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Stock markets don't know all that much, that's why volatility exists. There was about a monthlong period where the Chinese locked down 100 million people over a virus and the market was barely affected. It doesn't take a genius to perceive that COVID was a big deal in early 2020, before the March panic.
Nor did it take a genius to perceive that the new AI techniques were a big deal back in 2020 or 2021. The GPT-3 paper was out then, people like Gwern were showing the vast possibilities. And nobody really noticed until ChatGPT several years later when it became blindingly obvious what was going on.
Are you a billionaire?
Because if you knew Covid was a big deal in early 2020 you could have made tens of millions easily. But I am guessing you are not.
So saying “it doesn’t take a genius” when you easily could have made 100x on knowing what to come feels off. If the thing where everything in the past looks like it was obvious but yet almost all very smart people got it wrong.
I am not a billionaire because I did not have high starting capital. And I make mistakes like everyone does, I did not anticipate the massive money-printing resurgence after March and missed out a bit there. You might say 'just use 10x leverage' and I assure you that is the surest route to disaster. There is nothing more dangerous than leverage. Nevertheless, I have made significantly greater returns than the market average. Something like 40-50% annualized? I can't calculate it out properly because I put more money in over time.
In February 2020 we had this: https://www.dailymail.co.uk/health/article-8004055/THE-REUTERS-GRAPHIC-Under-Chinas-coronavirus-lockdown-millions-go.html
But markets didn't react until March! Isn't that insane? China is the factory of the world and they're locking down, where are goods going to come from? What does that say about the rest of the world?
There are loads of smart people who made a tonne of money beating the market. If you're early on the right companies you can make a lot of money. What about the Bitcoin maxis from 2012 or even 2014? They're living in Lambo land right now. I got into crypto much later and still got a couple of 10xes. Or early Nvidia buyers. I bought some Nvidia before ChatGPT and got a 10x there. None of this is terribly hard. There's room for error so long as you work out the broad trends, take things slow and don't leverage up.
I don't understand why AGI-pilled, scaling-pilled people didn't make as much or more than me. I think a lot of people can't be bothered to put in the effort, fill in the forms and stomach that gut feeling of dread when you lose a lot of money.
Alright, so looking at the market today, what broad trends do you see? What are you long?
AI followed by crypto and aerospace/defence (which has been dragging down my portfolio tbh). https://www.themotte.org/post/948/smallscale-question-sunday-for-april-7/205716?context=8#context
Recently I've been trying to get more into the software side of AI, Microsoft as well as Nvidia. As much as I dislike the company's practices, they do have a pretty good business position. And I still think AGIX is a no-brainer. It's a shitcoin with a perfect name and smallish marketcap. We have AGI development, it moons.
https://www.themotte.org/post/381/culture-war-roundup-for-the-week/68701?context=8#context
If you'd bought it back in Feb 2023 when I shilled it even after it went up 150%, you'd have made a cool 50-70% by now. Sure, I should've sold at 1.20 rather than waiting for it to fall back to the 0.70 range. I make no claim to perfectly timing the market. But I feel fine playing the long game here, I got in way lower. That's not so great compared to NVIDA but it still beats the index funds.
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I'm in a similar boat to you. From my perspective the last 5 years has been the easiest time to significantly beat the market in the last 40 years by a large margin. Events you can see coming from outer space and almost risk free investments that take advantage of them (if you manage small amounts of money).
But knowing events are very likely going to happen and that they'll impact the stock market doesn't equal certainty of how exactly they're going to impact the stock market and for how long. Seeing the way the wind was blowing though? Easy.
Still, my investment portfolio is up some 10x the last 5years from relatively risk free investment after a preceeding period of 10 years where I barely beat the market. It would have been great if I had bought a house after this period and not just right before...
Now things seem more uncertain to me and I'm pivoting to index funds. I don't feel confident making any time sensitive (or even general) predictions.
As for why smart people aren't making (more) money, around me the smartest people have more or less given up on investing. They focus on their career+family and put excess money in some kind of portfolio of different index funds. They were kind similar to me but making slightly better bets but then they checked out before things got predictable.
