - unless you only picked Apple and Google and MSFT and
| Amazon.
| 3pt14159 wrote:
| > Let's naively assume that you actually can pick stocks.
| At $10Bn - you need to pick more stocks - otherwise you
| would drive up the price too much in buying that much of
| the stock
|
| This refrain is common enough, but I don't think it really
| bears out in the math. Elon just sold $16B worth of stock
| and the price barely budged. If you've got enough alpha to
| work with every beta seller out there will hop off and it's
| well, well before the peak.
|
| > There were plenty of tech losers. You still had to pick
| the winners.
|
| Yes because I applied basic reasoning. People were still
| investing in AOL and Yahoo when I picked Google. Seriously.
| AOL and Yahoo. It was bananas. Every person I knew that had
| any amount of tech savviness was on Google. The search
| results were clearly superior. "Invest in products that are
| better" should be a meme on WSB or something.
|
| What I didn't mention above was that in the mid 2000s I
| also made money off of oil because I was following China's
| modernization and politics in the middle east. People back
| then pushed me on just how much oil would go up and when I
| said I thought it could triple they looked at me sideways.
| But it nearly tripled then I sold. I tried to get into
| lithium through SQM, because I thought electric cars and
| widespread computing were going to strain supplies, but
| they didn't. That's when I learned the lesson that over
| time commodities go down.
|
| > If you actually followed this advice, you'd probably be
| worse off than investing in the s&p - even if you did pick
| good stocks.
|
| Not really? Buying in at the very lowest part of 2009 gives
| a _lot_ of range to play with. This bullrun is much, much
| longer than most, but over time I think it 's easier to
| dodge the correction than to call the top. The reason for
| this is that to call the top is to predict when human
| irrationality reverses. Something I'm not great at doing.
| What I'm good at is first principles. And at some point I
| don't care how much blood there is in the streets. That
| fucking share of Apple is undervalued enough to where I
| would sell priceless art to buy it.
| atombender wrote:
| > Elon just sold $16B worth of stock and the price barely
| budged.
|
| I could be wrong, but my understanding that such huge
| trades are not put on the market the normal way, but run
| through big investment banks that are able to use
| different techniques to avoid harming the stock price.
| For example, they can exchange the shares with hedge
| funds, ETFs/mutual funds, pension funds, and they can do
| the trades in batches over several days.
| onlyrealcuzzo wrote:
| > Buying in at the very lowest part of 2009 gives a lot
| of range to play with.
|
| Got it.
|
| Step #1 - pick good stocks.
|
| Step #2 - have perfect timing.
| ionwake wrote:
| Driving the price of a stock higher is a bad thing?
|
| Also why are you calling his actions naive ? He made money
| as did others.
| MichaelBurge wrote:
| The goal is to buy the largest percentage of the company
| with as little money as possible.
|
| If the asks in an order book are (price, quantity) pairs
| of (p0, q0), (p1, q1), etc. with p0 < p1 < ... and you
| have $C in capital, then ignoring the "driving price of a
| stock higher" effect(i.e. if C/p0 < q0) you could buy
| floor(C/p0) shares.
|
| However, if you purchase more than q0 shares, those will
| be priced at p1, p2, etc. and you'll instead buy
| C/(weighted_average([p0, p1, ...], [q0, q1, ...
| q_remainder]) shares(where the weights are the
| quantities). And because p0 < p1 < p2 ..., this will be
| fewer shares than C/p0.
|
| At the extreme end, if you try to "clear out the order
| book", a stock that is nominally $10 you'd be paying $1
| million per share to someone that put in a joke order to
| sell. So you'd be getting 100,000x fewer shares per
| marginal capital deployed compared to a smaller investor.
| treis wrote:
| >Electric cars were obvious, but Tesla was not an obvious
| play. In hindsight, it might seem so, but in the beginning
| it was far from clear that Tesla would dominate the space.
| Additionally, time will tell if Tesla's stock stays 8x
| higher than its pre-pandemic price.
|
| Tesla's stock price isn't really related to the
| fundamentals. It's a meme stock that, as you note,
| benefited hugely from the increased retail interest in
| stocks during Covid. Even if the GP got into it by looking
| at the fundamentals their profit is (mostly) because of its
| status as a meme stock.
| 3pt14159 wrote:
| I agree it's a meme stock now, but it wasn't always a
| meme stock. There was a time where it was _severely_
| undervalued and that 's when I bought. I did not hold it
| all the way to the top. I sold it way before then.
| Aunche wrote:
| In retrospect, Tesla was undervalued, but this wasn't a
| guarantee. Elon is a loose cannon with a history of
| overpromising to the extent of borderline lying. This got
| him in trouble with the SEC (funding secured), and he
| lost his board chair position and could have been ousted
| as CEO. In hindsight, the SEC obviously wouldn't screw
| over the fastest growing American company for a dumb meme
| tweet, but this isn't something people knew at the time.
| onlyrealcuzzo wrote:
| Fastest growing in what way?
|
| Tesla is hardly growing profits or revenues at the rate
| of Google and Apple. And their profits are already
| 50-100x bigger...
|
| It's only fastest growing in asset price.
| frogpelt wrote:
| I would never argue with your success. And I do think you can
| pick solid companies and beat the market in the long run
| (mostly by avoiding the big losses).
|
| But it's not enough to pick winning industries. In every
| industry there are winners and losers. You have to pick
| winning industries and winning companies. And sometimes
| winners become losers. So there's a timing aspect also.
|
| EVs are going to succeed but I don't think Tesla was ever a
| guaranteed success. And Tesla is not guaranteed to keep
| winning (though they have a great head start and very strong
| moat).
| JonChesterfield wrote:
| > Apple ... Their software competency is below average
|
| This doesn't sound right. I'd put them as way above average.
| Possibly leading the pack out of the public companies.
| baobabKoodaa wrote:
| Since you claimed to have beaten the market for 20 years
| consistently, would you care to provide evidence for that
| claim?
| [deleted]
| thrav wrote:
| Their investment in Tesla alone would be more than enough
| evidence, if they got in near their IPO.
|
| Throw in an investment in Apple when everyone started
| switching to Mac circa 2006 (I told everyone who would
| listen to buy it, but I was a college freshman, so no one
| listened, but it was so obvious), and you got a stew going.
|
| It didn't take anything fancy to crush the market if you
| started 20 years ago and were dialed into tech.
| lotsofpulp wrote:
| Pretty impressive to have foreseen, as a college freshman
| in 2006, the proliferation of broadband mobile internet
| and the development of mobile devices capable of taking
| high quality photos and video, mapping services, video
| calls, health tracking, and other functions that would
| obviate and consolidate multiple industries.
| vel0city wrote:
| I was a teenager in 2006 and still understood mobile
| devices with fast internet connectivity with photos,
| videos, mapping services, and video calls were going to
| be a big thing soon, as to a tech nerd like me it was
| already partially a reality. By that time I already had
| Google Maps on my phone, was uploading photos to web
| services through MMS gateways, was browsing the web with
| Opera Mini, had my email on my device, and streaming
| internet radio to Bluetooth wireless headphones. It
| seemed obvious to me that these devices would get faster
| over time and that the cameras would get better, as I had
| already seen the progress from the earlier 320x240
| cameras to >1MP cameras on phones, mobile data speeds
| increasing from GPRS speeds to 3G, and WiFi both becoming
| more common and jumping from 11Mbps to 54Mbps within just
| a few years. I had seen the greyscale and slow Palm IIx
| device my dad used to carry turn into the color
| Blackberry with constant network connectivity happen
| within a few years, it seemed obvious these devices'
| functionality would continue to rapidly grow and move
| into all kinds of markets.
|
| In 2006 I don't know that I would have thought Apple
| would have dominated the market as much as it has, but
| the iPhone hadn't been announced yet nor would it have 3G
| for another year after that. In 2007 I got my first phone
| with a front-facing VGA camera which could do video calls
| over 3G networks, before the iPhone had native apps or
| 3G.
| lotsofpulp wrote:
| > In 2006 I don't know that I would have thought Apple
| would have dominated the market as much as it has,
|
| But that is the most important point. The rest is
| trivial, but knowing which organization will be able to
| capitalize on it is the only relevant fact if you are
| trying to optimize for a return.
|
| In 2006, the mobile network owners seemed in prime
| position to use their monopoly to squeeze everyone else,
| as well as Blackberry completely dominating the
| ecosystem.
|
| In 2006, I do not know what kind of evidence a person
| would have had to KNOW apple, alphabet, Microsoft,
| Amazon, and Facebook would be where they are relative to
| ATT/Verizon/T-Mobile/Blackberry.
| vel0city wrote:
| I agree, the challenge is seeing that it would be Apple
| that saw the gains moreso than 3Com, Nokia, LG, and
| others. There were tons of companies which were obvious
| plays at the time, several of which no longer exist.
| 3pt14159 wrote:
| I also didn't mention buying Bitcoin, which I did on
| credit.
|
| People don't like hearing that the market can be beat
| because they don't like feeling inadequate. But it can be
| beat if you understand industries and physics and
| consumer sentiment. Bonus if you can read financials, but
| even some basic market indicators are good enough.
| lotsofpulp wrote:
| I wonder why people who tell me this do not have a
| driver, private jet, and a chef, even after telling it to
| me for over a decade. In the biggest bull market in
| history.
|
| In fact, they all still go to work for someone else.
| rurp wrote:
| This is spot on. Everyone who is confident and correct in
| their ability to consistently beat the market for decades
| is obscenely wealthy. The math is really straightforward.
| Even a paltry initial investment will compound massively
| over the years if it has a high ROI.
|
| Some people do have this ability and in fact have become
| very wealthy, but there are many orders of magnitude more
| people who think they have an edge but have just had a
| lucky run.
| baobabKoodaa wrote:
| > People don't like hearing that the market can be beat
| because they don't like feeling inadequate.
|
| I didn't dispute the fact that the market can be beaten.
| There's overwhelming evidence for that (e.g. Renaissance,
| Berkshire). I didn't even dispute your claim that _you_
| have beaten the market. I merely asked for some evidence
| to back up that claim. The fact that you responded
| without providing any evidence makes me think you
| actually haven 't beaten the market consistently. Perhaps
| you have had one or two good bets that provided
| spectacular returns.
| baobabKoodaa wrote:
| > Their investment in Tesla alone would be more than
| enough evidence, if they got in near their IPO.
|
| No it wouldn't. Sample size of one is not proof of
| consistently beating anything. If I showed you a winning
| lottery ticket, would you consider that as "more than
| enough evidence" of me consistently beating the lottery?
| odonnellryan wrote:
| what is your return for each year over the last 20 years?
| llampx wrote:
| When I was completely new to investing I put my money into
| AAPL, TSLA, AMD and TSM based on my experiences with them.
| That portfolio would have done extremely well had I stuck
| with it.
|
| I think the dogmatic "nobody can beat the markets" is hurting
| people who then think they may as well give up, and patently
| not true when you look at traders who beat the market year in
| and year out, and minimize their losses when they do lose.
| gitfan86 wrote:
| If you drill down into "beat the market" you realize it is
| a language problem not an investing problem.
|
| If "beat the market" means that you can predict exactly if
| and when Russia invades Ukraine, then the answer is NO, you
| cannot know if some drunk soldier is going to accidently
| shoot off a missile and start a war.
