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What I Learned from Losing $200M (2015)

nautil.us

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Re: What I Learned from Losing $200M (2015)

#31

Post by charlesdm »

scalesolved wrote: post #25
Danihan wrote: post #17

Earlier quoted context omitted.

The issue with your argument is pretending the stock market is similar to a coin flip. That's a very facile comparison. In reality each company is a very complex black box in which you can only see very limited internals. The examples I listed were not random chance. They are companies that had absolutely dominated their market positioning and were later massively rewarded for doing so. It's fairly easy to see when a…

Your reasoning seems to contradict itself, it's a very complex black box of limited internals yet you were able to still easily glean big winners? Stock picking is the same as gambling, you look for value and try overtime to beat the market. Also like gambling is how people remember and talk about their wins but forget/ignore their losses.

Think about it differently though. He didn't really pick stocks, he picked well established products or brands that started doing or (despite a correction) continued to do well.

If the market would crash 30-50% tomorrow, which stocks would you buy? Probably Google, Apple, Facebook, Amazon, and the likes.

Everyone has losses, and you can't always be right. But within your area of expertise or interests, you should probably be able to pick a few good stocks of good companies because you actually care and understand how they operate. But to do it structurally and consistently is harder.

I'm sure someone will reply bullshit, but that's at least what I believe. The market isn't efficient.

Re: What I Learned from Losing $200M (2015)

#32

Post by zeefoo »

yters wrote: post #29
ryandrake wrote: post #13

Earlier quoted context omitted.

> Systematic profits are feasible year over year... But only to the select few who are in the right product or looking at the market in the right way. You seem to be falling for the same myth: That "certain wizards" can get +EV. Every casino on Earth makes money from this myth. I believe that there are no wizards in the stock market (or in business in general), and everyone's gains and losses vs the total market are…

If that student flipped 200 heads in a row it isn't survivorship bias. That student has a two headed coin.

It most certainly can be. 200 heads in a row is entirely possible in a random run.

Re: What I Learned from Losing $200M (2015)

#33

Post by brianpgordon »

Danihan wrote: post #14
ryandrake wrote: post #13

Earlier quoted context omitted.

> Systematic profits are feasible year over year... But only to the select few who are in the right product or looking at the market in the right way. You seem to be falling for the same myth: That "certain wizards" can get +EV. Every casino on Earth makes money from this myth. I believe that there are no wizards in the stock market (or in business in general), and everyone's gains and losses vs the total market are…

Your comment seems so ignorant to me. Maybe that's true if you are day trading, or picking dozens of short-term holds each year instead of long-term buys. My stock picks have been: * Google in 2003, because I worked in a call center and saw EVERYONE using it all the sudden to find answers on tech support calls. * Chipotle at their IPO because I saw the huge lines at every location in my city. * Amazon in 2008 after t…

That kind of stock picking is dangerous.

First, it's easy to look around your little bubble and see that people are lining up at your local Chipotle or that people use Google for solving tech support problems, and conclude that Chipotle and Google are taking off. They may be not be doing as well in other locales/sectors.

And second, how do you know that these signs of promise aren't already priced in? If you can see signs that Chipotle is doing well, so can everyone else. And they have deeper pockets and better information-gathering capabilities than you do. Nowadays satellite imaging and computer vision are used to count the number of cars in parking lots of retailers to predict earnings!

Lastly, there are innumerable complicating factors that the average retail investor has no idea how to account for. Maybe the stock price is low because their EBITDA is barely staying ahead of debt service payments. Did you read the SEC filings? Maybe they're having difficulties scaling their supply chain because they lost a big contract with a major supplier. Do you know enough about the domain to account for how much that should affect the stock price? Who knows, maybe there's even a seasonality factor to the number of people who go to eat spicy food, and your guesstimates will fall apart in 6 months.

I wouldn't even bother with this kind of investing. It's just gambling. If you seem to be winning over time it's either because you're lucky or because the markets are going up in general. So just invest in index funds- you'll have lower volatility and you won't be betting against people who have nothing to do but sit around all day thinking about how to beat you.

Re: What I Learned from Losing $200M (2015)

#34

Post by ryandrake »

beagle3 wrote: post #22
ryandrake wrote: post #13

Earlier quoted context omitted.

> Systematic profits are feasible year over year... But only to the select few who are in the right product or looking at the market in the right way. You seem to be falling for the same myth: That "certain wizards" can get +EV. Every casino on Earth makes money from this myth. I believe that there are no wizards in the stock market (or in business in general), and everyone's gains and losses vs the total market are…

And yet, you have rentec medallion, virtu, buffet, gross and quite a few others who have quite consistently beat the market. Each has their own secret sauce, and you won’t get their returns just by sitting at home and picking stocks. But they do prove that the market is far from random.

Those would be the few on the right-most side of the distribution who flipped heads 10 times in a row. As soon as they inevitably flip tails, we'll post facto find others who have gotten consistent returns and declare them to be the ones with the secret sauce.

Re: What I Learned from Losing $200M (2015)

#36

Post by Danihan »

brianpgordon wrote: post #33
Danihan wrote: post #14

Earlier quoted context omitted.