Now I don't think they particularly care, they have more than enough money to meet all their needs so whether the excess money makes a larger or smaller return is pretty uninteresting. Why not rather focus on that next golf trip?
I agree with you. Everyone has repeated "you can't beat the market! Just vanguard and chill!" For so long that it's become practically an article of faith. And, to be sure, that's good advice for the typical investor. But passive index fund investing has become so popular that we forgot you do need someone to actively pick stocks in order for the market to work, and that's left some low hanging fruit on the trees.
People might object, "but what about the pros on wall street! Surely you can't beat them!" well...
a) like @100ProofTollBooth said, hedge funds aren't really trying to beat the market. They're more interested in making safe, consistent returns, not looking to take a risk to find the next 10-bagger.
b) the quant funds, as I understand it, are mostly doing market making and/or looking for arbitrage opportunities. They're not looking to "invest" at all, they just want to get in and get out for fast, risk-free profit.
c) the typical retail financial advisor is... just not that smart? He might pick some stocks, but he's not trying that hard. He's more like a financial therapist, convincing his clients to invest and not sell no matter what. He wins as long as they stay invested with him, he doesn't need to beat the market or even come close.
All this, combined with the frenzy for crypto and meme stocks, has led to an environment where it's surprisingly easy to beat the market, as long as you're willing to take some (reasonable) risks.
stuff that I did which paid off big time for me:
Right now I am modestly into bonds, nvdia, and short bitcoin. I am toying with the idea of getting out of stocks all together, or even puying some bearish puts, as I am increasingly of the opinion that the whole market is simply overvalued: https://www.hussmanfunds.com/comment/mc240623/ . Bonds, and maybe foreign stocks, look like the best opportunity right now.
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I have seen similar smug attitudes during COVID, people who raked in cash when stocks plummeted between January and March 2020 by almost 25% were patting themselves on the back how smart they are and laughed at other people. And they knew that the worst is only ahead of us: lockdowns, supply chain issues and all that. Only for the market returning to previous heights by September, followed by huge surge up until January 2022. Many people who doubled down on bearish prediction in March not only lost all their gains from early 2020, but lost everything in that gamble.
Just give me a break, streets are lined up with homeless market gurus like you who just know how to beat the market.
I benefited from stock market plunge during covid.
It was very clear that the covid panic was overblown. I couldn't predict how long the lockdowns would last but it was clear that deep pessimism was not justified. If the stocks didn't rise in September 2020, they would by 2024 for sure. So, I bought them when they were low.
And then all extra cash we couldn't spend in lockdowns got invested in stock market and it caused a small bubble of its own but it was still worth to invest for most people.
The funny thing is that I based all this on a simple fact: people get cold virus infections up to 10 times per year and it trains our immunity. We cannot meaningfully stop them, not with our current tech. A new virus will cause more problems because we have no previous immunity. And yet, with covid the risk increased exponentially by age.
Thus my prediction was: eventually everyone will get it regardless what we do. Most people will be fine, elderly will experience higher mortality as in an unusually nasty flu season and that's it. It happened exactly like that.
And yet, so many still refuse to face this reality, still argue that “covid is different” or that “people should wear masks during flu/covid season”.
It is sad to live in among such pessimists but at least I can solace myself with a lifetime chance to win on the stock market. The world should have followed Tegnell's recommendations instead of calling him nazi.
It wasn't a chance that I made the correct prediction. It was rather a chance that I got necessary education in this field and see other experts that reasoned exactly in this same way and being correct in their general predictions.
It is somewhat similar to beliefs about Havana syndrome. One doesn't need to be a genius to understand that no sonic weapons of such impact exist. People just want to believe in them for various reasons. Except that it is a small localized event that never had any impact on stock market.
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Perhaps I'm being unclear. I'm not claiming to have figured out some grand way to beat the market. I'm claiming that the market has been acting predictably irrationally (or more accurately just very slowly) for the last 5 years in response to major events and that I've made some money making relatively low risk investments with this in mind.
I didn't make one risky bet. I made a series of low risk bets in different directions over a half decade.
Its not like I've made massive amounts either. $40k is now ~$400k, which isn't enough to pay off even half of our remaining mortgage. I'm not getting rich here, especially since don't know where to put my money going forward.