|
| On the other hand, if "beat the market" means that you
| invest in companies with solid fundamentals and solid
| management in areas of the economy that are not shrinking
| at prices that are historically low, then yes you can beat
| the market in the long term. Buffet and Munger are obvious
| examples of this.
|
| If "beat the market" means buy everything except NKLA,
| because that company has obviously been a scam for over a
| year, then yes "beating the market" is very easy.
| blurker wrote:
| Actually I think you have it backwards. The notion that
| traders consistently beat the market is hurting a lot of
| people. There are extremely few traders who beat the market
| year over year. It becomes vanishingly fewer every year you
| add. Which is what you would expect for a system where luck
| plays a big role and nobody can actually predict the
| market.
|
| Tldr; way too many people believe that a lot of people can
| beat the market and that is what actually hurts the most
| investors.
|
| edit: spelling
| llampx wrote:
| How much do you know about the stock market and trading?
| No offense but I want to know whether I am speaking with
| someone who has been trading for a few years and has come
| to this conclusion or someone who read it on a headline
| somewhere.
| blurker wrote:
| While I do have some experience, that's not really that
| relevant. I'm not saying this because of my own
| experience (which would be anecdotal evidence). It's
| based on actual market data, which is what is actually
| important for making a generalization like this. Many
| statistics show that overwhelmingly, active investors
| underperform indexes. And that is especially true year
| over year because a lot more people can get lucky a few
| times but they cannot consistently reproduce those
| results.
|
| One example of some data that shows this is the SPIVA
| score cards. Here's a nice page that explains it and
| presents some of the recent results:
| https://www.bogleheads.org/wiki/SPIVA_scorecards
|
| There is tons of other information if you just Google for
| it. When it comes to actual evidence of performance, the
| facts are pretty clear!
|
| How about you? Do you have any objective data to show
| otherwise?
| hhmc wrote:
| It's a stochastic argument though. If, say, 60% of day
| traders lose money, then 40% necessarily make money -- but
| it's still EV negative unless you have a strong prior you
| belong in the 40%.
| rurp wrote:
| What's your thesis for why rules such as these haven't been
| discovered and automated out of existence by the legions of
| smart well capitalized investors?
| gitfan86 wrote:
| I bought GOOG in 2005 and TSLA in 2014. Similarly, I don't
| see why I would buy Facebook or GM as part of an index fund
| when their growth potential looks terrible when compared to
| TSLA and GOOG.
|
| If I was 70 and couldn't afford a 5 year correction, things
| would be different
| fsckboy wrote:
| substitute Ford for Tesla in the early part of the last
| century, and on the timescales you are talking about,
| General Motors ate Ford's lunch.
|
| furthermore, Musk is very impulsive and could already have
| been cancelled by the SEC for his mistakes: I bring that up
| to point out that by hitching your wagon to this one
| individual (or Henry Ford) you are taking on enormous risk,
| risk that is diversifiable and there's no reward for.
| gitfan86 wrote:
| I've been hearing about how GM and Toyota will beat Tesla
| since 2014.
|
| GM delivered electric 26 cars last quarter. Toyota
| "hopes" to make 3.5m EVs in 2030.
| fsckboy wrote:
| you missed the point, when GM surpassed Ford a hundred
| years ago, Ford was as new as Tesla, and GM was a newer
| player with fresh ideas that better fit the market, and
| nobody saw it coming, especially Ford. You see, GM was
| run by a managerial and marketing genius, and Ford was
| run by Aspergers. (I can say that, I am one)
| gitfan86 wrote:
| Unfortunately GM went bankrupt. Ford and Tesla are the
| only US car companies that have never gone bankrupt
| dragonwriter wrote:
| Ford is the only one of the so-called "big 3" who hasn't
| filed for bankruptcy at least once, but there are _lots_
| of other US auto manufacturers, and many of them haven 't
| filed for bankruptcy.
| hhmc wrote:
| It's worth noting that the game is fundamentally _easier_ if
| you're not working with an institutionally sized portfolio.
|
| 1. You don't have concern yourself with market impact
|
| 2. There are niche opportunities that lack the capacity for
| funds to bother spending their time on.
| 3pt14159 wrote:
| Cuts both ways, in my opinion.
|
| Institutional portfolios have access to more opportunities
| and talent than retail investors.
| hhmc wrote:
| The market impact point doesn't cut both ways though, and
| it's crucial.
| 3pt14159 wrote:
| > institutionally sized portfolio
|
| Is the part that cuts both ways.
| solatic wrote:
| > Why bother investing in GM through a broad index fund if I
| know for sure Tesla will eat their lunch?
|
| Because even bad stocks are an essential component of a
| balanced portfolio if they reduce overall portfolio beta
| (volatility).
|
| The name of the game isn't pure gains, because the gains are
| not guaranteed. You want to make gains _and hold onto them._
|
| And no, you don't know for sure that Tesla will eat their
| lunch. You have a very high level of confidence that they
| will. So does the rest of the market, that's why Tesla is
| trading at a huge premium relative to its financial
| fundamentals. But this wasn't always the case, and there were
| more than a few times when Elon Musk brought Tesla to the
| brink of bankruptcy. If you were confident that Tesla was
| going to pull through, even back then, you either a) knew
| something the market didn't, b) were mistaken/wrong (but luck
| pulled through for you in the end), or c) you were reckless /
| irrational.
| bradfa wrote:
| I've invested in GM and avoided investing in Tesla. Mostly
| just because I understand GM, their business and financials
| and stock price history makes sense to me. I do not
| understand the valuations on Tesla, and hadn't even long
| before COVID and the most recent run-up in value. Clearly
| I've missed out on massive earnings if I had invested in
| Tesla instead of GM (although GM's done decently lately).
|
| To me looking at the stock pricing, Tesla looks like a
| software company where tremendous growth has been occurring
| and is expected to continue for some time. To some extent
| they are a software company, but that software so far has
| seemed to me to require quite an expensive set of hardware to
| be sold with it in order to get the software and continuing
| monthly/yearly/feature revenues sales. This has worked for
| Apple, so it's not unprecedented, but it'll be interesting to
| watch how long it can last.
|
| SpaceX makes more sense to me with having high valuations
| relative to revenues, it's a services company. The service is
| getting things to space and now also providing internet
| access. Tesla doesn't look like a software or services
| company to me, at least not yet. But maybe I'm looking at it
| wrong?
| sleepingadmin wrote:
| >I've invested in GM and avoided investing in Tesla. Mostly
| just because I understand GM, their business and financials
| and stock price history makes sense to me. I do not
| understand the valuations on Tesla, and hadn't even long
| before COVID and the most recent run-up in value. Clearly
| I've missed out on massive earnings if I had invested in
| Tesla instead of GM (although GM's done decently lately).
|
| I'm not currently invested in automotive. Just drive by
| some dealerships, empty lots. Not because they are selling
| out but because business is bad. There will be a work from
| home permanence, the inflation reality will destroy the
| automotive industry. The only thing keeping them barely
| afloat is low interest rates.
|
| Then you also have the market disruptor of Tesla. Ford and
| GM obviously have some fantastic products coming and even
| some already here. EV silverado and hummer are amazing.
| Mach-E and EV f150 are possibly the best.
|
| EV cars is a new generation of vehicle and will harm the
| existing auto industry. Ford and GM are obviously going to
| survive no problem. They arent worth a trillion $ because
| they are behind but have significant costs upcoming. GM and
| Ford's upcoming profitability is going to be quite poor.
|
| Stellantis looks like they are too far behind. Ram
| revolution silouette looks good but if the Chevy Bolt
| proves anything... building a good battery has many
| hurdles. Stellantis has nothing coming soon and may just
| die.
|
| >To me looking at the stock pricing, Tesla looks like a
| software company where tremendous growth has been occurring
| and is expected to continue for some time. To some extent
| they are a software company, but that software so far has
| seemed to me to require quite an expensive set of hardware
| to be sold with it in order to get the software and
| continuing monthly/yearly/feature revenues sales. This has
| worked for Apple, so it's not unprecedented, but it'll be
| interesting to watch how long it can last.
|
| Tesla's first disruption is that after the car leaves the
| lot. It continues to get better. The traditional auto
| industry, you leave the lot and your car will be that or
| worse forever.
|
| The second big disruption is efficiency. AC motors have
| regen, their motors are ~90% efficient. This creates the
| new generation of car. A model 3 performance(inexpensive
| sedan) has a 0-60 of 3.2 seconds. That's faster than all
| production Corvettes. Faster than a Hellcat. As fast as a
| Mclaren F1 from back in the day. About as fast as a Nissan
| GTR or Porsche 911. All the while not being annoying loud,
| far more practicality, and no emissions.
|
| The most recently disruption... Tesla is now the fastest
| car with the plaid edition. 0-60 of 2 seconds model s plaid
| means it's faster than the Demon. Faster than all hyper
| cars. Yet at significantly cheaper price point. The
| roadster coming with compressed air to make it faster?
| Ridiculous.
|
| By the time Ford/GM really get going, Tesla will not have
| sat around. They will have moved forward.
|
| This is why Tesla has a ridiculous valuation. They
| effectively are the only competitor in the auto industry
| for the next several years.
| brendoelfrendo wrote:
| There's lots of weird takes in your comment, but this
| one:
|
| > I'm not currently invested in automotive. Just drive by
| some dealerships, empty lots. Not because they are
| selling out but because business is bad.
|
| is a bad take. Dealer lots are empty because of supply
| chain constraints. Cars are selling as fast as they come
| in. Desirable new models like the Ford Maverick have
| months long waiting lists. Used cars that are 2, 3 and
| even 4 years old are selling for new or higher-than-new
| prices.
| leetcrew wrote:
| > The second big disruption is efficiency. AC motors have
| regen, their motors are ~90% efficient. This creates the
| new generation of car. A model 3 performance(inexpensive
| sedan) has a 0-60 of 3.2 seconds. That's faster than all
| production Corvettes. Faster than a Hellcat. As fast as a
| Mclaren F1 from back in the day. About as fast as a
| Nissan GTR or Porsche 911. All the while not being
| annoying loud, far more practicality, and no emissions.
|
| meh. even cheap hot hatches are close to being too fast
| to fully use on public roads these days. the race to ever
| quicker 0-60 times is incredibly boring and misguided
| imo.
|
| a model 3 probably is superior to a hellcat in every
| measurable way, I'll give you that. although I doubt most
| hellcat owners would willingly trade them in for anything
| lacking a loud V8.
|
| but people don't buy Porsches to drag race. there have
| always been much cheaper vehicles that would beat them
| handily on a drag strip; it's not what they're are
| designed for. they are pretty fast on the track, but
| unlike a Tesla, the appeal of a Porsche cannot be
| summarized in a single performance metric.
| sleepingadmin wrote:
| >meh. even cheap hot hatches are close to being too fast
| to fully use on public roads these days. the race to ever
| quicker 0-60 times is incredibly boring and misguided
| imo.
|
| currently drive a hot hatch. Can confirm this. The magic
| number for me is probably around 4.5s. Anything faster is
| really not needed.
|
| >a model 3 probably is superior to a hellcat in every
| measurable way, I'll give you that. although I doubt most
| hellcat owners would willingly trade them in for anything
| lacking a loud V8.
