Something that is not mentioned: The psychological burden when you check your portfolio multiple times a day.
It can become an addiction akin to sports betting. Your mind is constantly occupied by the market and how it’s going. It takes a heavy attention toll on anything other you want to focus on.
I have learned my lesson. I buy the index and look at my portfolio 1-2 times a year and focus my mind on other things.
What really reinforced this for me was learning to what lengths some hedge funds are willing to go to get an edge. Case in point: buying GIS data on major retailer's parking lots to get a feel for holiday earnings. No retail investor is ever going to be able to match that kind of Intel, ever.
I buy index funds and leave the majority of my money there but allow myself to make small bets on trends in the market that I think will play over long periods. Sometimes it works, like buying lithium stocks in the 2010s and other times it sucks and doesn't, like buying solar stocks in the 2010s and watching the entire industry get shredded to pieces in the last 5 years.
Small speculators do have an advantage in that the market is much more liquid for them. If your position is $1k you can buy and sell without moving the market noticeably. If it's $1bn, not so much.
yeah vast majority is just index funds but I just had to prove to myself than I'm an idiot, so there's a separate account with a tiny bit of money in it that I get to play with. Sometimes you buy GME, sometimes you buy SVB.
You don't have to trade against the firms, retail can make up the majority of some markets (e.g not on dark pools etc..), you just have to beat them and join the firms in taking their money. It's far more difficult than buying an index but it is not a scam just because it is hard and most people don't know what they're doing.
Edit to clarify: my portfolio is almost all index funds to clarify, and that is what you should do too, but I'm just saying it is entirely possible to trade and it is a skill. Something can be somewhat like gambling and yet still have elements of skill just like poker.
Annie Duke has a great book "Thinking in Bets" where she talks about being a professional poker player.
One of the things she hammers on is that just knowing how much/often you win isn't the important part because you can win despite making dumb choices and lose despite making great choices.
The key thing is being able to make the best decision based on the limited information you have, take the consequences (good or bad), and then reset and do it again. This is relevant in poker, investment, or even our careers and a great ideal to reach for.
Unfortunately a lesson I had to learn for myself. Hopefully I can pass it on to the next generation, but I fear they'll have to learn it for themselves too. Don't pick individual stocks people, buy broad index funds at most.
I would have said this, but someone responded with a comment that stuck with me:
We’re on a forum of an incubator whose goal is investing in high risk startups to find the next unicorn. So there are probably people here who feel the same way about investing.
While the average outcome of indexes is probably better, the best case outcome of an individual stock is probably better.
It’s lower likelihood and not as repeatable, but for some people, that’s the strategy they want.
> While the average outcome of indexes is probably better, the best case outcome of an individual stock is probably better.
Most stocks suck:
> We study long-run shareholder outcomes for over 64,000 global common stocks during the January 1990 to December 2020 period. We document that the majority, 55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, we find that the top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the US, 1.41% of firms account for the $US 30.7 trillion in net wealth creation.
> Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages.
And it's not always the same 2-4% of stocks: a stock may shoot up in value, and if you're holding it at that time to can capture that, but once it has already gone up it may perform average-to-poor going forward. At that point, if you're still holding on it, it will be a drag on your (average) returns.
I don’t disagree at all (I have no individual stocks, only indexes). The average retail investor doesn’t beat the market.
However, the top 10% of retail traders actually can generate consistent returns.[1]
Consider that MSFT has gone up 10x over the last ten years while the S&P has risen 4x. Ethereum has risen 2500x in that period. TSLA has risen 270x.
Not saying these returns are typical, but I can imagine that a highly aggressive retail investor could, with a few good trades and a lot of confidence, do incredibly well and end up with a life-altering amount of money. Obviously, the chances of both entering AND exiting the trades to capture all of that is low.
Again, not my style, but I respect those who want to place their bets.
> Not saying these returns are typical, but I can imagine that a highly aggressive retail investor could, with a few good trades and a lot of confidence, do incredibly well and end up with a life-altering amount of money. Obviously, the chances of both entering AND exiting the trades to capture all of that is low.
The problem is the existential question of knowing whether you are good (in absolute and relative terms) or not:
> For example, any competent basketball coach could tell you whether someone was skilled at shooting within the course of 10 minutes. Yes, it’s possible to get lucky and make a bunch of shots early on, but eventually they will trend toward their actual shooting percentage. The same is true in a technical field like computer programming. Within a short period of time, a good programmer would be able to tell if someone doesn’t know what they are talking about.
> But, what about stock picking? How long would it take to determine if someone is a good stock picker?
> An hour? A week? A year?
> Try multiple years, and even then you still may not know for sure. The issue is that causality is harder to determine with stock picking than with other domains. When you shoot a basketball or write a computer program, the result comes immediately after the action. The ball goes in the hoop or it doesn’t. The program runs correctly or it doesn’t. But, with stock picking, you make a decision now and have to wait for it to pay off. The feedback loop can take years.
> And the payoff you do eventually get has to be compared to the payoff of buying an index fund like the S&P 500. So, even if you make money on absolute terms, you can still lose money on relative terms.
And certainly don't buy individual stocks because of FOMO or day trading or some wishful thinking.
