Investing Thread - better known as Wall Street Gambling

[Hardartery]

Are there investment firms that have shown the ability to maintain a competitive advantage? Yes. I just don’t think the average Joe investor can.

And the big problem for Joe investor is trying to identify which firms will continue having an advantage. As they officially say: past performance does not guarantee future results.

For the average guy, I think not making bad bets is far more important than making good ones. Hard to argue against index funds, as you'll never really underperform, and will never lag the market to any real degree due to the compounded effect of high costs as index funds' costs are minimal.

As you've said, most people don't need a yacht, they need some liquid net worth so they can retire at their desired age and expense level.

I am really unsure what the emphasis on cost is in this thread. This isn't 2000. Most trades are free*, options contracts are literally 65 cents. It's not like it's $7 a trade or something. Most funds are very low load these days, from any of the bigger outfits. The fees are only an issue of you are using some sort of money manager like an advisor through Wells-Fargo or PNC or something. Even if it's a fiduciary it adds up, but if you're paying for an advisor there would be no need to discuss stock picks and srategies on here.

*Nothing is really free, but that tiny cost for traffic and stuff that goes on behind the scenes doesn't have a major impact on the average investor over time.

[5hout]

Are there investment firms that have shown the ability to maintain a competitive advantage? Yes. I just don’t think the average Joe investor can.

And the big problem for Joe investor is trying to identify which firms will continue having an advantage. As they officially say: past performance does not guarantee future results.

For the average guy, I think not making bad bets is far more important than making good ones. Hard to argue against index funds, as you'll never really underperform, and will never lag the market to any real degree due to the compounded effect of high costs as index funds' costs are minimal.

As you've said, most people don't need a yacht, they need some liquid net worth so they can retire at their desired age and expense level.

I am really unsure what the emphasis on cost is in this thread. This isn't 2000. Most trades are free*, options contracts are literally 65 cents. It's not like it's $7 a trade or something. Most funds are very low load these days, from any of the bigger outfits. The fees are only an issue of you are using some sort of money manager like an advisor through Wells-Fargo or PNC or something. Even if it's a fiduciary it adds up, but if you're paying for an advisor there would be no need to discuss stock picks and srategies on here.

*Nothing is really free, but that tiny cost for traffic and stuff that goes on behind the scenes doesn't have a major impact on the average investor over time.

Talk to more old people. I know people that are still paying 1% or more avg per in fees, plus flat fees sometimes. It's insane.

[quikky]

Are there investment firms that have shown the ability to maintain a competitive advantage? Yes. I just don’t think the average Joe investor can.

And the big problem for Joe investor is trying to identify which firms will continue having an advantage. As they officially say: past performance does not guarantee future results.

For the average guy, I think not making bad bets is far more important than making good ones. Hard to argue against index funds, as you'll never really underperform, and will never lag the market to any real degree due to the compounded effect of high costs as index funds' costs are minimal.

As you've said, most people don't need a yacht, they need some liquid net worth so they can retire at their desired age and expense level.

I am really unsure what the emphasis on cost is in this thread. This isn't 2000. Most trades are free*, options contracts are literally 65 cents. It's not like it's $7 a trade or something. Most funds are very low load these days, from any of the bigger outfits. The fees are only an issue of you are using some sort of money manager like an advisor through Wells-Fargo or PNC or something. Even if it's a fiduciary it adds up, but if you're paying for an advisor there would be no need to discuss stock picks and srategies on here.

*Nothing is really free, but that tiny cost for traffic and stuff that goes on behind the scenes doesn't have a major impact on the average investor over time.

I was referring to mutual fund fees. A lot of actively managed mutual funds have fairly high fees. Index funds, in general, have ultra low fees. A 1% expense ratio vs a 0.05% one is a big difference long term. The actively managed fund has to beat the market by 0.95% consistently just to match the index fund's performance.

[Hardartery]

Are there investment firms that have shown the ability to maintain a competitive advantage? Yes. I just don’t think the average Joe investor can.

