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Ask HN: How to start learning about investments?

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Re: Ask HN: How to start learning about investments?

#41

Post by Zababa »

johnwheeler wrote: post #32

Through your journey, try to find meaning in these quotes. When I first heard them, they sounded reasonable, but I didn’t know if they were just folksy wisdom or hard truths. I tried to resolve which is what. They are all hard truths. 1. You can’t stand to see your neighbor getting rich. You know you’re smarter than he is and he’s doing these things and he’s getting rich 2. The stock market can remain irrational long…

> You can’t stand to see your neighbor getting rich. You know you’re smarter than he is and he’s doing these things and he’s getting rich

This is the only one I don't understand.

Re: Ask HN: How to start learning about investments?

#42

Post by throw0101a »

mettamage wrote: post #34
devoutsalsa wrote: post #31

Earlier quoted context omitted.

People who beat the market are lucky.

No, the fact is: there is too little objective data to know about either side in the retail sense. And the objective data that is there says that 1% of day traders out perform the market in the shanghai stock exchange (I could misremember). The point is we have too little data to know almost anything. I am on my phone no time for source finding.

> And the objective data that is there says that 1% of day traders out perform the market in the shanghai stock exchange (I could misremember).

What are the odds that you are of those 1%? (Hint: you're probably not in that group.)

Given that I have >20 years until retirement, what are the odds that I will be in that 1% for all of that time?

Further most stocks suck:

> We study long-run shareholder outcomes for over 64,000 global common stocks during the January 1990 to December 2020 period. We document that the majority, 55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, we find that the top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the US, 1.41% of firms account for the $US 30.7 trillion in net wealth creation.

* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251

> Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages.

* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447

What are the odds that you manage to pick those few stocks that produce those returns?

Re: Ask HN: How to start learning about investments?

#43

Post by 6gvONxR4sf7o »

dninednjwryv wrote: post #30
devoutsalsa wrote: post #27

Keep this in mind as you are learning: - people trying to sell you stuff will say things like “if you believe X has the potential to become the next dominant investment trend…”, because they make money on selling you speculative advice that is essentially worthless - when people say “the market”, they generally mean broadly diversified indexes like the S&P 500 - no one can beat the market over time with any continued…

People absolutely beat the market over time. The investment world when they say no one beats the market, are referring to investment managers moving billions of dollars. As a regular guy, you can. It’s sad to see this terrible advice repeated ad nauseam

I also thought that it was more that nobody offering active management beats the market after their fees are taken into account.

Re: Ask HN: How to start learning about investments?

#44

Post by Zababa »

alecst wrote: post #40
quantumofalpha wrote: post #14

Put spare money every now and then into VOO or VT or similar and forget. No knowledge needed and time investment is like a few minutes of your time a month/quarter/year. Squeezing more alpha than that and not losing it, properly done (i.e. not gambling), is at least a part-time job. Chances are you'll do better putting that time into your own career.

True. People really underestimate the "alpha" of spending less and saving more.

This, and also earning more. Many people here are in tech, and the salaries can be insane.

Re: Ask HN: How to start learning about investments?

#45

Post by throw0101a »

TreyS wrote: post #18

Some books that I read and found useful. These are mostly older books that have withstood numerous market cycles. Even if you decide to branch out, these are a good base to start from. 1. “Random Walk Down Wall Street” to understand index funds and why they generally outperform. 2. “Common Stocks and Uncommon Profits” for a general understanding of how to choose stocks (and companies) for the long-term 3. “The Intell…

> 1. “Random Walk Down Wall Street” to understand index funds and why they generally outperform.

Some of the simple logic/arithmetic behind passive funds versus active funds:

* https://web.stanford.edu/~wfsharpe/art/active/active.htm

The author has an Economics Nobel:

* https://en.wikipedia.org/wiki/William_F._Sharpe

* https://www.nobelprize.org/prizes/economic-sciences/1990/sum...

