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The Best Investment Advice You'll Never Get (2008)

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Re: The Best Investment Advice You'll Never Get (2008)

#61

Post by encoderer »

chollida1 wrote: post #48
encoderer wrote: post #38

Earlier quoted context omitted.

It's not about "beating the market." It's about retail investors underperforming professional asset managers AND underperforming the market. Tell me this: Other than reducing basis, what can you do to increase your chances of success in an investment? If success is defined as "not losing money"? One way to reduce basis is by selling covered calls on your stock positions, limiting potential profit but adding no additi…

http://www.theglobeandmail.com/globe-investor/funds-and-etfs... Look you're an adult and free to do as you please but I'll try any way, please don't sell covered calls. Its very easy to make money and fool yourself into thinking you can beat the market. Its really the worst of all possible worlds... you have to hold the stock but don't get the upside when it rises. you have to hold the stock but still loose if it fal…

> There are actually 3 outcomes, which you should know if writing covered calls because you are essentially betting on the third option, which is that the stock stays flat, ie it doesn't move.

No, you're just betting that it doesn't go past your short strike, which could be few percent above the current price.

The strategy is simple: Most long options expire worthless. Selling something that will soon be worthless is not a bad business.

I would imagine you would agree with my statement that buying OTM calls and puts is bad investment advice and likely to lose money?

Yes?

Ok, then why are you so against taking the OTHER side of that trade?

Re: The Best Investment Advice You'll Never Get (2008)

#62

Post by pbreit »

nopinsight wrote: post #60

In my opinion, there are probably some persistent quirks and patterns in human minds and computer programs (also written by humans) which may not be fully exploited by most market participants in some markets (esp. Emerging and Frontier markets). One well-known pattern is Momentum trading, which is also a basis of Market Crash prediction model by Prof. Sornette, with a history of several accurate predictions. [1] > “…

The reference was to other mutual funds. Hedge funds are not accessible to the average retail investor and invest in things that average investors don't have access to.

Re: The Best Investment Advice You'll Never Get (2008)

#63

Post by pessimizer »

nopinsight wrote: post #60

In my opinion, there are probably some persistent quirks and patterns in human minds and computer programs (also written by humans) which may not be fully exploited by most market participants in some markets (esp. Emerging and Frontier markets). One well-known pattern is Momentum trading, which is also a basis of Market Crash prediction model by Prof. Sornette, with a history of several accurate predictions. [1] > “…

If results were randomly distributed, you'd expect a very few funds to perform that way.

Re: The Best Investment Advice You'll Never Get (2008)

#64

Post by pbreit »

encoderer wrote: post #17
MCRed wrote: post #12

Regarding "Don't beat the market", Warren Buffet says "The game is really easy when your opponent decides not to play". Unfortunately, giving up has a lot of appeal: It means it's not your fault you didn't beat the market. It lets people say the game is rigged and take comfort. How many times have you seen buying company stock compared to gambling? Even though, on its face this comparison is ludicrous. (Especially he…

I agree. The awful conventional wisdom that options are "riskier" than stock, that they're not appropriate for retail investors, has not done retail investors any favors. To me, it's like saying that sharp knives are too dangerous for the home cook. If you want returns similar to professional investors, you have to use professional tools. There's a learning curve, but that's true of most things in life that are worth…

The whole point of the article is that retail investors investing in index funds almost always beat the professionals.

Options have several characteristics that make them substantially riskier. Even selling covered calls is much trickier and riskier than investing in an index fund and likely to have poorer results.

Re: The Best Investment Advice You'll Never Get (2008)

#65

Post by pessimizer »

mangeletti wrote: post #59

Did anybody stop to notice the date of the article? I'm confused by the conversation herein. I thought this was posted as a sort of mockery of the author. After-all, if you put your money into an index right when this guy told you to, you would have lost your shirt. If you had a while until retirement, that wouldn't be a big deal, since it would now be back along with more, but what about the folks moving their IRA o…

>After-all, if you put your money into an index right when this guy told you to, you would have lost your shirt.

