Obviously not really adding much real help to the conversation but I watched a sketch only a few days ago that seems pretty applicable:
Are You Trading or Gambling?
81–90 of 419 posts
Re: Are You Trading or Gambling?
#82Around 20 years ago, I had the opportunity to listen to a member of Nasdaq top management talk about the stock market. It's all a _tiny_ bit blurry, being a long time ago, but I remember how he talked about three different perspectives for investing in stock: First, the "company perspective". An investor would buy stock in a company they believed in. Maybe they had good products, or good management, or something else…
It's called: Value investing, technical investing, speculating. 'RobinHood' style 'investing' means that people have access to 'data' which makes them feel 'informed' but for the most part they are making totally random guesses, which implies a kind of distortion of self awareness. In other words - they are RobinHood fish handed to the sharks who have more information, knowledge, and leverage via tech, other services…
> It's called: Value investing
I wouldn't call that Value investing. Value investing is really about buying undervalued stocks, which really has nothing to do whether you think the underlying company is doing great. The stock might still be overpriced, and a value investor will not buy into that.
Re: Are You Trading or Gambling?
#83Earlier quoted context omitted.
The reason I will never touch day trading is, that it is basically the same thing HF traders do. Only 1000 times slower. So I will loose against these guys every single time. And even HF traders loose money. The only single stock investments I have came from employment, either through RSUs or employer sponsored stock buying programs. RSUs are just coming to you, and why would I not take stock at 50% discount? The onl…
HF traders DO NOT lose money. They see the trading world a few milliseconds into the future. The whole game is rigged in a way where they cannot lose. They only lose if someone screws up, human error, all that.
How do you explain all of the HFT firms that have gone out of business over the years? They're competing with each other, it's a very competitive space that doesn't even capture that much value compared to the people they replaced.
Re: Are You Trading or Gambling?
#84Earlier quoted context omitted.
Day trading is difficult and requires a lot of practice, knowledge, and patience, but saying you’ll lose every time isn’t always true. There are many many profitable retail day traders. HFT don’t really compete too much because they look to scalp differently.
A three to five percent success rate applied to a large population will produce "many many" winners. This is true.
The people who make money tend to put in more money.
Re: Are You Trading or Gambling?
#85Earlier quoted context omitted.
Day trading is difficult and requires a lot of practice, knowledge, and patience, but saying you’ll lose every time isn’t always true. There are many many profitable retail day traders. HFT don’t really compete too much because they look to scalp differently.
A three to five percent success rate applied to a large population will produce "many many" winners. This is true.
You can apply the same logic to suggest no one should start a business.
Re: Are You Trading or Gambling?
#86Earlier quoted context omitted.
> An investor would not really care about the stock, but only about the behavior of other investors. This sounds like the idea of a Keynesian Beauty Contest ( https://en.wikipedia.org/wiki/Keynesian_beauty_contest ) "It is not a case of choosing those [faces] that, to the best of one's judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third deg…
Interesting, given he is such a prominent Economist I'm a little surprised by the simplicity of the analogy though. It seems strange that he has reduced it to one where there is no objective value at all. As an equity at the first level is still about how the company will perform in the future, no? And thus has an objective value.
Everything is worth what it's purchaser will pay for it; every transaction is subjective
Re: Are You Trading or Gambling?
#87Around 20 years ago, I had the opportunity to listen to a member of Nasdaq top management talk about the stock market. It's all a _tiny_ bit blurry, being a long time ago, but I remember how he talked about three different perspectives for investing in stock: First, the "company perspective". An investor would buy stock in a company they believed in. Maybe they had good products, or good management, or something else…
The reason I will never touch day trading is, that it is basically the same thing HF traders do. Only 1000 times slower. So I will loose against these guys every single time. And even HF traders loose money. The only single stock investments I have came from employment, either through RSUs or employer sponsored stock buying programs. RSUs are just coming to you, and why would I not take stock at 50% discount? The onl…
That's really not true. Most HFT firms are running strategies which are completely unrelated to anything a day trader would do, and most of the time they're helping you by being market makers rather than competing with you.
If what you said was true, no bank or hedge fund would run a trading desk. HFT captures just a slice of overall trading profits.
Re: Are You Trading or Gambling?
#88Around 20 years ago, I had the opportunity to listen to a member of Nasdaq top management talk about the stock market. It's all a _tiny_ bit blurry, being a long time ago, but I remember how he talked about three different perspectives for investing in stock: First, the "company perspective". An investor would buy stock in a company they believed in. Maybe they had good products, or good management, or something else…
The reason I will never touch day trading is, that it is basically the same thing HF traders do. Only 1000 times slower. So I will loose against these guys every single time. And even HF traders loose money. The only single stock investments I have came from employment, either through RSUs or employer sponsored stock buying programs. RSUs are just coming to you, and why would I not take stock at 50% discount? The onl…
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Re: Are You Trading or Gambling?
#89Earlier quoted context omitted.
Stick a 1% tax on all share buys and use to reduce income tax for working people, or just issue it as a cheque at the end of the year that people can invest. That doesn’t harm investing
Uh, that's a great idea, has this ever been proposed formally?
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Re: Are You Trading or Gambling?
#90Earlier quoted context omitted.
But it is obviously bullshit, as the real companies behind some stocks have a real value. Like for example they might own a building that is worth one billion dollars (simple example). If you take away all the stock market shenanigans, you still own part of that building via your stocks. As for the usefulness question: providing liquidity is useful. If an investor considers investing in some project, it helps his dec…
As a shareholder how do you access that value without stock market shenanigans coming into play? The only two that come to mind are companies about to go bankrupt, or a careful focus on dividend value (but dividends may not pay out the value of their static assets without having to sell them.)
If you've got a company which is worth a billion dollars in assets but is in too unfashionable an industry to be trading at more than half that in stock (and there isn't a more obvious problem you've missed like unsustainable debt), someone will eventually buy it to liquidate those assets, and earn the holders a nice little profit on the way. And value investing is all about the other side of the beauty contest - looking for the companies investors don't think are handsome which are strong enough to end up generating the sort of profits that will eventually lead investors to conclude they're not that ugly after all.
The irrationality is more on the upside: tech stocks whose fundamentals make little sense you suspect will go up in value in the short term anyway because of FOMO. A lot of people have made fortunes on those kind of bets, and there are definitely people day trading WSB hyped stocks who don't forget to sell.