I pretty much only invest in indices except for rare small fun picks where I'm ok with losing. But over the years there were certainly times where this was a too conservative stance. My small bets have outperformed my conservative portion - by a lot. That said, those times were I am confident in those bets are rare, like a few times a decade.
> That gives slightly better than the inflation rate ( Canada ).
What do you mean? Over the last year any one of the index funds I'm in has beat inflation by a factor of five, some beat inflation by an order of magnitude. My worst performer is an iShares world fund, which generally has more temperate gains, clocking in at 10% YoY.
Looking at Canadian indices such as $VCN, it's the same story.
If you're in Canada you almost certainly want to diversify from Canadian indices. US markets have tended to outperform.
Indices can return >20% one year and -10% other years. I think OP is talking recently, not over 30 years. Over the long term indices like the S&P 500 tend to have a real return of 6-7% ...
That's the biggest problem I have with the recommendation to buy indices as if indices grow at >8% annually is an natural law.
Many (most) indices of countries in the world performed way less than 8%. US performed exceptionally well over almost a century so people are starting to take it as a natural law. If I buy US index, I'm still putting a directional bet on US stock market performing at an exceptional rate.
One can buy "all-in-one" index-of-index funds that have all US equities, all EU, etc. In Canada (which sub-thread stated with), see VEQT or XEQT (100% equities), VGRO/XGRO (80/20), VBAL/XBAL (60/40), VCNS/XCNS (40/60).
You can probably find an 'asset allocation' fund in most countries; e.g., in the US:
My current employer is like this. A lot of external factors played into our favor and helped us make a lot of money, to the point where any internal decision making doesn't really move the needle in comparison. So whenever problems are pointed out, it's a hard sell because "we are so successful our C-suite are so good" when they didn't exactly do anything.
You don’t need to block all ads. Even stopping the bottom 50% cleans up the internet so much.
You know how to find an adblocker if you read HN. If you don’t want to use one, that’s your choice but it’s disingenuous to complain about blocking 100% of ads.
Well, the last 5 years or so is the epitome of a bull market.
Did the paper say the same set of people consistently beat the market over long periods of time or did it say at any time about 10% of investors happen to beat the market?
6 year time period between 1990-1996. Would have been interesting to see how these results would have fared across the 2000 crash.
But I don't think the paper claims that they beat the market. What they are concluding is that you can classify investors as skilled and unskilled, with the skilled group able to achieve returns consistently. But whether those returns can beat the market, they say the evidence is limited.
If one has time, a few books I would highly recommend:
The Intelligent Investor by Ben Graham
Security Analysis by Graham and Dodd
Common Stocks and Uncommon Profits and Other Writings by Philip Fisher
The Little Book That Still Beats the Market by Greenblatt
Warren Buffett's annual letters
Actually, anything by Ben Graham or Joel Greenblatt is worth reading if one is interested in the investing world. I don't know if I'll ever invest enough time doing fundamental analysis and actively (value) investing but I am making my way through these just to understand value investing properly.
> Actually, anything by Ben Graham or Joel Greenblatt is worth reading if one is interested in the investing world.
Ben Graham in the last interview before he passed ("A Conversation with Benjamin Graham", Financial Analysts Journal, Vol. 32, No. 5 (Sep. - Oct., 1976), pp. 20-23):
>> In selecting the common stock portfolio, do you advise careful study of and selectivity among different issues?
> In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I'm on the side of the "efficient market" school of thought now generally accepted by the professors.
zipy214 below has given much more eloquent explanations about the non-applicability of the EMH than I can. For me, the vast majority of my personal savings are in index funds. The reading list above, even if the methods are outdated (the broad details still apply even though many ways of analyses no longer apply especially to tech stocks), are mainly to get the curious started on one principled path to investing with the caveat that, if they do experiment, they should do so with amounts they are willing to lose.
Just one more comment to what you said below:
"If you personally believe markets are not efficient, and prices are not accurate, then perhaps you should take up day trading."
Value investors famously oppose any kind of day trading or "in and out" trading. People like Phil Fisher used to advocate never selling unless the fundamentals change drastically (change of management, new technological developments that make a company's products obsolete etc.). Of course, one doesn't have to be that extreme but equating value investing with day trading is misleading.
More recent analysis has many things that imply the EMH is weak if it exists at all.
2008 at it's core is a rather good example that the market was not efficient at all, as was the dot com bubble. And then you have the behavioural side where investors are not rational such as meme-stocks. Even COVID was a good example. It was clear to most value investors for instance that Zoom was over-priced, when you had teams already included in your bundle, and that school wasn't going to stay remote forever. The failure of MOOCs in the previous decade proved that. There are many examples like these.
If markets are not efficient, that means prices do not reflect the information available about various financial instruments (e.g., stocks). So if information is not being properly disseminated and processed, it means it should be easy to swoop in and outperform The Market™:
This is how some folks (see The Big Short) were able to make a killing leading up to the GFC: they properly processed the information and traded on it.
And yet if you look at something like the SPIVA reports, yes there are some funds that may outperform the market in a single year, but the numbers drop quite quickly for being able to outperform over 3/5/10/15/20-year horizons.
If you personally believe markets are not efficient, and prices are not accurate, then perhaps you should take up day trading. (I am not sure anyone is saying markets are perfectly efficient, or efficient-ish all the time: certainly not Fama or French, who won the Nobel for work on the topic; shared with Shiller).
