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What Do the Best Investors Do That the Rest Don’t?

behavioralvalueinvestor.substack.com

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Re: What Do the Best Investors Do That the Rest Don’t?

#51

Post by chii »

anonu wrote: post #48
GuB-42 wrote: post #20

- Luck - Get the best information, possibly insider - Manipulate the market - Not get caught doing these things The strategies described in the article are strikingly similar to gambling advise. Applying these in a casino will minimize your chances of ending up broke, but you will still lose money in the long run, because of the house edge. I'd say it is the same thing with investment, if you follow these rules, you…

Your comment sounds cynical but I totally agree with you. As a long time (now ex) trader I can tell you that the professionals have a tremendous information advantage over the retail investor. And even then they don't make money consistently. Edge is everything. Regarding insider info, I apply the cockroach theory: there's never just one. You see the SEC bring insider trading charges all the time. This is probably a…

> the professionals have a tremendous information advantage over the retail investor.

but do these traders beat the market on average though?

Re: What Do the Best Investors Do That the Rest Don’t?

#52

Post by rrrazdan »

drumhead wrote: post #30
rrrazdan wrote: post #19

Earlier quoted context omitted.

You are right that position sizing is important but for the opposite reason. Knowing your winners and then full on concentrating in them is statistically a big part of what makes successful winners.

For traders maybe, because they pyramid the position on the back of any gains made. But you also don't want to have so much invested in one company that it becomes make or break. A 10% loss on 5% of your portfolio is way more manageable than 10% on 50% of your portfolio.

No even for buy and hold investors. The best investors get only 55% of the bets right. Only a little better than a coin toss. The only reason the performance for them is better than the 55% metric would suggest is because they cut losses on losers early and push on winners.

Re: What Do the Best Investors Do That the Rest Don’t?

#53

Post by chii »

zone411 wrote: post #39
GuB-42 wrote: post #20

- Luck - Get the best information, possibly insider - Manipulate the market - Not get caught doing these things The strategies described in the article are strikingly similar to gambling advise. Applying these in a casino will minimize your chances of ending up broke, but you will still lose money in the long run, because of the house edge. I'd say it is the same thing with investment, if you follow these rules, you…

Plenty of evidence contradicts the efficient market hypothesis, showing that it's possible to outperform the average. The market's late response to Covid is a case in point. The gambling analogy holds up only when you compare it to poker or sports betting, where you can make money if you're better than others.

> Plenty of evidence contradicts the efficient market hypothesis

name some.

I think the market is quite close to, but not perfect. There's _some_ places where you can eck out an edge, but it's very slight.

Re: What Do the Best Investors Do That the Rest Don’t?

#54

Post by chii »

teekert wrote: post #8
namaria wrote: post #7

They get retroactively anointed 'good investors' due to survivor bias.

And then out of the thousands of traits present in these investors, the 5 that this selected group happen to share, and seems quite logical, at times seem insightful, will end up in a blog.

and also, the millions who _do_ share these traits but fail(ed) at investing.

Re: What Do the Best Investors Do That the Rest Don’t?

#55

Post by chii »

Panzer04 wrote: post #24

I think the strongest edge one can have is to be able to invest independent of any market sentiment. If a stock looks cheap, and according to your research it is cheap, then you need to be able to ignore any market sentiment regarding that stock and buy it anyway. It is far too easy to get wrapped up into wanting the best possible return by buying at the lowest price, and selling at the highest price. The reality is…

> If a stock looks cheap, and according to your research it is cheap, then you need to be able to ignore any market sentiment regarding that stock and buy it anyway.

and take the risk that you just overlooked something the rest of the market has priced in. But i guess to invest, one must have conviction that they're right about their investment thesis.

Re: What Do the Best Investors Do That the Rest Don’t?

#56

Post by chii »

magicalhippo wrote: post #38
drumhead wrote: post #16

It may be that risk control is one of the key factors in success. Either through diversification and a broad spread of investments, or having a defined loss per position and then having the discipline to sell. Position sizing is also important, not putting too much into one investment.

> having the discipline to sell I read about a study in Scientific American many years ago regarding this topic, and IIRC the results of the study showed that accepting a loss and reinvesting was what separated the good ones from the others. The argument as I recall it was that stocks that fell hard seldom recovered, at least on shorter timescales, thus it was almost always better to accept that loss and reinvest wha…

> stocks that fell hard seldom recovered

except for a lot of the mega caps today. Look at how much apple fell when they almost bankrupted themselves in the past and had to get steve jobs back.

Look at microsoft, when they almost lost to google (and clawed their way back).

The reason they seldom recover from a low, is that a stock being low is synonymous with the business being in financial trouble. Most businesses in financial trouble don't make it out.

But those who do are ones that managed to get somebody good to turn it around. Of course, as an investor, you can't know who's "good" until after they're done turning it around.

So in the end, those with deep pockets that can weather the lows, would end up with a superior return in the long run.

Re: What Do the Best Investors Do That the Rest Don’t?

#57

Post by chii »

wouldbecouldbe wrote: post #45
alangibson wrote: post #37

The only reasonable definition of "good investor" is consistently beating the market. Buffet is close but not perfect. Does anyone know of an investor with a better record?

Yeah I think the Renaissance fund.

I think they managed to use data and pattern recognition to find arbitrage opportunities between different chains of commodities (and stocks perhaps).

It's also why they have limits on the fund's size - they cannot move the market or risk breaking that arbitrage in the first place (where breaking it also could mean their trades show up and get noticed by a third party).

Re: What Do the Best Investors Do That the Rest Don’t?

#58

Post by chii »

psiops wrote: post #21

I guess it pays to be temperamentful and "do nothing" if the pool of money you get to play with is huge to begin with. If you have limited funds to invest with, the temptation to take risk to make a significant profit looms large.

> f you have limited funds to invest with, the temptation to take risk to make a significant profit looms large.

aka, greed.

Re: What Do the Best Investors Do That the Rest Don’t?

#59

Post by blitzar »

Cthulhu_ wrote: post #31
lucas_membrane wrote: post #22

Earlier quoted context omitted.

Charles Schwab company did a survey of those of their customers who did very well over the long run, and they found a surprising attribute of a large number of the most successful investors: they had forgotten that they had the account. Buy and hold!

Survivorship bias though; did they report on anyone that held the account for a long time and lost money? But yeah, this is the generalised advice; spread your investments, index funds, and wait. The market's trend over long term always goes up. It's just that it's more of a retirement plan than a get rich quick plan; people want or need money early in life, buy a house, be financially secure. I think it was better f…

> The market's trend over long term always goes up

Actually it is mostly just population growth + inflation - which is almost always positive.

Re: What Do the Best Investors Do That the Rest Don’t?

#60

Post by H8crilA »

drumhead wrote: post #27
H8crilA wrote: post #18

Earlier quoted context omitted.

Value investors pretty much do not use risk control as known from shorter term trading. They just buy low and sell when facts change (down) or prices change (up).

I think diversification is a key tenet of value investing. The margin of safety applies to the individual company but that doesn't guarantee success, so a diversified portfolio is one key method of reducing risk.

Right, but that diversification is into 5 or 10 companies. Risk management that you can find in various trading shops is a much more involved process than that.
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