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

Stock Market Returns Are Anything but Average

awealthofcommonsense.com

Post reply on HN
Print view View original

361–370 of 433 posts

Re: Stock Market Returns Are Anything but Average

#361

Post by qeternity »

aerosmile wrote: post #354

A really interesting thing happened in March 2020. The market crashed and we all remember how gloomy everything looked. Needless to say, some businesses were going to be directly affected by Covid (eg: travel, hospitality) and their stocks went down as much as 80%. But it also became clear that many stocks were just collateral damage (eg: most of the tech stocks), and that they were going to recover more quickly than…

This has nothing to do with your company thesis and everything to do with the Fed.

Re: Stock Market Returns Are Anything but Average

#362

Post by jerf »

pushrax wrote: post #145
jerf wrote: post #137

Earlier quoted context omitted.

I will also agree that if you just erase all the risk from the market due to the downturns, that the market becomes a great investment. But what's the relevance of that? When the next bubble pops, whether it be in two weeks, two years, or a decade, you and your investments are going to experience it. Some of those red splotches go on for twenty years . As for why doing "just barely better than inflation" is marked as…

The problem is that there's not a clearly viable alternative. Even if we're in a period where the market is going to underperform (likely), will it still underperform cash? Bond yields are so low that they're a questionable inflation hedge as well.

This is the thing that people don't want to hear. There is no guaranteed, long-term store of value. Period. End of story. The closest is precious metals, especially the "monetary" precious metals, but even they are valued based on their usage (if society collapses, platinum & palladium will probably have their values go "poof", for instance) and fluctuate over time. They're one of the few goods that you can literally physically hold on to for decades and they at least won't tank to zero, but they still may not be worth "as much" as what you spent to get them.

Re: Stock Market Returns Are Anything but Average

#363

Post by nO0b »

SavantIdiot wrote: post #263
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…

> 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.

I wonder if your Japanese peers in a Nikkei 225 fund over the same time period would agree with your strategy. Buy-and-hold for them is still down 50% over the last few decades.

Re: Stock Market Returns Are Anything but Average

#364

Post by boringg »

weeboid wrote: post #134
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.

Please let us know, on a percentage basis of you earnings, how much is allocated to personally managed stock portfolio?

How is that relevant?

Re: Stock Market Returns Are Anything but Average

#365

Post by boringg »

ed25519FUUU wrote: post #96
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.

How do you know any of that though? Nobody really does. The fancy hedge funds and the skittish retail investor are all just guessing. Buy and hold seems to be the only sane strategy.

I don't know, clearly - no one knows. I do know that investing in equity during the hot years is not a winning strategy at any point in time, unless you sell before it goes cool. At least from an index based fund perspective. If you stock pick (i.e. Amazon at peak 99 prices you would still have performed exceptionally well)

The stock markets are cyclical - it's tough to see how we can continue to buy into a market that is considered overbought by many financial talking heads. Once returns materialize elsewhere + cap gains tax changes materialize I expect froth will come out of markets...

Re: Stock Market Returns Are Anything but Average

#366

Post by confidantlake »

j7ake wrote: post #330
confidantlake wrote: post #284

Earlier quoted context omitted.

I don't think so. If you as the player make bets a series of bets, each with a negative expected value then your total expected value will also be negative. It doesn't matter if you double after every loss. The limits are mostly because the casino can't afford to take on a 20 billion dollar bet from someone like Bezos. Even if it has a positive expected value, they will still go broke the 49% of the time they lose it…

The martingale strategy works because this theoretical gambler has infinitely deep pockets to withstand the losses. Setting bet limits can reduce the effectiveness of the martingale strategy.

I don't think it matters, even with infinite pockets. Let's say 3 is the max number of losses we will accept. 50-50 coin flip, start of betting a dollar. 7 out of 8 times we win a dollar. 1 out of 8 time we lose a dollar, double lose 2 dollars, double, lose 4 dollars quit.

(7/8)(1) + (1/8)(-7) = 0

Generally: n = number of losses before quit.

E(x) = (1-.5^n)(1) + (.5^n)(-2^n+1)

     = (1) - (1/2^n) - (2^n-1)/(2^n)
     

     = (2^n)/(2^n) - 1/(2^n) - (2^n+1) / (2^n)
     
     = (2^n -1 - 2^n + 1) / (2^n)
     
     = 0
So with a 50-50 our expected value is 0 even with an infinite bankroll. Which makes sense, there is no way to transform a series of neutral or negative expected value bets into a positive expected bet by combining them.

Re: Stock Market Returns Are Anything but Average

#367

Post by kaydub »

skystarman wrote: post #205
kingsuper20 wrote: post #177

Earlier quoted context omitted.

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.

The thing is there's a FRACTION of a percentage of people who are "good at picking stocks". Most PROFESSIONAL stock pickers don't beat the market. And those that do, a tiny fraction can do it consistently over a 5-10 year time frame. This is backed up by decades of data. But we still have millions of people who apparently think they are smarter than the thousands of professional stock-pickers who have MAs, PhDs and y…

It has nothing to do with me thinking I'm smarter than all those guys. The market is irrational.

I'm counting on being luckier than those guys more than anything.

Re: Stock Market Returns Are Anything but Average

#368

Post by tootahe45 »

jayd16 wrote: post #332
kingsuper20 wrote: post #104

The stock market is an odd duck. What to make of it now? There's both colors of swans at work in terms of the plague, excessive money printing, per Peter Turchin (cliodynamics) a peaking cycle in civic unrest, a potential loss of reserve currency status, big changes in tech that still haven't been digested, low cost of transactions. Lotsa opportunities for froth. I'm still uncomfortable with it as a store of value. N…

The market can be pretty irrational but the 401k system means it can't fail. That system ensures it'll always have new dumb money poured into it. We'll bail it out one way or another because the middle class is tied to it. What an odd system, indeed.

Just be glad the US has a relatively strong saving scheme like the 401k, without it everybody puts their money into real-estate. It has been happening in my country and has been going on for decades, causing house costs vs income to be way out of whack compared to US.

Re: Stock Market Returns Are Anything but Average

#369

Post by lixtra »

nO0b wrote: post #363
SavantIdiot wrote: post #263

Earlier quoted context omitted.

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…

> 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. I wonder if your Japanese peers in a Nikkei 225 fund over the same time period would agree with your strategy. Buy-and-hold for them is still down 50% over the last few decades.

Not if they were slowly and continuously trickling in as the gp suggested. Still Japan is a cautionary counter example to the stock market always goes up.

Re: Stock Market Returns Are Anything but Average

#370

Post by thethimble »

nO0b wrote: post #363
SavantIdiot wrote: post #263

Earlier quoted context omitted.

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…

> 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. I wonder if your Japanese peers in a Nikkei 225 fund over the same time period would agree with your strategy. Buy-and-hold for them is still down 50% over the last few decades.

Why would expect the Nikkei 225 to provide similar returns to the S&P 500? Company quality varies greatly between these indexes.
Post reply on HN