> If you personally believe markets are not efficient, and prices are not accurate, then perhaps you should take up day trading
What does it mean for a price to be accurate? Most think of it as representing future revenue and profit. Anything else quickly gets you into tautological territory of "an accurate price is what the market thinks it's worth".
I don't think the belief leads to your conclusion. It's beyond doubt that the price of TSLA does not accurately represent the value of the company in terms of future revenues and profits relative to how other stocks are priced. Does this mean I should take up day trading? Definitely not! We don't live in an era where prices are guaranteed to eventually return to being accurate, any more so than if they were a random walk.
And even under the presumption that they would return to this, there's always the 'Markets can remain irrational longer than you can remain solvent'.
The paradox given is an argument against perfectly efficient markets. The paradox is that if the market was efficient, then doing market research would be a loss-making activity always, meaning people wouldn't spend money to collect the information, thus making the market in-efficient.
Secondly, only a few percent of trading used to be done off-market. As of this year, more than 50% of all stock trades happen in dark pools, outside of the market, creating in-efficiency by definition, since the information is hidden from the market. The rise of passive investment also increases in-efficiency, since those buyers do not care how much the stock is worth, they simply buy the weighted basket.
Further if you are looking at funds, they are limited from being able to exploit in-efficiencies by design, since they are vulnerable to the main cause of inefficiency in the market which is the human psyche. For example if investors get scared and take money out, it forces them to liquidate at bad times, and if they put lump sums of money in, it forces them to capitalise even when it doesn't have good opportunities to trade on. Finally the size they operate at by definition distorts the market, thus meaning there is a limit on the size of bets they can make without reducing their alpha.
There are many traders with long-term track records that beat the S&P 500. Even Buffet, who famously recommends index funds for the average investor, has stated he doesn't believe strongly in the EMH, and obviously invests berkshires money in non-index funds, and over the past 60 years has beaten the S&P 500 handily, although it should be noticed as they have got bigger, they only beat it by a percentage point at best if at all, since any trade they make is so large that they distort the market heavily. Even so they show you can beat the market by going long. Also Charlie Monger his buisness partner seems to somewhat believe in a weak EMH.
In the medium term it is trivial to disprove the EMH, since we have now had COVID bubbles, the 2008 bubble, the dot-com bubble, the railway bubble etc.... All of which are practically impossible even if you only believe in the weak-EMH.
Finally quant firms pretty much prove that they aren't efficient on a short term basis either (though this is almost never disputed as you say!) since volatility existing is exactly this short term inefficiency and where they make a lot of money. Technically they are part of that restoring force that makes the market efficient theoretically.
A more accurate EMH would be something like "A stock is worth approximately what most people think it is worth at any one time". That is it is approximately efficient in regards to peoples perception of value at that time, as opposed to it's actual value. This is like the EMH rather tautological or even circular though, since this is literally the definition of the price of a stock.
In regards to me taking up day trading if I believe markets aren't efficient that is not the case. You can believe markets are not efficient without being able to find the in-correct prices yourself. You can also even believe markets are not efficient, and be able to find the in-correct prices and still struggle to make money because timing when the market corrects its in-efficiency is even harder, because the market can stay irrational longer than you can stay solvent.
And finally the classic joke:
Two economists are walking down the street when they pass a dollar bill on the ground. The first economist says “Hey there’s a dollar bill laying on the ground!” The second economist scoffs and says “No there isn’t, if there was, somebody would have already picked it up.”
I have read both The Intelligent Investor or Security Analysis and I can't say there is any value - no pun intended - in reading both these books. Most of these methods are arcane. It just seems that people in value investing circles like to hype these book up just because Buffett got his start by reading these books. Under Munger things have turned -
> A great business at a fair price is superior to a fair business at a great price.
Philip Fisher and Peter Lynch's books are much better read.
That said, as the article says in a bull market when markets are going up it is difficult to know if your value picks are actually great. In bear markets no one wants to touch undervalued companies.
I think a lot of this depends on where you started. I don't disagree that the details of the methods don't apply especially to technology stocks. On the other hand, one learns a principled way of looking at companies. It's easy, if one hasn't paid attention to anything in the financial world, to think of stocks as abstract numbers that "will go up" or "go down" or "has good prospects because everyone is talking about it". Any of these books are a good antidote to that because they teach a framework to reason about companies.
I also do find it strange that this idea gets so much push back. For people who don't want to think about investing, just put your savings in index funds (and/or cash equivalents depending on your plans). For people who are curious about these aspects, read some of the books and invest with small amounts and learn. Maybe you won't consistently beat SP500 and maybe you will. After all, it's not like all active investors shut their hedge funds down and started investing in SP500. The usual argument is that the funds have much more resources but it's actually easier to invest with smaller amounts than millions or billions of dollars.
Like I said to someone else above, I myself put almost all my savings in index funds and slowly read/study these just for curiosity. Eventually, I hope to actually spend some time looking at real data but even if I don't find any interesting stocks or lose my modest starter funds for this activity, I would be okay with it.
Did it occur to anyone that stocks and stock-derived products like ETFs and indexes are driven by emotions rather than financials? The company sells its stocks once, typically, and from that moment on, stocks live their own life of speculation by people who mostly have no say in the company. A company might be doing perfectly well, but the stock would fall because some people "think" that the company is doing badly. But if nobody were to act, nothing would happen to the stock. Similarly, people can just decide that a Stock is worth something out of nowhere - GameStop stock.
