Vanguard says I've had a 12% rate of return. I guess I could have done active trading if I'd gone on fewer dates

> 140% gain on your holdings this year

Choose one.

I understand where you’re coming from, but there isn’t a incongruity. Individual stock investments are a relatively small part of my overall portfolio.

Had a period in my college days where I had a neural network running that could successfully trade on patterns of periodicity of non-chaotic windows of the asset. But as soon as the system would go back to being chaotic, and there was no way to identify WHEN the system was chaotic and when it wasn't, the trades would go to shit and I would lose all gains. I was up about 400-450% at an end of a successful cycle, which was 2-4 months, and then it could be a year of decline with gains being eaten up by the option issuers.

Now I only do long-term funds/stocks and have:

a) much less anxiety about losses b) more money.

However, active investors have higher trading fees/management costs, so they are bound to perform at least slightly worse on average. It's just mathematics.

> The Medallion Fund, which has been available exclusively to current and past employees and their families, surged 80% in 2008 despite hefty fees; the Renaissance Institutional Equities Fund (RIEF), owned by outsiders, lost money in both 2008 and 2009; RIEF declined 16% in 2008

A cynic in me would say that Simons used a better strategy for the Medallion Fund than for the RIEF.

[0] https://en.wikipedia.org/wiki/Jim_Simons#Controversies

REIF just lets them use Medallion as marketing while getting those sweet AUM fees on a massive fund.

Index funds work because not everyone buys them, they work because the majority of capital is allocated and constantly being rebalanced in a way that tries to reflect the performance of a corporation. It's only in this circumstance that an index fund, or any kind of passive investment, can be of any utility by leveraging the work of those who are actively trying to assess the genuine value of a corporation.

A trader with experience, working in a firm with deep pockets and terabytes of historical data and FPGAs that can execute his/her strategy and a legal team and an engineering team... can outperform you yes x)

But I should say that any engineer familiar with the AI tech stack could have bought NVDA at any point in the last five years knowing how big their moat is. That same engineer could have sold monthly covered calls, taking 5 minutes out of every month to do so.

And before you say it, no, they wouldn't be full port NVDA.

Extrapolating from past data with N=1 to demonstrate that "any tech person can outperform the index" shows a crass lack of mathematical reasoning, which in my opinion demonstrates why you're unsuited to professional trading.

More generally, there is no optimal amount of stop loss. It ultimately gets auto-stopped out at 3:30 pm, although by then it could have gone nearly to zero anyway. Either the strategy works or it doesn't, and with Trump manipulating the market on random days with significant news, it increasingly doesn't.

The same applies to your profit target. This means that if your profit mark is $10, and your stop loss is $5 you will lose roughly twice as often as you win, all other things being equal.

What you actually CAN do is use smart money management, (something like the Kelly Criterion) to ensure that you properly capitalize on any slight edge you do manage to find without going broke in the long term.

That of course requires you to find a bet you can win 51% of the time, and that you be made of iron when it comes to sticking to the plan. Most folks can't.

You're not wrong, we're just talking about different things. You're talking about a hypothetical system that has a 99.5% win rate forever, and I'm talking about the way the market actually works.

In my version the market is often random, or to say it more accurately sometimes the Efficient Market Hypothesis is true and sometimes it's a Random Walk. His strategy likely worked during periods of stability when EMH held true. His strategy would have been 99.5% effective, until it suddenly started being no better than a random bet.

Of course he will have sized his stop loss for the times when his strategy was working, meaning he'll have placed it at something ludicrous like a 90% loss to maximize profit and avoid being taken out (anything else would have left profit on the table). This huge drawdown will suddenly wipe out almost all of his profits when the market shifts to random walk mode.

Even if he did size bets more reasonably, the length of time the market remains in random walk mode is itself random. Over a long enough time frame he'll eventually encounter random periods long enough to break him, even with more conservative sizing.

Do you mean this literally or is that an exaggeration for effect?

I'm not sure how you'd do that unless all your trades are like selling a put with a $50 strike price expiring in a month when the stock is trading at $100.

Covered calls are a good example, you own the stock and sell calls with a strike that is in the money.

You make money on your option as it either expires worthless and you win getting to keep the premium you got paid to write the option or it expires in the money and you sell the shares to the option holder at the strike.

In both cases you can claim you didn't lose money on the option. But you did lose out on potential profit from your share as you were forced to sell them for less than they are worth on the open market and its very easy to get into a case where you would have been better off if you hadn't wrote the option in the first place.

If you manage your own money you can say you didn't lose on the option but you probably did on the underlying stock.

If the stock closes lower you lost money on the stock but make a tiny bit from selling the option.

If the stock closes higher than the strike you wrote you "make" money on the option from the premium but lose out on profit as you have to sell your stock for lower than what you could have in the market.

So again you can say the option didn't lose money but you are worse off than if you hadn't wrote the option, assuming it went up more than the premium you got from writing the option.

So amateur traders can fool themselves into thinking they are geniuses as their option leg doesn't lose money but the overall trade still makes them worse off than if they hadn't of sold the option at all.

Winning trades made $0.01, losing trades lost $10k.

As a fellow options trader, I can confirm that it is spot on what is seen with SPY; it is not an exaggeration at all.

This applies to everything in life.

For anyone interested, I can recommend the book "Systematic Trading" by Robert Carver. You don't have to be into algorithmic trading, the sections on risk management and positive vs negative skews are already worth the read.

The only way to make money for 99.999% of traders is to trade with a firm. You should not trade on your own. You will lose in the long term.

> The problem is the 0.5% of the time, it erases all the gains made on the successful ones.

Nassim Taleb calls this "eating like chicken and shitting like elephants"

For Mandelbrot, I'd recommend starting with The (Mis)Behavior of Markets. For Taleb, maybe start with The Black Swan.

With those books you'll be able to fully understand why even if/when AI becomes sentient, it will still not help avoid blow ups.

(One reason among many others is, for example, that there are things that cannot be properly forecasted, no matter how hard you try or how advanced your model is, doesn't matter, there's a limit to what we can know and what we can't know about the future...)

Extra: Check out also Thorp's A Man for All Markets.