I would add this quote from Fooled by Randomness:

Unfortunately, the inherent randomness of stock markets means that, just like millions of monkeys hammering on typewriters for long enough can eventually produce Shakespeare, so can unskilled investors produce great track records. In fact, it is very likely that some will.

Consider for example a cohort of 10,000 investors who, for the sake of argument, are relatively incompetent: each year they only have a 45% chance of being profitable. In other words, you would basically be better off investing based on the flip of a coin.

Nevertheless, despite their lack of skills, after 5 years based on probabilities alone we can expect almost 200 of them to have been profitable every year. They would boast flawless track records and enjoy praise for their exceptional skills.

Of course, in the long run, the randomness that sustains these “acute successful randomness fools” will turn against them. Wall Street has seen many traders, who after years of success have one devastating quarter where they lose everything in one huge blow-up.

Often their short-lived success was due to the fact that they simply happened to be at the right place at the right time, i.e. pure luck.

We often mistake luck and randomness for skill and determinism.

Don't let nit-picky facts like that institutional investors control substantially more capital than retail investors get in the way of a good narrative.

No, there is no good reason for Tesla to be valued the way it is - but there is no shortage of people willing to buy it without putting too much thought into the price, either.

* https://en.wikipedia.org/wiki/Mutual_fund

Perhaps the Dow Jones was small enough of an index to keep track of manually, but things like the S&P 500 would have been harder (never mind the Russell 3000 or total market):

* https://en.wikipedia.org/wiki/S%26P_500_Index#History

Then there had to be interest from investors. So it's not entirely surprising that it took until the 1970s with Vanguard to really create something.

https://www.goodreads.com/book/show/106835.The_Intelligent_I...

Based on how the stock market didn't die during the pandemic vs. how many people lost their jobs, I'd say they are right to believe that.

And if you're just a regular wage earner with some cash, seeing the labor market being dropped on its head, maybe this stock market thing might be a good idea to try. I mean, some people definitely bought stocks with the $1200 stimulus check. Getting into the stock market (which ended up doing unreasonably well) was a way to hedge against losing your job (which you had a higher likelihood of losing).

I would say it’s far too early to draw conclusions about the pandemic stock market, and certainly to say that an observation which has generally been supported by data for the last century or so is no longer valid.

It feels better to believe that the success of others is due to luck and that your failures are due to randomness. Sometimes, other people are more intelligent / skilled / harder working.

It is certainly possible to beat index funds, many do so, some of them are mostly lucky, some of them are mostly skillful.

It is certainly possible to beat index funds, many do so, some of them are mostly lucky, some of them are mostly skillful. - That is the trick ain't it? The hole point is that there is no way to distinguish between the two (a priori) and no way to deduct if it will lead to future success (posteriori).

There are some good reasons for this:

- If you created such a company, you may still be running it. Jeff Bezos, Mark Zuckerburg, Larry Ellison. By the time you retire from that you're super wealthy and old, there's little reason to start over.

- Founding a company is HARD. Few people who went through that once are interested in doing it again. Paul Graham wrote about how he feels that way, although he did do it again with YC.

But I think the point is fair that success at that level requires not just skill but a lot of luck of being in the right place at the right time with the right idea and the right combination of skill and connections to pull it off. It's extremely unlikely.

You can certainly say Bill Gates and Mark Zuckerburg are skilled and they work hard. But it's clear they were also very lucky.

That's three billion dollar companies so far and counting. Is there anybody else who's done that? Not to my knowledge.

He quite likely has some kind of savior complex, he's quite literally trying to save the world.

A fascinating and incredible human being.

The fact that you think he's doing it for humanity is laughable.

Square is a fine company, but let's face it, it is not changing the world. It's just another payments company with nothing particularly special to make it stand out.

I don't think you can compare him to Elon Musk, except again, the fact that they both work hard. Plenty of people do.

Regardless of whether it is a matter of luck or skill, in practice almost nobody has beaten index funds over long periods like 10+ years.