Essentially, predicting stock movement becomes predicting the sentiment of the people. Instead of "the financial report means the company is doing X", it becomes "if people were to see this financial report, they would react by X".
And this whole thing feels like a big Ponzi scheme. Everyone keeps repeating that you need to invest your money, and that's what essentially makes the market long-term bullish.
I wonder how many people picking individual stocks these days were investing in 2007 or better yet 2000/2001. Everyone was a genius stock picker in 1998/1999 also.
The main thing current bull markets make you feel is far less subsidized by the government than you really are.
There are a lot of people playing at being upper middle class right now, living large paycheck to large paycheck, and they don't realize that the people whose lifestyles they're emulating are getting money for nothing. If the layoffs start getting deeper i.e. if AI takes off OR if AI does not take off, they'll be at the food banks in a year.
We'll see what happens in society when the comfortable middle class that makes all of the demands in our political system gets halved.
Unless you're a full time quant with a high deflated sharpe ratio you have no business making trades. It's not an investment to speculate on unpredictable price, that's called gambling, as Eugene Fama explained. Investments yield income. A stock buyback is not better than a dividend.
Sounds like all the crypto geniuses, who are actually lucky guys, but could have been considered the dumbest idiots if cryptos had followed their natural course (being worthless).
The successful crypto bros are mostly either issuers or crooks. That way they escape the natural tendency of all crypto other than Bitcoin and Ethereum to go down.
Makes sense. The whole point is to invest before the market goes up. If the market goes up after you invested, you did it right.
Works in roulette too, I'm told, so sometimes illegal gambling sites will try to get people addicted by rigging their first few bets to always win.
Are people really not smart, though? Buying into a market that's going up, and continues going up, is simply correct timing, is it not? It's only half the equation, of course.
When 99.999% of investors lose money and one person hits it big, people are naturally going to be drawn to that person. Even moreso when a really fun movie is made in which they play a big role.
Something that is not mentioned: The psychological burden when you check your portfolio multiple times a day.
It can become an addiction akin to sports betting. Your mind is constantly occupied by the market and how it’s going. It takes a heavy attention toll on anything other you want to focus on.
I have learned my lesson. I buy the index and look at my portfolio 1-2 times a year and focus my mind on other things.
You just did it in the wrong order:
1. Buy the index
2. Check your portfolio multiple times a day
Now it's less like gambling and more like being entertained looking at your fish tank.
1) buy the index (and maybe some bonds)
2) find the friend, colleague, or housemate who’s a degenerate market gambler
3) let their Hot Picks and Levered Options serve as your fish tank.
Complete with the roller coaster of (their) emotion!
Just put 5 bucks on the skins, it’s just as entertaining and a lot cheaper.
It's not though, it's 5 bucks more expensive. Supposedly watching a "friend, colleague, or housemate" is free.
I present the Waterluvian Investment Strategy:
1) buy the index
2) set up monthly deposits into it
3) forget it exists
4) get an annual report
5) try to feel smart, only foiled by the fact that it was 11pm and you didn’t know where your money was
6) GOTO 3
I had the same problem so i just built a custom dashboard that only updates my portfolio once a day (at 6:00 am)
Index funds and small investments in things that are still early that you believe in / care about are the way to go.
Day trading and dabbling in $GME, shitcoins, post-2023 NVIDIA, individual stocks, etc. are all bubbles.
Day trading is a scam. Trading firms are more than well-positioned to eat retail's lunch, every single time.
What really reinforced this for me was learning to what lengths some hedge funds are willing to go to get an edge. Case in point: buying GIS data on major retailer's parking lots to get a feel for holiday earnings. No retail investor is ever going to be able to match that kind of Intel, ever.
I buy index funds and leave the majority of my money there but allow myself to make small bets on trends in the market that I think will play over long periods. Sometimes it works, like buying lithium stocks in the 2010s and other times it sucks and doesn't, like buying solar stocks in the 2010s and watching the entire industry get shredded to pieces in the last 5 years.
Small speculators do have an advantage in that the market is much more liquid for them. If your position is $1k you can buy and sell without moving the market noticeably. If it's $1bn, not so much.
yeah vast majority is just index funds but I just had to prove to myself than I'm an idiot, so there's a separate account with a tiny bit of money in it that I get to play with. Sometimes you buy GME, sometimes you buy SVB.
You don't have to trade against the firms, retail can make up the majority of some markets (e.g not on dark pools etc..), you just have to beat them and join the firms in taking their money. It's far more difficult than buying an index but it is not a scam just because it is hard and most people don't know what they're doing.
Edit to clarify: my portfolio is almost all index funds to clarify, and that is what you should do too, but I'm just saying it is entirely possible to trade and it is a skill. Something can be somewhat like gambling and yet still have elements of skill just like poker.
Annie Duke has a great book "Thinking in Bets" where she talks about being a professional poker player.
One of the things she hammers on is that just knowing how much/often you win isn't the important part because you can win despite making dumb choices and lose despite making great choices.