|
| Ironically... had hellcat before this. Can confirm this
| as well. I do miss the supercharged v8 whine.
|
| >but people don't buy Porsches to drag race. there have
| always been much cheaper vehicles that would beat them
| handily on a drag strip; it's not what they're are
| designed for. they are pretty fast on the track, but
| unlike a Tesla, the appeal of a Porsche cannot be
| summarized in a single performance metric.
|
| My next vehicle will most likely be an EV truck. I think
| this is what you are missing right there. I would bet the
| majority of people driving porsche have not taken them to
| a track. That's not the purpose.
|
| A car with good accelerating power will automatically
| give me a high speed performance. ~ Ferdinand Porsche.
|
| I cant find the exact quote, but Porsche said, To build a
| car that drives well at 200km/h, you must build it to go
| 300km/h.
|
| Tesla plaid doing 2 second 0=60 is idiotically fast as
| you would agree. It's not about that. It's about driving
| it without doing that.
| leetcrew wrote:
| everyone has their own taste I suppose. my next car will
| likely be a gr86 if I can get one for MSRP. it will be
| slower, less practical, and have a worse interior than my
| current DD. but I expect it will be much more fun to
| drive.
|
| I've driven a couple teslas as well as porsches and amgs.
| the instant torque from an EV is a very cool feeling, but
| to me it's not enough to offset the refinement and
| handling feel of the current best ICEs. I found the
| interior and overall fit and finish of the teslas I've
| been in to be quite poor for the price. if you're not
| tearing away from every stoplight, I guess I don't see
| why you would get a car like that as a driving
| enthusiast. I think the real appeal will come when the
| prices drop a bit more and they become the most
| straightforward way to get from A to B. after all, this
| is the only real requirement most people have for their
| vehicles.
| bradfa wrote:
| Possibly the reason I don't see Tesla as a services or
| software company is because I have very little faith that
| level 5 autonomous driving is going to be a thing in the
| near future. I could be very wrong, and if Tesla's existing
| hardware on the road can do it, then _THAT_ would be a game
| changer and very easily justify the current stock price to
| me.
| gitfan86 wrote:
| Forget the stock price. Look at operating margins,
| operating leverage, delivery volume, trailing delivery
| volume growth, battery supply, dealership contracts.
| Thrymr wrote:
| > Forget the stock price. Look at operating margins,
| operating leverage, delivery volume, trailing delivery
| volume growth, battery supply, dealership contracts.
|
| All of these things can be good and the company could be
| set up for profitability and success, and yet the stock
| price is _still_ overpriced.
| gitfan86 wrote:
| GM stock is current priced as 2.7 Billion dollars per
| Electric Vehicle sold last quarter. TSLA stock is current
| priced as 2.7 Million dollars per Electric Vehicle Sold
| last quarter.
|
| TSLA is the "overpriced" stock?
| bradfa wrote:
| GM only sold a handful of EVs in the 4th quarter of 2021,
| I'll give you that.
|
| But in previous quarters they sold quite a lot more EVs
| than they did in the 4th quarter. This dismal 4th quarter
| EV sales statistic was partly due to supply constraints
| and partly due to the Bolt battery recall.
| fsckboy wrote:
| > _Look at operating margins, operating leverage,
| delivery volume, trailing delivery volume growth, battery
| supply, dealership contracts._
|
| and you think by looking at those you are going to notice
| some things that analysts in that market have not noticed
| and is actionable by you because you can tell the current
| stock price is not correct? Isn't the future performance
| of Tesla affected by the number of people in its target
| markets who can afford them? why didn't you look at
| population demographics?
| gitfan86 wrote:
| Do you think Wall St. analysts have a history of being
| correct? Most are wrong more than they are right. This
| guy is pretty good, but he was late to the game.
| https://markets.businessinsider.com/news/stocks/here-s-
| why-m...
|
| This link shows the change in demand for EVs
| https://www.iea.org/data-and-statistics/charts/global-
| sales-...
| kqr wrote:
| The fact that our best performing models for the risk-
| neutral price of equities are unbiased random walks tell
| me that yes, in aggregate, Wall Street is really good at
| being correct.
| koonsolo wrote:
| So how do you know if all of your reasoning hasn't been
| calculated into the price yet?
|
| Maybe everybody knows Tesla is going to win out, therefore
| everybody wants it, and the price rises like crazy. And then
| the stock is way overpriced for what you get, and people like
| you still keep buying it.
|
| There is a reason why Buffet needs to look into the numbers
| before deciding if something is a good buy or not. You buy
| underpriced, and sell overpriced. And you just cannot make
| that judgement without looking at the numbers.
|
| There is another simple theory about your single stocks
| outperforming the index: smaller cap stocks generally
| outperform the index. As shown in this video, a monkey can
| pick stocks and outperform the index just because of this
| simple reason: https://www.youtube.com/watch?v=5_3Ra-Q6vK4.
| rlewkov wrote:
| You can be assured that all the known public information is
| reflected in a stock's price at a given point in time.
| Which doesn't mean that profits can't be made in the
| market.
| ericmay wrote:
| > Picking individual investments is mostly a sucker's game.
|
| Kind of. What you have to remember is what game you're playing.
| While financial firms can outspend and out-research you at an
| individual level, they can't take the same risks you can or
| move as quickly as you can. If I decide I want to go all-in on
| some company I can just do that. Your friendly neighborhood
| hedge fund? Not so much.
|
| Most people should buy index funds or similar, no change there,
| and even those who decide they want to pick stocks should
| mostly have a broad portfolio, but you can pick stocks if you
| want and you can be successful.
| andriesm wrote:
| I agree - most people should buy low cost index funds but
| that is not enough - they have to space it out as monthly
| contributions over many years.
|
| If you put all your money in at thr wrong moment, like say
| the Nasdaq in 99 then you waited 13 years just to break even.
|
| But if you bought monthly you would have done very well
| because you averaged into the market.
|
| The alternative is if you really understand valuations,
| diversification, risk and market psychology, like I do, then
| you can consistently beat the market. Most people cannot and
| most people you pay fees to do it on your behalf won't.
|
| You could consider buying berkshire hathaway instead of a
| stock market index.... assuming the lead investors don't die
| too soon.
| lelandfe wrote:
| Isn't dollar cost averaging fundamentally valuing "timing
| the market" over "time in the market?"
|
| I'd need to do a Monte Carlo to provide hard evidence but
| I'm fairly sure that lump sum investing is, on average,
| going to provide the greatest return. For people just
| starting out in investment, whose appetite for risk is
| high, that seems the way to go.
|
| Edit: Leggio and Lien (2001):
|
| > We find DCA [dollar-cost averaging] consistently remains
| an inferior investing strategy to Lump Sum investing using
| the risk-adjusted performance measures.
|
| > The failure of DCA as an optimal investing strategy for
| all assets and portfolios considered is likely because DCA
| is a conservative investing strategy best suited for
| investors interested in a forced savings plan that avoids
| the consumption of earnings.
| btdmaster wrote:
| Apparently DCA has a positive behavioral impact on
| attitudes towards investing[0], but I would love to know
| if this is entirely irrational or not.
|
| [0] https://www.acsu.buffalo.edu/~keechung/Lecture%20Note
| s%20and...
| aqsalose wrote:
| Thing is, I don't think any individual investor is going
| to experience "on average" stock market patterns, they
| are going to experience a particular random walk. I think
| averaging is "better" if you are risk averse and
| concerned about worst case scenarios.
| lelandfe wrote:
| If said investor is risk-averse, I'm not sure I would be
| recommending going all-in on broad market index funds
| either.
|
| Generally speaking, we're here recommending approaches to
| young investors, whose timelines are long enough that
| risk shouldn't be meaningful. Based off that, the result
| that will produce the best return on average is not going
| to be DCA.
| perpetuummobile wrote:
| The word average is extremely misleading. What most
| people want is to avoid exceptionally bad outcomes, and
| e.g. maximize the P10 value of the portfolio in that
| Monte Carlo simulation.
|
| Look no further than the Kelly Criterion to see an
| example of maximizing EV being worse than maximizing the
| median outcome.
|
| As another example, if you have $1M and I offer you a
| game of chance where I flip a coin. Tails you win back
| 101% of your buy in. Heads I get to keep it all. The EV
| maximizing strategy is to put your full $1M stake. But if
| you follow that strategy (especially if you do so long
| term) is ruinous.
| aqsalose wrote:
| >The alternative is if you really understand valuations,
| diversification, risk and market psychology, like I do,
| then you can consistently beat the market. Most people
| cannot and most people you pay fees to do it on your behalf
| won't.
|
| There is also a catch: Suppose someone reads this, thinks
| "I think I could be as good as it as this HN user"
| understanding valuations and market psychology and whatnot.
|
| Maybe you can. I am not sure if I can. But one thing I
| learned while trying, studying some companies and trying to
| find out where I could have relevant domain insight and
| then somehow coming up with an estimate for correct stock
| price when to buy/sell is a hugely time consuming hobby
| which isn't super fun.
| nly wrote:
| You give this advice like it's a choice.
|
| I invest monthly because I get paid monthly.
|
| I invest lump sums when I get windfalls, like bonuses,
| likely because I haven't invested as much as I want because
| my repayment mortgage (saving me 2-3%/annum) eats all my
| monthly income.
|
| I sell everything when I need to buy a property because I'm
| not rich enough to use my stocks as collateral.
| rafale wrote:
| In a way, what's considered "tech" is successful innovation
| that hasn't been commoditized yet. Telecoms are not considered
| tech anymore, and so is large scale agriculture. In this view,
| investing in tech is a sustainable strategy. The sweet spot is
| somewhere between wild VC experimentation and commoditazation
| when the technology is clearly useful but the growth curve
| still have 10+ years to run.
| dgb23 wrote:
| Isn't there some qualitative difference between financially
| focused decision making and domain focused decision making when
| it comes to investing vs. gambling (as you say)?
|
| An expert in some particular field sees different opportunities
| and make strong educated guesses vs a trader who will react on
| financial metrics.
| Retr0id wrote:
| Traders can hire domain-specific technical consultants.
| cehrlich wrote:
| To a certain extent yes, but don't fall into the trap of
| overestimating your own domain knowledge and underestimating
| that of others.
| greatpostman wrote:
| This is awful advice and people keep repeating it. Taking on
| risk over the last few decades has paid off in spades.
| gruez wrote:
| >>So my advice to anyone who already got rich from their
| investments in the last couple of years: Congratulations! Now
| take that money, invest it in the most boring thing possible,
| and enjoy life.
|
| >Taking on risk over the last few decades has paid off in
| spades.
|
| There's two types of risk here: risk that is compensated by
| higher returns (eg. buying stocks rather than bonds) and risk
| that isn't compensated by higher returns (eg. buying OTM
| options rather than stocks). It's not really clear that
| higher than expected returns in the past decade or so for
| "tech stocks and/or crypto", mean that they have higher risk-
| adjusted returns in the next decade.
| greatpostman wrote:
| Keep saying this and watch your peers assets balloon in
| value. There's really nothing to argue about, spreading
| this "I can't beat the market mantra" is bad for everyone.
| Also asserting that tech, which is essentially the largest
| growth area won't keep growing is a radical opinion
| gruez wrote:
| >Keep saying this and watch your peers assets balloon in
| value. There's really nothing to argue about, spreading
| this "I can't beat the market mantra" is bad for
| everyone.