And the big problem for Joe investor is trying to identify which firms will continue having an advantage. As they officially say: past performance does not guarantee future results.

For the average guy, I think not making bad bets is far more important than making good ones. Hard to argue against index funds, as you'll never really underperform, and will never lag the market to any real degree due to the compounded effect of high costs as index funds' costs are minimal.

As you've said, most people don't need a yacht, they need some liquid net worth so they can retire at their desired age and expense level.

I am really unsure what the emphasis on cost is in this thread. This isn't 2000. Most trades are free*, options contracts are literally 65 cents. It's not like it's $7 a trade or something. Most funds are very low load these days, from any of the bigger outfits. The fees are only an issue of you are using some sort of money manager like an advisor through Wells-Fargo or PNC or something. Even if it's a fiduciary it adds up, but if you're paying for an advisor there would be no need to discuss stock picks and srategies on here.

*Nothing is really free, but that tiny cost for traffic and stuff that goes on behind the scenes doesn't have a major impact on the average investor over time.

Talk to more old people. I know people that are still paying 1% or more avg per in fees, plus flat fees sometimes. It's insane.

Define old. I'm 50, and remember when you had to have a broker to do anything at all. Anybody still in that position is in that position of their own volition. What I am learnong os what I wanted to know, no one on here does any trading or real investing on their own so there won't be any discussions in that vein.

[5hout]

Old is when two younger generations are adults (pro rated for your position in your generation). As a mid-GenX'r you've got about 15 years before your old. At this point you're going to struggle to process the world across the generation gap.

Better keep lifting, you've got a long time before your old @Hardartery

[Hardartery]

Old is when two younger generations are adults (pro rated for your position in your generation). As a mid-GenX'r you've got about 15 years before your old. At this point you're going to struggle to process the world across the generation gap.

Better keep lifting, you've got a long time before your old @Hardartery

I'll take it. I'll define not old yet as a win.

[dw]

Are there investment firms that have shown the ability to maintain a competitive advantage? Yes. I just don’t think the average Joe investor can.

And the big problem for Joe investor is trying to identify which firms will continue having an advantage. As they officially say: past performance does not guarantee future results.

For the average guy, I think not making bad bets is far more important than making good ones. Hard to argue against index funds, as you'll never really underperform, and will never lag the market to any real degree due to the compounded effect of high costs as index funds' costs are minimal.

As you've said, most people don't need a yacht, they need some liquid net worth so they can retire at their desired age and expense level.

I am really unsure what the emphasis on cost is in this thread. This isn't 2000. Most trades are free*, options contracts are literally 65 cents. It's not like it's $7 a trade or something. Most funds are very low load these days, from any of the bigger outfits. The fees are only an issue of you are using some sort of money manager like an advisor through Wells-Fargo or PNC or something. Even if it's a fiduciary it adds up, but if you're paying for an advisor there would be no need to discuss stock picks and srategies on here.

*Nothing is really free, but that tiny cost for traffic and stuff that goes on behind the scenes doesn't have a major impact on the average investor over time.

Don't forget bid-ask spreads.

[mikeylikey]

g to mutual fund fees. A lot of actively managed mutual funds have fairly high fees. Index funds, in general, have ultra low fees. A 1% expense ratio vs a 0.05% one is a big difference long term. The actively managed fund has to beat the market by 0.95% consistently just to match the index fund's performance.

Or be less volatile. Making 11% in good years and being flat in bad years (average 5.5) beats making 30% in good years and losing 15% in bad years (average 7.5%) and that's before considering taxes.

And if you're living off your money and making regular withdrawals, market volatility kind of works like dollar-cost-averaging only in reverse.

[quikky]

g to mutual fund fees. A lot of actively managed mutual funds have fairly high fees. Index funds, in general, have ultra low fees. A 1% expense ratio vs a 0.05% one is a big difference long term. The actively managed fund has to beat the market by 0.95% consistently just to match the index fund's performance.

