Justifiable Investment Strategy

[jayc]

So now you have an investment model that works great for you and you are happy with the returns/risk. Finance is linear for you from now on and is just a question of volume. i.e add 1 to x zeros on the end of each trade/transaction and let it rip. What does it matter how other people do it?

 

[DblDoc]

So now you have an investment model that works great for you and you are happy with the returns/risk. Finance is linear for you from now on and is just a question of volume. i.e add 1 to x zeros on the end of each trade/transaction and let it rip. What does it matter how other people do it?

+1. He/She would be better off focusing on their market beating strategy rather than waste [-]our [/-]their time [-]trolling [/-]posting on the internet.

DD

 

[HornedToad10]

I have outperformed the market in 10 of the 11 years I have been invested solely in individual companies. Cumulatively I am up 340% versus a 5% rise in the S&P 500 over the 11 years. Investing in bonds would have greatly increased my risk.

I see this comment all the time from newsletters and other websites. Personally, I don't care if you beat the S&P 500 if you are invested in International companies, or invested in small cap value stocks or something that is fundamentally different than what the S&P 500 is. It's only relevant to me if you say the type of investment did better than the corresponding index of that investment over the last X years.

Normally when I go back and compare the results, I find that sometimes the newsletter or investor did better for a brief periord of time and other times they did not. i.e. Most of the time they outperformed the S&P 500 due to asset allocation, not due to stock picking guru-ness. And therefore would have underperformed or was comparable to a similiarly allocated portfolio that was in index funds.

For me, I use a well diversified portfolio of index funds with 50% international/50% domestic. I'm young and do not invest in bonds, but that'll eventually change as I get closer to retirement and my time horizon shortens.

 

[REWahoo]

+1. He/She would be better off focusing on their market beating strategy rather than waste [-]our [/-]their time [-]trolling [/-]posting on the internet.

Unless they actually make more money by stealthily peddling subscriptions to their newsletter in their posts. Not that anything like that is happening here, of course...

 

[nun]

If every alpha > 0 investor shares their picks with the world won't they be killing the goose?

I'm a resolute alpha = 0 investor......come join me in mediocrity

 

[BigNick]

Obvious tubthumper is obvious, as the young people on the Interwebs say.

 

[easysurfer]

My strategy...I've given up on chasing performance a long time ago. I'm an indexer because for every American Idol winner, there's plenty who got booed off the stage.

Not saying that those with a Midas touch don't exist (for example, Warren Buffett), but to identify them, hindsight is 20/20.

Or as in this column: Kiplinger.com

I'm a satisficer (I like to sleep well at night) instead of a maximizer.

 

[Texas Proud]

I see this comment all the time from newsletters and other websites. Personally, I don't care if you beat the S&P 500 if you are invested in International companies, or invested in small cap value stocks or something that is fundamentally different than what the S&P 500 is. It's only relevant to me if you say the type of investment did better than the corresponding index of that investment over the last X years.

Normally when I go back and compare the results, I find that sometimes the newsletter or investor did better for a brief periord of time and other times they did not. i.e. Most of the time they outperformed the S&P 500 due to asset allocation, not due to stock picking guru-ness. And therefore would have underperformed or was comparable to a similiarly allocated portfolio that was in index funds.

For me, I use a well diversified portfolio of index funds with 50% international/50% domestic. I'm young and do not invest in bonds, but that'll eventually change as I get closer to retirement and my time horizon shortens.

Yes... which index matters a lot... I remember one of my finance professors... we were talking about 'beating the market'... his comment was insightful... to paraphrase...

"It is easy to bet the Dow index. Determine which stock is going to perform the worst. More than likely it will perform below average. Buy the other 29."

Now, if you think about it a bit... all you have to do is pick ONE stock that will do bad.... and you beat the market... sure, you might not pick right that often, but more often than not you will... now, will you do that much better than the market doing this probably not... but you can have bragging rights to betting the market...

Also, if you think about it more... isn't it easier to pick a few loosers and buy the rest of the market than pick a bunch of winners

 

[Nords]

If every alpha > 0 investor shares their picks with the world won't they be killing the goose?