|
| While I don't doubt that you could beat the market _given
| enough effort_ , I'm skeptical that you can trivially
| beat the market with a strategy as simple as "buy tech
| stocks". I'll invoke the efficient market hypothesis
| here: if tech stocks are expected to grow 20% but non-
| tech stocks are only expected to grow 10%, why would
| anyone buy non-tech stocks? Wouldn't everyone bid up the
| price of tech stocks so that their returns would only be
| 10%?
| greatpostman wrote:
| Dude I used to work at a hedge fund, the whole efficient
| market hypothesis isn't what you think, and it's insane
| to think it means you need to buy every single stock.
| You're just going to lose a bunch of money investing this
| way
| gruez wrote:
| >Dude I used to work at a hedge fund, the whole efficient
| market hypothesis isn't what you think
|
| Oh? Please elaborate.
|
| >and it's insane to think it means you need to buy every
| single stock.
|
| US "total market" only have about 2000-3000 stocks.
|
| >You're just going to lose a bunch of money investing
| this way
|
| How? By buying losers? By wasting money on transaction
| fees?
| kqr wrote:
| Only 2000-3000 but they're so strongly correlated you
| could practically diversify just as much with less than
| 20-30, for 1/100 of the transaction costs.
| AlexandrB wrote:
| I think what's getting increasingly difficult is
| identifying what a "tech" stock _is_. Companies like Uber
| and AirBnb blur the line as their innovations are mostly
| not the silicon and CS kind but are about economics and
| working around regulations. It 's easy to call Google a
| "tech" stock, but what about Netflix? At this point
| streaming technology is mostly commodified. Is Netflix a
| tech company or an entertainment company? I think a
| strong argument could be made for the latter.
|
| So saying that you should invest in "tech" stocks is
| increasingly ambiguous.
| [deleted]
| dragontamer wrote:
| For a fun graphic from the 1950s:
| https://news.ycombinator.com/item?id=29309175
|
| "What makes us Tick" was a high-quality cartoon that explained
| the theory of the stock market, and the benefits of captitalism
| in general. Of course, its a Cold War era propaganda cartoon, but
| its still a really clear and simple explanation.
|
| The "Ticker Tape" may sound quaint, but "Market Makers" are
| really just those round-lot dealers that are discussed in the
| cartoon. The overall explanation remains valid for today's
| market, just with more automation / computers involved today
| rather than humans on a telephone.
| da39a3ee wrote:
| > Here's why stock markets rock:
|
| Is he writing for pre-teens?
| Accacin wrote:
| That was a really great article for someone who didn't know much
| about trading. Very easy to follow and I felt like I've actually
| learnt something.
|
| Thanks for submitting this (and writing it, author!).
| erwincoumans wrote:
| Just curious:
|
| Suppose there is some difference between buying price range and
| selling price range. The dealer (middle man) could become
| temporary in-between buyer or seller and take some of the profit
| due to this price difference.
|
| For example this could happen at a stockbroker or at a crypto
| exchange.
|
| Is this behavior regulated, and if so, how?
| kqr wrote:
| I'm not sure what you're saying, but the spread between buying
| price and selling price is exactly how the temporary middle man
| gets paid for the risk they take in matching up buyers and
| sellers. The size of the spread depends on how large the
| perception of that risk is.
| erwincoumans wrote:
| Example to clarify:
|
| Buyer tells the trader to buy for (up to) 140. Seller wants
| to sell for (at least) 120. Trader gives 120 to seller, gets
| 140 from buyer, gets to keep 20 for himself.
| kqr wrote:
| Yes, and that's exactly how the middle man is compensated
| for the risk they take by buying something from someone
| they don't want, hoping to resell it shortly after.
| erwincoumans wrote:
| If this happens on an exchange (such as Coinbase), there
| is no risk, since the trader/middle man knows that there
| is a buyer for 140 and a seller for 120, so he can 'front
| run', buy at 120, sell at 140, keep 20.
| nly wrote:
| Best execution kicks in on most exchanges. The second order
| never hits the order book (nobody observing the book will
| even see it) and the trade executes at the price of whoever
| put on their bid/offer first.
| gpderetta wrote:
| If the seller is already in the market for an ask at 120,
| and there is a buyer ready to buy at 140, no trader can
| come in an pocket the difference in a regulated market.
|
| If there is no buyer yet and a trader suspect there might
| be in the future, it could try to buy at 120 and hope to
| sell in the future at 140. Of course the the sale might not
| materialize and they will need to take the risk.
| speeder wrote:
| This is regulated in some senses (doing this as exchange is a
| big no-no).
|
| Also this is theoretically, the point of High Frequency
| Trading...
|
| Sadly this is only theoretical, seemly they are quite willing
| to make the market messy to force this difference to exist so
| they can profit more, and not many governments so far are
| bothered by that.
| SkipperCat wrote:
| I work in HFT. We do not front run orders. We make money by
| finding correlated assets that when traded together, will
| create profits more often than not. Usually there is a
| mathematical relationship between the two (this is what the
| Black-Scholes model proved and won Nobel prize).
|
| The reason that this trading style is called "High Frequency"
| is that everyone knows these relationships and therefore it's
| a race to get there first. Much like the scene from "Glengary
| Glen Ross", the first person who gets there gets a lot, the
| second person gets a nibble and the third person gets
| nothing.
|
| The whole value of this is profits for the firm and high
| liquidity for everyone else. Not saying it's a noble pursuit,
| but we follow all the SEC, FINRA and other market regs (most
| importantly NBBO).
| speeder wrote:
| Some HFT DO front run (after all, they got caught).
|
| But that is not what I was talking about even. I am talking
| about the firms that do spoofing, layering, etc...
|
| Basically a lot of HFTs that instead of just doing
| "daytrading" style trades or arbitrage, attempt to
| influence the market in some way, hopefully making the
| spreads bigger and whatnot.
| Kranar wrote:
| Can you please list which firms you are aware of that got
| caught front running?
| gpderetta wrote:
| The order flow is usually public. If a broker were to intercept
| a client order in flight to pocket the difference, it would be
| called front running and it is illegal in most places.
|
| Crypto is not regulated, so the order book could be completely
| fictional and there would be no recourse.
| erwincoumans wrote:
| Thanks, that clarifies things.
|
| If so, crypto exchanges such as Coinbase could make a lot of
| money this way.
| e40 wrote:
| IIRC, I've seen posts about them doing just this. I have no
| idea if it is true, though.
| u2077 wrote:
| Better explained has some great articles that are definitely
| worth checking out.
|
| RSS feed: http://feeds.feedburner.com/Betterexplained
| ptero wrote:
| The article focuses on order book basics of matching buyers and
| sellers, which is a pretty small part of "understanding the stock
| market" for anyone who wants to invest.
|
| I would also look at long-term history, business cycle (in the
| stock market terms), inflation and rates, liquidity crises as a
| background for investing. Those are much more valuable for an
| investor than order book details. My 2c.
| Synaesthesia wrote:
| You should probably get to know some critical aspects of markets
| too, this article just praises them. That is pretty much the
| norm, but I think it's a valuable educational endeavour to look
| at critiques of markets.
| bedobi wrote:
| but... it does explain some of the most ubiquitous and
| fundamental problems of markets, like spreads and illiquidity?
| granted you could go on forever about an infite list of
| problems, eg that today so much trading happens in dark pools,
| so much stocks are owned by passive index etf managers who
| don't take an active role in ownership etc etc but for a rough
| summary I think this article explained some of the basics quite
| well
| hericium wrote:
| Fully agree, especially during current instability. I think
| that everyone got used to constant "it's about to crash" news
| but the volatility and uncertainty are visible in recent
| months. I don't remember when inflation numbers releases were
| that impactful.
|
| The good coming out of this is the visibility of how strongly
| dependant cryptocoins are.
| iso1631 wrote:
| The "Stock Market" is down since July, it might not have
| crashed but it's not going up
|
| Ukraine kicking off is not going to help in a sane world, but
| it's not a sane world so I half expect all time highs while
| Odessa burns
| lotsofpulp wrote:
| One aspect of buying securities and currency is the
| stability. People like stability, they will pay extra for
| secure cash flows, consistent courts, and rule of law that
| is predictable. In which case, because of its practical
| distance from Russia I would be optimistic about the US's
| relative position, even if nominal equity values decline,
| they will maintain their relative value assuming the US
| does remains relatively more stable than other countries.
| darawk wrote:
| Do you have any in mind?
| agumonkey wrote:
| "market makers" ?
| bidirectional wrote:
| Why are they a bad thing?
| mosermint wrote:
| Many market makers profit off speed and information
| advantages while providing liquidity. There are
| alternative market structures like frequent batch
| auctions that would allow better trading, lower spreads
| and negate the HFT speed arms race. This paper is a good
| overview:
|
| https://www.aeaweb.org/articles?id=10.1257/aer.104.5.418
| jallen_dot_dev wrote:
| And the reason their orders execute in front of others'
| is because they offer the best price. If they didn't
| exist I would have to pay a little bit more to buy, or
| sell for a little bit less.
|
| Is the full paper available without a login? Alternative
| matching schemes to price-time priority suffer their own
| drawbacks. Either there's no guarantee your whole order
| will fill (pro rata) or trade at all, and there can still
| be a speed arms race (there's an incentive to get your
| order in at the last possible moment before the batch to
| benefit from maximum information).
| darawk wrote:
| The alternative schemes he's referring to are batch
| auctions, which don't eliminate price-time priority per
| se. What they do is bucket time priority into discrete
| chunks, which eliminate a certain class of high frequency
| strategy that probably isn't particularly economically
| productive.
|
| The problem with batch auctions relative to continuous
| time trading is that that discreteness forces market
| makers to charge larger spreads. That's the primary
| trade-off. Volume would likely be dramatically reduced
| while achieving comparably efficient asset allocation,
| but at slightly higher average transaction costs. Those
| higher average transaction costs however would likely go
| along with better tail behavior of spreads in unusual
| market conditions, and maybe better human
| interpretability under unusual conditions as well.
|
| What it comes down to is a question of how much those
| non-monetary benefits are worth to your economy. The
| longer you force market makers to hold inventory, the
| more they have to charge for that risk, all else equal.
| However, when market volatility spikes, they're also
| going to be less able to play certain types of high
| frequency games that erode liquidity when it's most
| needed. It's kind of a robustness/efficiency trade-off,
| like many things.
| jallen_dot_dev wrote:
| Thanks for the insight, would appreciate any
| recommendation on where I can read more about this.
|
| I'm curious what would attract market makers to this sort
| of exchange if it exposes them to more risk. Unless they
| can charge a premium for taking on that risk. But then
| why would traders want to pay more when they can get
| better prices (from tighter spreads) on today's more
| popular exchanges?
| Synaesthesia wrote:
| I guess considering this was taken from a course in economics
| I'm not surprised. They don't criticise markets there or look
| at critical theories at all.
|
| I guess a few facts like markets are not always efficient,
| they are often irrational, there has never really been a
| "free market", its been distorted by governments and powerful
| agents... Corporations were the ones who created market
| regulation so that they wouldn't be subject to its vagaries.
