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Are You Trading or Gambling?

investinglessons.substack.com

171–180 of 419 posts

Re: Are You Trading or Gambling?

#171
post #127
post #26

Earlier 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…

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.

Wait until you hear about US dollars.

Re: Are You Trading or Gambling?

#172

Earlier quoted context omitted.

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.

It’s really interesting seeing how HN can be so uninformed when the topic changes to their area of expertise, this thread is insightful and I’ll use the search button to get an understanding of how many morons are on this forum, this is great for me as I’m not a coder and thought this crowd was ‘smart’.

[deleted]

Re: Are You Trading or Gambling?

#173
post #127

Earlier quoted context omitted.

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.

Wait until you hear about US dollars.

There are many differences between the two, but one of the more obvious ones is that nobody is running around claiming that US dollars are a good investment.

Re: Are You Trading or Gambling?

#174
post #148

Earlier quoted context omitted.

I know this whole "bitcoin is pointles" meme gets upchuckles on hacker news all day long, but at this point it's pretty embarrassing that this level of ignorance continues to persist. As it turns out "sending money over the internet" is kind of an important utility for the modern world, and nothing does it as well as Bitcoin. This is why it's now a trillion dollar global economy. That's great for you that you're in a…

I think I agree with your sentiment, but saying that nothing is as good as Bitcoin for sending money over the internet, and that’s why it has value, is just really not a compelling argument.

Yup. And that key feature of "sending money over the internet" thing hasn't worked out very well so far

I've been in it, found the entire system wanting, and got out. May get in again to enjoy gamble in speculative bubbles, but as a technology, it is still in the early and massively-sucking and increasingly-sucking days.

Like railroads in the 18th century, they utterly changed society, but most investors lost their shirts along the way.

Scalability, inconvenience, insecurity, and transaction fees all suck to varying degrees at varying times.

It used to be that transactions would take 5-10 minutes to confirm, and that seemed mildly inconvenient but acceptable due to low costs. Now, it varies wildly, e.g., between 61 and 426 minutes in the last week [1]. I just bought software last night and the transaction cleared in fewer seconds than I could notice, and that network handles orders of magnitude more transactions than does BTC.

Costs. BTC transaction costs used to be astonishingly trivial. Now, they fluctuate wildly depending on network congestion, and average well over $20/transaction. [2] This is nuts. A BTC transaction has to be over $750 to be better than break-even compared to a 3% credit card transaction fee. The days of buying a pizza with BTC are long gone, unless you want to pay more in fees than for the pizza. But it might make sense for buying a Tesla, if your fiat-exchange costs on the input side are not too high.

Inconvenience and insecurity. You can either keep your BTC with someone else, which means you don't control it ("Not your keys, not your coin", see also multiple exchange hacks and/or exit scams), or you must roll your own. This involves first, extensive research to avoid selecting a wallet that has either been deliberately designed to steal your bitcoin, or just has unknown vulnerabilities. Then, you need to have absolutely solid key management to avoid both having your BTC stolen bay targeted malware attacks, or losing it because you lost your key, crashed your drive, etc. I find this daunting with a solid tech background, getting individual users to successfully and conveniently do it is not going to happen.

Paul Graham made an excellent point about this yesterday [3]

In short, without MASSIVE improvements, BTC and many other cryptos are nothing more than gambling on vaporware.

And that is ignoring the deliberately engineered-in catastrophic energy consumption, which is literally more than the energy consumption of entire countries, when we need desperately to be cutting energy usage to minimize anthropometric global warning

Sure IFF [4] the system could be scaled to handle billions of transactions per day at a cost of pennies per transaction (compare with ACH network costs), and with a usable and secure UI/UX, sure it WOULD be fantastic.

But over a decade since those promises, all of the metrics: scalability, security, transaction time, costs, are tracking in the wrong direction.

I really wish someone could point me to some cruptocurrency that has these solved. I'd genuinely like to see it and would use and advocate for it.

But until then, I can only hope they enjoy their gambling.

[1] https://www.blockchain.com/charts/avg-confirmation-time

[2] https://ycharts.com/indicators/bitcoin_average_transaction_f...

[3] https://twitter.com/paulg/status/1364986808900202513

[4] If and Only If

Re: Are You Trading or Gambling?

#175
post #127
post #26

Earlier 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…

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.

A 'stock' that has no regulatory environment, either. But that's part of the draw.

Re: Are You Trading or Gambling?

#176

Earlier 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.

And you have to be able to correlate their success rate with some measure of skill or else you’re basically saying that not everyone loses the lottery.

The claim to prove is that having some level of knowledge or skill makes the expected gains of day trading positive.

Re: Are You Trading or Gambling?

#178

"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…

"Top poker players are still gambling."

This all hinges on how we define "gambling". A lot of top poker pros do not subscribe to the definition that includes them as gamblers, since colloquially "gambling" isn't always synonymous with the game itself but instead connotes reckless abandon and negative EV decision making.

Re: Are You Trading or Gambling?

#179
post #106

If we're investors, and not gamblers, why do we get an explanation about negative value bets with only gambling examples? It feels like negative value bets don't exist in investment. You can't say a bet is negative value when you don't know the odds, and the whole reason people are making so much money market making is that no one actually knows the odds, so no one knows the "real" value of any instrument. If you're…

"You can't say a bet is negative value when you don't know the odds"

You can. The whole idea of E(V) in trading, gambling, etc, is that V is an unknown distribution, and we're trying to estimate the mean of it using a combination of empirical observation and priors given to us by experience and expertise.

Nowhere in this conceptual framework is the idea that we know for sure what the density of V is.

Re: Are You Trading or Gambling?

#180

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.

Business is a field where we know for sure that being better at it increases your chances to the point where your expected profit is positive.

Individual day trading is less clear. Sure, you can get better at it to increase your odds but it seems like that isn’t enough to make those skilled people in aggregate make money.

The analogy in a casino is that perfect play means you’ll do better but there’s still house advantage and so on average perfect players will still lose money.

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