11–20 of 116 posts
> Trading costs are high. The average round-trip trade in excess of $1,000 costs three percent in commissions and one percent in bid-ask spread. A lot has changed in 20 years. The conclusion may still be the same, but spreads are much tighter (thanks in part to HFT) and trade commissions no longer exist.
> trade commissions no longer exist In US.
A related blog post: "Why I don't trade stocks and (probably) neither should you" http://edmarkovich.blogspot.com/2013/12/why-i-dont-trade-sto...
> One of the most dangerous investment chestnuts is the idea that you can successfully diversify your portfolio with a relatively small number of stocks, the magic number usually being about 15.
> …
> The reason is simple: a grossly disproportionate fraction of the total return came from a very few "superstocks" like Dell Computer, which increased in value over 550 times. If you didn’t have one of the half-dozen or so of these in your portfolio, then you badly lagged the market.
> Trading costs are high. The average round-trip trade in excess of $1,000 costs three percent in commissions and one percent in bid-ask spread. A lot has changed in 20 years. The conclusion may still be the same, but spreads are much tighter (thanks in part to HFT) and trade commissions no longer exist.
Trading is hazardous to your wealth, period.
If you can find any reliably bad strategy (in a fee-less market), then you have necessarily found an outperforming strategy that is the opposite.
why do people think trading will make you rich?
It's my understanding that, if commissions are free (e.g. Robinhood) then on average, any trading strategy is going to perform comparable to the market average. If you can find any reliably bad strategy (in a fee-less market), then you have necessarily found an outperforming strategy that is the opposite.
It's my understanding that, if commissions are free (e.g. Robinhood) then on average, any trading strategy is going to perform comparable to the market average. If you can find any reliably bad strategy (in a fee-less market), then you have necessarily found an outperforming strategy that is the opposite.
not any strategy, but any strategy that's reasonably close to the efficient frontier of possible portfolios.
another way of saying this is: the average of all trading strategies is the market.
I read an article a few years ago that compared the trading performance of various strategies. The number one performer was the "dead people" strategy, which happens when a person dies and his portfolio cannot be traded while the inheritance issues are sorted out. Next best is the broad index fund, and dead last was the average investor. Edit: Found the article! https://www.businessinsider.com/forgetful-investors-per…
> Trading costs are high. The average round-trip trade in excess of $1,000 costs three percent in commissions and one percent in bid-ask spread. A lot has changed in 20 years. The conclusion may still be the same, but spreads are much tighter (thanks in part to HFT) and trade commissions no longer exist.
I think it's important to point out that the conclusions are definitely still the same despite the lowering of trading costs since 2000. Trading is hazardous to your wealth, period.
Most of the reported difference in net performance is due to the impact of commissions and spreads: As trading goes up, gross return was not impacted, but net return was.
Retail investors in 2000 were getting fleeced. (And if you think that's bad, take a look at commissions in 1980.)
A related blog post: "Why I don't trade stocks and (probably) neither should you" http://edmarkovich.blogspot.com/2013/12/why-i-dont-trade-sto...
And consider also, "The 15-Stock Diversification Myth," http://www.efficientfrontier.com/ef/900/15st.htm : > One of the most dangerous investment chestnuts is the idea that you can successfully diversify your portfolio with a relatively small number of stocks, the magic number usually being about 15. > … > The reason is simple: a grossly disproportionate fraction of the total return came from a very few "superstocks"…