Let’s talk stocks

[SoonerAviator]

For any scheme, the randomness of the market guarantees that it will work sometimes. With mutual fund stock pickers, about a third beat their benchmarks in any given year. It is only when we look over a number of years that we see we have been "fooled by randomness."

Gedanken experiment: Hypothesize a stadium with 10,000 seats, approximating the number of mutual funds in the US. Instead of fund managers, fill the stadium with 10,000 monkeys (probably approximating the number of pundits and hucksters ). Give each monkey a fair coin and tell them to flip and sit down if they get tails. About 5,000 will still be standing after the first flip. Does that prove that those monkeys have heads-flipping system that should be taken seriously? Of course not. Now have them flip seven more times, again sitting if they flip tails. After those 8 flips, there will be about 40 monkeys left standing. At that point would you argue that those monkeys have a system that should be taken seriously? I still don't think so.

The concept that prices are random with a slight upward bias is a cornerstone of Modern Portfolio Theory, Harry Markowitz' "Portfolio Selection," published in 1952 (https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-6261.1952.tb01525.x). This is a highly counterintuitive concept but once you make the heavy lift to really internalize it, a lot of investing questions become much easier to answer.

No doubt. I understand the statistics surrounding it, and I've read a few books (not investment related) which discuss that same concept of what can be expected purely due to chance. My reading was more centered around Six Sigma/Lean Manufacturing, but the principle is the same about predicting human tendencies to focus on the wrong things because past success told them it was prudent to do so even if they were chasing outliers in the statistical noise level. I'd just hate to run the guy off by dismissing him outright. If he decides to come back with a full data dump of all of his trading and analysis, it would be worth judging it on its merits even though I'm unlikely to do more than buy and hold, personally.

 

[airdale]

... I'd just hate to run the guy off by dismissing him outright. If he decides to come back with a full data dump of all of his trading and analysis, it would be worth judging it on its merits ...

The nature of the statistical beast doesn't make that mean anything, though. The full history of each of our 40 monkeys would also lead one to conclude that they must be skilled.

There's a famous example of a guy named Bill Miller at Legg Mason. Here's the story: https://www.reuters.com/article/us-...er-leaves-firm-amid-faded-glory-idUSKCN10M1DV I also later read that he cooked the books a little bit and benchmarked his total return against the S&P nominal return, not against the dividends-included total return.

 

[David Megginson]

I think I'll bow out of this thread, not because I think there's anything wrong, but because from quality of the replies, I'm pretty confident the members of the forum are a financially-literate bunch who aren't going to be taken advantage of (unlike some of the young kids who fall victim to pump-and-dump schemes on Reddit), so there's nothing I can tell you that you don't already know.

From one boring investor to all the others, cheers!

 

[falconkidding]

Everybody out here with their strategies sounds like too much work. I do mutual funds, have made solid money the last 12 years i've had it so no need to change.

That said, Doge to the moon.

 

[Torque beast]

Been thinking of getting some doge for the fun of it. Extremely risky but I do think crypto is where we are headed


Sent from my iPhone using Tapatalk

 

[FastEddieB]

Been thinking of getting some doge for the fun of it. Extremely risky but I do think crypto is where we are headed

You could be right. It’s hard to wrap my head around, but seems legit.

First reaction is, it’s risky because it’s not based on anything solid. But neither is fiat currency, so that’s not really a valid concern.

Here’s an example where “buy and hold” probably outperformed pizza!

“The programmer Laszlo Hanyecz has become well known in crypto circles after trading 10,000 bitcoins for two Papa John's pizzas on May 22, 2010. The date is now celebrated in the crypto calendar as "Bitcoin Pizza Day."

That said, a discussion of cryptocurrency probably deserves its own thread.

 

[Torque beast]

You could be right. It’s hard to wrap my head around, but seems legit.

First reaction is, it’s risky because it’s not based on anything solid. But neither is fiat currency, so that’s not really a valid concern.

Here’s an example where “buy and hold” probably outperformed pizza!

“The programmer Laszlo Hanyecz has become well known in crypto circles after trading 10,000 bitcoins for two Papa John's pizzas on May 22, 2010. The date is now celebrated in the crypto calendar as "Bitcoin Pizza Day."

That said, a discussion of cryptocurrency probably deserves its own thread.

I’m with you on that, it’s hard to get my head around it but the more I dig into it the more I think crypto is here to stay


Sent from my iPhone using Tapatalk

 

[SoonerAviator]

You could be right. It’s hard to wrap my head around, but seems legit.

First reaction is, it’s risky because it’s not based on anything solid. But neither is fiat currency, so that’s not really a valid concern.

Here’s an example where “buy and hold” probably outperformed pizza!