A scammer will set up a bunch of systems trading some relatively small amount of real money and let them do their thing. After some time, some number of their robots will have actually made a decent amount of money, at which point the scammer will start offering the trading robot for sale on various marketplaces. Hundreds of people buy the robot and quickly find that it doesn't really make money.

A lot of success in investment seems to me to gravitate around what the general populace thinks is valuable or should be valuable. I often find that can sometimes drastically differ than assessments I form based entirely on niche expertise I have in a domain. It's a lot more about asessing perception, ability to manage consumer/investment perceptions, and momentum of perception than it is about assessing functional advantage.

When I make an assessment in an area with niche expertise, I often realize I need to then think a lot more about how other people will perceive and assess the same information. Usually my assessment of others' perception better predicts success than my personal assessment, anecdotally speaking.

The good news is, from my niche expertise domains, I usually have a fairly good sample of interactions with those outside the domain to sample their misperceptions and find what it is people think vs what is actually going on. What I fail at is then predicting the irrational decisions that follow after because that distribution seems to be almost random.

Because of this, I stick with indexes which are a sort indirect popularity listing.

If you notice that there's a big emotional or even tribalist resistance to a new technology or a business model, then that's probably a good investment, if you know that fundamentally it's going to work. The best investments are those where the general population is wrong, and their mistaken judgement is caused by psychological reasons or emotions rather than facts. The facts will win in the long run.

  Buy/sell where you have unique expertise. *If you work in the toilet hardware industry, buy/sell stocks related to that industry.*

Most of the success came from adjacent segments. You have enough knowledge and experience to make an educated guess on the adjacent segments but you are not involved enough to be knee deep into it and can’t see the forest from the trees.

I've had solid returns from investments in industry segments I've worked in. The strategy outlined above by wegs2 reflects my thoughts almost exactly, including not investing more than 25% into these "personal experience" investments, since it inevitably means putting many eggs in few baskets. Most of your investments should be in lower-risk, highly diversified things like index funds.

I'd add a couple of additional things:

1. I'm pretty confident about predicting the success of an industry, but not individual companies. There's just too many factors in play to predict individual winners and losers. So within the "personal experience" investments, I hedge across several competitors who I think have good prospects. (Happily, all such companies have done well, so I guess I've avoided winner-takes-all outcomes.)

2. Even in industry segments I'm very familiar with, I avoid companies that are prominent household names. I think there's just too much investor psychology wrapped up in this, and overvaluations are more likely. So I avoid investing in companies like Google and Apple. (Granted, if I had invested in Apple it would have done well! But it being a household name gives me cold feet.) One way to avoid this is to consider upstream suppliers the general public may not be familiar with, but nonetheless produce great value and have good prospects.

Another was Pep Boys, the name is stupid, hard to pitch to an institutional investor, but made tons of money when someone got over their embarrassment.

Aside from biases, He called out La Quinta, you experience doesn't have to be super deep. The guy recognized it was clean, inexpensive, not the Ritz but a solid deal for what you got.

The last strategy that I thought was sorta odd (but makes sense) is companies that own big chunks of other companies. Their example was AT&T being cheap, but owning big chunks of cell phone companies. We sorta saw the same thing play out with Yahoo and Ali-baba.

Peter Lynch! One up on Wall Street! Probably super dated now, but was a pretty interesting perspective on trying to see things other people didn't see.

I guess, the gist is, if all trades are just coin flips, it won't matter anyway. But if you're really committed to investing in a single stock (and you probably shouldn't), have yourself a reason to think you have an edge. maybe the whole sector is growing, pep boys, auto zone, o'rielly and you can't really go wrong.

If you're going to the casino anyway, play a game where you at least understand the rules.

A second problem with (2) is that working in a particular industry makes you already massively `overweight' that sector. If something goes wrong with that industry, you could be out of a job. The last thing you need is for your investments to go wrong at the same time.

