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What to know about the stock market (2007)

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Re: What to know about the stock market (2007)

#221

Post by sireat »

3pt14159 wrote: post #99
cehrlich wrote: post #85

This is a great article that explains markets (not just the stock market really) in an easy to understand way. The one thing I believe people should know about the stock market is: There are people with more capital, time, and knowledge than you who will consistently beat you. Picking individual investments is mostly a sucker's game. Buying tech stocks and/or crypto in the last couple of years has been a consistent e…

People keep telling me this, but I keep beating the market. It's been 20 years or so of applying very basic reasoning and getting ahead. 1. Commodities are bad long term bets because technology gets better. I remember people talking my ear off about peak oil and then the US turned into a net-exporter. Short term inelasticity, yes can sky rocket prices; but long term prices go down. 2. Physics based thinking. I knew e…

It is easy to say in hindsight but consider the case of Iomega.

https://markets.businessinsider.com/news/stocks/big-short-in...

In 1997 a friend who worked at Cisco told me to go all out on Iomega. He also advised me to invest in some 3D storage startup which well went nowhere. No matter how smart you are you just have to play percentages.

Even better consider the case of Cisco itself. It reached market cap of 500B around 2000 and despite being a solid company has not performed too well.

Thus it is quite conceivable that the inevitable market correction will bring the high flyers down.

That is Apple will still be extremely strong, Google might suffer a bit because of dropping ad spend.

Companies such as Shopify, Tesla will actually need to reach reasonable P/E ratios, not the insane ones now.

Re: What to know about the stock market (2007)

#222

Post by dionidium »

3pt14159 wrote: post #99
cehrlich wrote: post #85

This is a great article that explains markets (not just the stock market really) in an easy to understand way. The one thing I believe people should know about the stock market is: There are people with more capital, time, and knowledge than you who will consistently beat you. Picking individual investments is mostly a sucker's game. Buying tech stocks and/or crypto in the last couple of years has been a consistent e…

People keep telling me this, but I keep beating the market. It's been 20 years or so of applying very basic reasoning and getting ahead. 1. Commodities are bad long term bets because technology gets better. I remember people talking my ear off about peak oil and then the US turned into a net-exporter. Short term inelasticity, yes can sky rocket prices; but long term prices go down. 2. Physics based thinking. I knew e…

> I think there will be a -%50 S&P500 crash, maybe more, and then in 10 years Apple will be worth more than double what it is worth today.

An important point here is that since nobody knows when this crash will happen or how long it will last or where the bottom will be, you should still keep investing in the companies you think are fundamentally strong and avoid trying to time the downturn.

Re: What to know about the stock market (2007)

#223

Post by mehphp »

sdevonoes wrote: post #11

Am I the only one in HN who is not into the stock market? I live in Western Europe and I would say 75% of my acquaintances don't do stock market. People I have known in the past (old people) didn't do stock market either. They all seem to have lived a normal life (decent jobs, decent house, decent family). Nothing extravagant but they got enough money to be "happy" in life.

What do you do for retirement?

Re: What to know about the stock market (2007)

#224

Post by is0tope »

dthul wrote: post #47

Does anybody know what happens when the bid is not equal to but higher than the ask? What is the price that will be used? Or will this not lead to a transaction at all?

As others have mentioned this depends on how matching works on the exchange.

The case where the bid is higher or equal to the ask is known as a "crossed book". I most cases, this should never happen and if it does it would be as a result of a bug in the matching algorithm. If you place a buy/sell order with a price that is in excess of the best ask/bid respectively then that order will be matched against the opposite side. Under normal conditions what you suggested should be impossible.

If you want to know more about how order books work, I wrote an article specifically about how this works mechanically: https://www.machow.ski/posts/2021-07-18-introduction-to-limi...

Re: What to know about the stock market (2007)

#225

Post by melenaboija »

choward wrote: post #187
shoto_io wrote: post #157

Earlier quoted context omitted.

My stock advice for any rookie has always been the same: - Buy S&P ETFs, most preferably by Vanguard, because they are a non-profit and thus have very low fees - If you have a large sum of cash, go all-in immediately, don't wait for the perfect time - Now, just wait, ideally 10+ years, before looking into your account again

> Now, just wait, ideally 10+ years, before looking into your account again That might not be the best idea because of escheat. Here's a story about someone who didn't check on their stocks for years and the state claimed them. https://www.npr.org/transcripts/799345159

The poster says buy S&P ETF and walk away not stocks.