The key thing is being able to make the best decision based on the limited information you have, take the consequences (good or bad), and then reset and do it again. This is relevant in poker, investment, or even our careers and a great ideal to reach for.
I included a small blurb on my 2021 reading list: https://caseysoftware.com/blog/my-reading-list-2021
Unfortunately a lesson I had to learn for myself. Hopefully I can pass it on to the next generation, but I fear they'll have to learn it for themselves too. Don't pick individual stocks people, buy broad index funds at most.
I would have said this, but someone responded with a comment that stuck with me:
We’re on a forum of an incubator whose goal is investing in high risk startups to find the next unicorn. So there are probably people here who feel the same way about investing.
While the average outcome of indexes is probably better, the best case outcome of an individual stock is probably better.
It’s lower likelihood and not as repeatable, but for some people, that’s the strategy they want.
> While the average outcome of indexes is probably better, the best case outcome of an individual stock is probably better.
Most stocks suck:
> We study long-run shareholder outcomes for over 64,000 global common stocks during the January 1990 to December 2020 period. We document that the majority, 55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, we find that the top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the US, 1.41% of firms account for the $US 30.7 trillion in net wealth creation.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251
> Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447
And it's not always the same 2-4% of stocks: a stock may shoot up in value, and if you're holding it at that time to can capture that, but once it has already gone up it may perform average-to-poor going forward. At that point, if you're still holding on it, it will be a drag on your (average) returns.
I don’t disagree at all (I have no individual stocks, only indexes). The average retail investor doesn’t beat the market.
However, the top 10% of retail traders actually can generate consistent returns.[1]
Consider that MSFT has gone up 10x over the last ten years while the S&P has risen 4x. Ethereum has risen 2500x in that period. TSLA has risen 270x.
Not saying these returns are typical, but I can imagine that a highly aggressive retail investor could, with a few good trades and a lot of confidence, do incredibly well and end up with a life-altering amount of money. Obviously, the chances of both entering AND exiting the trades to capture all of that is low.
Again, not my style, but I respect those who want to place their bets.
[1] https://www.bus.umich.edu/pdf/mitsui/nttdocs/coval-shumway2....
> Not saying these returns are typical, but I can imagine that a highly aggressive retail investor could, with a few good trades and a lot of confidence, do incredibly well and end up with a life-altering amount of money. Obviously, the chances of both entering AND exiting the trades to capture all of that is low.
The problem is the existential question of knowing whether you are good (in absolute and relative terms) or not:
> For example, any competent basketball coach could tell you whether someone was skilled at shooting within the course of 10 minutes. Yes, it’s possible to get lucky and make a bunch of shots early on, but eventually they will trend toward their actual shooting percentage. The same is true in a technical field like computer programming. Within a short period of time, a good programmer would be able to tell if someone doesn’t know what they are talking about.
> But, what about stock picking? How long would it take to determine if someone is a good stock picker?
> An hour? A week? A year?
> Try multiple years, and even then you still may not know for sure. The issue is that causality is harder to determine with stock picking than with other domains. When you shoot a basketball or write a computer program, the result comes immediately after the action. The ball goes in the hoop or it doesn’t. The program runs correctly or it doesn’t. But, with stock picking, you make a decision now and have to wait for it to pay off. The feedback loop can take years.
> And the payoff you do eventually get has to be compared to the payoff of buying an index fund like the S&P 500. So, even if you make money on absolute terms, you can still lose money on relative terms.
* https://ofdollarsanddata.com/why-you-shouldnt-pick-individua...
Weird you are getting down voted. And you provided sources for your assertions.
> And you provided sources for your assertions.
Feelings don't care about facts. — not Ben Shapiro
And certainly don't buy individual stocks because of FOMO or day trading or some wishful thinking.
I pretty much only invest in indices except for rare small fun picks where I'm ok with losing. But over the years there were certainly times where this was a too conservative stance. My small bets have outperformed my conservative portion - by a lot. That said, those times were I am confident in those bets are rare, like a few times a decade.
The temptation is always there though. I have several stocks that produced life changing gains.
> Don't pick individual stocks people
We are in the industry, and perhaps we indeed know better.
> buy broad index funds at most
That gives slightly better than the inflation rate ( Canada ).
> That gives slightly better than the inflation rate ( Canada ).
What do you mean? Over the last year any one of the index funds I'm in has beat inflation by a factor of five, some beat inflation by an order of magnitude. My worst performer is an iShares world fund, which generally has more temperate gains, clocking in at 10% YoY.
Looking at Canadian indices such as $VCN, it's the same story.
As of October 2025, in the previous 30 Years, the Vanguard FTSE Canada All Cap Index (VCN.TO) ETF obtained a 8.72% compound annual return.
~2x better than the official inflation over the same 30 years. I don't see the factor of five or order of magnitude. Also those gains are taxable.
If you're in Canada you almost certainly want to diversify from Canadian indices. US markets have tended to outperform.
Indices can return >20% one year and -10% other years. I think OP is talking recently, not over 30 years. Over the long term indices like the S&P 500 tend to have a real return of 6-7% ...
That's the biggest problem I have with the recommendation to buy indices as if indices grow at >8% annually is an natural law.
Many (most) indices of countries in the world performed way less than 8%. US performed exceptionally well over almost a century so people are starting to take it as a natural law. If I buy US index, I'm still putting a directional bet on US stock market performing at an exceptional rate.
