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by dninednjwryv
1693 days ago
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Dude I’m too busy to argue with you, I literally used to regularly interact with people making these returns. Yes it’s hard and it’s a full time job. But it happens all the time, academic research is worthless. Accepting index returns basically means keeping up with inflation, and “getting rich” at 70 years old. If that’s what your aim is in life then sure, go for it |
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I don't doubt that many people have managed to accomplish good returns. But you have to do it for the ~30 years to build a nest egg for (e.g.) retirement, and then another 20-30 years post-retirement to preserve said nest egg.
But there's a huge problem:
> Instead, I am going to argue that you shouldn’t pick stocks because of the existential dilemma of doing so. The existential dilemma is simple—how do you know if you are good at picking individual stocks? In most domains, the amount of time it takes to judge whether someone has skill in that domain is relatively short.
> For example, any competent basketball coach could tell you whether someone was skilled at shooting within the course of 10 minutes. Yes, it’s possible to get lucky and make a bunch of shots early on, but eventually they will trend toward their actual shooting percentage. The same is true in a technical field like computer programming. Within a short period of time, a good programmer would be able to tell if someone doesn’t know what they are talking about. […]
> But, what about stock picking? How long would it take to determine if someone is a good stock picker?
> An hour? A week? A year?
> Try multiple years, and even then you still may not know for sure. The issue is that causality is harder to determine with stock picking than with other domains. When you shoot a basketball or write a computer program, the result comes immediately after the action. The ball goes in the hoop or it doesn’t. The program runs correctly or it doesn’t. But, with stock picking, you make a decision now and have to wait for it to pay off. The feedback loop can take years.
[…]
> Just imagine how nerve-racking this must be when [temporary underperformance] finally happens. Yes, you had skill in the past, but what about now? Is your underperformance a normal lull that even the best investors experience, or have you lost your touch? Of course, losing your touch in any endeavor isn’t easy, but it’s so much harder when you don’t know if you have lost it.
* https://ofdollarsanddata.com/why-you-shouldnt-pick-individua...
If people think they'll be able to meet their goals picking stocks successfully for several decades, they are free to try. But in my estimation the odds are not on their side. I prefer to play the odds. ¯\_(ツ)_/¯
> Accepting index returns basically means keeping up with inflation […]
Inflation has been <3% over the last ten years in the US. The S&P 500 (for one) has returned much more than that on an annual basis. Even with the 'Lost Decade' of the S&P 500 in the 2000s, simply having 20% bonds (and perhaps rebalancing) would have been sufficient to overcome inflation.