Re: Ask HN: How to start learning about investments?

#46

Post by alecst »

dninednjwryv wrote: post #39
alecst wrote: post #36

Earlier quoted context omitted.

Doesn't the investment world say something like "no one can beat the market forever?" Of course some people can win sometimes. But to do it consistently is a different story. You have to have some kind of edge: being faster (unlikely), smarter (unlikely), or access to information other people don't have (also unlikely). Or do you really think the average guy can do better than the market, and why or how?

No. Stop it with this mentality. When managing a small portfolio, < 5 million dollars, you can be very agile in how you invest. Small hedge funds in NYC with less than 10 million under management regularly make 50-100% a year. It’s not a controversial opinion. It’s just that the financial industry has pushed this narrative as a way to sell index fund products. Completely diversifying your investments is a terrible wa…

I'm intrigued.

1. How is a regular guy going to achieve the same results as a hedge fund with a 10 million dollar portfolio?

2. Regarding Buffett's quote, do you mean "diversification is protection against ignorance?" I think his point is that if you have special knowledge you can take a concentrated position in a stock, but that for the regular guy, diversification is a hedge. Since most stocks underperform and most gains are from a small fraction of stocks, his quote seems to make sense.

Re: Ask HN: How to start learning about investments?

#47

Post by Grustaf »

The first thing to understand is that in your first 5-10 years of investing, you will do worse, probably much worse, than simply investing in a broad index.

Investing, seen as a skill, is pretty unique in being in that you need to become better than most of the others for it to even make sense. You don't need to be better than the median plumber to make good money as a plumber for example.

So if you just want to "learn about investing" in order to make money, I would not bother, unless you want to make this your full time job for the next decade or so.

But every one should learn about economics and the financial system, regardless. I would recommend introductory courses from The Teaching Company/Great Courses. Or indeed a mooc like Coursera, they have some excellent material, not sure why you want to avoid that.

Re: Ask HN: How to start learning about investments?

#48

Post by deshpand »

devoutsalsa wrote: post #27

Keep this in mind as you are learning: - people trying to sell you stuff will say things like “if you believe X has the potential to become the next dominant investment trend…”, because they make money on selling you speculative advice that is essentially worthless - when people say “the market”, they generally mean broadly diversified indexes like the S&P 500 - no one can beat the market over time with any continued…

Technically, beating the market should be like being in the top 50 percentile of your class. The reason most big funds fail to do this is because they need to overcome the fees they charge, to match the market.

If you are investing yourself, you won't have the fees to overcome. You do need to be a bit careful around trading costs and taxes. Luck can play a huge factor too. If you have domain expertise in a specific sector, your chances of outperforming the market may go up a bit. You may be able to identify with greater certainty an opportunity to invest in a company that others haven't yet noticed. This can only happen with small companies. With bigger companies, it's hard for some outsider to possess some information that others don't have.

It's also a fine strategy, IMO, to invest in indexes and then focus your time on what you can do best or enjoy that time the way you see fit (for a few people, the latter can indeed be investing)

Re: Ask HN: How to start learning about investments?

#49

Post by quantumofalpha »

Zababa wrote: post #44
alecst wrote: post #40

Earlier quoted context omitted.

True. People really underestimate the "alpha" of spending less and saving more.

This, and also earning more. Many people here are in tech, and the salaries can be insane.

Exactly. If you're in tech, you should be shooting first of all for $500k TC today than $500k pnl, the former is way easier (luck aspect aside). No point in thinking about active investing until you have like 7 figures of own capital to manage.

Re: Ask HN: How to start learning about investments?

#50

Post by DeathArrow »

CharlieMunger wrote: post #11

Study the teachings of Warren Buffett and Charlie Munger. There is a Reddit community for that: r/brkb https://old.reddit.com/r/brkb/ Understand the concept of intrinsic value (versus market price). Think of shares as "part of a business". Watch the professionals at Berkshire Hathaway: what are they doing today?

Thank you!
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