| sdevonoes wrote:
| Am I the only one in HN who is not into the stock market? I live
| in Western Europe and I would say 75% of my acquaintances don't
| do stock market. People I have known in the past (old people)
| didn't do stock market either. They all seem to have lived a
| normal life (decent jobs, decent house, decent family). Nothing
| extravagant but they got enough money to be "happy" in life.
| headmelted wrote:
| Also Europe here, and leaving aside what others have said about
| how everyone is invested in the stock market whether explicitly
| or not (which is entirely true), this rings true for me as well
| - it's also backed up by data.
|
| In the US, the majority of adults are invested in the markets
| (https://news.gallup.com/poll/266807/percentage-americans-
| own...), whereas in Europe the number of people invested has
| historically been lower (https://www.ft.com/content/31c4d453-49
| 8e-4cc2-b14f-d7e8b17b9...).
|
| This makes sense when you think about it - in the past you
| would have built habits and understanding from relatives and
| your community (e.g. "Don't invest in stocks that's gambling
| and they always crash!"), whereas since the Internet came along
| people have more access to data and perspectives from more
| places.
|
| All of the above said, the last few years, and especially since
| the lockdowns, the behaviour in the markets has been really
| alarming. The FT.com link above touches on this, but the rush
| into [stocks/cryptocurrencies/leveraged funds/options] is
| something I've never seen before in my lifetime. I don't think
| the world has ever seen anything like this level of amplified
| speculation. Bitcoin, Leveraged ETFs, and Options didn't exist
| in the 1920's. The Netherlands had futures contracts towards
| the end of Tulipmania, but I haven't seen anything to say that
| they were leveraged.
|
| In the late 1990's it was clear and readily apparent to
| everyone that the Internet was a massively important step
| forward. We agreed on that. It wasn't a controversial or widely
| disputed viewpoint. The market still imploded because of the
| sheer amount of rampant speculation, so to think something
| worse won't happen to a multi-trillion dollar market based on a
| technology many people think only has value for running Ponzi
| schemes seems to be pretty irrational.
|
| To top it off, the wall of hype seems impenetrable at this
| stage ("have fun staying poor!" etc), so it remains to be seen
| what happens when the plates stop spinning this time.
|
| tldr; Your grandparents might be proven right after all.
| runarberg wrote:
| Personally I have a philosophical (read marxist) reason to
| avoid it. Fundamentally I see the stock market as an
| exploitation tool which the rich use to siphon money away from
| workers and into their own pockets without contributing.
|
| Every dollar you get but didn't work for was a dollar that
| somebody else worked for but didn't get. The stock market is
| full of transactions which yields profits for the rich while
| leaving workers at a loss by means of lower benefits. I refuse
| to participate and become a class traitor.
|
| I've never worked in an industry which tries to push stocks
| onto you as much as software development. They keep paying me
| out options, giving me stock plans, etc. My strategy is to get
| sell as soon as I'm able, and transfer the money to a savings
| account in my local credit union. Don't let them get away with
| not giving me my money, but don't let them dictate how I keep
| my savings.
| notahacker wrote:
| Isn't being offered stock in your own company broadly
| consistent with Marxist principles: workers own a share of
| the wealth they create? Maybe not as much of a share as
| they'd like, but I wouldn't have thought that was reason to
| avoid taking any.
| runarberg wrote:
| hnbad answered this much more thoroughly than I'm able. I
| would just like to add that in my experience stock options
| and grants has been an excellent way of pretending to pay
| me more then they actually pay. It feels like they are
| giving me a lot extra until you actually look at the
| numbers. And I bet a lot of workers get fooled by this. For
| me it feels like an exercise in cognitive dissonance, that
| is my employer is trying manufacture a cognitive dissonance
| in my brain which favors them.
|
| Of course owning these stocks gives me nothing over their
| monitory value, so having them benefits me nothing over
| having an interest account with equal interest rate. So I
| just look at them as a bonus pay with additional headaches
| (moving money out of the stock market is harder then to
| cash in a normal check). And as while the power imbalance
| exists between workers and bosses, I would rather just get
| paid in regular salaries without the extra complexities.
| GoodbyeMrChips wrote:
| > being offered stock in your own company
|
| Off-topic from the thrust of this conversation, but I
| always considered the above extremally risky. If your
| company goes tits-up, you loose your job _and_ your
| savings.
|
| This happened to a lot of people during the dot-com crash
| of 2000. (Unless you have a high risk tolerance, you will
| want to diversify much more.)
| hnbad wrote:
| It's orthogonal to Marxism but Marx and Engels both engaged
| in stock trading (not to mention that Engels literally
| owned a factory).
|
| Employment is by definition exploitative because a
| capitalist system requires the owner to derive profits from
| labor, i.e. pay workers only a part of the value they
| generate. This isn't a value judgment, this is a matter of
| definitions: the capitalist mode of production is by
| definition exploitative because avoiding exploitation would
| steer the owner towards bankruptcy and thus kill the entire
| business.
|
| The only solution to avoid this contradiction is to not
| have a separation between ownership and work, to abolish
| the capitalist class, i.e. ownership of a business is
| granted by working for that business, with all the rights
| and responsibilities ownership implies. However the
| ultimate ideological goal is usually (similar to how Free
| Software doesn't want to control copyright but abolish
| ownership of software) to abolish the notion of ownership
| or even businesses as distinct entities, much like discrete
| ownership of land was a nonsensical concept before
| enclosure (i.e. it was "your land" because you used it and
| the community was okay with you using it).
|
| I think the most frequent misunderstanding of communism
| comes from trying to fabricate communist structures within
| capitalist power dynamics. Most of the prominent "communist
| experiments" had very little to do with actual communism
| because they were built around the assumption that they
| were building a foundation for communism to happen later
| rather than directly building communism in the here and now
| (hence the Eastern Bloc phrase "real socialism" as a
| euphemism for authoritarian governments with mandatory
| labor and limited democratic instruments, none of which is
| compatible with the definition of communism).
|
| The thing most people seem to forget is that the goal of
| "abolishing the capitalist class" is to also abolish the
| working class as a subjugated dependent group because it is
| only a meaningful concept when contrasted with an owning
| class. The Soviet Union failed terribly at this by
| replacing the capitalist class with bureaucrats,
| effectively still maintaining a distinct working class and
| hoping he bureaucracy would magically "wither away"
| eventually while doing nothing to make that happen. They
| also tend to forget that the distinction between capitalist
| and worker is purely about ownership and there are many
| overlapping hierarchies of power, and owner vs worker is
| merely one of them (although one of the most important
| ones).
| kwere wrote:
| profits, outside of law encroachment or sheer luck are due to
| risk taken, the majority of adults dont want to risk more
| than their time and as we age our risk aversion increase.
| Creators of wealth are few and between, because they risk
| more and usually are more skilled than the average joe. This
| is also the reason why wealth dont survive over generations .
| these are few of the "marketing driven" meritocracy we have
| and taking part in this ecoomic competition is normal.
| morality arise when a public company has a dirty business
| model and one can decide to not support them, choosing ESG
| investments (real not marketed)
| modo_mario wrote:
| >This is also the reason why wealth dont survive over
| generations .
|
| There is loads of counterexamples for this though.
| Especially in older countries in Europe it can become very
| apparent.
|
| Also having wealth (trough inheritance) enables one both
| more opportunities and reduces risk. A poor person taking a
| "gamble" on a business (if they can start one that doesn't
| require long rampup or capital) will struggle to feed
| themselves if it fails. A rich person (if not just focused
| on inherited assets) can try multiple times and is often
| encouraged to because of this but also trough exposure to
| fundamentals from family.
| mehphp wrote:
| What do you do for retirement?
| ivanche wrote:
| Ah don't be afraid of it. You're missing out an opportunity to
| live a worryless retirement and to even leave a solid chunk of
| assets to your kids/partner. Simply invest a few hundreds euros
| (probably 300-400 will be enough) every month into an ETF which
| tracks some of the very broad market indices like MSCI World,
| FTSE All World or even S&P500. You have very good chances of
| becoming a millionaire or almost-millionaire by the time you
| retire. Good luck!
| fergie wrote:
| Whether or not you care about the stock market is basically a
| question of whether you run a functioning business or not. If
| you run a function business then you are have cash sitting on
| accounts. Even for a fairly modest business, a reasonable
| operating cushion dictates that you always have 6-7 figure cash
| reserve. Ideally you want this money to be sitting somewhere
| where it generates good returns, yet can be accessed quickly
| and with low transaction costs. Therefore shares and funds
| start to make sense. These days you can actually move cash
| directly into funds from your corporate online bank.
|
| Shares (and all their financial derivatives) are a good hedge
| for profitable limited companies, because they either go up in
| value (yay! profit!) or down in value (yay! tax deductable loss
| rolled over to next year!). So long as the company is otherwise
| making a profit, shares are actually pretty hard to lose out
| on.
|
| Also pensions. Most pensions are backed by index funds which
| are generally related somehow to stocks and shares. If you need
| to manage a pension fund, you have to pay at least vague
| attention to the stock market.
| yen223 wrote:
| If you're running a functioning business why wouldn't you
| plough the money back into the business?
| sokoloff wrote:
| Eggs and baskets. If I owned a company that provided for my
| current income, I would not want to place myself in a
| position where the faltering of that business killed both
| my current income and my retirement at the same time.
|
| By all means plow a lot of it back into the business, but
| there's good reason to pull some out over time as well.
| gumby wrote:
| Hedge your risk. Investors get diversity (portfolio)
| spacially: they get a piece of lots of businesses.
| Entrepreneurs diversify temporally: they can reasonably
| only put their time into one thing at a time, and only a
| few over a lifetime.
|
| So if your business is doing well you can avoid putting all
| your eggs in one basket by investing some cash personally
| outside the business. And the easiest way is to jus put it
| into an index fund and then concentrate on your business.
| iso1631 wrote:
| Doesn't seem sensible to invest your operating cushion in
| something as volatile as the stock market, especially given
| the corralation between a recession causing your operating
| margin to crash and a recession causing your business to need
| that operating margin
|
| The US stock market has been ridiculously pumped from the
| last decade-plus of money printing, I wonder how many people
| think that's normal.
| twic wrote:
| The stock market is a terrible - criminally negligent - place
| to keep a company's operating cash. I would be fascinated to
| read advice from an accountant or other financial
| professional that says otherwise.
|
| I once worked at a company which used a money market fund for
| its cash. That gave them a slightly better return than a bank
| account. In the end, not sufficiently better to be worth
| bothering with.
| dmurray wrote:
| If the company has an excess of cash and nothing good to
| spend it on, I think it's fine to put it in the stock
| market. Maybe you wouldn't count this as "operating
| reserves" - I wouldn't do that with the money that's
| earmarked to pay suppliers but not due for another month,
| but I would do it with the money that's earmarked for
| opening a new business location at an indefinite time in
| the future.
|
| You can get whatever risk profile you want from the stock
| market in return for less yield. If you can accept two-
| nines certainty that you won't lose half your money in six
| months, any broad index fund will do. That would be
| acceptable for a lot of "modest businesses" which find
| themselves with "6-7 figures cash reserves". If you need
| better, you can do fancy things with options, or put a
| fraction of the money in the bank and invest the rest.
