Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Almost 80% of Private Day Traders Lose Money

curiousgnu.com

Post reply on HN
Print view View original

211–220 of 278 posts

Re: Almost 80% of Private Day Traders Lose Money

#211

Post by habosa »

Excuse my meta-comment, but I notice that HN seems to have an obsession with proving that active trading is bad and that we should all buy low-cost indexes. And before anyone jumps on me, I 100% agree with that investment strategy and use it myself. I'd just like to comment on the intersection of that belief and tech enthusiasts.

It seems to generally come from a place of binary/analytical thinking which we're all so good at. Studies show that active investing is a losing battle for the average investor, so we assert that as fact and invest our money that way.

But I think deep down in myself (and probably others) it comes from a place of wanting to justify risk aversion. It seems that many people that we all know do become quite rich as investors, and the secret to their good fortune is not apparent. Studies promising us "they'll all lose in the long run!" makes us feel good about our decision not to participate in the game.

It's similar to the derision of startup equity, etc. I know many people who have become very rich at a very young age by latching on to the right startup, but I like my comfortable BigCorp job. The HN comments are a place where I can feel smart about my decision to not take risks even as we celebrate those who took risks and won.

Anyway I don't know why I chose to write this comment or explore this topic at this moment, I hope someone else reads it and understands my sentiment.

Re: Almost 80% of Private Day Traders Lose Money

#212

Post by a13n »

songzme wrote: post #202

Here's a story of my mom's journey as a day trader: My mom got laid off in 2008. The job market was brutal and she had a hard time looking for a new job. She had to find ways to make money to support my sister and I through school so she turned to the only other place where she could earn some money - the stock market. She started with around 100k, read up about stock options, and decided that shorting calls and puts…

> decided that shorting calls and puts would work well. The time value decay seems to work in the investor's favor

Yeow that could go wrong very easily. For shorting a call/put option, the maximum amount of money you can make is 100% when the contract expires worthless. However, you can potentially lose way more than 100% if the contract ends up being worth a ton of money.

This could bankrupt you if you don't know what you're doing, especially if you're trading with volumes where you can buy houses off the profits...

Re: Almost 80% of Private Day Traders Lose Money

#213

Post by kgabis »

bsder wrote: post #206
songzme wrote: post #202

Here's a story of my mom's journey as a day trader: My mom got laid off in 2008. The job market was brutal and she had a hard time looking for a new job. She had to find ways to make money to support my sister and I through school so she turned to the only other place where she could earn some money - the stock market. She started with around 100k, read up about stock options, and decided that shorting calls and puts…

Winning the lottery always happens to somebody. Just not many.

It doesn't sound like winning a lottery but rather like making a series of good investing decisions.

Re: Almost 80% of Private Day Traders Lose Money

#214

Post by pepy »

Rainymood wrote: post #195
pepy wrote: post #116

Earlier quoted context omitted.

I am a technical analyst. Patterns do occur but ultimately prices are driven by fundamental events. Interest rate decisions, market data releases and similar. When that occurs no pattern can survive on the smaller timeframe. Technical analysis works but it is not written in stone.

> Technical analysis works but it is not written in stone. Works 60% of the time 100% of the time.

Haha, kinda. My daily audit shows that I am on average 63% right. It comes up to cutting your loses early and riding out the profits.

Re: Almost 80% of Private Day Traders Lose Money

#215

Post by seagreen »

habosa wrote: post #211

Excuse my meta-comment, but I notice that HN seems to have an obsession with proving that active trading is bad and that we should all buy low-cost indexes. And before anyone jumps on me, I 100% agree with that investment strategy and use it myself. I'd just like to comment on the intersection of that belief and tech enthusiasts. It seems to generally come from a place of binary/analytical thinking which we're all so…

  It seems that many people that we all know do become quite 
  rich as investors, and the secret to their good fortune is 
  not apparent. Studies promising us "they'll all lose in 
  the long run!" makes us feel good about our decision not 
  to participate in the game.
This would be a way stronger argument if the king of the buy-index-fund team wasn't Warren Buffett:)

Re: Almost 80% of Private Day Traders Lose Money

#216

Post by streblo »

seagreen wrote: post #215
habosa wrote: post #211

Excuse my meta-comment, but I notice that HN seems to have an obsession with proving that active trading is bad and that we should all buy low-cost indexes. And before anyone jumps on me, I 100% agree with that investment strategy and use it myself. I'd just like to comment on the intersection of that belief and tech enthusiasts. It seems to generally come from a place of binary/analytical thinking which we're all so…

It seems that many people that we all know do become quite rich as investors, and the secret to their good fortune is not apparent. Studies promising us "they'll all lose in the long run!" makes us feel good about our decision not to participate in the game. This would be a way stronger argument if the king of the buy-index-fund team wasn't Warren Buffett:)

Buffett isn't exactly buying index funds for BRK

Re: Almost 80% of Private Day Traders Lose Money

#217

Post by marcosdumay »

shostack wrote: post #193
marcosdumay wrote: post #137

Earlier quoted context omitted.