Have I done everything perfectly, obviously not. Just going all in on Nvidia 1.5 years ago would have had better returns than what I've been doing over 5 years, or going all in on Tesla or w/e. I've acted on the same general trends, I've just done so cautiously and ineptly.
The data is pretty clear that almost all day traders (which admittedly encompasses many different kinds of amateur investor) lose money. That’s true whether they’re mere stockpickers or WSB derivatives gamblers, and it’s also true even for well above average high IQ people.
In fact, even many star traders at big funds would struggle on their own without access to the costly and expensive resources (some of it provided in-house, some bought or licensed, processed by teams of analysts for trade suggestions etc) of their employers, simply because they have an information advantage that even a very smart day trader adept at risk taking can’t match.
Another reason some smart people don’t bet like this is that their job prohibits it. Almost every job in finance prohibits personal trading in most or all derivatives, mandates very long minimum holding periods for financial instruments including equities and so on. The requirements are even tighter for the front office jobs that pay the most, including employer and regulator monitoring of all personal financial activity and pre-approval by compliance and reporting of even long term personal trades. If you really plan to hold Apple for 5 years and believe it’ll hugely outperform the market it’s doable, but for most people the compliance hassle isn’t worth it and they just put their money in an index fund.
Refraining from stock picking and market timing as a retail investor because you’ve read the literature and have a deep-seated conviction about markets being pretty much efficient :drake_no:
Refraining from stock picking and market timing as a retail investor because you’re too lazy to deal wtih compliance :drake_yes:
But indeed, it’s unclear if even star traders actually have some skill that allows them to deliver above market returns for their employers or if they’re just lucky, unless the “information advantage” is something insider information-adjacent rather than baller information-processing. And it’s also unclear if alternatives like hedge funds and private equity deliver above market returns adjusted for risk, especially after fees.
(Reply to this as well as the comments from @2rafa above and below it)
I know quite a bit about this stuff from direct professional experience.
First, regarding "lol Hedge Funds and PE aren't worth it" (this was an infamous Warren Buffett quote as well) - THAT IS NOT WHAT THOSE PRODUCTS ARE FOR
Total return after 10,15,20+ years is not at all the metric that alternatives ought to be judged against. It's not that they shouldn't be compared to anything, but it's pants-on-head insane to compare something like Citadel's performance to the S&P.
Different asset classes server different purposes. A hedge fund as the name implies puts a lot of emphasis on risk control and stability of returns over a targeted duration, usually one year. The reason that hedge funds go after pension funds and endowments is because those customers need a HIGH CONFIDENCE product that can return 7% or more - with nearly instant liquidity - regardless of what the market at large is doing. Remember in March / April of 2020 when COVID happened and the market took a shit? Not a lot of folks panicked because it was pretty obvious that if they just waited it would bounce back - which is exactly what happened in a matter of months.
But if you're CALPERS and planned on disbursing $1bn in March 2020 alone for your retirees, you might've shit yourself if you had to liquidate and re-balance across your entire portfolio that month to pay the (legal mandated) bills. Fortunately for you, you had already plopped a lot of capital into a hedge fund that made you a promise it could cut that check - rain or shine - and you wouldn't have to crack kthe matrix of your $100bn portfolio to do it.
PE, as an asset class, is heavily about either (a) non-correlated performance with public markets and/or (b) assets that have inherent risk or financial structuring problems that are so bad they couldn't really work on the public market (although, IMHO, this is just a derivative of non-correlation). A PE firm's pitch to its investors is "we can make money with this fund / investment and not worry about what happens in the public markets" (they will worry about what happens in capital markets, but that's a different story). The attraction to you as an investor is true diversification. Public market equity diversification is, in 2024, pretty much a myth. It appears everything is tightly correlated and the Magnificent Seven are so horribly overweighted in the S&P it's a joke. It's very hard to sock away part of your portfolio into a meaningfully different system - unless its PE (or some other alts).