|
| (I am a financial professional, but not in this field, and
| this is not financial advice)
| GlennS wrote:
| I think traditionally most people in most countries ignored the
| stock market and consider it boring to talk about.
|
| Maybe less so in the USA? Not sure.
|
| But a lot of computer folks have spare money at the moment, and
| in that situation you have a few options: consume more, keep it
| in a savings account, or invest. And some significant
| proportion choose invest.
|
| Keep it in a savings account is a common option, but quite a
| bad idea.
|
| Probably the majority of people who invest do so in property,
| considering it safer than stocks (which I disagree with,
| although there are other reasons to like property).
|
| This may be changing a bit in recent years, because access is
| easier now. In Sydney I see adverts for stock brokers at the
| bus station.
|
| Seems like some gamblers have switched to the stock market to
| get their fix too.
| llampx wrote:
| I live in Germany and its the same. Not that that's a good
| thing. People here are old-fashioned and still believe in
| "Concrete gold."
|
| Fact is, as soon as you've got a meaningful amount of wealth,
| you're going to want to invest it so you can either get income
| from it or grow the principal. It could be in a home, multiple
| properties, or the stock market.
|
| > People I have known in the past (old people) didn't do stock
| market either. They all seem to have lived a normal life
| (decent jobs, decent house, decent family). Nothing extravagant
| but they got enough money to be "happy" in life.
|
| No offense but you're going to have a tough time comparing to a
| boomer in terms of wealth generation and building if you're a
| millenial. I know people who got houses handed to them for very
| cheap 30-40 years ago, and those houses are worth tremendous
| amounts of money now. On top of that they have good pensions
| and insurance from a long time ago. Or they have a rental
| contract where they're paying 1/3rd of their neighbors so their
| expenses are low.
|
| There's a great income and wealth divide in Europe between the
| haves and the have nots, and the haves are very good at keeping
| their wealth and passing it down to their heirs. Meanwhile in
| most European countries, punitive taxation makes it extremely
| difficult to move up in social class, even from middle class to
| upper middle class.
| simongray wrote:
| > Meanwhile in most European countries, punitive taxation
| makes it extremely difficult to move up in social class, even
| from middle class to upper middle class.
|
| This is not true. Several of the highest taxed countries in
| Europe also have the best social mobility in the OECD:
| https://www.oecd.org/els/soc/1-5%20generations.png
|
| It might be the case that Germany is particularly rigid, but
| that is not transferable to most of Europe and certainly
| can't be attributed to taxes.
| hnbad wrote:
| German has extremely liberal inheritance taxes. On the one
| hand this is often justified with the existence of the
| German "Mittelstand" (medium sized businesses typically
| owned by one family over generations), on the other this
| means the easiest way to get rich is to have rich parents.
|
| Low inheritance taxes are actually a great predictor for
| maintaining social inequality over generations. If you
| wanted to reduce social inequality you'd instead want to
| drastically lower VAT (which disproportionately affects
| poorer people), adjust income taxes to lower the tax burden
| on lower incomes and raise it on higher incomes, and
| drastically raise taxes on income from capital (rather than
| labor). This isn't even simply an opinion, this is
| scientific consensus.
| sokoloff wrote:
| That reduces social inequality, but that is not the
| singular goal of a society. Producing goods and services
| and wealth for the nation is a goal that competes with
| "tax away almost all the gains of these activities",
| which is why there's debate about how to balance these
| things.
| llampx wrote:
| Thank you for the chart. Germany is further down the list
| than even I thought, admittedly. How sad ist that. Here I
| thought that at least Germany having a good social safety
| net and free university would mean it is somewhat easy to
| pull yourself out of low income if you are intelligent and
| have the drive, as well as parents who gave you a bit of
| encouragement in your early years. Seems like even that is
| harder than I thought.
|
| Do you have one for mean income to upper class by chance?
| Even +1 Std Deviation move would be significant in terms of
| wealth building.
| RandomLensman wrote:
| That OECD study is really tricky as it only goes to mean
| income. The interesting bit would be to really rich and
| there I am not sure Scandinavia would score so well.
| habosa wrote:
| In the US if you have a retirement savings account (which is
| very advantageous to have) it's likely to be a 401k or IRA
| which you have to manage yourself. So having some basic
| understanding of the stock market is essential to your
| financial future.
| Tainnor wrote:
| You don't have to be "into" the stock market i.e. doing day
| trading. That's unlikely to make you rich unless you do it as a
| full-time job (and even then...). You can get lucky, but that's
| usually about it.
|
| Instead, invest a regular amount of money monthly into ETFs.
| Those are relatively low-risk, but should still yield
| significant returns over the course of decades.
|
| It's true that most people (at least in Germany) don't trust
| the stock market. The problem is that your wealth is being
| eaten up by inflation and interests on savings are low or even
| negative. You will lose money. In addition, Germany's mandatory
| pension funds are in a bad shape and most private insurances
| (e.g. Riester) are not worth it.
|
| The situation is not the same as in my parents' generation and
| unfortunately, a lot of people are not realising that.
| teva wrote:
| I'm pretty sure a lot have a life insurance which put a part of
| the money on the financial market
| koonsolo wrote:
| My parents didn't do stock market, for the simple fact that you
| got a nice interest from a savings account. Those times are
| gone now. Some people have a hard time grasping the
| alternatives.
|
| Stocks are considered "risky", but if you have a 10+ years
| timeframe, an index fund is not risky at all.
|
| I also have 75% of acquaintances that don't do stock market or
| crypto. And that's the reason why my savings are outperforming
| all of them.
| tommiegannert wrote:
| As a Swede in Switzerland, I think the main difference to the
| US is the cost. European commissions is mostly "buy and never
| look again." That fosters a culture where only a few people
| care and talk about it.
|
| In Switzerland, I have to pay ~0.1% stamp duty on every
| purchase and sale of stocks and ETFs (in a Swiss broker). The
| UK has a 0.5% stamp duty on stocks. The idea for these brokers
| to compete on price doesn't make much sense at that point. It's
| "fine" that the normal fund has a 0.5-1% fee. There's some
| movement here, but only if you care to engage outside your
| existing bank (IBKR in the UK, Avanza++ in Scandinavia, Degiro
| in Europe in general).
|
| Investing is good, and---as has been said---pensions are often
| invested in the stock market, whether you know it or not. But
| you just don't talk about it, because being active is costly.
| In Sweden, the defined contributions are auto-invested in a
| balanced fund unless you engage. There's something to be said
| about having sane defaults when you create a system.
|
| As for the US, I'm not sure Robinhood was a step in the right
| direction. We should encourage people to own companies, not try
| to profit from Brownian motion. But that's perhaps a topic for
| another discussion.
|
| Finally, I'm heavily into the stock market. I have several
| accounts across the world (though not really by design). I'm
| fascinated about this oddity that I can buy more food in the
| future just by having a different piece of paper, compared to
| someone else. But I also spend a stupid amount of time trying
| to find ways to reduce cost of investments. My guess is that
| most people don't, and it's kind-of the first step for a
| European that's paying >1% in fund fees. Or who don't even know
| how much they're paying.
| erwincoumans wrote:
| You are likely indirectly into the stockmarket, through pension
| funds or social security. In the USA, a lot of people
| (especially in big tech) are more directly involved through a
| 401k, which allows to pick stock/bonds.
|
| It could also be that you prioritize investing money into a
| house instead?
| JohnJamesRambo wrote:
| Where do you and they keep your retirement money?
| runarberg wrote:
| In Iceland there is mandatory retirement funds. You can
| choose which fund and many people pick a fund that is only
| made off of government bonds. More people probably don't have
| a clue what their retirement fund is made off, it is just
| some number on their paycheck, so they participate in the
| stock market both indirectly and unknowingly. I think it is
| kind of a stretch to say that these people are doing stocks.
| Most people I know use every opportunity to withdraw early
| from their fund.
|
| At most these people do stocks like a person who returns
| their compost to the city does public gardening.
| Gatsky wrote:
| There is a lot of interest in the stock market currently.
| Individual investors ('retail') have been buying a lot of
| stocks in the last 12 months.
|
| Some would say this is typical behaviour before a crash.
| Business people become folk heroes (Musk) and the news is all
| about stocks and macroeconomics.
| pjc50 wrote:
| Do any of them have private pensions?
|
| In the UK almost everyone will have been moved over to a
| "defined contribution" pension whose value is determined by the
| stock market, usually in the form of a "stakeholder pension".
|
| I don't "do" the stock market but I do have such a pension. And
| every few months sweep spare cash out of my current account
| into an index fund. Effectively I pay people to worry about
| this stuff on my behalf.
|
| People who retired more than about 10 years ago are far more
| likely to have "defined benefit" pensions whose value is
| independent of the stock market.
| bidirectional wrote:
| Even with DB schemes their funding often relies on exposure
| to equities.
| pjc50 wrote:
| Yes, although the recipient is not supposed to be exposed
| to that - see the UCU strike starting today.
| iso1631 wrote:
| LOL, I searched for "UCU strike", the first result was
| "UCU strike calendar"
|
| They have so many strikes they need to organise them to
| make sure they don't overlap each other
| lotsofpulp wrote:
| Everyone is exposed to it if they trade in the major
| currencies. The government will reduce the purchasing
| power of the currency to ensure the nominal returns to
| meet the defined benefit obligations are met. This, in
| turn, will boost the price of equities such as land and
| stocks, and eventually trickle down as inflation for food
| and fuel.
|
| You will get your defined benefit pension, but how much
| you can buy with it is variable. And it is going to be
| less than you think. That is the only way the equation
| balances with lower economic growth (especially due to
| lower population growth) and increased competition for
| resources from the other 7B people in the world.
| hnbad wrote:
| Not the parent, but I live in Germany and while the new
| coalition government is expected to push for moving he public
| pension system to stock based pensions, the current system
| consists of a public pension system (that employees pay into
| via their employer to pay out current recipients who
| previously paid into it) and a private pension system
| everyone is strongly encouraged to pay into. As I understand
| it the private system is not directly tied to the stock
| market though.
|
| For most people outside the very niche finance and tech
| investment bubbles stocks are largely understood as a form of
| gambling and managed funds as a high yield alternative to a
| savings account with a small risk of losing money (but this
| requires some disposable income so again this is somewhat
| self-selecting).
|
| The ordinary Hans Wurst (German Joe Blow) just follows the
| economy section of the news for a general feeling of if
| things are going good or bad because line goes down means
| prices go up and they probably won't get a raise.
| llampx wrote:
| Watch the Ampel get into the stock market at its peak and
| put off an entire generation from the stock market, yet
| again.
| pembrook wrote:
| Europeans can have the luxury of not worrying about investing
| since many European countries offer livable pensions (for
| now...the demographic future for this isn't looking so good).
|
| However, this isn't as great as it sounds. While the European
| model for healthcare and education is better, their pension
| schemes are arguably a much worse deal than what Americans can
| have.
|
| In Europe, you're basically paying the government to take your
| money and invest it in _much_ too conservative, in fact,
| negative-yielding! bonds right now due to pension fund
| mandates.
|
| You can't take the proper amount of risk given your age (in
| your 20s-40s you should be almost fully allocated to stocks)
| because the pension fund needs to constantly be paying out
| money to old people--they can't risk huge drawdowns.