“The programmer Laszlo Hanyecz has become well known in crypto circles after trading 10,000 bitcoins for two Papa John's pizzas on May 22, 2010. The date is now celebrated in the crypto calendar as "Bitcoin Pizza Day."

That said, a discussion of cryptocurrency probably deserves its own thread.

Not sure it needs it's own thread, but this one is titled "Let's Talk Stocks". I think in-depth discussion of any investment (or speculative) vehicle is fair game.

 

[airdale]

Crypto? I'm out. I've played that kind of speculation game with small dabs of money, kind of like taking $100 to the casino just to have some fun. Got bored with it. I have never bet the farm, however, as our assets are basically for retirement and for our heirs. Investment luminary William Bernstein comments on retirement savings: “Make no mistake about it: The object of this particular game is not to get rich – It’s to not get poor.”

Have fun! No one knows where the crypto ride will end up. That's probably half the attraction.

 

[denverpilot]

Jalopnik says Tesla still isn’t profitable without Elon’s Bitcoin buy... remove that and subsides and they’re still $188M in the hole. Per quarter.

Your mileage may vary.

 

[SoonerAviator]

Crypto? I'm out. I've played that kind of speculation game with small dabs of money, kind of like taking $100 to the casino just to have some fun. Got bored with it. I have never bet the farm, however, as our assets are basically for retirement and for our heirs. Investment luminary William Bernstein comments on retirement savings: “Make no mistake about it: The object of this particular game is not to get rich – It’s to not get poor.”

Have fun! No one knows where the crypto ride will end up. That's probably half the attraction.

I suppose that's why I don't actively gamble. I think I spent a total of $100 on "gambling" the one time I went to Las Vegas. I've never spent a penny on gambling in the handful of Native American casinos here in OK, but I have attended some concerts and eaten in their restaurants. My brain obviously doesn't generate the dopamine rush for spending my hard-earned cash on highly-unlikely chances of hitting it big, lol. My investing strategy pretty much vets that out.

 

[FastEddieB]

I have experience with a prior family member plagued by a gambling addiction. I attended GamAnon meetings for a few years - with decidedly mixed results.

Compulsive gamblers are advised not to invest in the stock market. I think that’s because of the siren song of much the same dopamine hit when speculating on stocks that they get from gambling. I’m not sure I agree entirely, since “buy and hold” strategies can still provide economic security, if the gambler has the discipline to do so. But there’s the rub, I guess.

I see parallels between the psychology of day traders and compulsive gamblers. The “special pleading” and excuses for poor performance are nearly identical. As is the ability to see themselves deep down as winners, and project themselves as such, even as they’re losing.

I avoid gambling like the plague. For me, I seem to lack the seed that gets one hooked. In my history of playing with gambling, I knew the rush of consecutive wins. But when that happened, I think I felt off balance somehow. When the inevitable losing streak occurred, of course it sucked, but it felt somehow natural.

Not saying that every day trader is a compulsive gambler. But one cannot deny the similarities.

 

[denverpilot]

I avoid gambling like the plague.

Funny thought, isn’t the new version of that, “I avoid gambling like the Covid”? LOL. Is that what future generations will say? Anyway...

I gamble every day. It’s called getting out of bed and assuming I’ll survive. Haha. I drove my car yesterday. Suuuuuper dangerous. Way worse than the stock market.

 

[murphey]

Everybody out here with their strategies sounds like too much work. I do mutual funds, have made solid money the last 12 years i've had it so no need to change.

That said, Doge to the moon.

Golly gee, I hope so! I have 205 shares of DOGE. And 0.054 shares of bitcoin.

 

[airdale]

... Not saying that every day trader is a compulsive gambler. But one cannot deny the similarities.

Yes. I have already mentioned Jason Zweig's "Your Money and Your Brain.' In it he explains the neurochemical and brain activity triggered by gambling are identical to what is triggered by stock speculation. That book is important reading for any investor.

 

[murphey]

I have experience with a prior family member plagued by a gambling addiction. I attended GamAnon meetings for a few years - with decidedly mixed results.

Compulsive gamblers are advised not to invest in the stock market. I think that’s because of the siren song of much the same dopamine hit when speculating on stocks that they get from gambling. I’m not sure I agree entirely, since “buy and hold” strategies can still provide economic security, if the gambler has the discipline to do so. But there’s the rub, I guess.

I see parallels between the psychology of day traders and compulsive gamblers. The “special pleading” and excuses for poor performance are nearly identical. As is the ability to see themselves deep down as winners, and project themselves as such, even as they’re losing.

I avoid gambling like the plague. For me, I seem to lack the seed that gets one hooked. In my history of playing with gambling, I knew the rush of consecutive wins. But when that happened, I think I felt off balance somehow. When the inevitable losing streak occurred, of course it sucked, but it felt somehow natural.

