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Are You Trading or Gambling?

investinglessons.substack.com

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Re: Are You Trading or Gambling?

#281

Post by vardaro »

tinco wrote: 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…

“It feels like negative value bets don't exist in investment.”

Options are deliberately negative EV. They need to be negative EV to be long so that there is an incentive for option sellers to sell premium. Otherwise option seller would just get steamrolled every time.

Re: Are You Trading or Gambling?

#282

Post by colordrops »

nikanj wrote: post #127
YokoZar wrote: 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.

Yes, 11 years after its debut and nearly a trillion in valuation, still ridiculously ignorant statements like "delivers no value". It delivers no value you care about. Many people care about money that can't be inflated, can't be stopped from being traded, and can't be controlled across international borders. Those are hugely valuable to some people, whether you find it valuable or not.

Re: Are You Trading or Gambling?

#283

Post by anaphor »

whatever1 wrote: post #194

Trading stocks in America is state sponsored gambling. All of the game is based on the assumption that the stocks will (on average) always go up. They dont. Check the European stock markets that have been stagnant for 20 years. Selling lottery tickets with the promise of getting a pension. Disgusting.

Why has the S&P 500, Russell 2k, etc all gone up over the past 20 years on average then?

Re: Are You Trading or Gambling?

#284

Post by fakedang »

criticaljudge wrote: post #52
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…

I think you can still buy some stock with the intention of collecting the dividends or hoping for the stock's value to grow over time. There are simple calculations like Price/Earnings ratio that are usually published with every stock, that can help to see if it is a "gambling stock". You will of course hear all sorts of opinions about the stock market, including hardcore socialists who believe it is the root of all…

P/E has become a rubbish metric now, because there's so much money in the market thanks to QE. Most of the money in stocks now is money that would have gone into commodity trading and bonds, etc. The former's prices have stabilized or declined, leading to really poor opportunities, while zero interest rates and neg rates battered the market of the latter. Hence all that money has entered the stock market, which is why past P/E behavior, or any metric's past behavior really, cannot be correlated to future behavior.

Re: Are You Trading or Gambling?

#286

Post by Galanwe »

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).

> The correct perspective, aka reality, is that market value gravitates towards the intrinsic value in the long-term.

What makes that the "correct perspective"? If you started doing value investing in 1990 and stopped 30Y later today, you would have perform less than the benchmark, so your definition of "long term" could very well be longer than the whole investment horizon of some people.

> And if you're a very long-term investor, you can ignore the market price and just collect the dividends.

Except few companies pay dividends that would even beat inflation nowadays. The trend is more towards share buybacks. In that world, your intrinsic value does not exist, your only way to make a profit is to sell.

Re: Are You Trading or Gambling?

#287

Post by ac29 »

colordrops wrote: post #282
nikanj wrote: 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.

Yes, 11 years after its debut and nearly a trillion in valuation, still ridiculously ignorant statements like "delivers no value". It delivers no value you care about. Many people care about money that can't be inflated, can't be stopped from being traded, and can't be controlled across international borders. Those are hugely valuable to some people, whether you find it valuable or not.

> money that can't be inflated

The supply of Bitcoin has been inflated, on average, every 10 minutes for the past ~11 years.

Re: Are You Trading or Gambling?

#288

Post by porb121 »

DSingularity wrote: post #223
BasedInfra wrote: post #59

Earlier quoted context omitted.

Front running is illegal. Its payment for order flow which is earning off the spread while also keep it tight and liquidity in the market.

So... basically front running ?? That’s what it seems like you are describing. They make money when they manage to get ahead and provide the liquidity needed to fill the orders. What am I missing?

a market maker by law has to provide prices better than offered by the current market. frontrunning does not do that.

Re: Are You Trading or Gambling?

#289

Post by MajorSauce »

jw1224 wrote: post #211
hourislate wrote: post #186

Earlier quoted context omitted.

I believe "Market Wizards - Jack D. Schwager" highlights this. When speaking with some of the best and most successful traders in the markets, he found that the one common thing between them was "Game Perspective". They understood human emotion and had this desire to be the best at the game. The money/wealth was not the focus but the reward. If I remember correctly (read the book a couple of decades ago), most did no…

I’m a terrible trader, and had no shame in admitting it. The moment I saw red, I panicked and sold. If I had open orders on the market, I couldn’t concentrate on anything else. I found trading to be all-consuming, exhausting, and completely demoralising. But I also couldn’t bear to just let my hard-earned savings sit there, wasting away. A cup of coffee cost more than I was earning in annual interest! About 3 months…

I recently made a bot to find profitable cryptocurrency pairs loops and while most exchanges already have dozens of users doing exactly the same thing (if the exchange itself is not doing it), I really liked the motivation it gave me to start a new coding project in a language I did not touch for some time (C#) instead of my traditional python approach.

You post just inspired me to make something similar (whether stocks or crypto) and I wanted to thank you for that. I too see trading as pretty stressful and demoralising (even for trivial amounts) and implementing my own stocks/crypto manager could transform those failed trades into "that's interesting" moments.

Re: Are You Trading or Gambling?

#290

Post by criticaljudge »

mancerayder wrote: post #250
criticaljudge wrote: post #53

Earlier 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…

>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. But as a stock holder even of a public company, your shares can get diluted to smithereens when they issue new shares to raise mon…

I'm not an expert on that, but how can companies simply issue new stock? Why wouldn't they simply issue billions of shares and dilute everybody else to nothing? (Except for the loss of trust, meaning they would only be able to do that once)? Can they simply issue new stock in any way and amount they want?
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