One can buy "all-in-one" index-of-index funds that have all US equities, all EU, etc. In Canada (which sub-thread stated with), see VEQT or XEQT (100% equities), VGRO/XGRO (80/20), VBAL/XBAL (60/40), VCNS/XCNS (40/60).
You can probably find an 'asset allocation' fund in most countries; e.g., in the US:
* https://investor.vanguard.com/investment-products/mutual-fun...
There are also (more dynamic) 'target date' funds, where the bond allocation increases over time.
Yeah, and those have underpermed historically and it's definitely not recommended by most people.
> Yeah, and those have underpermed historically […]
Huh? Underperformed what, exactly? A globally-diversified portfolios of stocks have underperformed …a globally-diversified portfolios of stocks? …tech stocks? …consumer staples? …utilities? …Treasuries?
1/3/5/10/20-year annualized returns are available at:
* https://canadianportfoliomanagerblog.com/model-etf-portfolio...
> […] and it's definitely not recommended by most people.
Again: huh? Who is not recommending index funds for most people? And what is recommended "by most people" if not index funds?
> If you're in Canada you almost certainly want to diversify from Canadian indices. US markets have tended to outperform.
If you buy "all-in-one" VEQT/XEQT (100% equities) you are buying an index funds of index funds: all Canadian equities, all US equities, EU, etc:
* https://canadianportfoliomanagerblog.com/model-etf-portfolio...
* https://canadiancouchpotato.com/model-portfolios/
If you don't want 100% equities, there are VGRO/XGRO (80/20), VBAL/XBAL (60/40), VCNS/XCNS (40/60), etc.
If you do want to dabble in individual stocks, keep it as a small percentage of your portfolio that you’re willing to lose.
My current employer is like this. A lot of external factors played into our favor and helped us make a lot of money, to the point where any internal decision making doesn't really move the needle in comparison. So whenever problems are pointed out, it's a hard sell because "we are so successful our C-suite are so good" when they didn't exactly do anything.
The google problem where every business line has to generate at least 10bn a year
I don’t know why websites even bother having text when it is this badly destroyed by advertising.
The question is why aren’t you using an ad blocker in 2025?
i haven’t found that block all ads. which do you recommend for ios and for chrome/safari on macos?
I don’t see any ads on the site with 1Blocker on iOS on the submitted article. It works the same on MscOS.
You don’t need to block all ads. Even stopping the bottom 50% cleans up the internet so much.
You know how to find an adblocker if you read HN. If you don’t want to use one, that’s your choice but it’s disingenuous to complain about blocking 100% of ads.
AdGuard. Otherwise Ghostery. SponsorBlock for removal of YouTube in video sponsor messages.
I disagree - I was a value investor for a number of years from the Ben Graham/Buffett school of thought.
But the last 5 years or so - with the ramp up in tech stocks, I know enough people who've done really well with indidividual stock picking.
In fact there was a paper out that said 10% of retail investors can consistently beat the market - it's a mixture of skill, discipline and luck.
The myth of Buffett just being a smart investor who anyone can duplicate and that’s why he gets outsized returns needs to die.
https://www.forbes.com/sites/adamhartung/2014/11/19/why-you-...
Well, the last 5 years or so is the epitome of a bull market.
Did the paper say the same set of people consistently beat the market over long periods of time or did it say at any time about 10% of investors happen to beat the market?
Paper came out in 2002 - https://www.bus.umich.edu/pdf/mitsui/nttdocs/coval-shumway2....
Not sure which time period they studied
6 year time period between 1990-1996. Would have been interesting to see how these results would have fared across the 2000 crash.
But I don't think the paper claims that they beat the market. What they are concluding is that you can classify investors as skilled and unskilled, with the skilled group able to achieve returns consistently. But whether those returns can beat the market, they say the evidence is limited.
If one has time, a few books I would highly recommend:
The Intelligent Investor by Ben Graham
Security Analysis by Graham and Dodd
Common Stocks and Uncommon Profits and Other Writings by Philip Fisher
The Little Book That Still Beats the Market by Greenblatt
Warren Buffett's annual letters
Actually, anything by Ben Graham or Joel Greenblatt is worth reading if one is interested in the investing world. I don't know if I'll ever invest enough time doing fundamental analysis and actively (value) investing but I am making my way through these just to understand value investing properly.
> Warren Buffett's annual letters
Buffett says to buy index funds.
> Actually, anything by Ben Graham or Joel Greenblatt is worth reading if one is interested in the investing world.
Ben Graham in the last interview before he passed ("A Conversation with Benjamin Graham", Financial Analysts Journal, Vol. 32, No. 5 (Sep. - Oct., 1976), pp. 20-23):
>> In selecting the common stock portfolio, do you advise careful study of and selectivity among different issues?
> In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I'm on the side of the "efficient market" school of thought now generally accepted by the professors.
* https://www.tandfonline.com/doi/abs/10.2469/faj.v32.n5.20
* https://www.jstor.org/stable/4477960
* https://www.bylo.org/bgraham76.html
Graham was also of the opinion that analysis is of questionable use even in 1976 (nevermind now, ~40 years later).
zipy214 below has given much more eloquent explanations about the non-applicability of the EMH than I can. For me, the vast majority of my personal savings are in index funds. The reading list above, even if the methods are outdated (the broad details still apply even though many ways of analyses no longer apply especially to tech stocks), are mainly to get the curious started on one principled path to investing with the caveat that, if they do experiment, they should do so with amounts they are willing to lose.