(2) You manage that with diversification. I'd never allocate more than 25% of my portfolio to my own active management. My expected returns are slightly higher than index.

(2a) Buying stocks for my employer or their competitors would be difficult for insider trading. I'm much more likely to buy adjacent segments: suppliers, customers, etc. If I'm picking a supplier, I'm uniquely qualified to have alpha on their stock. On the other hand, my own job isn't very exposed to market changes in those segments.

First: “The markets will remain irrational longer than you will remain solvent.” Fed policy pumped in too much dumb money. If you don’t think like them, you lose.

Second: “Markets create their own reality.” Dumb money eventually creates smart results. Today access to capital is far more important than any other factor in success.

Third: “Opportunity is blood in the water.” Good investments are entrenched stable markets. Disruptive technologies kill margins for everybody.

Given fed policy, the outlook of the market seems rational. Why would the Fed not engage in expansionary monetary policy during a recession? Just so that the market better reflects how you "feel" it should look?

Fiscal policy can be applied much more carefully and is often far more efficient.

If you answered yes to both questions, then you can consider not selling your RSUs. If you answered no to either or both those questions, I would strongly consider selling enough of your vested RSUs to turn those into yesses.

If you need to sell a significant chunk of your RSUs to reach those targets I would suggest you to take a good look at your current budget to figure out why your savings and investments are not on target.

Also, do you have any experience with dealing with a large drop in value and do you _know_ based on that experience that you'll be able to sit tight when such a drop inevitably will happen? Because if you don't have such experience (or worse: you know you're unable to sit tight), chances are you will be part of the stampede in times of panic. In that case consider selling 'more'.

Lastly, what would you suggest your best friend do in your situation?

I agree that it can be hard psychologically in a high-growth industry like tech.

I haven't been an active investor for 15 years so it took a little time to fire up my investing analysis tools. This is what I found out.

Index funds are highly incestuous. There is a high correlation across the top index funds because they largely have the same stocks. The exceptions seem to be reits, oil, foreign, and financial index funds.

The rest of the index funds all seem to be heavily weighted in big tech stock.

So - if that is true, why not buy the heavily weighted stocks directly and do your own financial analysis on them? For instance, I look at past 5 year sales growth. Then I look at yoy sales growth. Then I look at P/S over the last 5 years (to see if it is out of whack). Then I look at PEG over the last 5 years (to see if it is out of whack). Then I look at gross margins. Then I look at dividend yield. All of this data is available for free.

Index funds accomplish three things, as I see it:

* By investing in a broad basket of stocks, you can eliminate unsystematic risk. This was shown by Harry Markowitz in his landmark paper that established modern portfolio theory.

* By using an index that weights by market cap, you get, at any point in time, what the market thinks the value of the stocks are.

* By letting a management company track the index for you, you take all the work and emotion out of it.

"Building your own index" like you suggest is feasible, but a lot of work. Turnover can also be a real problem in a taxable account. My suggestion to anyone who wants to do this sort of thing is to use M1 Finance, which automates the trading for you. You just set the percentages and go. I think it could be an enlightening way to manage a small amount of "fun money", but I wouldn't do this for everything.

Lastly, there are absolutely mutual funds and ETFs that screen by financial criteria the way you're doing. Look at the Russell RAFI indexes, for example.

I still believe in diversification. If an ETF is sufficiently diverse I will buy the ETF. Some ETFs are not - XLE is nearly 50% Chevron and Exxon!

You should also read Taleb if you want to understand the fallacy of unsystematic risk. He is difficult to read because of his overinflated ego but he has some persuasive ideas.

