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Investing / Brokers
21

Me personally, I wouldn’t bet that I’m among the top 1%. Not in investing at least.
However, I find the premise itself quite preposterous.

You don’t have to. You just need a couple of epiphanies. Just a few really, really good investment ideas and follow up on them with conviction.

When Apple released the iPhone (or at least the 3G a bit later), I knew (at the time) it would be a game changer in the cellular handset market - and that market one that was destined to exploded. With their experience and stronghold in the mobile MP3 player market back then, they were destined for success. As was their computer business about to pick up.

Likewise, when Google went public, I was convinced even back then that their search engine business wouldn’t be easily replicable by competitors - and they were holding a dominant position in the market back then.

Had I had the funds and financial cushion (savings) to bet my money on those few in a big way - and a few other (and only them) “highest-conviction ideas” I have had in the following years, I would have greatly outperformed the market.

And for me, that would have been beating the market with skill - not luck. Cause at least on these two (amongst a few others) ideas/bets I would have had an edge over the average (or most) market participants. Of course I’ve been following these particular companies, their products and industries very closely and spent a huge amount of time on them.

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22

I had a similiar situation with AMD in 2008/2009. I knew/believed that they are going to get big again as they established themselves in the gaming console business. I was also thinking about buying Tesla at 180.

But it’s always very easy to call the winner after the game is over. You never truely know.

23

The problem is that how well a company does is not that important for stock prices. Expectations how well a company does is more important.

Other investors have the same information as you, so it is always a competition.

https://www.aei.org/carpe-diem/more-evidence-that-its-really-hard-to-beat-the-market-over-time-92-of-finance-professionals-cant-do-it-2/

So 92% do not outperform their benchmark. The rest is probably still mostly luck.

I mean the evidence is clear that active managers can’t outperform the market. Those managers are highly intelligent people. If they can’t do it, why should a random average investor?

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24

I wouldn’t be so sure. There’s a lot of dumb people and make-pretend going on in finance. As things are very stochastic in the markets it’s hard to separate fakers and luck from true skill.

Even managers that have the skill are penalized by going against the crowd cause if you underperform people start taking the money out - see Peter Lynch’s case. So there’s a general incentive to hug the index.

Finally, those who are really really good - funds like rentech, tgs, pdt, hrt, de shaw, don’t even take outside money because strategies don’t scale infinitely - at some point taking outside money mostly dilutes the returns for existing investors.

25

Of course. I do and die believe that these companies had lots of growth potential back then, that wasn’t factored into the stock price - and that their business model wasn’t easily replicable (which has somewhat for at least Apple’s iPhones by now).

Does that benchmark factor in administration and trading costs, management and performance fees?

  1. Again, what about fees, bonuses and their own salaries?
  2. What’s their strategy and trading pattern? I doubt that a strategy of making two or three trades a year and then holding for five or ten years is very popular among managers of “active” investment funds.

I consider it reasonable to assume that 92% of fund managers are paid for by activity - and justifying their salaries and bonuses accordingly. Not for (largely) doing nothing.

Speaking of luck… imagine I set up and investment fund that’s buying just one single stock and then holding indefinitely. Disregarding costs and fees, my 1-stock-fund should have a 50% chance of under- or outperforming the index benchmark, wouldn’t it?

So outperforming the market really can’t be that hard.

Of course, the bigger and more diversified your portfolio gets, the harder will it be to outperform the benchmark indices significantly.

26

There is also a chance that you lose all your money. Apples and oranges. UPRO had a cagr of around 40%/year in the last 10 years. It murdered the unleveraged SP500. There are thousands of investors who put their money in that and beat the market for probably 40 years for being invested in 10 years.

It sounds great, but the max. historical drawdown is -99%, so similiar to individual stocks. Why would you risk your future and taking that bet?

27

Key part of the message here is “over the long run”.
You can probably pick a few winning stocks and be ahead for 5 or 10 years… (and perhaps that is indeed all one needs?)
But can you keep picking the winners for 20/30/50 years? (and do you need to?)

However all of these later posts are quite off the original topic. :slight_smile:

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