[eru]

As a retail investor, you should buy an index fund and then forget about it.

By the time you have read this article, the professionals and their computers will have digested that material a thousand times over and have priced it in.

To be more precise: buy the lowest cost most diversified index fund you can buy and then hold it. If you want to spend some smarts to get a better return: look at how to minimise taxes and fees.

[dgellow]

> By the time you have read this article, the professionals and their computers will have digested that material a thousand times over and have priced it in.

I think you overestimate traders. What we call smart money is very often really, really dumb from a macro perspective. Professional traders believe hype and follow trends. There is still at least 2 thesis playing out at the moment for the AI trade, and you don’t need to be a professional trader to take part: one is the AI impact on saas (the market has been very bearish on SaaS companies, and still hasn’t corrected meaningfully), and the ai infrastructure (hardware companies + hyperscalers)

[eru]

The average professional trader might not be that smart, who knows. But:

(A) I am not confident I am smarter than the average professional trader here.

(B) You don't need to win against the average professional trader: you need to win against the smartest ones. And: I'm not so sure I am smarter than the average professional trader anyway.

About your theses: my null hypothesis is that these things are already priced in.

[dgellow]

You actually don't need to win against the smartest ones, it's not really who is on the other side of the trade. There is an interesting dynamic where the space where retail investors operate isn't really the same space as the "smart money", and because of that there are a lot of small-ish arbitrage opportunities that you can advantage based on your industry expertise (I don't mean insider trading, I mean your understanding regarding how your industry is evolving). Relying on an ETF is perfectly fine, it's way less stressful and gives you the safe-ish exposure to the market most people want. But if you want to do active trading by picking stocks (and you don't mind risking losing your money), you really don't need anything too sophisticated.

That being said I would really not recommend people who don't have money and time to lose to actively invest. It's a fun hobby and can be pretty profitable, but not for everyone

[eru]

> That being said I would really not recommend people who don't have money and time to lose to actively invest. It's a fun hobby and can be pretty profitable, but not for everyone

Do you have any idea on the risk adjusted returns of your hobby? As far as I can tell, it's counterproductive for most people. (And if it ain't, you should probably go earn the big bucks at a hedge fund instead of whatever you are currently doing.)

And _iff_ you want more risk, you can add leverage to your portfolio instead of concentrating on individual stocks.

I say 'risk adjusted returns', because if the general market went up, it's relatively easy for some folks to be up more if they got lucky and concentrated on the winners (but equally easy to get unlucky and get below market returns).

Btw, I live in a jurisdiction without capital gains tax, so in theory active trading would be especially lucrative for me; I just doubt I can beat the market.

[icedchai]

I've been averaging into IGV (Software / SaaS ETF) over the past few months. Before that, I was averaging into CIBR (Cybersecurity ETF.) CIBR has bounced back big time, while IGV is only up a bit.

[eru]

Why the averaging?

[icedchai]

Mostly, I didn’t have all the cash to invest at once. There is also a psychological component: I feel better investing on down days.

[ghtbircshotbe]

I like it how morningstar provides a graph of the stock price and morningstar's target price for the past few years, and the target price always closely follows the stock price, even as the stock price fluctuates wildly. All that genius analysis somehow concludes that the company is worth exactly what the market says it is, right up to the point that it doubles/halves in price.

[Eddy_Viscosity2]

How does 'the market' properly set prices if everyone blindly buying the same things without any discriminators?

[eru]

What do you mean by everyone?

Btw, keep in mind that index funds are really keen to lend out their shares to short sellers.

[dgellow]

depends entirely on your definition of price. But generally speaking, the idea that the stock market is efficient at allocating resources is just not true. It's an ok-ish thing to say for a 101 course (i.e a first introduction) on the topic, but it very quickly becomes clear how inefficient things can be in practice

[csomar]

I wonder with the spacex thing if this should be revised. “Smart money” have figured out what you are doing and they are at the gates.

[eru]

Sorry, could you please explain?

For the record, I deliberately picked an index fund (VWRA) that's not choosy about who to admit, so SpaceX would have been in there pretty quickly no matter what shenanigans they are doing with the S&P500.

[csomar]

Introduce a vapid company(ies) to the index that will have no future cash-flow and withdraw the liquidity to these "investments". If your index fund has SpaceX in it, Elon musk has basically funneled money out of your retirement account to his insanity rides.

If you think SpaceX has even a minuscule chance of succeeding then this conversation doesn't make sense to carry on.

[eru]

There's like a few thousand companies in the index my ETF is following. I don't have opinions on every last one of them. I just (automatically) follow the market consensus.

Keep in mind that index funds are generally really, really keen to lend out their shares to short sellers, too.

[worik]

> As a retail investor, you should buy an index fund and then forget about it.

That definitely was true.

I am unsure it is still true. Index funds have taken so much of the trade volume the are becoming momentum strategies

So long as you are happy following the market wherever it goes, and if the recent past is a guide then up is the direction, then yes.

But given the nepotism and corruption in the highest reaches of USAnian society (e.g. Trump's crypto currency scams and the blatant inside dealing and rule ignoring of the Space X float) the future looks much less certain than the past

[eru]

> I am unsure it is still true. Index funds have taken so much of the trade volume the are becoming momentum strategies

I don't understand how that's supposed to work?

Btw, keep in mind that index funds are typically really, really keen to lend their shares out to short sellers.

> But given the nepotism and corruption in the highest reaches of USAnian society (e.g. Trump's crypto currency scams and the blatant inside dealing and rule ignoring of the Space X float) the future looks much less certain than the past

That's a big part of why I am invested in a global index fund, not anything America specific.

[collabs]

The future always has risks but the question is that does an option better than index funds exist?

[eru]

Depending on jurisdiction and taxation, yes. Eg in many places owner-occupied housing is favoured, and might make sense to acquire, even though otherwise it's silly: a single lumpy usually highly levered position; no diversification; multiple times your networth and with very high transaction costs.

[rapind]

I think there is now so much passive investing that wall street and tech bros are gaming it, and it's no longer based in reality (fundamentals). I mean Elon's deal to get SPCX short listed with NASDAQ was directly targeted at 401(k)s.

Not sure how it's all going to play out, but this ginormous increase in passive investing over the past decade or so, mainly in S&P 500, seems like a vulnerability. Small cap might be a better (non-sexy) target long term.

[eru]

> I think there is now so much passive investing that wall street and tech bros are gaming it,

Yes, they are supposed to! And they are supposed to compete for the privilege. That's how index funds can add and remove stuff from the index so cheaply.

I agree that the S&P500 is not an optimal index. I picked something (VWRA) that's more diversified and less picky about who to admit.