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What I Learned from Losing $200M (2015)

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

#41

Post by Danihan »

brianpgordon wrote: post #38
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…

> 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 remotel…

Tesla is a good example of that. Much riskier investment.

I've personally invested all my capital into my own ventures at this point, so I haven't really thought much about the next big thing, stock-wise.

But, short answer, look around at what products people (or businesses) are addicted to now that they weren't two years ago.

Not many people I know are addicted to Teslas. And Amazon was just as addictive two, or even five years ago. So it's well past its prime now (lol).

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

#42

Post by brianpgordon »

Danihan wrote: post #36
brianpgordon wrote: post #33

Earlier quoted context omitted.

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…

> 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.

Almost everyone lives in a bubble. Unless you're a nomad traveling constantly, you mostly just see what's in the vicinity of your house or apartment. Your local area with the successful Chipotle is a bubble. Tech support is just one tiny slice of the uses for a search engine- a bubble.

> 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.

Usually when people say this, there was some element that they didn't identify which made the investment riskier than they realized. It seems in retrospect that it was inevitable that the stock would go up, but if you could go back in time and get inside the minds of other investors you might be appalled to learn of the complicating factors that you didn't even take into account.

Just think about it for a moment. Think about how much human effort and capital is poured into price discovery in the markets. Billions of dollars. Teeming trading floors, millions of lines of code, people all around the world running models and analyzing filings and biting their fingernails watching the ticker. Do you think you know better than they do what the price of Chipotle stock should be?

The answer to that question may well be "yes" if you have expertise in the domain and you're experienced with investing and financial modeling. But it's probably not.

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

Which is what everyone else is thinking too. The trick is determining whether the price that the market has agreed on is too high or too low.

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

#43

Post by martin1975 »

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…

> But only to the select few who are in the right product or looking at the market in the right way.

like RenTec/Medallion... who sometimes look too good to be true, then again, if they were doing something illegal for 30+ years, you'd think by now they'd be caught. The only alternative explanation is they indeed have a unique model of the markets they continuously refine that allows them to outperform most everyone.

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

#44

Post by yters »

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.

If you think 200 heads in a row is practically possible on a random flip, I have a bet to make with you.

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

#45

Post by oreo81 »

brianpgordon wrote: post #42
Danihan wrote: post #36

Earlier quoted context omitted.

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…

> 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. Almost everyone lives in a bubble. Unless you're a nomad traveling constantly, you mostly just see what's in the vicinity of your house or apartment. Your local area with the successful Chipotle is a bubble. Tech support is just one tiny slice of the uses for a sea…

You're just assuming that no one can see trends more effectively than you. The reality is that you have no idea how other people see the world, people could be way ahead of you and you'll never know it.

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

#46

Post by nkrisc »

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…

How many losers have you picked?

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

#47

Post by charlesdm »

Danihan wrote: post #41
brianpgordon wrote: post #38

Earlier quoted context omitted.

> 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 remotel…

Tesla is a good example of that. Much riskier investment. I've personally invested all my capital into my own ventures at this point, so I haven't really thought much about the next big thing, stock-wise. But, short answer, look around at what products people (or businesses) are addicted to now that they weren't two years ago. Not many people I know are addicted to Teslas. And Amazon was just as addictive two, or eve…

Tinder is doing great with millennials. Match Group stock is up 100% YoY.

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

#48

Post by hidenotslide »

ryandrake wrote: post #34
beagle3 wrote: post #22

Earlier quoted context omitted.

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.

Virtu trades 3 million shares a day, they are way out on the bell curve in terms of statistical significance.

There are of course many risks to their business model, e.g. high fixed costs, competition, regulatory risk, technical malfunctions, etc.

They are "lucky" to be in a position to capitalize on the opportunity, but investment luck does not play a role on a day to day basis.

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

#49

Post by lordnacho »

As a derivs trader myself, I find much wrong with this account.

First of all, he came away net positive, so the title is a bit of a humblebrag.

Aside from that though, he should have known beforehand how models work. David Hume mentioned it hundreds of years ago; you only have the past, and the past might not contain all the dynamics of the future. Lest you think this only happens to social science models, there have been plenty of engineering accidents that our models did not predict.

If you have a huge position, the market again does not behave like when you're just observing. Your moves push things around, often the wrong way. That's another thing he and his bank should have known.

Finally, there's a big attribution issue. He got paid well, but is it trading skill that won the day? I'd say it's the salesmanship of getting the Mexican government to let them out of the trade, apparently at a price that was better than mid. Normally when you're screwed, you don't get mid.

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

#50

Post by Uhhrrr »

ryandrake wrote: post #34
beagle3 wrote: post #22

Earlier quoted context omitted.

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.

There's also the fact that winning enough coin tosses gives one the ability to improve the odds on subsequent tosses. Buffet is perspicacious and patient, yes - but when you add that he has a $100B float to play with, you've really got something!
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