Just one more comment to what you said below:
"If you personally believe markets are not efficient, and prices are not accurate, then perhaps you should take up day trading."
Value investors famously oppose any kind of day trading or "in and out" trading. People like Phil Fisher used to advocate never selling unless the fundamentals change drastically (change of management, new technological developments that make a company's products obsolete etc.). Of course, one doesn't have to be that extreme but equating value investing with day trading is misleading.
More recent analysis has many things that imply the EMH is weak if it exists at all.
2008 at it's core is a rather good example that the market was not efficient at all, as was the dot com bubble. And then you have the behavioural side where investors are not rational such as meme-stocks. Even COVID was a good example. It was clear to most value investors for instance that Zoom was over-priced, when you had teams already included in your bundle, and that school wasn't going to stay remote forever. The failure of MOOCs in the previous decade proved that. There are many examples like these.
If markets are not efficient, that means prices do not reflect the information available about various financial instruments (e.g., stocks). So if information is not being properly disseminated and processed, it means it should be easy to swoop in and outperform The Market™:
* https://en.wikipedia.org/wiki/Grossman-Stiglitz_paradox
This is how some folks (see The Big Short) were able to make a killing leading up to the GFC: they properly processed the information and traded on it.
And yet if you look at something like the SPIVA reports, yes there are some funds that may outperform the market in a single year, but the numbers drop quite quickly for being able to outperform over 3/5/10/15/20-year horizons.
If you personally believe markets are not efficient, and prices are not accurate, then perhaps you should take up day trading. (I am not sure anyone is saying markets are perfectly efficient, or efficient-ish all the time: certainly not Fama or French, who won the Nobel for work on the topic; shared with Shiller).
> If you personally believe markets are not efficient, and prices are not accurate, then perhaps you should take up day trading
What does it mean for a price to be accurate? Most think of it as representing future revenue and profit. Anything else quickly gets you into tautological territory of "an accurate price is what the market thinks it's worth".
I don't think the belief leads to your conclusion. It's beyond doubt that the price of TSLA does not accurately represent the value of the company in terms of future revenues and profits relative to how other stocks are priced. Does this mean I should take up day trading? Definitely not! We don't live in an era where prices are guaranteed to eventually return to being accurate, any more so than if they were a random walk.
And even under the presumption that they would return to this, there's always the 'Markets can remain irrational longer than you can remain solvent'.
The paradox given is an argument against perfectly efficient markets. The paradox is that if the market was efficient, then doing market research would be a loss-making activity always, meaning people wouldn't spend money to collect the information, thus making the market in-efficient.
Secondly, only a few percent of trading used to be done off-market. As of this year, more than 50% of all stock trades happen in dark pools, outside of the market, creating in-efficiency by definition, since the information is hidden from the market. The rise of passive investment also increases in-efficiency, since those buyers do not care how much the stock is worth, they simply buy the weighted basket.
Further if you are looking at funds, they are limited from being able to exploit in-efficiencies by design, since they are vulnerable to the main cause of inefficiency in the market which is the human psyche. For example if investors get scared and take money out, it forces them to liquidate at bad times, and if they put lump sums of money in, it forces them to capitalise even when it doesn't have good opportunities to trade on. Finally the size they operate at by definition distorts the market, thus meaning there is a limit on the size of bets they can make without reducing their alpha.
There are many traders with long-term track records that beat the S&P 500. Even Buffet, who famously recommends index funds for the average investor, has stated he doesn't believe strongly in the EMH, and obviously invests berkshires money in non-index funds, and over the past 60 years has beaten the S&P 500 handily, although it should be noticed as they have got bigger, they only beat it by a percentage point at best if at all, since any trade they make is so large that they distort the market heavily. Even so they show you can beat the market by going long. Also Charlie Monger his buisness partner seems to somewhat believe in a weak EMH.
In the medium term it is trivial to disprove the EMH, since we have now had COVID bubbles, the 2008 bubble, the dot-com bubble, the railway bubble etc.... All of which are practically impossible even if you only believe in the weak-EMH.
Finally quant firms pretty much prove that they aren't efficient on a short term basis either (though this is almost never disputed as you say!) since volatility existing is exactly this short term inefficiency and where they make a lot of money. Technically they are part of that restoring force that makes the market efficient theoretically.
A more accurate EMH would be something like "A stock is worth approximately what most people think it is worth at any one time". That is it is approximately efficient in regards to peoples perception of value at that time, as opposed to it's actual value. This is like the EMH rather tautological or even circular though, since this is literally the definition of the price of a stock.
In regards to me taking up day trading if I believe markets aren't efficient that is not the case. You can believe markets are not efficient without being able to find the in-correct prices yourself. You can also even believe markets are not efficient, and be able to find the in-correct prices and still struggle to make money because timing when the market corrects its in-efficiency is even harder, because the market can stay irrational longer than you can stay solvent.
And finally the classic joke:
Two economists are walking down the street when they pass a dollar bill on the ground. The first economist says “Hey there’s a dollar bill laying on the ground!” The second economist scoffs and says “No there isn’t, if there was, somebody would have already picked it up.”