I've tried trading on patterns for a short while. Problem is, those patterns do exist, but they are chaotic behaviors, and transition probabilities are already priced in. So that, for a non-causal analyst looking at past data they look very reliable, but for somebody with no forward knowledge, they are useless.

How else beyond being a precog and insider trading could one have forward knowledge?

By getting your data with days after the fact, and looking at the patterns with all the data graphed.

Or, in other words, the way those market analysis courses and gurus teach people to read the market. The patterns are very reliable if you ignore causality.

Re: Almost 80% of Private Day Traders Lose Money

#218

Post by eldavido »

habosa wrote: post #211

Excuse my meta-comment, but I notice that HN seems to have an obsession with proving that active trading is bad and that we should all buy low-cost indexes. And before anyone jumps on me, I 100% agree with that investment strategy and use it myself. I'd just like to comment on the intersection of that belief and tech enthusiasts. It seems to generally come from a place of binary/analytical thinking which we're all so…

Risk aversion or maybe laziness.

I've had a similar line of thinking recently. Sure, average investors lose money on active trading. Well, let me tell you what an average investor looks like. They have little to no accounting background, no coherent thesis for their investments other than "it's hot", they lack even a rudimentary understanding of 101-level finance topics like NPV/IRR/cost of capital, they have no informational edge one gets from working in an industry, no understanding of tax law (either personal or corporate). They're basically gamblers. They look at stock charts, see a big line going up and to the right, and guess / let FOMO take the driver's seat. Oh, and they probably think watching Jim Cramer counts as "research". They also have no appreciation for the fact that individual securities within an asset class are highly correlated and misattribute the asset class's performance to their "stock-picking" prowess.

I've been thinking, if one is willing to do actual primary research -- reading financial statements, getting on investor calls, really thinking hard about long-term trends, reading history, etc., there's almost certainly alpha to be had. Do people honestly think indexing is the best way? The UK just mandated that all coal generation will be gone by 2025. Is this really a time to be buying coal stocks? Or cigarette companies?

For me it's about risk/reward. I was talking to a friend at a wedding two weekends ago who manages a prop book (his own cash) of about 2-3 million. If he can get 15%/year consistently, that's about 300-400k pretax. He lives in Puerto Rico where there's apparently a tax loophole where capital gains of any character -- short or long-term -- aren't taxed. I'd bet he's coming out ahead of 95% of the people reading this thread. And yet, life isn't all about money.

I guess what I'm saying is, I also disagree with this "orthodoxy" of index, index, index. Maybe I'll sound arrogant saying this, but I'm not an "Average" investor. I trade once/quarter, read the Ks and Qs for every company I'm investing in, and have written theses that guide my decisions. I'm not a millionaire yet but I'll let you guys know how it goes after a while. I was a pure, 10+ year indexer until about 6 months ago.

Re: Almost 80% of Private Day Traders Lose Money

#219

Post by calebgilbert »

resolaibohp wrote: post #197
empath75 wrote: post #178

Earlier quoted context omitted.

I made a >100% return in the last 6 months by buying companies that made products that I understand and use frequently: nvidia and Amazon. I think if you focus on particular industries that you know well you can get an edge on 'the market'. I'm not day trading though, I'm just keeping an eye out for opportunities and trying to balance as much as I can. I'm also just playing with a small IRA account that I can afford…

You could have picked almost any company and made a great return in the last 6 months, assuming you did not buy at the all time highs. The market is reaching record highs right now, so it is easy to believe you have an edge as the times are good. I would not go so far to say that simply buying companies of products you buy and understand is a viable trading strategy that will give you an edge for >100% returns. When…

"You could have picked almost any company and made a great return in the last 6 months" - exactly. Like crowing about being a great stock picker in '99. So was everyone.

Re: Almost 80% of Private Day Traders Lose Money

#220

Post by eldavido »

seagreen wrote: post #215
habosa wrote: post #211

Excuse my meta-comment, but I notice that HN seems to have an obsession with proving that active trading is bad and that we should all buy low-cost indexes. And before anyone jumps on me, I 100% agree with that investment strategy and use it myself. I'd just like to comment on the intersection of that belief and tech enthusiasts. It seems to generally come from a place of binary/analytical thinking which we're all so…

It seems that many people that we all know do become quite rich as investors, and the secret to their good fortune is not apparent. Studies promising us "they'll all lose in the long run!" makes us feel good about our decision not to participate in the game. This would be a way stronger argument if the king of the buy-index-fund team wasn't Warren Buffett:)

Buffet wouldn't have gotten rich in today's environment. When he was growing up, the stock market was a plaything of the rich. Valuations were lower across the board, markets weren't nearly as efficient (in the technical sense) as they are now, volumes were much thinner, in general it was a lot less systematized.

Nowadays, much like YC, he's a brand, so while he might be a very smart and capable investor, it's his deal flow that puts him in such a strong position. He gets calls normal people don't get because he's made a name for himself over the past 50 years and people want his name for their company, as much as anything else.

I wonder what lesson can be drawn from all this. The primacy of reputation in today's world?

Post reply on HN