rossington wrote: ↑Mon Nov 04, 2019 1:16 am
arcticpineapplecorp. wrote: ↑Sun Nov 03, 2019 2:01 pm
At least I've provided evidence in this post to substantiate my claims that buying individual stocks is the Loser's Game
Thank you for the links...appreciate it.
But I must ask are you adamantly saying that
no one should invest in individual stocks because it is impossible to increase the value of their investment and it will 100% of the time result in a loss?
no I would never say that. In fact William Bernstein said it better than I ever could:
“...concentrating your portfolio in a few stocks maximizes your chances of getting rich. Unfortunately, it also maximizes your chance of becoming poor. Owning the whole market—indexing—minimizes your chances of both outcomes by guaranteeing you the market return.” (The Four Pillars of Investing by William Bernstein, pg. 102).
So of course if you could pick right lottery ticket, you will beat the market. But there are so many odds against you it's not even worth trying. That doesn't stop people of course. Not to mention the fact that so many people who might beat the market don't consider the amount of risk they took to do so, and if they would look at their risk adjusted returns would likely find that even though they might have beat the market (over a short time) they still weren't rewarded for the amount of risk they took.
But I often find the people who swing for the fences are people who say they have "play money" but haven't even amassed enough to retire yet. So they're divided in their goals or they're trying to reach their goal (save for retirement) in split ways (the sensible way, owning the market and buy and holding for the long term and investing consistently) and at the same time siphoning off money that should be used for that purpose to essentially gamble with.
But people who can least afford to lose money are usually the ones spending their precious few dollars on lottery tickets where there's a negative expected return.
It seems homo economicus is extinct indeed.
People usually only tell you about their winners. You may do the same. Who wouldn't want to forget about their losers? If you're honest with yourself what you probably find long term is a very few stock picks do well, some do poorly and most do average. It's not likey you'll do better than average overall, but people don't look at their portfolio overall. They focus on their 10 baggers or whatever you call them. But what about all the picks that did average or below average. Oh, don't look at those. How bout that 10 bagger!
you keep making the point that owning stocks improves your returns, but there's no evidence for that in the aggregate. On the margin it of course will happen for a chosen few (there are always right tails to any distribution of normal returns), but it's not likely since most will be average before costs (and below average after costs). But everybody believes they're above average. They're not. If they realized that, they wouldn't have what's known as overconfidence bias.
Most fund managers underperform the market (only 20% outperform in any given year but don't continue that trend). If million dollar managers with supercomputers and a crack research team of tens or hundreds of analysts who work 60+ hours a week to try to beat the market can't do that, what makes you think you can?
If you believe you will beat the market long term, you have fallen victim to overconfidence bias.