Stock Market Returns Are Anything but Average • Hacker News Board

Re: Stock Market Returns Are Anything but Average

#261

Post by jonfw » Fri, Apr 30, 2021, 4:41 PM UTC

sojournerc wrote: post #80

TheHypnotist wrote: post #62

Earlier quoted context omitted.

I'm not sure where you are but housing over the last year is a real supply/demand market condition. They aren't arbitrarily being overbid 10%+ because the dollar is worth less suddenly.

Sure, but supply is limited in part because of the wealthy folks buying properties they will not use as a residence to hedge against inflation. That real-estate is the least risky manner to protect wealth is a result of low interests rates and inflationary monetary policy. Printing as many dollars in the last year as there were in existence before, has perturbed a "normal" real-estate market. More dollars flying arou…

Supply is mostly limited because demand is up among millennials and material shortages have increased costs and delayed construction.

Re: Stock Market Returns Are Anything but Average

#262

Post by kqr » Fri, Apr 30, 2021, 4:45 PM UTC

ahelwer wrote: post #147

boringg wrote: post #87

Earlier quoted context omitted.

I think the way you should think about the stock market is similar to beating the Casino in blackjack & card counting. When you know the deck is rich ins face cards make more aggressive bets, when its low in face cards be frugal. I.e. don't put lots of money into the market when its hot & put more money in when its cold. That way you statistically have a better chance on getting a good return.

You are making the classic mistake of confusing domains exhibiting a normal distribution of outcomes (casino games) with domains exhibiting an exponential distribution of outcomes (the market). This is the sort of thinking that traps people into believing "it went up a lot, therefore it has to revert to the mean and go down" or vice versa - there is no basis for such a belief in exponential domains.

The market appears to be subexponential, which is a worse class of distributions than the exponential. Just as a technical note.

Re: Stock Market Returns Are Anything but Average

#263

Post by SavantIdiot » Fri, Apr 30, 2021, 4:46 PM UTC

ahelwer wrote: post #6

There are all sorts of interesting facts you can pull out of this, like how if you missed the top 10 best days in the market from 1999-2019, your return was cut in half. If you missed the top 20 best days, you actually lost money: https://www.fool.com/investing/2019/04/11/what-happens-when-... Basically never mistake annualized return over a long period of time for your expected return in a given year (or day, etc).…

How do you "miss" 10 days?

Unless you are a day trader (aka gambler), "normal person investing" is about trickling cash into an account slowly over time into low-cost funds/etfs, covering the grid, and pretty much never selling until retirement. Maybe a rebalance here or there over the decades, but you're never "out" unless you're paranoid and liquidate into a cash position, but refer to point A.

This is the strategy myself and many of my college friends took when we graduated in the late 80's. And we're all pretty comfy right now. We had a few buds that went all day-trader and they lost their shirts, with one and only one exception.

Re: Stock Market Returns Are Anything but Average

#264

Post by jonfw » Fri, Apr 30, 2021, 4:48 PM UTC

pc86 wrote: post #141

weeboid wrote: post #131

Earlier quoted context omitted.

When S&P plunges more than 10%, buybuybuy. 30%? Shit go full margin and back up the truck. I’m sitting on 2x since Dec. Protips. Saas is the thesis. Long term solar is a 100x-1000x easy-ish bet. Capture is “good enough”, we are going to solve storage. Transmission will significantly collapse into storage. Game will change. The entire energy game.

> Long term solar is a 100x-1000x easy-ish bet. This is WSB-level nonsense.

Reminiscent of the dot com boom. People said "this internet thing really looks like it's on the up and up" and they were right. What they didn't understand is that investing in 'pets.com' didn't mean they were investing in the internet.

Yes the solar industry could probably go up 100x. No, the companies we're investing in today won't track that.

Re: Stock Market Returns Are Anything but Average

#265

Post by chromatin » Fri, Apr 30, 2021, 4:50 PM UTC

ricardobeat wrote: post #79

willcipriano wrote: post #46

Earlier quoted context omitted.