Regarding @2rafa, coin flips, and that unfortunate Portfolio Manger who gets fired after having a position degrade 5-7% over a week or two - that's totally reasonable because the PM either (a) didn't pay attention to his risk management or (b) bet on a market-wide move which is exactly contrary to what hedge funds do. Yes, there are situations in which it is just dumb, dirty rotten luck. Far more common, however, is a PM taking advantage of their newly granted independence and YOLOing. In the large multi-manager funds, in fact, one model is to have lots of PMs all with long leashes and to cull the herd each year so that you build you own survivorship bias and, after 10 years, only have PMs who are actually edge players.
The unfair part of the hedge fund business is that if you do blow up and get fired, it's actually really hard to find another job. It's a small world and having one bad year can kneecap your whole career. Guys who can't pivot out to a whole new line of work often end us as financial consultants to big funds or pensions or do freelance equity research work. Now, this is "boo-hoo I only make $500k a year" level of work, but you are a zombie in your career and I imagine that takes a toll.
The absolutely smartest pure analysts? The make about $10-$20mm and plop enough into a private wealth account to make somewhere around half a million a year. They leave their firm and start trading on their own at home. Why? No risk management and compliance overhead, they can sit on a 5,7,10,20% paper loss if they have high conviction it'll bounce back etc. My personal heuristic for these people is that they live in those very random amazing homes you sometimes come across in rural areas. All they really need is an internet connection. They might be worth 10 figures.
The guys who make it but stay in the middle of the game - I.e. those who ultimately run a fund of their own - are pretty much addict to the game of it, or have an entrepreneurial streak and want to build a company just the same as a TechBro. Ken Griffin has famously said "I don't run a hedge fund" when he runs one of the largest ones in the world (what he means is that he runs the world fastest and most aggressive market making operation, which is accurate). Ray Dalio ran Bridgwater because, IMHO, he always wanted his own cult and just so happened to make it a LOTS OF MONEY Cult.
The dirty secret in financial careers is that - if you're actually good - you can go out on your own pretty fast and early and make A TON of money in the shadows. The "big names" aren't actually motivated by the money - it's often something dumber.
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There is that old joke about prop trading that it’s a meritocracy in the same way that a coin toss is a meritocracy of whoever is smart enough to pick the correct side.
I’m not very familiar with it but my understanding is that the big funds will fire junior PMs for a rolling 5-7% yoy loss, sometimes in weeks. It would seem obvious that the losers are often just people with a couple of consecutive months of bad luck, and the winners the reverse. You gamble big, have a few lucky large early wins, sail out a few more years riding whatever secular trend is taking over successfully, then retire as a “genius” (or do not, as so many do, and be mocked as a failure when your luck runs out). On the upside, the odds are likely still better than roulette.
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A lot of smart people don’t care that much to be rich. They’re happy as tenured academics making $120k a year, can buy everything they want to buy, and don’t have a strong desire to make more money. Some may be socialists or very religious people for whom wealth accumulation is also less important. ‘If you’re so smart why aren’t you rich’ is a fair argument in some cases, but there are nuances.
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I'm determined not to miss the next big obvious thing.
I almost bought Novo Nordisk in 2022, saw that it was already overvalued and that they would have plenty of competition before they could make mega-profits. So I didn't buy. It's up more than 100% since then. I still think my thesis is correct, but the market cares about hype not profits.
I was a user of GPT-3, saw it's potential, but figured I was already late to the game. Two years later, the market bids up anything with AI attached to it.
The one success I had was buying airline puts in February 2020. I did get a 50x return on those, but the position size was small.
Of course, it's easier to see these things in hindsight. I have no idea what the next big thing will be. The rationalist community was very early on semaglutide, GPTs, and Covid. But there doesn't seem to be anything comparable today.
And for the record, I don't think China will invade Taiwan, but we are all a little too comfortable with the fact that everything is made in China. At some point this is going to cause major disruptions.
Common mistake, it seems. The market moves slower than we think. Yes, you will always be behind the insiders and a few very sharp movers for entry, but for the masses of normies to enter, that takes weeks, months or even years.
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I did some soul searching after largely missing the AI opportunities. Conclusion: pretend chart spans higher than 2 years do not exist, or greed for reasonable prices will prevent you from buying anything at all.
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I made the same “mistake” on novo nordisk and passed it up for the same reasons
On March 9th I posted a comment talking about how I had in the past prematurely dismissed the remaining upside on Nvidia.