|
| There's a surprisingly large amount of middle class Americans
| who will retire millionaires just because they are able to save
| for their pension privately and take the proper amount of risk
| for their age (eg. Target date funds).
|
| Meanwhile, in Europe, governments shelter people from the harsh
| realities of how financial markets work, but you have to hope
| and pray that enough people are born in the coming decades to
| make up for the conservative pension mandates. And you have to
| pray that the government _allows_ you to retire sometime before
| you die (in the nordics, retirement ages are constantly being
| pushed back and pension benefits are shrinking...due to said
| demographics).
|
| I predict every country will eventually move to a hybrid
| private/public pension model like the US over the next 40
| years. So you'll have to start caring eventually.
| smat wrote:
| Germany is even worse than you describe. The pension system
| managed by the government is not backed by any assets at all,
| but works by taking from the working population to the
| retired population. Given the age distribution in Germany
| this means young people are increasingly paying more to this
| system, while retired people receive less and less per
| person.
|
| This was of course obvious already a while back, so the
| government decided to introduce additional ways to encourage
| saving for retirement (by giving tax discounts). However,
| they also managed to screw this up, because only contracts
| from certain insurance companies apply for these tax
| discounts. And these contracts have such a high management
| fee, that the real return of those constructs is negative.
| enriquto wrote:
| > There's a surprisingly large amount of middle class
| Americans who will retire millionaires
|
| This seems like a serious bug in the system, doesn't it? Why
| would old people retire as millionaries while young people
| struggle working long hours and can barely save anything?
| greedo wrote:
| Because the lack of effective pensions require you to
| either work til you die or live off Social Security. Most
| people don't want to do either, so they direct a
| significant amount of their earnings to 401ks and the stock
| market.
|
| The fact that young people struggle really doesn't have
| much to do with this.
| thebean11 wrote:
| The bug is working people struggling not middle class
| people having livable retirements
| mtberatwork wrote:
| Compounding interest...if you start early enough and take
| advantage of employer contribution matching, etc. But most
| people in the US won't retire as millionaires, let alone
| even retire. Unforeseen life events often cause people to
| dip into retirement savings and in some cases wipe out any
| gains. Also, once in retirement, life in the US can still
| be quite expensive. For example, Medicare and all the
| additional supplemental insurance(s) you need is absurdly
| expensive for retirees. Everything in the US is "out of
| pocket".
| iso1631 wrote:
| In the UK you can stick whatever you want into stocks and
| shares isas, if you can afford it.
|
| The problem is that housing costs rise to suck every spare
| penny of income from pretty much everyone so very few people
| have spare money to put into those isas.
| pembrook wrote:
| I believe this is also a side-effect of these poor pension
| schemes.
|
| European governments see the demographic timebomb coming,
| so they massively incentivize their citizens to invest in a
| primary residence, treating it as forced savings. This
| inflates local real estate values to ridiculous levels,
| especially while interest rates are low.
|
| However, incentivizing your citizens to take leveraged bets
| (big mortgages) on a single piece of real estate is...not
| great.
|
| This means the investment portfolio of the average European
| citizen is ONE specific apartment (zero diversification),
| and negative yielding sovereign bonds (via government
| pension funds).
|
| Since most European mortgages are not fixed rate, it will
| be interesting to see what happens as interest rates start
| rising in Europe.
|
| While the bonds will start paying better interest, that
| mortgage exposure might start to wreak havoc on the average
| citizens finances...
| 0xcoffee wrote:
| Is that so? Here in The Netherlands fixed rate is pretty
| common.
| pembrook wrote:
| At least in the Nordics, most folks I know in the past
| years have been taking out floating rate mortgages.
|
| Makes complete sense given interest rates are zero right
| now. However, if the ECB keeps getting surprised by
| inflation (like the Fed is in the US), interest rates may
| have to be start rising in fast, dramatic fashion.
| iso1631 wrote:
| Fixed rate for lifetime?
|
| Something I didn't realise until recently was in the US
| it's normal to have a 30 year mortgage with a fixed rate
| from the start, rather than a fixed rate for a few years
| and then either a variable rate or requiring a
| remortgage. My understanding is that most mortgages in
| the Netherlands tend to be 5-10 years fixed rather than
| lifetime.
|
| In the UK I feel there's a lot of distrust of stock
| markets amongst normal people, partly because the FTSE
| doesn't grow (back in 2000 it was about 7,000, today it's
| about 7,500), and that's the one reported on the normal
| news. There's no widely reported "FTSE dividend
| reinvested" measure.
|
| Add in the mortgage mess from annuity mortgages where
| people were sold the idea they could have their cake and
| eat it too, ended up without enough money to repay their
| mortgage at the end. Throw in the pension collapse of
| Equitable Life, the pension fraud from Maxwell, the stock
| "boom" in the 90s where normal people bought shares,
| driven by the selloff of nationalised industries, and
| then seeing those shares vanish in 2000 and never really
| recovering and you get a general distrust of private
| hands managing money, and a preference to trust the
| government.
|
| This meant people put their money into houses starting in
| the late 90s, which combined with increasing household
| income as new families became dual-income led to
| increasing house prices and a snowball effect. Even 2008
| didn't really impact, as it was mainly sold as a US
| problem which had an effect on the UK, but not a major
| one.
|
| The UK government (any colour) will do anything to keep
| house prices growing as that's how you get votes.
| gpderetta wrote:
| So it is in Italy. In UK fixed rates usually last 2-5
| years, then revert to variable rates (and inevitably you
| have to remortgage).
| shubb wrote:
| I am very worried (UK) that the government retirement
| safety net may not be there for us, as the retirement age
| is being pushed up beyond 70 but I am not sure most people
| can work full time that long without health issues.
|
| Nor can we assume that the exceptional stock market returns
| of the past 15 years will be repeated, which means we need
| to save more for the same result.
|
| I feel great pressure to earn a high wage in order to save
| a lot of it into a pension. This feel like a matter of
| survival.
| nly wrote:
| Yes, for perspective relatively modest 3 bedroom houses in
| London are going up in price, every month, by more than the
| average person in the UK as a whole takes home.
|
| You can be in the top 1% by income in London and still
| simply not be able to afford a small family home.
|
| Home equity wealth inequality in crippling.
| iso1631 wrote:
| All the income from people in London is extracted by
| those owning the land, because you need to live somewhere
| to earn that money. It's basically monopoly, doesn't
| matter if you pass go and collect PS200 or PS2000, all
| that happens is the people owning the properties around
| the board take it until you run out (or if they want to
| extend the game
| greedo wrote:
| <There's a surprisingly large amount of middle class
| Americans who will retire millionaires just because they are
| able to save for their pension privately and take the proper
| amount of risk for their age (eg. Target date funds).>
|
| Yet there's a surprisingly large amount of middle class
| Americans who have no retirement savings; either due to YOLO,
| or medical emergencies, or misunderstanding how to invest
| towards retirements.
| vishnugupta wrote:
| > There's a surprisingly large amount of middle class
| Americans who will retire millionaires
|
| I would love to see some data around this. Because what I
| keep hearing (being in India) from the usual suspect sources
| is mostly gloom and doom[1]
|
| [1] https://news.ycombinator.com/item?id=27205734
| dionidium wrote:
| It might depend on your definition of "surprisingly."
| According to this source, about 10% of American households
| are millionaires and about 80% of those are first-
| generation millionaires (i.e. they didn't inherit the
| money).
|
| Additionally, only about 1% of those millionaires are under
| 35. (This is a point that gets lost in the debate about
| inequality, in my view; most wealthy people are _old_ for
| what I think are extremely obvious reasons.)
|
| https://spendmenot.com/blog/what-percentage-of-americans-
| are...
| mtberatwork wrote:
| > a hybrid private/public pension model like the US
|
| I'm not sure pensions exist in the US beyond a few public
| sector ones. The US model is entirely private at this point
| for all intents and purposes.
|
| Also keep in mind that only about 55% of the US population
| owns any stock (including retirement accounts) [0], so (IMO,
| not an economist) the US is most likely looking at a
| retirement crisis in the coming decades.
|
| [0] https://news.gallup.com/poll/266807/percentage-americans-
| own...
| pembrook wrote:
| The US has a public pension scheme called "social
| security," which guarantees at least a minimum level of
| income in retirement to all citizens (although, not enough
| to live on IMO).
|
| This is intended to be supplemented with private
| investments via 401k & IRAs, which are actually relatively
| new programs (created in the late-1970s, but nobody even
| talked much about them until the 90s).
|
| So while most millennials understand they need to be saving
| privately in these vehicles (r/personalfinance has 15
| million members), there's a huge forgotten generation in
| the middle who slipped through the cracks between the
| transition from industrial-era corporate pensions to
| personal saving.
|
| These are the folks who will unfortunately bear the brunt
| of the retirement crisis, having to get by only on Social
| security.
| mtberatwork wrote:
| Social Security is not a pension plan in the normal
| sense. It is structured and taxed differently than a
| pension that a company would provide.
| flavius29663 wrote:
| > livable pensions
|
| This is a myth. People struggle on state pensions throughout
| Europe, but for some reason young Americans idealize
| everything that comes out of Europe.
|
| In Germany(a country of 80 mil), the average pension is $1000
| once you get to 65. In France it's not much more. The social
| security in the US beats that, plus you can usually afford a
| private pension, because the government doesn't take 50% of
| your paychecks.
|
| I personally know someone in Austria that worked all his life
| for the railroad, then he got sicker and sicker, but the
| state wouldn't give him a disability pension. He could barely
| work sitting all day. Then he got disability at around age
| 60, but he needed money so much that he had to collect scrap
| metal to make ends meet. Very sick, after 60 years old,
| collecting metal. This is just an anecdote...I know, but
| still.
| Dma54rhs wrote:
| It's absolutely true and Americans like to do the
| evangelization of these strange beliefs about Europe. There
| are good and bad parts about every system and thinking
| everything is perfect in Europe is about as dumb as Euros
| are socialists and its bad dogma.
| MrYellowP wrote:
| It's all about the outside influence. When the media doesn't
| push it, people aren't going to do it. Don't believe it?
|
| When the media started pushing GME, people went and bought GME.
| When the media started pushing btc, people went and bought btc.
|
| Stocks aren't being encouraged, therefore most people don't do
| it and instead cluelessly dismiss it mostly as gambling. Same
| goes for cryptos.
|
| Right until the media pushes it, people buy into it, rich
| people sell causing prices to crash, and the cycle of
| cluelessness repeats.
| pasabagi wrote:
| It is also the case that professional traders make a lot of
| money out of retail investors. The percentage of retail
| investors that actually make money are, iirc, quite small. It
| doesn't make sense to do something when you don't have the
| time to get good at it, and being bad at it means you're
| going to lose money.
|
| Sometimes you're forced to (when an investment is tied into a
| basic necessity, like a house), but you're always going to be
| at a disadvantage.
| pjc50 wrote:
| Retail _traders_ tend to lose money, retail _investors_ who
| buy and hold tend to do OK in the long run.
|
| > investment is tied into a basic necessity, like a house
|
| ? What does this refer to?
| pasabagi wrote:
| I mean the rights of tenants are such that if you want to
| live in decent conditions / a stable domicile, you have
| to buy a house, thus becoming a property investor.
| sokoloff wrote:
| I think the act of buying a house to live in should be
| considered more an act of _consumption_ than of
| _investment_.