Re: What to know about the stock market (2007)

#226

Post by logicalmonster »

shoto_io wrote: post #157
cehrlich wrote: post #85

This is a great article that explains markets (not just the stock market really) in an easy to understand way. The one thing I believe people should know about the stock market is: There are people with more capital, time, and knowledge than you who will consistently beat you. Picking individual investments is mostly a sucker's game. Buying tech stocks and/or crypto in the last couple of years has been a consistent e…

My stock advice for any rookie has always been the same: - Buy S&P ETFs, most preferably by Vanguard, because they are a non-profit and thus have very low fees - If you have a large sum of cash, go all-in immediately, don't wait for the perfect time - Now, just wait, ideally 10+ years, before looking into your account again

Historically speaking, I think this has been one of the best things an average person could do within the context of a stable, safe, free, and productive society, but I don't think this kind of generic advice is really persuasive in the different and more turbulent world that exists right now.

Additionally, because of many societal conditions, right now many people think they need to hit on a moonshot to have a good life. And given the direction that inflation and many other things seem to be headed, it's harder to argue that they're wrong. Slightly increasing your financial floor matters little if the floor is still dirt.

Re: What to know about the stock market (2007)

#227

Post by vishnugupta »

Foivos wrote: post #203

One thing is not clear. If person A has 10 items and asks for $10 per item and person B wants only 7 items for $10 per item, what happens? Person A just sells the 7 items and then waits for somebody else to pick the remaining ones? And vice versa what happens if someone wants to buy more stocks than what is offered?

I suggest reading up Market Maker [1].

In most scenario (assuming good demand for the stock you are buying and a functional market etc.,) a market maker, looking at their order book, buys 7 items from A. They sit on it until they are able to dispose off them to a buyer. In effect, you, as a buyer is buying a stock from market maker.

Most of the equity market is not P2P but mediated by market maker. They take the liquidity risk (i.e., holding a bad stock if demand plummets) and are rewarded for that by making money off of every transaction through bid-ask spread.

Of course I'm greatly simplifying as an equity order goes through a bunch of intermediaries but Market Maker play a central role here.

[1] https://www.investopedia.com/terms/m/marketmaker.asp

Re: What to know about the stock market (2007)

#228

Post by xfitm3 »

andriesm wrote: post #106
cj wrote: post #103

Earlier quoted context omitted.

> Either way, sell early and buy the crash. Trying to time the market is akin to individual stock picking. When it works, it’s usually just luck.

No it can be skill. Was Warren Buffet and Charlie munger just lucky, year after year? Was Michael Burry of the Big Short just lucky to short the mortgage backed securities market, no he also side stepped the dot com crash and bought value stocks, recently he had very nice shorts on Kathy Woods ARKK... clearly he isn't just lucky, he has skill. I used to think I have skill yet my results were random for about a decade…

You cite emotional and wisdom/perspective growth, can you opine on that further?

Re: What to know about the stock market (2007)

#229

Post by unholiness »

lvl100 wrote: post #191
shoto_io wrote: post #157

Earlier quoted context omitted.

My stock advice for any rookie has always been the same: - Buy S&P ETFs, most preferably by Vanguard, because they are a non-profit and thus have very low fees - If you have a large sum of cash, go all-in immediately, don't wait for the perfect time - Now, just wait, ideally 10+ years, before looking into your account again

This is such a bad advice. Buying an index is what they want you to do. They want you to buy and hold until you retire. Do you not see the problem with that logic?

The stock market is not a zero-sum game. Money-now is worth more than money-later to companies offering stocks, who know how to earn more money with that money. Long-term strategies simply take advantage of this fact to make long-term gains. Investments are just codified strategies on what ways you can put your idle money to work in someone else's hand.

Buying an index fund full of stocks at their current market price is no more illogical than running code you didn't write yourself. It's way way less work, it probably works better.

Better yet, trusting someone else's market price is much easier than trusting someone else's code because of the thousands of black-hat investors searching for profitable vulnerabilities in the market prices.

Re: What to know about the stock market (2007)

#230

Post by perpetuummobile »

lelandfe wrote: post #188
aqsalose wrote: post #177

Earlier quoted context omitted.

Thing is, I don't think any individual investor is going to experience "on average" stock market patterns, they are going to experience a particular random walk. I think averaging is "better" if you are risk averse and concerned about worst case scenarios.

If said investor is risk-averse, I'm not sure I would be recommending going all-in on broad market index funds either. Generally speaking, we're here recommending approaches to young investors, whose timelines are long enough that risk shouldn't be meaningful. Based off that, the result that will produce the best return on average is not going to be DCA.

The word average is extremely misleading. What most people want is to avoid exceptionally bad outcomes, and e.g. maximize the P10 value of the portfolio in that Monte Carlo simulation.

Look no further than the Kelly Criterion to see an example of maximizing EV being worse than maximizing the median outcome.

As another example, if you have $1M and I offer you a game of chance where I flip a coin. Tails you win back 101% of your buy in. Heads I get to keep it all. The EV maximizing strategy is to put your full $1M stake. But if you follow that strategy (especially if you do so long term) is ruinous.

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