Ironically if I had just bought some the very next Monday I'd be up 48% right now in under 4 months. Hindsight eh.
Exactly what happened to me. Always painful, but you never know. Still don't, really, it could all come crashing down and the guys all-in on colloidal silver and bullets will be laughing at us.
I put every penny of this year's 401k contributions into a short term Treasury ETF anticipating pre-election rate-cuts, only for it to stay flat as my existing holdings gained 20%.
Flat? Short term treasuries are still over 5%, which isn't large but is better than flat. I've been keeping (non-tax-advantaged) cash in them because they're state tax free.
I know you're the wrong guy to ask with where you live, but I actually need to find a "Treasury-like" option for people without state income tax.
It's kind of a waste having your yield driven down by people who are benefitting from the tax reduction.
Honestly I'm just holding new money in a 5% money market fund now.
I buy them non-competitively, so don't blame me.
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It's maddening how taking a pure 'value driven' approach to buying stocks does in fact lead you to ignore hype cycles and their somewhat predictable impact on particular stocks or classes of stocks, such that you feel like you genuinely left wads of cash lying on the pavement because you didn't believe your eyes when you saw them.
ON THE OTHER HAND, the markets also briefly went crazy for NFTs, and "The Metaverse" (actually amazed how little came of that), and of course you could have bought into Gamestop during that crazy era, and ended up with almost nothing to show for it. It was as obvious to me that NFTs were going to eventually implode as it was to me that NVIDIA would take off. Hence why I avoided NFTs and bought NVIDIA and told friends to buy NVIDIA, but didn't go in nearly as aggressively as I could have. Because I severely underestimated the effect of the crowd of people who'd rush in about three steps behind me.
Having operated in the cryptospace through the first decade of its existence (2017 was a CRAZY time) I've learned that its almost always the stuff you DON'T see that will get you. Maybe you make a fortune on altcoins but... your holdings were in FTX (or one of the other failed/fraudulent/hacked exchanges), or you fell for a phishing scam. So I learned that A) trying to time market swings is a fools errand, and B) focusing too much on making good trades and NOT thinking about and protecting against ways you can lose your bags due to factors beyond your control has a small but real chance of wiping you out without warning.
I will never, at this stage in my life, feel regret about not yoloing into Bitcoin in 2013. I bought modest amounts back then (and have the Blockchain transactions to prove it) and sold almost all of them over the years, particularly in order to put a down payment on a house. The stress reduction alone was worth the price. I'd have had to bought a ton of them and held through insane market swings to get truly life-changing wealth out of it.
Hmm. The longevity/anti-aging space is making some rumblings. There's a possibility AI will fuel rapid advancement there, and with the boomers retiring there's obvious demand. No obvious plays that I can see, though.
"Legitimate" and regulated prediction markets are VERY early on the scene but seem to be gaining traction. In a sense they're just another form of gambling, but if they gain real attention they could explode overnight. They could disrupt the insurance industry in a good way
And the one that I think COULD turn into something huge are industries enabled by Starship. Yes, many people (I won't say MOST!) are aware that SpaceX is testing a FUCKHUGE rocket. I doubt any are thinking one or two steps ahead as to what having cheap and plentiful launch capacity will mean. Spot any players that might be onto the killer use for copious amounts of low-earth-orbit capacity.
See, I bet you beat the market too. Not lambo-land but you're better off than index funds.
Yeah NFTs were a bit of a dud. I think the idea was good (I never wanted any and didn't buy any) but everyone hates them for some reason. Aren't they strictly better forms of digital cosmetic items? Why are CS:GO knives worth more than jpegs on the internet? Wouldn't it be good for artists if they got some set% of the resale value of their art? I don't think I've ever been more isolated and alone in defending NFTs though, pedophilia seems more popular.
No, I don't think it would be good to create a new class of rentseeking. I consider this question as part of the background to led to copyright extensions of lifetime of the author + 70 years, total travesty of the system that should never have been considered.
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Because NFT space was filled with lies, fraud, scams etc.
I hate digital cosmetics items
How NFT would even help here or enforce it?
Because it's a programmable contract. You can set it to do whatever automatically.
