I don't think this is it. In fact, I think it's the exact opposite. I think risk aversion is what's justified by default. You don't need to defend being steadily employed or your lack of interest in stocks. It's the reasons people give to take risks that most of us are challenging.
Stock trading is gambling. It just is. So to deny it's gambling is already a red flag. To say you have more information than other people is another. And to say you're smarter so you're okay, well, maybe you are, but no one is smart enough to compete with those who cheat. And if you're cheating, none of these comments apply to you.
So for those who insist day trading is profitable, the empirically backed scientifically proven answer is simply, no it's not. And that's why it's so easy to knock on those who disagree with this claim. Yes, people make money, but so does every single person who continues to gamble. If you never won, you wouldn't keep gambling.
But to be fair, for entrepreneurs, it's the decision to not have a steady job that needs defending and that is analogous to the irrationality of the day trader. They may claim it's a great idea, but the empirically backed scientifically proven answer is, no it's not.
But I think a key difference in values is that entrepreneurs feel like they're actually building something. They value their work. And that's where you just have to agree to disagree. Passion is not an opinion.
If we all just bought indexes, of course, none of that would happen, capital would be divided conservatively according to the index manager. So at a higher level, there has to be some strategy that works beyond a brain dead index one, or markets wouldn't be successful at all. There must be some smart players out there that are doing efficient capital allocation (maybe not day traders, maybe not most of us, but someone...).
> There must be some smart players out there that are doing efficient capital allocation
Right. Either that, or they're encouraging day trading from behind the scenes (which would totally explain the financial news networks). And that's why the system frightens the shit out of me.
No, value investing means you buy companies that you believe are underpriced for whatever reason [0]. Its an important distinction.
Value investing does involve investing in companies you believe in, but that belief stems from research and a deep understanding of the market and intrinsic value of the company you are investing in.
The more you truly know prior to investing, the better your investments will likely perform. The key is to eliminate areas of uncertainty (which may ultimately be gaps in your own knowledge).
I've had a similar line of thinking recently. Sure, average investors lose money on active trading. Well, let me tell you what an average investor looks like. They have little to no accounting background, no coherent thesis for their investments other than "it's hot", they lack even a rudimentary understanding of 101-level finance topics like NPV/IRR/cost of capital, they have no informational edge one gets from working in an industry, no understanding of tax law (either personal or corporate). They're basically gamblers. They look at stock charts, see a big line going up and to the right, and guess / let FOMO take the driver's seat. Oh, and they probably think watching Jim Cramer counts as "research". They also have no appreciation for the fact that individual securities within an asset class are highly correlated and misattribute the asset class's performance to their "stock-picking" prowess.
I've been thinking, if one is willing to do actual primary research -- reading financial statements, getting on investor calls, really thinking hard about long-term trends, reading history, etc., there's almost certainly alpha to be had. Do people honestly think indexing is the best way? The UK just mandated that all coal generation will be gone by 2025. Is this really a time to be buying coal stocks? Or cigarette companies?
For me it's about risk/reward. I was talking to a friend at a wedding two weekends ago who manages a prop book (his own cash) of about 2-3 million. If he can get 15%/year consistently, that's about 300-400k pretax. He lives in Puerto Rico where there's apparently a tax loophole where capital gains of any character -- short or long-term -- aren't taxed. I'd bet he's coming out ahead of 95% of the people reading this thread. And yet, life isn't all about money.
I guess what I'm saying is, I also disagree with this "orthodoxy" of index, index, index. Maybe I'll sound arrogant saying this, but I'm not an "Average" investor. I trade once/quarter, read the Ks and Qs for every company I'm investing in, and have written theses that guide my decisions. I'm not a millionaire yet but I'll let you guys know how it goes after a while. I was a pure, 10+ year indexer until about 6 months ago.
http://www.smh.com.au/money/shares-race-week-4-the-dartboard...
"they'll all lose in the long run!"
It seems that many people that we all know do become quite
rich as investors, and the secret to their good fortune is
not apparent. Studies promising us "they'll all lose in
the long run!" makes us feel good about our decision not
to participate in the game.
Nowadays, much like YC, he's a brand, so while he might be a very smart and capable investor, it's his deal flow that puts him in such a strong position. He gets calls normal people don't get because he's made a name for himself over the past 50 years and people want his name for their company, as much as anything else.
I wonder what lesson can be drawn from all this. The primacy of reputation in today's world?
A smaller investor who tried to duplicate that strategy would have been stopped out due to margin calls. For example it isn't everyone that can sell, and hold, a ten year billion dollar put on the S&P 500 like BRK did in 2008.
Money is a tool to me, and an annoying one at that. I kind of hate it. I want to think about it and handle it as little as possible in my life. So I make the financial fire and forget decisions.
I take all the exciting and potentially rewarding risks in the other parts of life.
It seems to generally come from a place of binary/analytical thinking which we're all so good at. Studies show that active investing is a losing battle for the average investor, so we assert that as fact and invest our money that way.
But I think deep down in myself (and probably others) it comes from a place of wanting to justify risk aversion. It seems that many people that we all know do become quite rich as investors, and the secret to their good fortune is not apparent. Studies promising us "they'll all lose in the long run!" makes us feel good about our decision not to participate in the game.
It's similar to the derision of startup equity, etc. I know many people who have become very rich at a very young age by latching on to the right startup, but I like my comfortable BigCorp job. The HN comments are a place where I can feel smart about my decision to not take risks even as we celebrate those who took risks and won.
Anyway I don't know why I chose to write this comment or explore this topic at this moment, I hope someone else reads it and understands my sentiment.