Or be less volatile. Making 11% in good years and being flat in bad years (average 5.5) beats making 30% in good years and losing 15% in bad years (average 7.5%) and that's before considering taxes.

And if you're living off your money and making regular withdrawals, market volatility kind of works like dollar-cost-averaging only in reverse.

Volatily is acceptable, depending on the return premium you get from it.

In terms of living off your money, in general, you would withdraw from cash and more fixed income investments. It wouldn't be prudent to withdraw from highly volatile sources.

[ccoyle]

I invest in index funds. I will always slightly underperform the market. Has worked well for me so far.

Same here. Currently retired and 68 y.o. I was 100% Vanguard Index Total Stock Market since my 30s. Went to 50-50 with VG Index Total Bond Market about 5 years ago. Consistent buy-and-hold is boring but it has worked long term. Sort of like sticking with a few basic compound lifts and not missing workouts. I'm not sweating the current dip.

[Hardartery]

I invest in index funds. I will always slightly underperform the market. Has worked well for me so far.

Same here. Currently retired and 68 y.o. I was 100% Vanguard Index Total Stock Market since my 30s. Went to 50-50 with VG Index Total Bond Market about 5 years ago. Consistent buy-and-hold is boring but it has worked long term. Sort of like sticking with a few basic compound lifts and not missing workouts. I'm not sweating the current dip.

Dips are irrelevant in the long term, it only hurts the people who panic and sell stuff at the bottom. I haven't actually taken a loss if I still hold the fund, and they come back up over time and then go higher. My "Investing" is in solid funds and some stocks that have a history of stability. Mostly. It helps to spend a little time on due diligence and not just jump in, which is what I was looking for . Due diligence to share. But I have the luxury of playing around with a small portion of my money to make short term coin. Which is entertaining for me. Buying SKT at $5 and collecting dividends while it went back to almost $20 is satisfying. You can't beat the market (By much) but you can profit from panic if you're watching and prepared.

[hector]

I invest in index funds. I will always slightly underperform the market. Has worked well for me so far.

Same here. Currently retired and 68 y.o. I was 100% Vanguard Index Total Stock Market since my 30s. Went to 50-50 with VG Index Total Bond Market about 5 years ago. Consistent buy-and-hold is boring but it has worked long term. Sort of like sticking with a few basic compound lifts and not missing workouts. I'm not sweating the current dip.

Dips are irrelevant in the long term, it only hurts the people who panic and sell stuff at the bottom. I haven't actually taken a loss if I still hold the fund, and they come back up over time and then go higher. My "Investing" is in solid funds and some stocks that have a history of stability. Mostly. It helps to spend a little time on due diligence and not just jump in, which is what I was looking for . Due diligence to share. But I have the luxury of playing around with a small portion of my money to make short term coin. Which is entertaining for me. Buying SKT at $5 and collecting dividends while it went back to almost $20 is satisfying. You can't beat the market (By much) but you can profit from panic if you're watching and prepared.

Can you?
Sure, sometimes you can. Random picks at any point will sometimes result in profit.
But can you consistently?
Absent information others don't have access to, anything you know about the current panic will already be factored into the market.

[Hardartery]

I invest in index funds. I will always slightly underperform the market. Has worked well for me so far.

Same here. Currently retired and 68 y.o. I was 100% Vanguard Index Total Stock Market since my 30s. Went to 50-50 with VG Index Total Bond Market about 5 years ago. Consistent buy-and-hold is boring but it has worked long term. Sort of like sticking with a few basic compound lifts and not missing workouts. I'm not sweating the current dip.

