That kind of stock picking is dangerous.

First, it's easy to look around your little bubble and see that people are lining up at your local Chipotle or that people use Google for solving tech support problems, and conclude that Chipotle and Google are taking off. They may be not be doing as well in other locales/sectors.

And second, how do you know that these signs of promise aren't already priced in? If you can see signs that Chipotle is doing well, so can everyone else. And they have deeper pockets and better information-gathering capabilities than you do. Nowadays satellite imaging and computer vision are used to count the number of cars in parking lots of retailers to predict earnings!

Lastly, there are innumerable complicating factors that the average retail investor has no idea how to account for. Maybe the stock price is low because their EBITDA is barely staying ahead of debt service payments. Did you read the SEC filings? Maybe they're having difficulties scaling their supply chain because they lost a big contract with a major supplier. Do you know enough about the domain to account for how much that should affect the stock price? Who knows, maybe there's even a seasonality factor to the number of people who go to eat spicy food, and your guesstimates will fall apart in 6 months.

I wouldn't even bother with this kind of investing. It's just gambling. If you seem to be winning over time it's either because you're lucky or because the markets are going up in general. So just invest in index funds- you'll have lower volatility and you won't be betting against people who have nothing to do but sit around all day thinking about how to beat you.

I'm sure you're correct, all stock picking is dangerous though. I'd assert that my style is the least dangerous.

> look around your little bubble

I didn't (and don't) have a bubble. In fact, I frankly despise the Bay Area and SV because it constantly tries to put you in a liberal / wealthy bubble.

>If you can see signs that Chipotle is doing well, so can everyone else.

Apparently not, though. They doubled on IPO but most people were still VERY skeptical of them. I could see that they had 100% solved the problem of "fast casual" service.

>Nowadays satellite imaging and computer vision are used to count the number of cars in parking lots of retailers to predict earnings!

That should make you want to invest in the #1 company that manufactures satellite components.

> I didn't (and don't) have a bubble. In fact, I frankly despise the Bay Area and SV because it constantly tries to put you in a liberal / wealthy bubble.

Almost everyone lives in a bubble. Unless you're a nomad traveling constantly, you mostly just see what's in the vicinity of your house or apartment. Your local area with the successful Chipotle is a bubble. Tech support is just one tiny slice of the uses for a search engine- a bubble.

> Apparently not, though. They doubled on IPO but most people were still VERY skeptical of them. I could see that they had 100% solved the problem of "fast casual" service.

Usually when people say this, there was some element that they didn't identify which made the investment riskier than they realized. It seems in retrospect that it was inevitable that the stock would go up, but if you could go back in time and get inside the minds of other investors you might be appalled to learn of the complicating factors that you didn't even take into account.

Just think about it for a moment. Think about how much human effort and capital is poured into price discovery in the markets. Billions of dollars. Teeming trading floors, millions of lines of code, people all around the world running models and analyzing filings and biting their fingernails watching the ticker. Do you think you know better than they do what the price of Chipotle stock should be?

The answer to that question may well be "yes" if you have expertise in the domain and you're experienced with investing and financial modeling. But it's probably not.

> That should make you want to invest in the #1 company that manufactures satellite components.

Which is what everyone else is thinking too. The trick is determining whether the price that the market has agreed on is too high or too low.

You're just assuming that no one can see trends more effectively than you. The reality is that you have no idea how other people see the world, people could be way ahead of you and you'll never know it.

For big companies thousands and possibly tens of thousands of professionals around the world are putting in long hours thinking about what the correct stock price is. They are meeting with management, buying proprietary research, and hiring PhDs to analyze quantitative data. Despite all that the market makes mistakes a lot, and sometimes a perceptive amateur might even be able to pick up on those mistakes. Still, I really doubt that many people are good enough at spotting trends to generate market-beating returns. If they could do it reliably they'd be billionaires.

What a waste, isn't it? Or maybe better put, how presumptuous to think that years of statistical modeling and formal economic theory somehow endow someone with effectively better intuition than the next person. Maybe if those years of training actually lead to better investments there would be something to consider, but you can't argue that professional gamblers are better than casual intuitive ones if the pros don't actually yield better results.