Not saying that every day trader is a compulsive gambler. But one cannot deny the similarities.

I haven't been to LV in over 10 years mainly the major technical conferences I attend no longer go there. Mostly, because LV Convention doesn't want us there (thousands of computer people, many with math degrees, know the odds and few, if any, go near the tables). My parents lived a 6 hr drive from LV and Mom loved to play blackjack. I don't, nor did I ever, find any interest in the machines, and the roulette table is not an exercise in orbital mechanics. I've never been able to keep a straight face so forget poker.

Therefore I learned at the 25 cent crap tables downtown (thank you Dad) $3.75 plays the odds on the back line. I think the shrimp cocktails are still $1.00. On the Strip with $5 and $10 minimum? No problem - just multiples of 3.75 for the odds.

Can you win? Yes.
Will you win over the long run? Probability and statistics say no.

I love the billboards that say "97% loose slots!". That means you're guaranteed to lose, on the average, 3% of your money.

Slots - ran into a friend from high school one time, now working in IT at one of the casinos. Great time, she bought lunch. Explained that the algorithm on the slots is integrated into the overall casino floor cash flow. It's all electronic (obviously). As the cash from the tables is tallied up (minute by minute) the slots are adjusted accordingly to keep the cash flow fairly consistent.

One trip, 15 yrs ago for a wedding, was fun. Bored, waiting for friends to meet at the Bellagio (at the time, best buffet in town, don't know about these days). Crap table near our meeting spot, on the edge of the casino floor. Tossed a $20 on the table for chips, played for about 30 min, picked up winnings and left. The guy next to me asked why I was leaving when I was leaving - "because I'm ahead, that's why." Got a knowing smile from the pit boss. What did I win? Enough to pay 3 nights at the hotel, rental car, and airfare RT Denver. Theater tickets were free because we knew members in the cast.

Can you win? Yes.
Will you win over the long run? MGM, Wynn, Sands, the Tribes, et al, do not keep building those hotels and casinos by losing money.

 

[denverpilot]

I love the billboards that say "97% loose slots!". That means you're guaranteed to lose, on the average, 3% of your money.

You meant to say 3% of what you bet.

If you bet all of your money... you could lose 100%.

 

[FastEddieB]

You meant to say 3% of what you bet.

If you bet all of your money... you could lose 100%.

I recall a book I read about some computer geeks who did find a way to tilt roulette odds slightly in their favor. It worked to some extent until the casino got wise.

https://en.wikipedia.org/wiki/Eudaemons

One thing discussed was best betting strategies. In the case of something like roulette, where the odds are slightly against you, there’s only one strategy that maximizes your chance of doubling your stake: a single bet where you put all your money on red or black, high or low, or odd or even. Breaking up your bet into smaller bets rapidly decreases your chances of winning long term. The more small bets, the worse your chances. I’m sure folks have done that - double or nothing - and walked out. But it hardly feeds a gambler’s addiction to repeated dopamine hits.

It became more complicated once they found a way to tilt the odds slightly in their favor, but I don’t recall the reasoning there.

 

[ColoPilot]

I recall a book I read about some computer geeks who did find a way to tilt roulette odds slightly in their favor. It worked to some extent until the casino got wise.

https://en.wikipedia.org/wiki/Eudaemons

One thing discussed was best betting strategies. In the case of something like roulette, where the odds are slightly against you, there’s only one strategy that maximizes your chance of doubling your stake: a single bet where you put all your money on red or black, high or low, or odd or even. Breaking up your bet into smaller bets rapidly decreases your chances of winning long term. The more small bets, the worse your chances. I’m sure folks have done that - double or nothing - and walked out. But it hardly feeds a gambler’s addiction to repeated dopamine hits.

It became more complicated once they found a way to tilt the odds slightly in their favor, but I don’t recall the reasoning there.

That's interesting -- I've never heard of that group before. With an unbiased wheel, there isn't a betting system to change the odds in roulette. In fact, every bet (except those involving the zeros) has the same house edge, about ~5%. So it doesn't matter if you bet a single number or black/red, same house edge. From the wikipedia article, their system was trying to predict the area the ball would land based on the wheel speed, the speed of the ball, and I assume when the dealer releases the ball. If so, that's impressive they were able to input that data in binary (via the microswitch in the shoe) in enough time to relay the data to the bettor, especially with technology in the 1970s.

 

[airdale]

It's amusing to me that at thread about individual stock picking has, after over a hundred posts, evolved into a thread about gambling. The more things change, the more they stay the same I guess.

 

[Torque beast]

For all of you that have doge, looks a good day today. Anyone have ETH?


Sent from my iPad using Tapatalk

 

[wsuffa]

Verizon sold Yahoo and AOL for $5B.