Dips are irrelevant in the long term, it only hurts the people who panic and sell stuff at the bottom. I haven't actually taken a loss if I still hold the fund, and they come back up over time and then go higher. My "Investing" is in solid funds and some stocks that have a history of stability. Mostly. It helps to spend a little time on due diligence and not just jump in, which is what I was looking for . Due diligence to share. But I have the luxury of playing around with a small portion of my money to make short term coin. Which is entertaining for me. Buying SKT at $5 and collecting dividends while it went back to almost $20 is satisfying. You can't beat the market (By much) but you can profit from panic if you're watching and prepared.

Can you?
Sure, sometimes you can. Random picks at any point will sometimes result in profit.
But can you consistently?
Absent information others don't have access to, anything you know about the current panic will already be factored into the market.

Anyone who is patient can know when a stock is a good buy, within reason. Sometimes it's general market panic, but sometimes it's not. The market can be fickle. A company may announce a lower than expected quarterly net earnings and the wonder of digital algorithms can hammer it in the short term. The information is always public, but the why doesn't always matter to the market. For example, FNKO dropped 56% last week in knee jerk reaction to lower than expected net earnings and guidance that 4th quarter may be slightly lower than predicted. The market over-reacted. The loss of net was because they spent cash to move locations and improve infrastructure to allow the company to grow. What the market wanted was for them to use debt to do that and report record cash. That's stupid, and the management did the smarter thing if you are thinking past this quarter. It dropped just below $8 and with in a day was back up around $10. They still had record gross sales and are on track to have record annual sales by quite a bit. Anybody looking can see that the P/E makes it clear that the stock is seriously undervalued at $8, and frankly at $10. It will almost certainly be closer to $20 in 6 months. The market is not level headed and coldly calculating, it is moody like a woman with PMS. If you watch, and are patient, opportunities happen. That's the stategy that Warren Buffet has, always have some cash and be ready when the chance comes. Do I want this stock 2 years from now? I don't know, it will depend on the management. But I know I can sell at a profit right now and that won't change anytmie soon.

[mikeylikey]

Anyone who is patient can know when a stock is a good buy, within reason. Sometimes it's general market panic, but sometimes it's not. The market can be fickle. A company may announce a lower than expected quarterly net earnings and the wonder of digital algorithms can hammer it in the short term. The information is always public, but the why doesn't always matter to the market. For example, FNKO dropped 56% last week in knee jerk reaction to lower than expected net earnings and guidance that 4th quarter may be slightly lower than predicted. The market over-reacted. The loss of net was because they spent cash to move locations and improve infrastructure to allow the company to grow. What the market wanted was for them to use debt to do that and report record cash. That's stupid, and the management did the smarter thing if you are thinking past this quarter. It dropped just below $8 and with in a day was back up around $10. They still had record gross sales and are on track to have record annual sales by quite a bit. Anybody looking can see that the P/E makes it clear that the stock is seriously undervalued at $8, and frankly at $10. It will almost certainly be closer to $20 in 6 months. The market is not level headed and coldly calculating, it is moody like a woman with PMS. If you watch, and are patient, opportunities happen. That's the stategy that Warren Buffet has, always have some cash and be ready when the chance comes. Do I want this stock 2 years from now? I don't know, it will depend on the management. But I know I can sell at a profit right now and that won't change anytmie soon.

What you are not taking into account is that some non-zero fraction of the time, that initial bad earnings report isn't just a blip, but rather a the first in a string of bad news that really does lower the value of the stock in the long term. So sometimes you will lose money sticking out. Unless you are a) psychic, b) insider trading, you can't honestly claim to know which is which.

If only there was some way to aggregate the present value effects of all the various expectations and unknowns about the long term prospects of a company based on the best estimates of all concerned parties, weighted by their interest in the outcome...

