It blows my mind that this is taken to be true. There is a LOT of literature that "supports" these ideas, but a lot to the contrary as well. And there's lots of garbage out there if your primary source for this data is Google searches or a few free blogs (I like Sethi's blog, just don't buy into a lot of it).
>.Big shot fund managers can't consistently beat the market...
1. My understanding is that literature regarding this generally refers to the mutual funds. I've also heard it voiced that the mutual fund community on average doesn't beat the market. That's not the same thing.
I generally thing that HN types are the types who are smarter and likely competitive with the best and the brightest in finance.
>. Stocks should be a long term investment;
Why?
> the market has always had a positive return over any 20 year period.
1. Some people want returns in timespans of shorter than 20 years.
2. Not all markets have had positive returns over all 20 year periods. Even US equity markets have had losing 10 year periods, and inflation adjusted returns make the picture bleaker as well. I'd say the SPX has a good shot at not beating inflation adjusted returns for the 20 year period beginning in 2000.
http://www.simplestockinvesting.com/SP500-historical-real-to...
3. "Positive" isn't good enough for everyone.
>.You're probably not paying with enough money to make it worth worrying about
Gotta start somewhere. My first program was "hello world."
Investing time in learning about financial markets isn't for everyone, just like software startups isn't for everyone.
Facebook:Renaissance :: <insert YC startup here>:Jane Street Capital :: "hello world":making your first trade
Learning to trade or invest or code or build startups is just another skill.
> I generally thing that HN types are the types who are smarter and likely competitive with the best and the brightest in finance.
Thinking you're smart enough to compete with people who are not only very smart, but also experienced and dedicated sounds like a good way to get royally screwed if you're not careful.
> Learning to trade or invest or code or build startups is just another skill.
Absolutely. I started with $2000 and doubled it many times over to pay for tuition. But I read everything I could and watched my stocks religiously.
I would buy and sell every few days or weeks to make use out of every 5% gain or loss in the stock's value.
Yes, the fees (etrade at $20 a trade) were ridiculous. They might have cost me 25% of my gains but at the end of the day my gains were still up there. It's much cheaper to trade now.
If you have the time to invest then I would learn foreign exchange instead. You can have much more leverage there without much initial capital. I would love to spend more time on trading my money but as you move on from school life just gets busier. So go read and make some money.
PS: I should say I lost my fair share initially as well.
Somebody else on this thread has already plugged Interactive Brokers.
They're cheap. For US stocks its $.005 to $.01 per share (with a $1 min per order) or something. I think most people here are interested in trading stocks (if interested at all).
I've found that I fall into the "not playing with enough money" camp. The difference between the "gotta start somewhere" attitude of software development is trading costs money. I found I was consistently making 20-30% returns, but after trading fees it was a lot more like 0-5%.
You can write as many Hello World programs as you want for no incremental fee — but every trade costs money, so you need to trade enough to offset the feeds.
Most things worth learning come with a cost. Writing code costs time.
Regarding 20-30% returns on fake money, but 0-5% on real money, trading fees should be an assumption you make when you trade with fake money. I'm guessing you did, but if there's such a wide disparity, it just means you have to re-evaluate. Writing strategies is just like a software startup. Be agile, course correct often, when expectations differ from actual results, find out why.
If trading costs is really your primary issue, I guess I'm plugging http://www.algodeal.com since I just discovered them over the weekend and it sounds sort of cool and like a good platform to learn to do it with no cost (except the cost of many Hello World programs).
[I am in no way affiliated with Algo Deal. I haven't even really looked into it that much. But their splash page sounds cool and I'm frankly envious that its their startup and not mine]
Fund managers: it is even worse. Because customers will choose the fund with the best tack record, managers have an incentive to take high risks when the time to report comes near. If they win, they win big, if they lose, they lose just their bonus.
What i haven't understood yet is why index funds are supposed to be so great. At least if everybody would just buy undex funds, it wouldn't work. Also, who picks the stocks in the index? Why would index funds be better than just buying some random stocks?
If I find an inefficiency or loophole in the markets, I prefer to fix it. However, hedge funds tend to exploit it & make money through automation & http://en.wikipedia.org/wiki/Algorithmic_trading
It is noble that you prefer to fix it. I consider that "fixing" broken things is a task that adds value to the world. I think that value creation generally is something that is rewarded (not necessarily monetarily), and that "fixing" inefficiencies or loopholes in the markets is rewarded with money.
I'm not sure what "exploit" means or why you seem to use "make money" as a bad thing. Society uses "automation" in a wide range of tasks that was not previously possible. In finance, like in other cases where we automate previously rote tasks, I think its important to check it, because bad code running on tight loops can have disastrous consequences.
>.Big shot fund managers can't consistently beat the market...
1. My understanding is that literature regarding this generally refers to the mutual funds. I've also heard it voiced that the mutual fund community on average doesn't beat the market. That's not the same thing.
2. Renaissance. Quantum Fund. DE Shaw.
http://en.wikipedia.org/wiki/Renaissance_Technologies#Invest...
I generally thing that HN types are the types who are smarter and likely competitive with the best and the brightest in finance.
>. Stocks should be a long term investment;
Why?
> the market has always had a positive return over any 20 year period.
1. Some people want returns in timespans of shorter than 20 years.
2. Not all markets have had positive returns over all 20 year periods. Even US equity markets have had losing 10 year periods, and inflation adjusted returns make the picture bleaker as well. I'd say the SPX has a good shot at not beating inflation adjusted returns for the 20 year period beginning in 2000. http://www.simplestockinvesting.com/SP500-historical-real-to...
3. "Positive" isn't good enough for everyone.
>.You're probably not paying with enough money to make it worth worrying about
Gotta start somewhere. My first program was "hello world."
Investing time in learning about financial markets isn't for everyone, just like software startups isn't for everyone.
Facebook:Renaissance :: <insert YC startup here>:Jane Street Capital :: "hello world":making your first trade
Learning to trade or invest or code or build startups is just another skill.