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Leperflesh posted:How an investing neophyte thinks: Reading your posts is strange, because you clearly have done some minimal amount of reading on finance (mutual funds are bad, stocks are broadly random and top performers are generally a product of randomness rather than underlying skill), but then you spout drivel about 'downward corrections' and 'buy low sell high' which shows that you really don't understand anything at all... tuyop posted:Alright, I put my 610 dollars from my TFSA into a Canadian Index mutual fund with TD. It has an 80/20 equity and principal split. Over the past year it's had a 10% return. I went high risk on the whole thing because I've been treating that TFSA as a last ditch emergency fund and haven't touched it at all this whole time, but it's really part of my emergency fund. There is almost zero year-to-year correlation (in terms of performance relative to competing products) for mutual funds. blah_blah fucked around with this message at 21:49 on Mar 1, 2012 |
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Mar 1, 2012 21:32
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bam thwok posted:I found it pretty astute. When a smart investor sees an asset beating the poo poo out of the market, he should take his money and run since he knows that there is no such thing as long-run above market returns. Leaving aside for a second the fact that this is obviously false (see e.g. Berkshire Hathaway or Renaissance Technologies), the idea that there is an active force causing excellent performing products over some time interval to underperform the market mean over the next time interval of the same length (i.e., a downward correction) is just absurd. That is not how mean reversion works and it is completely different than the assertion that year-to-year rankings of products like mutual funds are essentially uncorrelated (you are arguing that there is a clear negative correlation which is not borne out at all by data). While markets are certainly not as efficient as theory of finance textbooks would like to pretend, you and leperflesh are arguing that markets are noticeably inefficient in a very simple way, which brings up the obvious question of why you and he (and presumably all the other people smart enough to notice this 'phenomenon') are not multimillionaires from shorting successful companies. bam thwok posted:And "Buy low sell high" is the only way (aside from dividends) to make money on an investment, unless I've missed something? For an individual investor without privileged information it is basically impossible to "time the market" and you should assume that information relevant to the expected future success or failure of a stock has already been priced in. A stock that is cheap or that has had a recent decline in value is not necessarily undervalued. In the absence of specific data, it is still better to pick performers with a good track record than a bad track record. This is because while it is extremely difficult to come up with a strategy that beats the market in expectation over a lengthy time frame (or any time frame really), it is easy to come up with strategies that underperform the market (in particular, strategies absorbing excessive transaction costs or management fees).
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Mar 2, 2012 02:25
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bam thwok posted:It's not absurd; I do believe that there is an active force that puts downward pressure on high performers, and it's called corporate complacency versus competition in free markets. Unless you can quantify this theory in some meaningful way this is basically the narrative fallacy. You could have said the exact same thing about Apple stock the first time it hit $340 or $440 and of course you would be obviously wrong. This theory has no predictive power and consequently is worthless. When Apple stock hit $400 in 2011 and then dropped to $350 there probably were pundits claiming that this price change was really indicative of some sort of fundamental flaw in management or an inevitable consequence of some larger macroeconomic trend and of course they were wrong. bam thwok posted:You can try to cloud the issue by smashing everything with your efficient market hypothesis hammer, I don't believe that markets are efficient, although broadly I believe that from the perspective of an individual investor they may as well be. If you restrict your attention to standard investment vehicles that regular people invest in (like mutual funds or bonds or whatever) the market is essentially indistinguishable from an efficient one. Again, there is essentially zero correlation if one considers the year-to-year performance of individual members of a large set of funds. This is very well documented, but yet you are insisting that there is a noticeable negative correlation.
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Mar 3, 2012 03:33
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tuyop posted:Thank you, you guys are awesome. Nah, you are. Congrats on turning your life around and becoming happy.
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Jan 23, 2014 06:46
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