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Almost 80% of Private Day Traders Lose Money

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Re: Almost 80% of Private Day Traders Lose Money

#241

Post by gozur88 »

fragsworth wrote: post #111
brongondwana wrote: post #4

It's just slot machines with a more respectable coat of paint.

Is there absolutely no skill or expertise involved in it? I don't know because I haven't spent too much time studying it, but it seems a lot more like poker than slot machines. People who are better at the game should have an edge on others.

But with day trading you have the same problem you have with poker - there isn't any way to know if you're better than other people. Your advantage will be so small you can lose money month after month even if you've managed to tilt the odds in your favor. Worse, you can easily trick yourself into thinking you can make money on average after a prolonged lucky streak.

In poker it's possible to be enough better than the competition that your advantage is obvious (to people who are similarly skilled, at least). I'm not sure that's the case with day trading.

Re: Almost 80% of Private Day Traders Lose Money

#242

Post by slv77 »

eldavido wrote: post #220
seagreen wrote: post #215

Earlier quoted context omitted.

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 de…

An investor with low funding costs and stable funding source can always beat the market in theory. Studies suggest that the bulk of BRKs excess returns are due to leverage and deep balance sheets that allows him to buy deep value but more importantly to be able to hold those stocks long term.

A smaller investor who tried to duplicate that strategy would have been stopped out due to margin calls. For example it isn't everyone that can sell, and hold, a ten year billion dollar put on the S&P 500 like BRK did in 2008.

Re: Almost 80% of Private Day Traders Lose Money

#243

Post by femto113 »

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…

   "they'll all lose in the long run!"
Even as stated in the article they don't all lose, which is why most of us know a few winners. But for each of those winners we probably know four losers, though they're likely not as vocal about it.

Re: Almost 80% of Private Day Traders Lose Money

#244

Post by katzgrau »

qmalzp wrote: post #236
seanmcdirmid wrote: post #235

Earlier quoted context omitted.

Given an efficient market, stock trading with non-inside information is gambling, while stock trading with inside information is illegal. Markets exist to allocate capital efficiently, where the market invariably is designed to draw out information and intelligence that was previously not visible (a fine line between that and inside info). If we all just bought indexes, of course, none of that would happen, capital w…

I think what you're talking about lies between index funds and day trading, and it's called value investing. You buy stock in companies that you believe in for whatever reason (maybe you know someone really smart who works there and likes it), and hold that stock for several years.

I agree with you to an extent, but want to elaborate for anyone who may read your comment and misunderstand.

Value investing does involve investing in companies you believe in, but that belief stems from research and a deep understanding of the market and intrinsic value of the company you are investing in.

The more you truly know prior to investing, the better your investments will likely perform. The key is to eliminate areas of uncertainty (which may ultimately be gaps in your own knowledge).

Re: Almost 80% of Private Day Traders Lose Money

#245

Post by IamHWengineer »

seanmcdirmid wrote: post #237
qmalzp wrote: post #236

Earlier quoted context omitted.

I think what you're talking about lies between index funds and day trading, and it's called value investing. You buy stock in companies that you believe in for whatever reason (maybe you know someone really smart who works there and likes it), and hold that stock for several years.

Active day trading has its place in ensuring market liquidity. Without it, the market would be much less dynamic. If it serves a good role, then someone must be doing it right and making money off of it.

the broker is making money

Re: Almost 80% of Private Day Traders Lose Money

#246

Post by songzme »

a13n wrote: post #212
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 wh…

yes. this is correct.

Re: Almost 80% of Private Day Traders Lose Money

#247

Post by unabst »

seanmcdirmid wrote: post #235
unabst wrote: post #227

Earlier quoted context omitted.

> wanting to justify risk aversion I don't think this is it. In fact, I think it's the exact opposite. I think risk aversion is what's justified by default. You don't need to defend being steadily employed or your lack of interest in stocks. It's the reasons people give to take risks that most of us are challenging. Stock trading is gambling. It just is. So to deny it's gambling is already a red flag. To say you have…

Given an efficient market, stock trading with non-inside information is gambling, while stock trading with inside information is illegal. Markets exist to allocate capital efficiently, where the market invariably is designed to draw out information and intelligence that was previously not visible (a fine line between that and inside info). If we all just bought indexes, of course, none of that would happen, capital w…

But the problem is no one is day trading to contribute to the balance of the system. They do it purely to make money or because they have a gambling problem.

> There must be some smart players out there that are doing efficient capital allocation

Right. Either that, or they're encouraging day trading from behind the scenes (which would totally explain the financial news networks). And that's why the system frightens the shit out of me.

Re: Almost 80% of Private Day Traders Lose Money

#248

Post by EvgeniyZh »

hellogoodbyeeee wrote: post #68
EvgeniyZh wrote: post #13

Well, how else someone would earn huge amount of money in this negative sum game?

The stock market isn't a zero sum game (or a negative sum game for that matter). If you think it is, you are over simplifying. At the very least you need to account for traders' differing time spans on their trades.

I'm not really game theory expert, but negative sum game is when the total gain is less than total losses, isn't it?

That's exactly what happening - the only source of money are participants, and part of the money goes to brokers.

Re: Almost 80% of Private Day Traders Lose Money

#249

Post by angry_octet »

eldavido wrote: post #218
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 info…

While I would agree that there are many uninformed participants in the market, it is often found that professional market analysts are outperformed or on par with a random stock picker (dartboard, spinning wheel etc). These are people trying to estimate true value and market value with models and acting accordingly.

http://www.smh.com.au/money/shares-race-week-4-the-dartboard...

Re: Almost 80% of Private Day Traders Lose Money

#250

Post by ac29 »

qmalzp wrote: post #236
seanmcdirmid wrote: post #235

Earlier quoted context omitted.

Given an efficient market, stock trading with non-inside information is gambling, while stock trading with inside information is illegal. Markets exist to allocate capital efficiently, where the market invariably is designed to draw out information and intelligence that was previously not visible (a fine line between that and inside info). If we all just bought indexes, of course, none of that would happen, capital w…

I think what you're talking about lies between index funds and day trading, and it's called value investing. You buy stock in companies that you believe in for whatever reason (maybe you know someone really smart who works there and likes it), and hold that stock for several years.

> it's called value investing. You buy stock in companies that you believe in for whatever reason

No, value investing means you buy companies that you believe are underpriced for whatever reason [0]. Its an important distinction.

[0] https://en.wikipedia.org/wiki/Value_investing

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