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

Are You Trading or Gambling?

investinglessons.substack.com

Post reply on HN
Print view View original

121–130 of 419 posts

Re: Are You Trading or Gambling?

#121

Post by throw14082020 »

RivieraKid wrote: post #108
elygre wrote: post #13

Around 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 correct perspective, aka reality, is that market value gravitates towards the intrinsic value in the long-term. And if you're a very long-term investor, you can ignore the market price and just collect the dividends. By intrinsic value I mean the sum of all expected future cash-flows where each cash flow is adjusted for time and variance (risk).

This is the conventional retail investor perspective. But also, its a tautology. gravitates toward intrinsic value? The current price is the intrinsic value, the market prices in all durations, short or long run.

What you're trying to say long term market value correlates with technical analysis, but is this true? You can't prove/ disprove this, because its "intrinsic value" can just be replaced with "price".

So IMHO, your words are equivalent to: "The correct perspective, aka reality, is that price gravitates towards the price in the long-term."

Re: Are You Trading or Gambling?

#122

Post by yummypaint »

bidirectional wrote: post #83
papito wrote: post #74

Earlier quoted context omitted.

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.

To win at HFT you have to have lower latency than your competitors. The NYSE rents server space in their building for this very purpose and makes alot of money doing so. If you don't have hardware there you will go out of business trying to compete with those who do. From a broad perspective it kind of looks like companies being allowed to skim freely from the market so long as the right people get their cut.

Re: Are You Trading or Gambling?

#123

Post by auxym »

bidirectional wrote: post #87
hef19898 wrote: post #33

Earlier 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…

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.

I'd argue that the reason why HFTs don't do day trading strategies, is because it's not profitable in the long run (ie, negative expected value).

Which backs GPs point.

Re: Are You Trading or Gambling?

#124

Post by PragmaticPulp »

ab111111111 wrote: post #104

"Gambling occurs when you have a poor understanding of risk, resulting in either (1) negative expected value bets, or (2) poor bet sizing that leads to ruin." Not so. Top poker players are still gambling, but have an excellent understanding of the risks. Their skill doesn't turn them into investors. Gambling is taking a high risk bet. Whether the expected pay off is high enough to justify the risk and whether you can…

Anecdotally, a lot of the new stock and crypto investors on the internet this year hold no illusions that they’re investing. The pop-culture mindset is that the stock market is just gambling, so they might as well bet big with long shot companies and options.

The common sentiments are “I’m only investing what I can afford to lose” and “but what if this is the next GameStop/Bitcoin?” They’re entering with a mindset that betting it all is fine because they’ve mentally written off the money.

I’ve been using this as an opportunity to introduce friends and family to more passive, long-term investment strategies but the skepticism is strong.

Re: Are You Trading or Gambling?

#125

Post by sandworm101 »

DSingularity wrote: post #50
sandworm101 wrote: post #42

Earlier quoted context omitted.

Following that model, the variety of crypto currencies is the next evolution. The game can now be played as a pure game, without the economic uncertainties that come with underlying companies. All that matters are the actions of the other gamers. The gamestop fiasco would be an incidence of that crypto market mentality bkeeding back into a market not designed to handle such games.

GameStop price spiked because of a short squeeze. Short squeeze happened because hedgefunds over extended in their short positions. Do you think GameStop was shorted more than float because of games learned by cryptocurrency traders? That’s a stretch.

No. I think making decisions only on the basis of other players has driven gamestop. That is what a squeeze is. That play style, action only ever taken in relation to other players, is how cryptocurrency markets work.

Re: Are You Trading or Gambling?

#126

Post by RivieraKid »

throw14082020 wrote: post #121
RivieraKid wrote: post #108

Earlier quoted context omitted.

The correct perspective, aka reality, is that market value gravitates towards the intrinsic value in the long-term. And if you're a very long-term investor, you can ignore the market price and just collect the dividends. By intrinsic value I mean the sum of all expected future cash-flows where each cash flow is adjusted for time and variance (risk).

This is the conventional retail investor perspective. But also, its a tautology. gravitates toward intrinsic value? The current price is the intrinsic value, the market prices in all durations, short or long run. What you're trying to say long term market value correlates with technical analysis, but is this true? You can't prove/ disprove this, because its "intrinsic value" can just be replaced with "price". So IMHO…

I would say that what you're saying is the typical retail perspective, this view is common.

Market price and intrinsic value are different concepts. Google Aswath Damodaran's writing on this topic. When GameStop was $400, the price was well above intrinsic value for example so I knew it would gravitate down.

Re: Are You Trading or Gambling?

#127

Post by nikanj »

YokoZar wrote: post #26
elygre wrote: post #13

Around 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…

> 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…

And thus, bitcoin. A stock that's guaranteed to provide no dividends, do no buy-backs, or deliver any value - aside from the ability to sell it to the next fool for an even greater value.

Re: Are You Trading or Gambling?

#128

Post by WJW »

bidirectional wrote: post #85
swader999 wrote: post #72

Earlier quoted context omitted.

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.

That would be appropriate advice for a large slice of the population, so I don't see the problem there.

Re: Are You Trading or Gambling?

#129

Post by rdtwo »

RivieraKid wrote: post #108
elygre wrote: post #13

Around 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 correct perspective, aka reality, is that market value gravitates towards the intrinsic value in the long-term. And if you're a very long-term investor, you can ignore the market price and just collect the dividends. By intrinsic value I mean the sum of all expected future cash-flows where each cash flow is adjusted for time and variance (risk).

That’s fundamentally true because all stock values tend to go to zero over a long enough period of time. Not a lot of companies survive 100 years for example

Re: Are You Trading or Gambling?

#130

Post by Sebb767 »

> Additionally just because a game involves skill, it doesn’t mean that it is not gambling, otherwise Lehman Brothers would never have collapsed.

Chess involves no random elements and I doubt anyone would call it gambling. Yet you can loose in chess.

I agree with his general point, but I don't think you can use the Lehman Brothers as a stand-alone gambling argument.

Post reply on HN