They do. The median active investment fund underperforms the market, but the median active retail investor way underperforms the market.

And the median active investment fund underperforms the market for a reason. If a fund plowed 100% of its investment into the S&P 500 they'd be exposing themselves to laughably high volatility.

With all that human effort and market efficiency, why isn't Amazon getting shorted like crazy, based on ratio trends like this...?

https://market-ticker.org/akcs-www?post=232505

My understanding is that Amazon's management believes that they can "flip a switch" and stop expansion and R&D, making them suddenly ludicrously profitable. Investors are fine with that because the longer management holds off on flipping the switch, the higher the eventual eps will be.

Thank you, interesting take on it. Do you believe them? Is that precedented at all?

> That should make you want to invest in the #1 company that manufactures satellite components.

I understand the idea, and I might agree. I just wanted to point out that in the book "The Intelligent Investor", there was the idea that you could think about investing into the second best player in a certain space.

I think the reasoning was that there is more opportunity for growth for a second-grade company than a first grade company. Maybe the first-grade company is not looking at the problem in an innovative way. I think it probably depends on the case.

I tried to look into "second-grade" in my copy but that's a term relating to stocks, and not the leaders of an industry.

Maybe I'm misinterpreting that book or misremembering it

Edit: By the way, good job on the successful investments! I wish I was as confident about my observations of different businesses.

I'm not sure I'd want to invest in the second-place search engine or second-place social network.

Well, they’re just ad providers, and plenty of people invest in nth tier ad providers.

>I'm sure you're correct, all stock picking is dangerous though. I'd assert that my style is the least dangerous.

Why? Seems to me that all stock picking has the exact same level of risk.

If the stock market were truly random, then yes, all stock picking would be equally risky. But the stock market is a voting machine voting on the future of companies, and is definitely not random. So you could look at two stock picking strategies: 1) throw darts at the Wall Street Journal and buy whatever it hits, 2) buy new companies that are being used by lots of people in your area (the parent's strategy). #1 should give random results centered around the performance of the entire market. #2 will probably give better results, because it incorporates some information relevant to the voting, namely that customers like the product. Which company would you rather have: some random company or a company that people are willing to stand in a visible line for? If there are lines, either people need the product or they love the product, and either way that tends to correlate with profits.

But #2 historically does not give better returns. Since the information is already public it has already been included in the price of the stock. The vast majority of investors are not smarter than Wall Street.

As someone who has done some gambling in the stock market using this kind of thinking it has not been a good strategy compared to just buying and holding index funds. Sometimes I get lucky and sometimes I get unlucky buying individual stocks but my most best returns have been buying broad index funds and holding them.

Exactly.

That a great example of survivorship bias! Take a successful outcome and look back for decisions that must have led to it.

This ignores the people who also "saw the obvious" in 2003, 2008, and 2014 who lost their shirt.

The issue with your argument is pretending the stock market is similar to a coin flip. That's a very facile comparison. In reality each company is a very complex black box in which you can only see very limited internals.

The examples I listed were not random chance. They are companies that had absolutely dominated their market positioning and were later massively rewarded for doing so. It's fairly easy to see when a company is eating everyone else's lunch.

Again, it isn't just random chance. It also isn't rocket science..

The typical argument why traders don't make money is not that the stock market behaves as a coin flip. The argument is that, if you see "obvious momentum," many others in the market are likely to see that too, and the current stock price already factors all of that information in.

Of course, it is possible that one beats the market if either 1) one has privileged information, or 2) one has exceptional insight. Both situations are possible, but rather implausible.

I'd agree with that 100%. The coin flip example is what I was taking issue with. While it's a good illustration of survivorship bias, it does not apply to the stock market as the stock market isn't random.

> It's fairly easy to see when a company is eating everyone else's lunch.

If it's so easy, then everyone would be buying the stock and it would be pushed up. Then you're risking buying an overpriced stock that's not going to be able to deliver on the expectations required for it to pay off.

Amazon is clearly eating everyone else's lunch in its domains but then it's trading at over 275 times earnings. It's not remotely obvious that you should buy Amazon stock at that price.