> 1976 ... ~40 years later
I think it would have been ok to say 50!
I have read both The Intelligent Investor or Security Analysis and I can't say there is any value - no pun intended - in reading both these books. Most of these methods are arcane. It just seems that people in value investing circles like to hype these book up just because Buffett got his start by reading these books. Under Munger things have turned -
> A great business at a fair price is superior to a fair business at a great price.
Philip Fisher and Peter Lynch's books are much better read.
That said, as the article says in a bull market when markets are going up it is difficult to know if your value picks are actually great. In bear markets no one wants to touch undervalued companies.
I think a lot of this depends on where you started. I don't disagree that the details of the methods don't apply especially to technology stocks. On the other hand, one learns a principled way of looking at companies. It's easy, if one hasn't paid attention to anything in the financial world, to think of stocks as abstract numbers that "will go up" or "go down" or "has good prospects because everyone is talking about it". Any of these books are a good antidote to that because they teach a framework to reason about companies.
I also do find it strange that this idea gets so much push back. For people who don't want to think about investing, just put your savings in index funds (and/or cash equivalents depending on your plans). For people who are curious about these aspects, read some of the books and invest with small amounts and learn. Maybe you won't consistently beat SP500 and maybe you will. After all, it's not like all active investors shut their hedge funds down and started investing in SP500. The usual argument is that the funds have much more resources but it's actually easier to invest with smaller amounts than millions or billions of dollars.
Thanks for the book recommendations. Do You mean "Ben Graham Was a Quant"? Can't seem to find the other title.
Ah no, I meant these ones by Graham:
https://www.amazon.com/Intelligent-Investor-3rd-Ed/dp/006335...
https://www.amazon.com/Security-Analysis-Seventh-Principles-...
I'll paste a couple more readable ones too :)
https://www.amazon.com/Concentrated-Investing-Strategies-Gre...
https://www.amazon.com/Value-Investing-Graham-Buffett-Financ...
Like I said to someone else above, I myself put almost all my savings in index funds and slowly read/study these just for curiosity. Eventually, I hope to actually spend some time looking at real data but even if I don't find any interesting stocks or lose my modest starter funds for this activity, I would be okay with it.
Everyone is a Warren Buffett in a bullish market
I know what you mean - investment genius. But the real Warren Buffett has been selling shares and moving to treasuries which few are doing.
This is basically the entire thesis of Fooled by Randomness by N. N. Taleb.
Did it occur to anyone that stocks and stock-derived products like ETFs and indexes are driven by emotions rather than financials? The company sells its stocks once, typically, and from that moment on, stocks live their own life of speculation by people who mostly have no say in the company. A company might be doing perfectly well, but the stock would fall because some people "think" that the company is doing badly. But if nobody were to act, nothing would happen to the stock. Similarly, people can just decide that a Stock is worth something out of nowhere - GameStop stock.
Essentially, predicting stock movement becomes predicting the sentiment of the people. Instead of "the financial report means the company is doing X", it becomes "if people were to see this financial report, they would react by X".
And this whole thing feels like a big Ponzi scheme. Everyone keeps repeating that you need to invest your money, and that's what essentially makes the market long-term bullish.
I wonder how many people picking individual stocks these days were investing in 2007 or better yet 2000/2001. Everyone was a genius stock picker in 1998/1999 also.
The main thing current bull markets make you feel is far less subsidized by the government than you really are.
There are a lot of people playing at being upper middle class right now, living large paycheck to large paycheck, and they don't realize that the people whose lifestyles they're emulating are getting money for nothing. If the layoffs start getting deeper i.e. if AI takes off OR if AI does not take off, they'll be at the food banks in a year.
We'll see what happens in society when the comfortable middle class that makes all of the demands in our political system gets halved.
Day Traders only exist because of this. Bull markets allow them to exist.
Day trading has been going on a long time through bull and bear markets. Most people lose money though - it's a bit like casino gambling.
Unless you're a full time quant with a high deflated sharpe ratio you have no business making trades. It's not an investment to speculate on unpredictable price, that's called gambling, as Eugene Fama explained. Investments yield income. A stock buyback is not better than a dividend.
>A stock buyback is not better than a dividend.
It often is, for a variety of tax reasons.
Sounds like all the crypto geniuses, who are actually lucky guys, but could have been considered the dumbest idiots if cryptos had followed their natural course (being worthless).
The successful crypto bros are mostly either issuers or crooks. That way they escape the natural tendency of all crypto other than Bitcoin and Ethereum to go down.
Makes sense. The whole point is to invest before the market goes up. If the market goes up after you invested, you did it right.
Works in roulette too, I'm told, so sometimes illegal gambling sites will try to get people addicted by rigging their first few bets to always win.
Are people really not smart, though? Buying into a market that's going up, and continues going up, is simply correct timing, is it not? It's only half the equation, of course.
Bear markets make michael burry feel smarter than he is
What's the obsession with Burry?
When 99.999% of investors lose money and one person hits it big, people are naturally going to be drawn to that person. Even moreso when a really fun movie is made in which they play a big role.
He just shorted Nvidia: https://news.ycombinator.com/item?id=45813734
Christian Bale played him in a Michael Lewis movie.