[Hardartery]

Anyone who is patient can know when a stock is a good buy, within reason. Sometimes it's general market panic, but sometimes it's not. The market can be fickle. A company may announce a lower than expected quarterly net earnings and the wonder of digital algorithms can hammer it in the short term. The information is always public, but the why doesn't always matter to the market. For example, FNKO dropped 56% last week in knee jerk reaction to lower than expected net earnings and guidance that 4th quarter may be slightly lower than predicted. The market over-reacted. The loss of net was because they spent cash to move locations and improve infrastructure to allow the company to grow. What the market wanted was for them to use debt to do that and report record cash. That's stupid, and the management did the smarter thing if you are thinking past this quarter. It dropped just below $8 and with in a day was back up around $10. They still had record gross sales and are on track to have record annual sales by quite a bit. Anybody looking can see that the P/E makes it clear that the stock is seriously undervalued at $8, and frankly at $10. It will almost certainly be closer to $20 in 6 months. The market is not level headed and coldly calculating, it is moody like a woman with PMS. If you watch, and are patient, opportunities happen. That's the stategy that Warren Buffet has, always have some cash and be ready when the chance comes. Do I want this stock 2 years from now? I don't know, it will depend on the management. But I know I can sell at a profit right now and that won't change anytmie soon.

What you are not taking into account is that some non-zero fraction of the time, that initial bad earnings report isn't just a blip, but rather a the first in a string of bad news that really does lower the value of the stock in the long term. So sometimes you will lose money sticking out. Unless you are a) psychic, b) insider trading, you can't honestly claim to know which is which.

If only there was some way to aggregate the present value effects of all the various expectations and unknowns about the long term prospects of a company based on the best estimates of all concerned parties, weighted by their interest in the outcome...

What I am taking into account is that the market over-reacts in the short term, sometimes to obviously false information. Like a random Tweet making a stupid claim tanking a pharma stock. Anyone with a brain would have at least checked a source other than a random Tweet, but they didn't. The market over-reacts in the short term, and if you have researched the company you know the underlying fundamentals and know when that is what's going on. Even Warren Buffet gets it wrong once in a while, and I'm by no means clairvoyant, but my individual stock holdings are doing significantly better than my funds. Significantly. Long term that may not be the case, or at least it will be closer than it is right now, I am certain of that. But shorter term there are opportunities if you stay alert.

[mikeylikey]

What I am taking into account is that the market over-reacts in the short term, sometimes to obviously false information. Like a random Tweet making a stupid claim tanking a pharma stock. Anyone with a brain would have at least checked a source other than a random Tweet, but they didn't. The market over-reacts in the short term, and if you have researched the company you know the underlying fundamentals and know when that is what's going on.

Lilly had been on a bit of a run lately. What if the tweet simply caused investors to take another look at the stock, all at the exact same time, when they might not have done so otherwise? I note that the stock has not rebounded to the pre-tweet price, even though everyone in the western world now knows that they are not in fact giving away insulin. Maybe $350 was the correct price for Lilly all along.

Counterfactually, what if, although false, the tweet had ended up doing enough brand damage to fundamentally hurt Lilly's business? This was a non-zero probability that would need to be considered within minutes of the news breaking if you wanted to act on it before it was priced in. Some people obviously did, and they got it wrong - this time.

These and other explanations might not necessarily be the case specifically with the Lilly tweet price dip, but repeat the experiment enough times and you'll find cases where in fact the stock IS overvalued, or a dumb tweet DOES fundamentally affect profits.

I posit that if you run the experiment enough times, the strategy of "assume it's an overreaction till proven otherwise" will roughly break even.

I posit that the market prices these things better and faster, on average, than you can.

You aren't Warren Buffett, but not necessarily (or only) because he's better or smarter. Warren Buffett can take the CEO to lunch before he buys the company, then buy the company, fire the CEO, and bring in his own people. What Warren Buffett does is not really analogous to the general investing public and should not be compared as such.

[Hardartery]

What I am taking into account is that the market over-reacts in the short term, sometimes to obviously false information. Like a random Tweet making a stupid claim tanking a pharma stock. Anyone with a brain would have at least checked a source other than a random Tweet, but they didn't. The market over-reacts in the short term, and if you have researched the company you know the underlying fundamentals and know when that is what's going on.