> But what the hell else am I going to do? Personally I'm taking some money that could go into the stock market and investing in increasing the energy efficiency of my home to reduce my future costs, buying items I'll need in bulk (things like 200 pairs of socks so I'm set for life) and other things that will improve my QOL without ongoing costs.

How can I start investing in the sock market?

This is possibly the best post in this thread

Re: Stock Market Returns Are Anything but Average

#266

Post by TuringNYC » Fri, Apr 30, 2021, 4:55 PM UTC

tut-urut-utut wrote: post #32

ahelwer wrote: post #6

There are all sorts of interesting facts you can pull out of this, like how if you missed the top 10 best days in the market from 1999-2019, your return was cut in half. If you missed the top 20 best days, you actually lost money: https://www.fool.com/investing/2019/04/11/what-happens-when-... Basically never mistake annualized return over a long period of time for your expected return in a given year (or day, etc).…

And if you avoided the worst 10 days, your earnings double. If you avoided 20 worst days, your earning doubled again. What is the point of such trivia? That most of the profit or loss happens during the days of high volatility?

>> And if you avoided the worst 10 days, your earnings double. If you avoided 20 worst days, your earning doubled again. >> What is the point of such trivia?

The point is -- it is hard to avoid/miss the 10 worst days since you dont know which ones they will be. It is easy to capture the 10 best days because the easiest thing to do is be invested all the time.

Re: Stock Market Returns Are Anything but Average

#267

Post by nostrademons » Fri, Apr 30, 2021, 4:55 PM UTC

kingsuper20 wrote: post #177

JohnPrine wrote: post #142

Earlier quoted context omitted.

Just because a company isn't distributing dividends doesn't mean you're only buying a story. AMZN still has lots of room to grow. If I'm an investor in AMZN I would much rather them reinvest profits into a data center that will produce even more future profits than distribute the money to me. Once these growth companies top out in terms of their market share they'll pivot to distributing dividends, same as large esta…

Personally, I'm not smart enough to pick individual stocks. At some point (perhaps now) Amazon growth is predicated on cannibalizing other companies. After all, the broad market can't exceed the GDP generally for the long term. My primary point here is not to argue about investment concepts, merely to state a concern about the artificiality of it all. Financialization is real and rather spooky.

Amazon growth has been predicated on cannibalizing other companies since 1995. Bezos was very specific about that in the business plan he presented to investors: he wanted to own all of retail, and has largely succeeded in that.

From a valuation perspective, what's so wrong about that? You want to be on the side taking over the world. Otherwise you're on the side that's getting taken over, and the value of your equity logically trends toward zero.

Re: Stock Market Returns Are Anything but Average

#268

Post by jokethrowaway » Fri, Apr 30, 2021, 4:56 PM UTC

rorykoehler wrote: post #164

bryanlarsen wrote: post #38

Earlier quoted context omitted.

As long as you realize that you're choosing the least bad of a bunch of bad options. Far too many people are claiming that stocks are safe. You're right: stock picking, index funds, bonds, crypto, cash, real estate, collectibles -- they're all bad options in 2021. Myself I would recommend holding a sizable portion in cash. Unlike many, I'm not overly worried about cash holdings getting destroyed by inflation, but I d…

Cash is being decimated by asset inflation before our very eyes.

It depends what assets you want to spend your cash on.

Will home prices go up after this crisis? Will there be demand once small companies start firing people and close down and we run out of government incentives?

Sure, big companies have more money, but that is likely to be hoarded or invested (and I doubt it will be in real estate, given it's a hassle to manage) - it won't go back in the economy.

