

Should you be trying to pick stocks? - jfi
http://blogs.reuters.com/felix-salmon/2010/05/12/should-you-be-trying-to-pick-stocks/

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zach
Apart from the reasons in the article, I'm going to go ahead and say that, if
you're on Hacker News, you should be learning how to if you don't know
already. If it gets you rooting around the balance sheets of publicly-traded
companies, that has got to be a good thing for understanding how a company
like Apple or Yahoo runs. You should at least get a sense of why someone would
pick a stock. It's a great way to turn analytical interest into business
knowledge.

And beating the averages picking stocks is not that different than doing so
with a startup. Startup founders, in aggregate, never outperform their
opportunity cost. Is that going to discourage you? I really hope not.

Besides, when you learn about this kind of stuff, sometimes you happen upon
gems like this: <http://paste.lisp.org/display/14576>

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jrockway
What's the source of "investors as an aggregate never beat the market"? I used
to believe this, but as I've learned about options and futures, I don't buy it
anymore. (If we weren't beating the market, what would be paying my salary at
an investment bank?)

Even the simplest options strategies can give you a fair return on your money
in a very short time, certainly better than a 5% APY savings account or a 10%
annual return on your index funds. (And, you can use options as security on
your stock positions, and you can use them to make money on your safe stock
positions.)

Anyway, not buying it. You can beat the market.

~~~
loganfrederick
I generally enjoy your posts, but a couple points:

1\. As another commenter wrote, investors as an aggregate _are_ the market
(hedgers, as another listed, are also considered, or could be considered
investors who are investing for reasons other than direct belief in the
individual companies/stocks).

2\. Investment banks don't _need_ to be investing. It's not their business,
which is underwriting securities or acting as broker-dealers for M&A work.
What we've seen in recent years are investment banks with trading divisions,
but the act of investment banking is a separate business, and it's the
performance of the investment banking team that should be compensating them.

3\. You talk about option strategies, but for every move you make, say buying
a call, another party had to have written the option. For individual
investors, your point could still be very accurate. However, at some scale
(though ridiculously large these days), this will break down.

That said, I do agree with your final point. An individual can beat the
market.

~~~
jrockway
_1\. As another commenter wrote, investors as an aggregate are the market
(hedgers, as another listed, are also considered, or could be considered
investors who are investing for reasons other than direct belief in the
individual companies/stocks)._

Fair enough, I set myself up for that. It sort of like, "if a million people
join this group, this group will have a million members", though.

 _3\. You talk about option strategies, but for every move you make, say
buying a call, another party had to have written the option. For individual
investors, your point could still be very accurate. However, at some scale
(though ridiculously large these days), this will break down._

But both parties theoretically benefit. Imagine you want to sell some stock,
but you don't care that it happens today. Just write a call for it, collect
your premium, and if the stock hits the strike price, it will probably be
called away. But if not, you got some free money.

On the other side, the call buyer is protected against a severe market fall.
If he bought the stock and it pulls an Enron, he would have lost a significant
amount of money. But if he has the call option, it just expires, and he is out
a few bucks per share.

So as with anything, spending money isn't necessarily taking a loss, but
getting the money _is_ taking a gain. (Consider homeowner's insurance -- even
though your house is probably not going to burn down, few people consider the
insurance a waste of money. You win peace of mind, and the insurance company
gets some chump change.)

But I guess we mostly agree. I spent a long time thinking there was nothing
interesting about the stock market and that everyone should just buy index
funds, but now I am not so sure. A slightly more aggressive trading strategy
could slightly increase your returns.

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jfi
One of my biggest regrets was giving into fear when the market tipped down in
08 / 09 and not scooping up equities that would likely return to paying out
dividends (I wrote my senior thesis on this investment concept, after all).

I heard it a hundred times on the trading floor but it now very much rings
true: "Buy into Fear and Sell into Greed"

~~~
gojomo
Dividends, sure. But also: AAPL at 83! Barely 17 months ago!

~~~
czhiddy
To be fair, just about any tech stock you bought at that time period would
have had similar returns. (Even MSFT doubled from it's low of 15)