Not if you held it until now.

Re: The Best Investment Advice You'll Never Get (2008)

#66

Post by encoderer »

pbreit wrote: post #64
encoderer wrote: post #17

Earlier quoted context omitted.

I agree. The awful conventional wisdom that options are "riskier" than stock, that they're not appropriate for retail investors, has not done retail investors any favors. To me, it's like saying that sharp knives are too dangerous for the home cook. If you want returns similar to professional investors, you have to use professional tools. There's a learning curve, but that's true of most things in life that are worth…

The whole point of the article is that retail investors investing in index funds almost always beat the professionals. Options have several characteristics that make them substantially riskier. Even selling covered calls is much trickier and riskier than investing in an index fund and likely to have poorer results.

They're not mutually exclusive. For best results, you should invest in an index fund and sell covered calls on it every month. Also, there's no "risk" created from a covered call. That's the 'covered' part. There is the possibility that you could "miss out" on an up move, but the trade off is the certainty that you will collect premium every month.

This is something that can be tested, and has been studied, and I encourage you to do that instead of relying on your bias here. Clearly you have some knowledge of the subject so sharpening on the finer points could be informative for you.

Re: The Best Investment Advice You'll Never Get (2008)

#67

Post by [deleted] »

encoderer wrote: post #57
chollida1 wrote: post #48

Earlier quoted context omitted.

http://www.theglobeandmail.com/globe-investor/funds-and-etfs... Look you're an adult and free to do as you please but I'll try any way, please don't sell covered calls. Its very easy to make money and fool yourself into thinking you can beat the market. Its really the worst of all possible worlds... you have to hold the stock but don't get the upside when it rises. you have to hold the stock but still loose if it fal…

Limiting profitability to increase probability of success is one of the principles of professional trading. Take for example, every single spread that's bought and sold. The good thing is, people have studied this. Because your argument is certainly plausible. What you leave off is that while you may "miss out" on upside, you also bank credit every month that you reinvest and compound. I called making money in stocks…

[deleted]

Re: The Best Investment Advice You'll Never Get (2008)

#68

Post by mrfusion »

encoderer wrote: post #38
thedufer wrote: post #35

Earlier quoted context omitted.

Statistically, professional investors don't beat the market. People aren't "downvot[ing] what they don't understand", they're downvoting demonstrably poor advice.

It's not about "beating the market." It's about retail investors underperforming professional asset managers AND underperforming the market. Tell me this: Other than reducing basis, what can you do to increase your chances of success in an investment? If success is defined as "not losing money"? One way to reduce basis is by selling covered calls on your stock positions, limiting potential profit but adding no additi…

I've had this idea before. Any advice on what strike price you'd sell the calls at?

Re: The Best Investment Advice You'll Never Get (2008)

#69

Post by enraged_camel »

encoderer wrote: post #58
enraged_camel wrote: post #54

Earlier quoted context omitted.

>> Buying stock is a 50/50 bet. The price can either go up or down. Just because there are two possibilities does not mean they are equally distributed.

Go argue with Random Walk and Efficient Market theory. It's not a notion I just made up.

I'm not saying those theories are wrong. My suspicion however is that you took that statement out of context and grossly misinterpreted it, and are using that misinterpretation as the basis for the terrible advice you're giving.

Re: The Best Investment Advice You'll Never Get (2008)

#70

Post by jasonwilk »

It would be hard to debate someone about paying management fees for mutual funds vs no fees on index funds like NASDAQ. This graph should say it all (10 year graph): https://www.google.com/finance?cid=13756934

While I do invest in index funds, I have the majority of my money invested in Google, Apple and LinkedIn. I truly just believe in these companies and ignore short term speculation. I am no investment expert, but these stocks combined have by far beaten all the index funds by a significant multiple. Go for the long term, ignore stock tips and earnings reports and you can be successful at investing too.

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