Your comment seems so ignorant to me. Maybe that's true if you are day trading, or picking dozens of short-term holds each year instead of long-term buys. My stock picks have been: * Google in 2003, because I worked in a call center and saw EVERYONE using it all the sudden to find answers on tech support calls. * Chipotle at their IPO because I saw the huge lines at every location in my city. * Amazon in 2008 after t…

That kind of stock picking is dangerous. First, it's easy to look around your little bubble and see that people are lining up at your local Chipotle or that people use Google for solving tech support problems, and conclude that Chipotle and Google are taking off. They may be not be doing as well in other locales/sectors. And second, how do you know that these signs of promise aren't already priced in? If you can see…

I'm sure you're correct, all stock picking is dangerous though. I'd assert that my style is the least dangerous.

> look around your little bubble

I didn't (and don't) have a bubble. In fact, I frankly despise the Bay Area and SV because it constantly tries to put you in a liberal / wealthy bubble.

>If you can see signs that Chipotle is doing well, so can everyone else.

Apparently not, though. They doubled on IPO but most people were still VERY skeptical of them. I could see that they had 100% solved the problem of "fast casual" service.

>Nowadays satellite imaging and computer vision are used to count the number of cars in parking lots of retailers to predict earnings!

That should make you want to invest in the #1 company that manufactures satellite components.

Re: What I Learned from Losing $200M (2015)

#37

Post by Goopplesoft »

This reads like a case study in one of Nassim Taleb's books.

> stress, competition, and choice involved in trading financial instruments naturally give rise to illusions of control

> I’d never really experienced the extreme tail of a probability distribution firsthand. And that experience disabused me of more than one illusion.

> But what’s the alternative to estimating probabilities?

The implied inevitability of another crisis over the new-ish stress tests is very saddening. I wonder what can be done.

> The danger is that the financial system and its regulators are moving to a narrow risk-model gene pool that is highly vulnerable to the next financial virus,” he wrote. “By discouraging innovation in risk models, we risk sowing the seeds of our next systemic crisis.

Re: What I Learned from Losing $200M (2015)

#38

Post by brianpgordon »

Danihan wrote: post #17
ryandrake wrote: post #15

Earlier quoted context omitted.

That a great example of survivorship bias! Take a successful outcome and look back for decisions that must have led to it. This ignores the people who also "saw the obvious" in 2003, 2008, and 2014 who lost their shirt.

The issue with your argument is pretending the stock market is similar to a coin flip. That's a very facile comparison. In reality each company is a very complex black box in which you can only see very limited internals. The examples I listed were not random chance. They are companies that had absolutely dominated their market positioning and were later massively rewarded for doing so. It's fairly easy to see when a…

> It's fairly easy to see when a company is eating everyone else's lunch.

If it's so easy, then everyone would be buying the stock and it would be pushed up. Then you're risking buying an overpriced stock that's not going to be able to deliver on the expectations required for it to pay off.

Amazon is clearly eating everyone else's lunch in its domains but then it's trading at over 275 times earnings. It's not remotely obvious that you should buy Amazon stock at that price.

Re: What I Learned from Losing $200M (2015)

#39

Post by ChuckMcM »

tryingagainbro wrote: post #27
ChuckMcM wrote: post #19

Earlier quoted context omitted.

Apropos of nothing, health care before age 65 in the US (prior to the ACA, and possibly again) peaked at about $36K/year (age 64). That leaves you with $24K of your $60K to live on. Not saying it isn't doable, but it isn't as much as it once was. All I'm saying is that retirement planning is a bit weird because if you do it when you're 20 you might miss some expenses that older people have that you are not yet aware…

peaked at about $36K/year So leave USA for a while or forever, if you need to pay $3000 a MONTH for insurance. WTF? Unless you have a very, very specific disease everything will be solved in many other countries, at a lot less. By paying cash if needed.

Its one of the options that people talk about, in particular moving to Canada. My in-laws moved to Brazil not only for lower health care costs but it was less expensive to hire in home care giving staff.

That makes visits from the grandchildren and family more difficult though. Something that can be important in your later years.

Re: What I Learned from Losing $200M (2015)

#40

Post by anonu »

ryandrake wrote: post #13
anonu wrote: post #10

As a junior trader navigating the markets during that time I noticed that nobody has a clue about anything. Pundits, researchers, analysts, Junior guys, Senior guys... They all pretend to know. I'm not suggesting the markets are truly random. Systematic profits are feasible year over year... But only to the select few who are in the right product or looking at the market in the right way. I suppose it's those guys th…

> Systematic profits are feasible year over year... But only to the select few who are in the right product or looking at the market in the right way. You seem to be falling for the same myth: That "certain wizards" can get +EV. Every casino on Earth makes money from this myth. I believe that there are no wizards in the stock market (or in business in general), and everyone's gains and losses vs the total market are…

Yeah, I hear ya. My "systematic profits" comments was in reference to a few firms and individuals I've observed over time. These people have some sort of structural or informational edge in the markets.

There are commodity trading firms that are such substantial players in the markets they trade that they control that market. Certain High Frequency firms have scale and breadth of resources to get higher quality data, faster connections and hire guys that rewrite Linux process schedulers in assembly. Warren Buffet's secret weapon is that he never sells (so you never realize a loss!).

The point being - anything else is gambling. And these guys - who look at a market structurally instead of some sort of casino - will eat your lunch in the long run. Their "edge" is actually orthogonal to price fluctuations.

Just my 2 cents.

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