I don't even know how you can have NFT fraud. It's not like you're being sold a promise of future dev work, only for the devs to disappear. What you buy is what you get. Some people spent about $180 on gas for an NFT which just said how much gas they paid (which is pretty funny tbh). I have screenshots from the discord of this guy offering a bounty for the location of the devs: 'what will happen to them is none of your concern'. It's their own fault for buying stuff they don't need. If you do some basic checks it's very unlikely you'll be scammed.
And "if they got some set% of the resale value of their art?" is impossible as NFT cannot control what happens outside its blockchain
For example, people promising that NFT can enforce revenue share for artist. Like you just did.
People were selling NFT with promises of riskfree earnings. And other typical get-rich-quick scams. Googling NFT fraud will give you parade of examples.
That's not how it works. They stay on Eth or Sol or whatever chain they're on, that's the whole point. You can only deal with them through the chain they're on.
The whole point is that "got some set% of the resale value of their art" stops working as soon as someone takes art outside blockchain.
Typical image NFT is just a weird link to image, nothing stops people from copying art outside blockchain. Pretending that it is not easy and trivial is a typical fraud by NFT crowd.
Again: NFT is unrelated to ownership of art, does not enforce anything outside blockchain and so on.
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An NFT is a receipt, meaningless without an external authority validating it. Most NFTs are receipts for links to a private webpage currently hosting a jpeg. Unless this is accompanied by legal contract linking this receipt to some government using their monopoly on violence to enforce copyright on this jpeg (most NFTs are not), the ownership of this receipt does not in any way correlate with ownership of the art. But once you have an external authority validating it, and government enforcing any real world effects, you don't need a blockchain anymore.
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That was not the reason. NFT hatred was a thing on day 1 of NFTs reaching public consciousness, before there was time for any scams to even theoretically be exposed.
Because scams happened before NFTs reaching public consciousness.
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NFT hatred was a thing on day 1 because people accurately predicted that the NFT space would become full of lies, fraud, scams etc.
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I 'beat the market' but I didn't leverage up or otherwise really demonstrate the courage of my convictions. So my returns were modest in the grand scheme. I was a HODLer more than anything. I was overly sensitive to getting wiped out. That said, I've seen so many people get wiped out I suspect I would have come out behind had I been willing to take bigger risks in crypto.
That is, if you're the type of person who will leverage their bets and accept more extreme risk/reward ratios, you're probably not the type to have sensible exit strategies. Or, you're the type to abandon those sensible exit strategies when you smell more profits, until you eventually overextend.
So I'd guess I'm just not 'built for' that type of behavior, although I think I'm better for it.
Because they're attached to a popular game, and the items can be used to show off status in the popular game. Not vice-versa, where people think that the item itself, rather than the social status, is the point. NFTs never quite got popular enough to confer actual social status outside the NFT sphere, and trying to export status from the NFT world to the real world works about as well as trying to export status from, say, an MMORPG to the real world.
It really came down to the attempt to shove NFT items in many, many places where they didn't really add much, and to 'force' people to get familiar with blockchain tech, which already had a shoddy reputation elsewhere.
I think the one cool use case for NFTs might have been to allow you, the player, to carry NFT cosmetics between games, which is to say you could have a unique outfit, or item, or vehicle, or whatever, and it is tied to your identity in an 'immutable' way, so you can import it to a new game and immediately have access to it, which is to say, add some 'permanence' to your digital property.
For example, I play racing games of various types, and I have a couple cars that I favor and I have some livery designs that I like to recreate in each new game. If I could get an NFT for the cars and liveries that allow me to import those cars from Forza Horizon to Need for Speed to Gran Turismo, and be assured that I would immediately have access to them in future games, I would be enticed to do so.
That would have required significant coordination between different game devs, which seems improbable.
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We were hanging out in the same places back then and I feel the same. The best cast scenario where I had followed through and found a way to get my money into Mt. Gox when they changed their rules as I was waiting for my money to clear Dwolla and ended up with 30 coins for $150. There's no world where I hold them and sell for $2 million. I was going to pay off my house no matter what. My regret is I planned to drop some money every month after I sold but was lazy... that was dumb.
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