[Esophagus4]

I would have said this, but someone responded with a comment that stuck with me:

We’re on a forum of an incubator whose goal is investing in high risk startups to find the next unicorn. So there are probably people here who feel the same way about investing.

While the average outcome of indexes is probably better, the best case outcome of an individual stock is probably better.

It’s lower likelihood and not as repeatable, but for some people, that’s the strategy they want.

[throw0101d]

> While the average outcome of indexes is probably better, the best case outcome of an individual stock is probably better.

Most stocks suck:

> We study long-run shareholder outcomes for over 64,000 global common stocks during the January 1990 to December 2020 period. We document that the majority, 55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, we find that the top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the US, 1.41% of firms account for the $US 30.7 trillion in net wealth creation.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251

> Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447

And it's not always the same 2-4% of stocks: a stock may shoot up in value, and if you're holding it at that time to can capture that, but once it has already gone up it may perform average-to-poor going forward. At that point, if you're still holding on it, it will be a drag on your (average) returns.

[Esophagus4]

I don’t disagree at all (I have no individual stocks, only indexes). The average retail investor doesn’t beat the market.

However, the top 10% of retail traders actually can generate consistent returns.[1]

Consider that MSFT has gone up 10x over the last ten years while the S&P has risen 4x. Ethereum has risen 2500x in that period. TSLA has risen 270x.

Not saying these returns are typical, but I can imagine that a highly aggressive retail investor could, with a few good trades and a lot of confidence, do incredibly well and end up with a life-altering amount of money. Obviously, the chances of both entering AND exiting the trades to capture all of that is low.

Again, not my style, but I respect those who want to place their bets.

[1] https://www.bus.umich.edu/pdf/mitsui/nttdocs/coval-shumway2....

[throw0101d]

> Not saying these returns are typical, but I can imagine that a highly aggressive retail investor could, with a few good trades and a lot of confidence, do incredibly well and end up with a life-altering amount of money. Obviously, the chances of both entering AND exiting the trades to capture all of that is low.

The problem is the existential question of knowing whether you are good (in absolute and relative terms) or not:

> 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.

> And the payoff you do eventually get has to be compared to the payoff of buying an index fund like the S&P 500. So, even if you make money on absolute terms, you can still lose money on relative terms.

* https://ofdollarsanddata.com/why-you-shouldnt-pick-individua...

[HFguy]

Weird you are getting down voted. And you provided sources for your assertions.

[throw0101d]

> And you provided sources for your assertions.

Feelings don't care about facts. — not Ben Shapiro