Must have been all that deep wisdom at Yahoo Answers that added all that value.

LOL.

And they bought Yahoo and AOHell for $10 billion. Verizon doing what Verizon does - starting with a large fortune and ending with a small one.

 

[SoonerAviator]

It's amusing to me that at thread about individual stock picking has, after over a hundred posts, evolved into a thread about gambling. The more things change, the more they stay the same I guess.

Well, to be honest, there's a lot of similarities between picking individual stocks and gambling. Especially in the realm of day-trading. Investing isn't really that much of a gamble, but speculation is certainly gambling's twin.

 

[airdale]

Well, to be honest, there's a lot of similarities between picking individual stocks and gambling. Especially in the realm of day-trading. Investing isn't really that much of a gamble, but speculation is certainly gambling's twin.

My point exactly.

Everybody out here with their strategies sounds like too much work. I do mutual funds, have made solid money the last 12 years i've had it so no need to change. ...

Yes. The winning strategy. It rubs me the wrong way when the press and the talking heads pontificate on "what investors did today." What real investors do on almost any day is nothing. It is the traders and the computers that make daily market action.

Warren Buffet is always good for a salient quotation: "Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell. ... Lethargy bordering on sloth should remain the cornerstone of an investment style."

 

[FastEddieB]

Hee hee.

Just tweeted by Elon Musk.

 

[Torque beast]

Well VVOS has not been what I was hoping. Losing on this one


Sent from my iPhone using Tapatalk

 

[Pugs]

I haven't been to LV in over 10 years mainly the major technical conferences I attend no longer go there. Mostly, because LV Convention doesn't want us there (thousands of computer people, many with math degrees, know the odds and few, if any, go near the tables).

Same. In fact likely the same conferences. When out there I'd find a little back aisle black jack table and hopeful have some older dealers with stories about Vegas and maybe win a little or at least have a "free" drink or two. I viewed it as entertainment and have had some pretty fun times doing it.

On the investing side, while I keep waiting for the big correction that will come, I'm also thinking it will be a very short term event. There is simply too much cash sitting on the sidelines waiting for a good deal. In the meantime, dollar cost averaging into a range of index funds like I have the last 35 years.

My next interesting transition will be going from investing to withdrawing in the next year. I understand the shift from save to spend is a hard transition (really) for us long-term buyers. I'm sure buying an airplane will help!

 

[FastEddieB]

My next interesting transition will be going from investing to withdrawing in the next year. I understand the shift from save to spend is a hard transition (really) for us long-term buyers.

Though there was a change in the law that would have let me wait another year, I started the (now) Required Minimum Distribution from my IRA last year. The transition wasn't too hard, since with the current market, even with my very nice monthly distributions my IRA holdings are still growing. I'll be 72 next month, and at some point it dawned on me that my window for withdrawing is, in fact, finite.

For those unfamiliar, each year you have to withdraw an amount based on your IRA value at the end of the prior year, and if you fail to do so there are draconian penalties.

Here's the table that tends to remind one of one's mortality:

You divide the value of your IRA the prior year by the Divisor above based on your age. That gives you the amount you MUST withdraw for that year to avoid penalties. I have mine set up for monthly distributions for convenience sake, and they can withhold a percentage (that you decide) for federal taxes.

 

[Pugs]

Though there was a change in the law that would have let me wait another year, I started the (now) Required Minimum Distribution from my IRA last year. The transition wasn't too hard, since with the current market, even with my very nice monthly distributions my IRA holdings are still growing. I'll be 72 next month, and at some point dawned that my window for withdrawing is, in fact, finite.

I was thinking less about the mechanics of RMD and more about the mindset but your post is spot-on when you get to that point. My parents are there and pretty much live as they wish on the RMDs and dividends but my Dad flies models (at 83) as opposed to full scale.

 

[Southpaw]

My Roulette strategy has never failed . It works 100 percent of the time. It allows me to stick in there with the high rollers.
It's simple . I put a chip on the red and on the black. Win and Lose every spin. Croupier said ,"what are you doing ?" I said , Playing with the big boys and enjoying the evening ."
My minimum with drawls are all reinvested back into the funds they came from. Works for me.

 

[Crashnburn]

Until 00 comes up.

 

[Let'sgoflying!]

Can you advise where it is best to invest?

It's best to diversify (including real estate) so that you will catch the down-slides of all possible investments. I am an expert in this.

 

[airdale]

... Can you advise where it is best to invest?

No one knows the future, which is why diversification is so important.

 

[EdFred]

My father has been investing in property all his life with the arguments that the price of property cannot just drop. I, in turn, do not want to invest in property, mainly because it seems to me there are other ways to multiply money. Can you advise where it is best to invest?

Into my bank account. It's best for me, but it may not be the best for you.

So first you have to define what you mean by best.