Tesla is a good example of that. Much riskier investment.

I've personally invested all my capital into my own ventures at this point, so I haven't really thought much about the next big thing, stock-wise.

But, short answer, look around at what products people (or businesses) are addicted to now that they weren't two years ago.

Not many people I know are addicted to Teslas. And Amazon was just as addictive two, or even five years ago. So it's well past its prime now (lol).

Tinder is doing great with millennials. Match Group stock is up 100% YoY.

Your reasoning seems to contradict itself, it's a very complex black box of limited internals yet you were able to still easily glean big winners?

Stock picking is the same as gambling, you look for value and try overtime to beat the market. Also like gambling is how people remember and talk about their wins but forget/ignore their losses.

Think about it differently though. He didn't really pick stocks, he picked well established products or brands that started doing or (despite a correction) continued to do well.

If the market would crash 30-50% tomorrow, which stocks would you buy? Probably Google, Apple, Facebook, Amazon, and the likes.

Everyone has losses, and you can't always be right. But within your area of expertise or interests, you should probably be able to pick a few good stocks of good companies because you actually care and understand how they operate. But to do it structurally and consistently is harder.

I'm sure someone will reply bullshit, but that's at least what I believe. The market isn't efficient.

Because I don't look at the internals, I look at the outcomes.

Eg - Everyone using google, everyone eating at Chipotle, everyone being addicted to cell phones, etc.

Picking stocks based on "everyone uses..." is a great example of a bubble. What about all the companies that are not consumer facing?

A bubble is "everyone buying because everyone knows someone will buy even higher." "Everyone uses..." is a great example of a revenue generator. I assume you are meaning that you buying based on popularity of places you frequent is an example of an echo chamber?

Regarding non-consumer facing companies, I don't see what the problem is. If you have no information about the company, then it's gambling to buy it. So you miss out on some companies, no big deal. Most people only have enough money to make a few bets, so you should bet on what you know about. It's not like a test where you lose points if you don't answer a question; you don't lose money if you don't buy a stock you don't know about.

Please tell us about your big failures as well - statistically you must have had some, and I’m sure you’ve been tracking them with equal rigour?

I've only invested in five stocks. Four are listed above, the fifth was basically an OTC penny stock in 2009 that eventually went out of business.

Your last five stock picks were winners. And yet strangely, every academic study done on this indicates that the chances your sixth pick outperforms the market is the same as someone whose last five picks are losers. I know it seems strange, but you are a living example of the lucky coin flipper analogy.

How'd you miss on Domino's Pizza? Could have picked it up for about $5/share back in November of 2008. Closed at $178 today. You'd be up about 3460% in 9 years. Google (+574%), Amazon (+2000%), or Chipotle (+350%) can't touch that - assuming you bought all three in November of 2008 and sold today.

I had no idea Dominos outperformed the rest of the food industry to that extent. Sort of crazy.

Those are all your stock picks in the last fifteen years? No losers at all?

Buying Google pre-IPO is a very clever trade, you must be a market wizard.

Stories about buying stocks is utterly useless.

When did you sell? And what is you track record of wins vs losses?

Are those the only stocks you have picked? Have you picked any that didn't do as well? Or any that were losers? What led you to miss on Apple or Priceline?

I picked one OTC penny stock loser in 2009 that went completely out of business. Something associated with vertical farming.

I missed out on Apple because almost NOBODY used Apple in the Midwest in the mid 2000's -- everything was MS. That's a great example of me living in a bubble (which I just said in another comment that I didn't, but there ya go)

I missed out on Priceline even though the tech support center I was working in had a whole division dedicated to doing their customer support! Basically, they just never seemed "legit" to me, they seemed like a scam, who the hell wants to "choose your own price" for something important like a flight and then wait and see if it gets accepted? Very weird to me. People also never seemed too excited about them in general... extremely hard to predict they would become the acquisition masters that they did.

Both solid examples of blind spots in my strategy.

“Everyone using their tech support” doesn’t appear to be a viable purchasing decision for a company’s stock.

...Google's IPO was late 2004.

How many losers have you picked?