Re: Stock Market Returns Are Anything but Average

#269

Post by charwalker » Fri, Apr 30, 2021, 4:57 PM UTC

ahelwer wrote: post #6

There are all sorts of interesting facts you can pull out of this, like how if you missed the top 10 best days in the market from 1999-2019, your return was cut in half. If you missed the top 20 best days, you actually lost money: https://www.fool.com/investing/2019/04/11/what-happens-when-... Basically never mistake annualized return over a long period of time for your expected return in a given year (or day, etc).…

Pat of most modern economic theory around the stock market is slow and steady, sustainable growth. It's a fairly 'liberal' policy choice as you can't, say, tweet something to spike or drop a stock price and benefit (or have those in the know benefit). For example, several economists say that stagnation in the market is not necessarily a bad thing and shooting for the moon in stock pricing by chasing continual growth can lead to companies overreaching or expanding then crashing hard, hurting consumers and their employees worse than the gains created short term.

https://www.wbur.org/onpoint/2020/02/12/economists-slow-econ...

This is in addition to noting the stock market is not a representation of the economy or its health. slow, continual, predictable growth is critical for planning economic and fiscal policy along with preparing for rough times, like when a pandemic shuts down global production.

I often refer back to the stock market or simply inflation rate before the US went off the gold standard and instituted massive reform and regulation of markets. Some years the US would bounce back and forth between extreme negative then positive inflation rates, ex:

https://tradingeconomics.com/united-states/inflation-cpi

Set the chart range to MAX for effect, or see a table of data here:

https://inflationdata.com/Inflation/Inflation_Rate/Historica...

In 1920 inflation was close to 22% in the spring but a year later was about -15%. No way that was helpful for preparing for an economic downturn like we see in the general accepted 10 year business cycle today. Image starting a company and all your initial costs are 20% higher than you planned, then once you get production up and running your goods are worth 15% less! Market stability breeds stability but not high return brokerage accounts.

Re: Stock Market Returns Are Anything but Average

#270

Post by skrtskrt » Fri, Apr 30, 2021, 4:58 PM UTC

sichtlinkair wrote: post #15

ahelwer wrote: post #6

There are all sorts of interesting facts you can pull out of this, like how if you missed the top 10 best days in the market from 1999-2019, your return was cut in half. If you missed the top 20 best days, you actually lost money: https://www.fool.com/investing/2019/04/11/what-happens-when-... Basically never mistake annualized return over a long period of time for your expected return in a given year (or day, etc).…

> It's likely to be a "picking up pennies in front of a steamroller" type trade. What does that mean?

A good example is selling options for premium.

You can sell a put option against a stock.

Say the stock is $100 right now, and you sell a put option one month out for a strike price of $90.

The seller of this put option essentially bets that the stock will still be above $90 in a month.

The buyer of this put option is betting that the stock will be below $90 in a month.

For executing this trade, you, the put seller, receive premium, say $1. The buyer pays you $1.

You have a sold a very high likelihood bet and received $1 for taking on the risk. The buyer has bought a very low likelihood bet and spent $1 for the chance to win.

This sounds great! In the long run, stocks tend to go up so you should win this bet the vast majority of the time, collect your $1, and make the same bet again.

This is the "picking up pennies" stage.

Now what is the steamroller? The steamroller is the low likelihood but very high loss scenario that this stock or ETF absolutely crashes while you are on the selling side of this open put option bet.

If it crashes to $N where $N If you put up the collateral (the money needed to buy the stock at $90) for the bet with your own money, you are out that money. If you put up collateral on margin (borrowed money) you can be mega screwed.

This is the steamroller. You picked up $1 here and and there but then you got hit with a -$20 or -$50 or -$90 steamroller when you may have not even had the money to cover it.

Yes the steamroller is very low likelihood, but you have to hit pick up a LOT of pennies in a row to still come out on top after getting hit by the steamroller.

It is important to note that there is a ton more nuance that can go into running this kind of strategy, but in general for the average person, buy and hold will always outperform a strategy like this for several reasons, not least of them being that the income received for premium is taxed at income rates, where gains from buy and hold will be taxed at capital gains rates.

Very sophisticated investors do run this strategy with many ways to handle the tail risk, and their sophisticated strategies do not necessarily stop them from getting absolutely screwed when things go bad like during the flash crash at the beginning of coronavirus. Modeling and mitigating tail risk is hard, because terrible events are not as common as normal events and when things go terribly, they usually go terribly in a way no one has ever seen before.