Not if they buy before sharing their picks. And technically I guess they'd have to sell after sharing, too.

 

[calmloki]

I don't mind hearing about something other than the common Vanguard index fund/Couch Potato/Bogle mantra normally voiced here. I also used to enjoy watching the Tom Vu and ilk "make massive money buying distressed property" TV commercials. Maybe I've bought some index funds and distressed property - and gold after reading about fiat currency, but I'd hardly say the farm was bet on any one thing.

Funny thing regarding demographics and where one mines. Up north in Oregon we would get solicitations to attend talks about retirement planning to be held at hotel conference rooms - maybe coffee would be offered. Down here in La Quinta we got an invite to LG steakhouse. Think the free steak would cost too much.

 

[brewer12345]

All very fine and well, but where is the shill? Where is the newly registered poster who gushes at OP:"tell me more!!!"

The quality of the pitch from the skeevy scamsters here has really fallen in quality and style. I want my money back.

 

[kumquat]

I don't mind hearing about something other than the common Vanguard index fund/Couch Potato/Bogle mantra normally voiced here. I also used to enjoy watching the Tom Vu and ilk "make massive money buying distressed property" TV commercials. Maybe I've bought some index funds and distressed property - and gold after reading about fiat currency, but I'd hardly say the farm was bet on any one thing.

Funny thing regarding demographics and where one mines. Up north in Oregon we would get solicitations to attend talks about retirement planning to be held at hotel conference rooms - maybe coffee would be offered. Down here in La Quinta we got an invite to LG steakhouse. Think the free steak would cost too much.

REad the first post.

how do you justify your investment strategy

I don't have to. Notice he didn't ask what it was. Should I tell him? (If so, why?)

 

[kombat]

I am convinced investors can beat the market

ALL of them?

Are you saying you believe all investors can beat the market, if we just educate ourselves and share information?

Have I somehow stumbled into Lake Wobegon? Where "all the children are above average?"

and I don't think it is all that hard.

OK, let's try a little logic exercise.

Ignoring the mathematical impossibility of everybody beating the market (because the market is "everybody"), let's examine your assertion that it's not hard to beat the market.

First, let's assume that the market can be beaten. Although nobody has ever done it, let's go ahead and assume that there is actually a strategy out there that will allow its followers to consistently achieve above-average market returns. Let's even assume that, as you say, "it's not all that hard."

Now, which actors have the best shot at discovering this strategy and achieving those above-average returns? Is it the educated, experienced, full-time pension fund managers, with billions of dollars at their disposal, access to up-to-the-second market news and quotes, and instantly-executed trades?

Or is it the bored hobby investor, sitting at home reading CNN Money and following 20-minute old quotes on his eTrade account?

Now, mathematically, one of these guys has to lose. The reality is, we can't all be above average. So if we accept that the market must consist of "winners" and "losers," it seems obvious to me that the former investor has a much better shot at achieving consistent success than the latter. How could you possibly argue otherwise?

 

[Onward]

Somebody's been watching too much Cramer....

 

[M Paquette]

Now, which actors have the best shot at discovering this strategy and achieving those above-average returns? Is it the educated, experienced, full-time pension fund managers, with billions of dollars at their disposal, access to up-to-the-second market news and quotes, and instantly-executed trades?

Or is it the bored hobby investor, sitting at home reading CNN Money and following 20-minute old quotes on his eTrade account?

I think it's the AI systems running on colocated machines within the exchange server buildings, wired with sub-100 microsecond latencies to the trading feeds, watching critical news feeds, operated by market makers so as to front-run retail and institutional traders.

But yeah, if someone thinks they can beat those machines while sitting at the end of 50-100 milliseconds of latency, reading a display that only updates every 16 milliseconds, processing data on an absurdly slow neural network, and keying in their orders using ridiculous meat-based appendages with hundreds of milliseconds of latency, hey, more power to them.