What if 350 was the correct price for Lilly all along, and the tweet simply caused investors to take another look at the stock when they might not have? I note that the stock has not rebounded even though everyone in the western world now knows that they are not in fact giving away insulin.

What if, although false, the tweet ended up doing enough brand damage to fundamentally hurt Lilly's business? This was a non-zero probability that would need to be considered within minutes of the news breaking if you wanted to act on it before it was priced in. Some people obviously did, and they got it wrong - this time.

These and other explanations might not necessarily be the case specifically with the Lilly tweet price dip, but repeat the experiment enough times and you'll find cases where in fact the stock IS overvalued, or a dumb tweet DOES fundamentally affect profits.

I posit that if you run the experiment enough times, the strategy of "assume it's an overreaction till proven otherwise" will roughly break even.

I posit that the market prices these things better and faster, on average, than you can.

Reacting to something like that is always a mistake, and I do not own and have not researched Lilly. I don't know what the correct value us, because I don't know the things that factor into it like P/E and earnings. The market is frequently wrong about valuations, and frequently is under or over the real value in the short term. This is affected by things like big players shorting a stock, or somebody being way too bullish and aggressive about a stock. I am 100% sure that Tesla is overvalued and will continue to be for a while, and has been for quite a while. Investor sentiment and retail investor fervor did that. This happened with .com stuff, it happened with cell phone companies, etc.. It happens. People decide they can't go wrong and go too heavy and the stock gets overvalued. Then on the other side you have people just not liking a stock in spite of hoe it does. Microsoft, for example, is an extremely overvalued piece of garbage but it's in the index and so is artificially bouyed by this. It really sucks as a company, everyone hates it, but "Wall Street" still sees it as blue chip without regard for the internal rot of the organization. I don't value anything, I look at what the company is earning and spending and decide if the current value is correct or it's in transition. The market is very, very often wrong in the short term. It just is. Indexed shares tend to stay more stable. Most stocks are not indexed.

[aurelius]

@Hardartery It feels like you started this thread just to share how good you are at trading stocks. You very well could be. I know I am not.

Seriously, if you are very good at trading stocks you can make some real money doing that. Go for it.

If only there was some way to aggregate the present value effects of all the various expectations and unknowns about the long term prospects of a company based on the best estimates of all concerned parties, weighted by their interest in the outcome...

[hector]

The market is very, very often wrong in the short term. It just is.

Does this mean all available information has not been factored into the price?

How do you know a price is wrong? If a stock price subsequently goes up or down, does it follow that the price was wrong before the movement?

I guess I'm asking what you mean by "wrong." Prices change as conditions change and as more information becomes available. If conditions and information are different a day before or a day after, does it follow that any of the prices were at any point "wrong"?

[Hardartery]

The market is very, very often wrong in the short term. It just is.

Does this mean all available information has not been factored into the price?

How do you know a price is wrong? If a stock price subsequently goes up or down, does it follow that the price was wrong before the movement?

I guess I'm asking what you mean by "wrong." Prices change as conditions change and as more information becomes available. If conditions and information are different a day before or a day after, does it follow that any of the prices were at any point "wrong"?

A company's value is somewhat subjective, generally a multiple of the P/E ratio is considered the value. There is also the value of simply selling the assets, or liquidation value. When the market reacts strongly and rapidly to some very recent thing, like a tweet or a net earnings number, it typically over-reacts. In many instances companies are overvalued, as in the market has been bullish and things in general are running high. Stocks go through phases, sometimes selling at a premium (VERU leading up to the FDA meeting to decide on whether or not to issue an Emergency Use Exception for their drug for example), which is fine for a while but at some point something has to happen to justify the premium or the price will drop. Tesla typically sells at a premium because it has a cult following and people like Cathy Wood push the stock. Every fad has a salesman, and it's usually someone declaring that we are in a new era and that investing has changed. Nothing has changed, it's just a new fool with other people's money. If someone wants to invest based on emotion, I am happy to take advantage of that.