|
| It's not 100% consumption, but it's almost surely we'll
| over 50% consumption and yet people get confused by the
| fact that a slice of it is forced savings and a sliver of
| it is an investment and they focus on these latter two
| more than is appropriate and in so doing are prone to
| less rational decisions than if they thought of it as
| mostly consumption IMO.
| pasabagi wrote:
| I wish it was just consumption! If houses always
| depreciated in value, then they would cost about as much
| as it costs to build them.
|
| Unfortunately, because a bunch of political factors, they
| endlessly balloon in price.
| sokoloff wrote:
| I think _houses_ mostly do depreciate in value. The
| _land_ underneath them does not and this can often mask
| the former.
|
| I live in a nice part of my city. My house is 100 years
| old, has terrible insulation, very old retrofit wiring,
| and needs constant maintenance to stave off decline. The
| house, with all the upgrades over the years, is likely
| worth about what it was when built. The land underneath
| it is a lot more valuable than it was 100, or even 25,
| years ago.
| pasabagi wrote:
| Seems like semantics to me: you can't buy a house without
| essentially buying land. If you could, I absolutely
| would.
|
| The fundamental problem here is not one of economics, but
| of politics. You can't live in a stable, dignified manner
| without paying to be part of a state-run monopoly (land
| ownership), so everybody who can does, so land titles
| (note the word) become absurdly expensive.
|
| There is no real connection between land and living space
| - multiple story housing exists, and if housing was built
| to a reasonable density, there's more than enough land
| for everybody to live in whatever size house they could
| afford to build.
| lotsofpulp wrote:
| > There is no real connection between land and living
| space - multiple story housing exists, and if housing was
| built to a reasonable density, there's more than enough
| land for everybody to live in whatever size house they
| could afford to build.
|
| All land does not have the same or even similar perceived
| utility to all people. Some land is has much more demand
| relative to supply than other land.
| sokoloff wrote:
| It's sensible though to think "Why don't houses
| depreciate like used cars? After all, they also wear
| out."
|
| Side note 1: There are places where you can (sometimes
| only can) lease the land for 99 years. This has the
| predictable effect in terms of willingness to
| build/improve the land, especially as the lease term is
| drawing to an end.
|
| Side note 2: these discussions almost inevitably summon
| the proponents of land-value-tax to encourage denser use
| of valuable land. They'll be along shortly, I'm sure.
| the-dude wrote:
| I believe in Japan houses are considered fungible. There
| even might be a taboo in living in a 'used' house.
| djbebs wrote:
| The houses do. The land they're on don't
| pasabagi wrote:
| Kitchens also don't appreciate in value. However, if
| you're trying to rent a flat in berlin, you'll probably
| find yourself paying brand-new+ prices for the previous
| tenant's kitchen.
| tim333 wrote:
| This is a nice article but a bit beginnerish and gets facts wrong
| partly because the author seems a bit vague on the difference
| between a maker and taker in a transaction. The maker is the
| party that sits there waiting for bids and offers to come in and
| that taker is the party that doesn't wait and says buy this now
| or sell this now. The bid is the lower price that a maker offers
| to buy stock for and the ask is the higher price that they offer
| to sell it for. In the first example
|
| > What you can buy it for? (Your best bid)
|
| > What you can sell it for? (What you'd ask for it)
|
| They have it the wrong was around I think in that the amount you
| can buy an iphone for as a taker / customer is generally higher
| than what you can sell it for so what you can buy it for is the
| (dealers) ask price and what you can sell it for is their bid. If
| you are a dealer / maker with a stack of iphones sitting there
| then the higher price you offer to sell them for is what you ask
| and the bid is what you'll offer for people selling you their
| phones.
|
| There are some other simplifications too like "All prices are
| completely transparent." In an ideal world but in reality there
| are off market transactions, wash trading, faking and so on.
| black_13 wrote:
| pjc50 wrote:
| Since this is mostly about one mechanical aspect of markets -
| what is a "bid/ask" spread - it applies beyond the stockmarket to
| crypto markets. Except those tend to have fewer rules about the
| order book.
|
| If you're trading indirectly, which is not unusual with a
| brokerage, you should be aware of what is meant by "best
| execution", and I offer this article with an explanation in FX:
| https://medium.com/bull-market/oranges-and-lemons-the-fx-sca...
| tobyhinloopen wrote:
| lordnacho wrote:
| Well, that is how a basic orderbook works.
|
| But US markets have some special Reg-NMS rules that glue together
| things across exchanges. Being from Europe I'm not so familiar
| with it, but I understand it causes some interesting games to be
| played.
|
| If you want to actually understand how the market works, there's
| a fair bit more reading to do.
| Rimpinths wrote:
| Great point, and you understand the American stock market
| better than most Americans. This article was true about 20
| years ago, but the author is completely wrong when he says
| this:
|
| "A single market to trade. All stocks for Microsoft (MSFT), are
| traded on the NASDAQ exchange. All stocks for Ford (F) are on
| the NYSE."
|
| MSFT and F both traded on 16 difference stock exchanges, not to
| mention countless "dark pools", each with their own book of
| bids and offers. But there's a national best bid-offer (NBBO)
| that all exchanges must respect, so it can behave like a single
| market. That's what Reg-NMS is about. The benefits of having
| several exchanges competing each other, while trying to retain
| the benefits of single market. This is also where HFT enters
| the picture with latency arbitrage and other trading strategies
| when prices on those markets get out of sync.
|
| 20 years ago, you could say that MSFT only trades on NASDAQ,
| but that hasn't been true since Reg NMS came into effect in
| 2005. Each stock has a primary listing market that controls
| things like halts and opening/closing auctions, but the stock
| can be traded on any exchange, each with its own dynamics.
| nly wrote:
| Not to mention the trend is more and more liquidity going dark.
| dthul wrote:
| Does anybody know what happens when the bid is not equal to but
| higher than the ask? What is the price that will be used? Or will
| this not lead to a transaction at all?
| is0tope wrote:
| As others have mentioned this depends on how matching works on
| the exchange.
|
| The case where the bid is higher or equal to the ask is known
| as a "crossed book". I most cases, this should never happen and
| if it does it would be as a result of a bug in the matching
| algorithm. If you place a buy/sell order with a price that is
| in excess of the best ask/bid respectively then that order will
| be matched against the opposite side. Under normal conditions
| what you suggested should be impossible.
|
| If you want to know more about how order books work, I wrote an
| article specifically about how this works mechanically:
| https://www.machow.ski/posts/2021-07-18-introduction-to-limi...
| ra7 wrote:
| Thank you for this! This is exactly what I was looking for.
| djoldman wrote:
| This depends on the matching algorithm.
|
| Generally if a bid is introduced that is higher than the ask,
| the volume at the ask is matched, then the volume leftover at
| each ask level is matched in order of price (then time).
| pjc50 wrote:
| I believe this results in paying the bid.
| trosi wrote:
| I don't know the answer, but I think it would make sense to
| consider which offer came in first:
|
| First case: you ask for 100 and then I bid 105 --> transaction
| clears at 100, the ask price
|
| Second case: I bid 105 and then you ask for 100 --> transaction
| clears at 105, the bid price
|
| This is because I implicitly think about bid offers as "I want
| to buy this for at most X dollars" and ask offers as "I want to
| sell this for at least X dollars".
|
| I might be completely wrong though.
| gpderetta wrote:
| Yes, usually transactions are executed at the resting order
| prices (i.e. whatever is already being advertised in the
| market, and a transaction can involve multiple orders at
| different prices).
| MrYellowP wrote:
| I have a book written by Andre Kostolany, which taught me _one_
| thing and I believe I 've forgotten the rest, because only this
| one fundamentally matters:
|
| Don't hunt for rising stocks, but chase the falling stocks.
| Everything that goes down either eventually goes up again, or
| dies.
|
| While this sounds like it's not helpful, all that's required is
| figuring out if a company is likely going to die. Even without
| any manual research, _time_ is ultimately telling. The longer a
| company at the bottom doesn 't die, the more likely it's going to
| rebound eventually.
|
| https://en.wikipedia.org/wiki/Andr%C3%A9_Kostolany
|
| PS: Don't gamble your life away.
| georgeolaru wrote:
| I'm curious, what's the book name?
| pjc50 wrote:
| > He was able to make a profit during the decline in market
| prices which began at the end of 1929, having been bearish at
| the time.
|
| Well, yes, that might have informed his lessons from trading.
| There's another saying in the opposite direction, "never try to
| catch a falling knife".
| https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1545.pdf
|
| But it's not an unreasonable approach. Declines are often
| driven by panic. If you can determine that it's an irrational
| panic and the fundamentals of the business remain strong, then
| you can invest while it's undervalued. It's certainly better
| than buying just after something has gone _up_.
| [deleted]
| fsckboy wrote:
| i find "never try to catch a falling knife" a weak metaphor
| because, never try to catch a knife on the way up either.
| WA wrote:
| _Wirecard entered the chat..._
|
| I assume you have good intentions, but your post is severely
| lacking. One crucial thing with this strategy is time. WHEN is
| the time to buy a falling stock? While it is falling? Or when
| it is rasing again? Are we talking intraday or months?
|
| On a long enough time frame, every company will go extinct and
| every stock will go to zero.
|
| And your post is in direct contradiction of two other common
| stock insights:
|
| - Don't catch a falling knife
|
| - The market is efficient. If a stock price goes down, there is
| probably a reason for it.
| locallost wrote:
| I think there is no definite answer, and it's therefore only
| natural that common insights contradict each other. I've read
| Ben Graham's often recommended book, and the take there is
| that the market is a lot of times completely irrational, if
| not most of the time. A reason for a stock going down could
| be that it's not "sexy" and not viewed as the future big
| thing, but if the company has a solid business model, people
| will come back to it. There were plenty of examples of that.
| But what is a good business? Well, you need to know a lot of
| metrics companies publish on their earnings, debt etc. and
| also you need experience to see through any possible
| accounting shenanigans (e.g. Under Armour admitted last year
| they kept moving future earnings to the current quarter so it
| seems their current quarter was more profitable than it
| really was).
|
| The reality is that it's much more complicated than any one
| liner, and that most normal people that invest, invest based
| on gut feeling. It only really works by chance. Or they
| invest in index or mutual funds.
| WA wrote:
| I agree, I'm not a believer in the efficient market
| hypothesis anymore. I think the stock market is driven in
| large parts by narrative, which explains outliers a lot
| better. I just found the tautological advice of my parent
| poster a bit weird:
|
| > _Everything that goes down either eventually goes up
| again, or dies._
|
| Sounds smart, says nothing at all. Hence, "buying a beat-
| down company" is probably not advice that really works. And
| there are so many companies that never reached their ATHs
| again.
| llampx wrote:
| This is a strategy for ruin. You can easily backtest this
| yourself. Just go back in time and buy a stock that was -20%
| and see how many times you make a profit.
|
| The market has inertia. What goes up usually continues going up
| and what goes down usually continues going down.
| notahacker wrote:
| And going down, not going bust but never getting anywhere
| near the _just below peak_ level you bought at is common as
| well, and can easily lose 50-90% of what you invested without
| the company ever going bust.
|
| If you bought Yahoo at 20% below its peak value, the fact the
| company still exists two decades later isn't much
| consolation.
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