 

[easysurfer]

Kombat - I like your explanation. Reminds me of finite math class (Venn Diagrams) back in college and intro to philosophy (if this, then this follows....). That was how things were explained back in the formative years.

But in todays terms....it's explained as, "Hey!..We can't have it both ways..."

 

[HatePayingTaxes]

I am convinced investors can beat the market and I don't think it is all that hard. Whether I can do it long term I don't know. I ask the question to myself regularly. If it is one great run of luck I hope in continues.

You have a working investment strategy but you're questioning if it can continue over the long run. For me, I would rather have a strategy that tracks the market, allows me to sleep at night (bonds to reduce volatility) and I don't have to depend on other people at retirement all over the long run. That's my definition of risk and indexing w/ bonds has done that so far.

 

[bcinvest]

I believe investors can beat the market, not all investors can beat the market. In the same way I believe college quarterbacks can make it in the NFL. To conclude otherwise doesn't make sense.

 

[Keim]

Some can. Research shows the VAST majority of "investor/fund managers of the month" are simply getting lucky, and can't repeat it over a course of several years. Their performance is hard to predict in advance, and tends to quickly deteriorate.

Or, to use your analogy.

Some college quarterbacks can make it in the NFL. But, 99.9999999999% of the kids joining little league won't be good enough to make the college team, let alone the NFL.

99.9999999999% of people can use low cost indexing as a strategy to beat most active investors. That makes indexing an excellent strategy to utilize.

To conclude otherwise doesn't make any sense.

 

[brewer12345]

I believe investors can beat the market, not all investors can beat the market. In the same way I believe college quarterbacks can make it in the NFL. To conclude otherwise doesn't make sense.

I believe the Flying Spaghetti Monster will take me to a land filled with pasta and meatballs, where flying parmesan cheese graters will shower me with His goodness. But only if I stay away from the evil that is the dark side (Atkins diet).

To believe otherwise would not make any sense.

 

[Keim]

Now I'm hungry, Brewer. Darn you. Darn you to heck!

Perhaps some inspirational music for bcinvest:
YouTube - R Kelly - I Believe I Can Fly

 

[bcinvest]

ALL of them?


Now, which actors have the best shot at discovering this strategy and achieving those above-average returns? Is it the educated, experienced, full-time pension fund managers, with billions of dollars at their disposal, access to up-to-the-second market news and quotes, and instantly-executed trades?

Or is it the bored hobby investor, sitting at home reading CNN Money and following 20-minute old quotes on his eTrade account?

Now, mathematically, one of these guys has to lose. The reality is, we can't all be above average. So if we accept that the market must consist of "winners" and "losers," it seems obvious to me that the former investor has a much better shot at achieving consistent success than the latter. How could you possibly argue otherwise?

What makes it so obvious? Having billions under management severly limits you universe of possible investments. What about the small boutique mutual fund or hedge fund manager. The financially secure independent investor.

 

[Onward]

Having billions under management severly limits you universe of possible investments.

You have been listening to Cramer! I recognize his spiel. Peter Lynch's too, if I recall. Don't fall for it.

 

[NW-Bound]

I for one believe that sometimes, note the word sometimes, a small investor can beat the big guys on Wall Street. Have we all read the recent book The Big Short where Michael Lewis described how some small investors stumbled across the stupid CDOs and CDSs that killed many bankers who were supposed to be masters at that game? These little guys kept asking themselves why nobody else saw it, how these overpaid traders and bankers were so idiotic.

The above said, I would think that if I found a market inefficiency to exploit, I would just keep it to myself, in order to make lots of money just for me, me, me.

PS. Lewis described two guys who invested for just themselves, and turned $110K into $100M. NICE!

 

[bcinvest]

You have been listening to Cramer! I recognize his spiel. Peter Lynch's too, if I recall. Don't fall for it.

I have never watched Cramer. I have read Lynch's book. They were very entertaining from what I remember.

No, I haven't fallen for modern portfolio theory. The establishment has a great deal to lose if people were to discard those ideas. Academics would see a life's work reduced to ashes. See Taleb's call to end the Nobel prize for economics.