QQQ 1 XLK 0.9952440282 VCR 0.9813656495 SPY 0.9774334512 VHT 0.9749607257 DIA 0.9738966572 XLI 0.944646275 MDY 0.9418372572 XLP 0.9340495871 XLU 0.9322048846 VBK 0.9749569179 TLT 0.8238447288 IEF 0.7459539935 LQD 0.7698459752 VNQ 0.7211819234 SHY 0.5117276512 GLD 0.4880148474 XLF 0.4715141612 EFA 0.2721585482 XLE 0.04648142997

As I said it had been 15 years since I have been actively managed my investments. When the stock market dropped I was surprised that our investments hadn't actually dropped so I wanted to find out why. So I put together a google sheet and tried to replicate the Intelligent Asset Allocator with just ETFs. This only goes back to 2005.

First I put in all of the ETFs with weekly data going back to 2005 from GoogleFinance. I then added in the dividend yields - which most online analysis does not do. Then I just used the google sheets correlation function. I set up the sheet so I could slice and dice across different time periods. And then I chose my own asset allocation based on what I saw.

I also looked at the optimal rebalancing period. It looks like it is 2 years for this set of data.

I'm not really sure how to do all those things, and I'd rather spend that learning how to make database things work.

Also, it sounds like all you're doing is looking at (very recent)past performance (not a predictor of future performance), and putting all your eggs in one basket (big tech).

When I started investing, being an EE and working in IT, I tried this: I bough AAPL and RIMM. One did better than the other.

I'm now basically all-index all the time.

Which goes to show that being on top is no guarantee of anything. Just ask ExxonMobil (XOM): in 2013, a scant seven years ago, it was the largest company in the world (surpassing Apple).

* https://www.forbes.com/sites/dividendchannel/2013/01/25/exxo...

This past week it's not even largest US energy company:

* https://www.cnn.com/2020/10/05/investing/exxon-stock-solar-w...

I sold everything around when Apple did their split in that time frame, and moved to a more passive strategy.

Before you point to S&P 500: I'm from/in Europe, please account for that in your reasoning :)

The US stock market outperforms any European or Canadian stock market in the past 10 years, and there's no reason that won't continue. This is because the US is where tech stocks are listed.

So, invest in the US even if you live outside the US. YMMV.

Not only is historical performance no guarantee of future performance, 10 years is a pretty short time span to look back - it doesn't even take you back to the '08 recession. The US did well in the 1990s and 2010s, but both ex-US developed markets and emerging markets did better in the 2000s: https://www.ishares.com/us/strategies/international-etfs

It's good to diversify internationally, and that probably does mean holding some US equities ETF even if you're in Europe. As for what else to buy, this may be a good starting point: https://www.lynalden.com/best-etfs/

Here is a link to ETFs available in Europe that have a worldwide focus. If you have no clue or preference, go for the top one. It's large, cheap and doesn't try to do anything fancy.

Keep in mind that even world wide indexes have a large portion in the US, since the US market is so large. On the flip side, there are many companies in the US that are internationally diversified themselves. Coca Cola sells its sugar all over the world, not just in the US.

Just ETF is focused on showing only ETFs that are available in Europe (not all ETFs abide by EU regulation).

[0] https://www.ishares.com/uk/individual/en/products/251882/ish... (search for "Exposure Breakdowns", then choose "Geography")

For every 1 person who works in the tech industry, there are 1,000 people who don't, but still made fortunes investing long in it, through none other than direct stock picking. That is to say, you have no unique advantage, there are 1000x more people lacking your expertise who perform just as well, I could see no stronger evidence for the irrelevance of such expertise, at least in public markets.

Just from market mechanics, someone has to be buying all that stock at the all-time-highs, repeatedly, it's not the people with tech expertise, it's not possibly only index buyers, they would simply run out of money.

Of course, from an egocentric perspective, you would credit yourself with being some genius stockpicker if, coincidentally, you worked in technology and bought tech stocks.

Consider a different situation where you were an energy industry expert, you would have lost money in long positions most of the last 6 years, and in four of those years, you would probably lose money as frequently as you would win it across all trades.

The results almost feel like magic, but I am wary the market is being propelled heavily upward at the moment, and even a trump tweet has and can derail it. But as the saying goes, 'make hay while the sun is shining'.