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The ability to become wealthier or at least improve one's financial salutation is one of the few things anyone has some control over, unlike talent or traits (e.g. HBD). Anyone can invest in the S&P 500 or not waste money on frivolous purchases.
Sadly, as time goes by, I've become more and more convinced that finance is one of those realms that you either get or you don't, and alot of people - even ones that are highly intelligent in other fields - simply don't.
You just need to get your head straight. It's a game of probabilities. A casino may lose 5 rounds of blackjack in a row, but over the course of a month or a year they rake in the money. One bet or a few bets comes down to chance. A thousand bets? That's never down to chance.
If the results were random, there wouldn't be any consistent winners. But there are. Believing the market moves randomly gives individuals an excuse to not take full responsibility for their own actions and long term results. Those who take responsibility, and review their mistakes regularly and learn from them, will become consistent winners as long as they're willing to keep doing what 90% of people are unwilling to do.
Keep in mind I'm speaking as someone who actually 'gets it'. To a degree.
Maybe I'm expecting to much, but when you're hashing stuff out with an actual medical graduate on managing their college loan payouts and they're more than a little clueless while a friend of mine and I are just going 'No... this is easy', it kind of makes you re-think alot of things.
Granted, you seem to be less talking about financial acumen and more market management strategy. I would say they're a little bit different, and good market management strategy is alot harder than learning finance. IMO, and from my observations.
I’ve heard colleagues grouse about needing to do mathematics when “the reason [they] got into medicine was to get away from maths!” I’ve also seen frankly shocking levels of statistical ignorance in the doctor population.
One thing that stuck with me is an informal experiment a friend of mine did many years ago — he asked a few dozen consultants what a p-value indicates. I think he got a grand total of one correct answer. And these are people who are supposed to be regularly reading (and sometimes writing) academic papers!
That tracks with what I've been told. I've half-joked about somehow finding a medical Doctor Sugar Momma to get married to, in exchange for managing her financials.
The 'somehow' in that sentence is doing alot of heavy lifting, though. Among other things.
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Gellmann's amnesia comes to mind (possibly not quite the right term here). Most people have only studied a select few things in any depth at all, but we still assume that the smart doctor will know a lot about many things for some reason. Status and authority confers construals of wider credibility and competence in the observer's head. The actual polymath or renaissance man is rare, it seems.
Do you mean facts and foundational knowledge versus applied action here? Financial acumen = knowing what EPS means and how to read a balance sheet, the difference between price and value, etc etc?
What most people miss is how much of investing is a mental game, requiring an adoption of new beliefs and discarding many old ones. The person born into a family of highly successful investors would know this, while most of the rest of us chumps seem to pick up more misinformation and limiting beliefs than any sort of solid mentoring.
Pretty much. I've seen a bunch of egregious attitudes in regards to, for example, day trading, where alot of people fall into the attitude that they have to trade, despite the market not matching thier models, which turns what should be good tactics into basically betting on the market.
Or, for another example, people who flock in after a boom has occurred, asking if they should invest in your material of choice. (Looking at you, gold.)
Much like in comedy, timing is everything. That's a thing most people think can't be done. They'll parrot platitudes like "time in the market beats timing the market" and talk about how it's basically impossible to do it.
'Sitting out strength' is part of the mental game. I've come to believe that having patience before placing a trade is perhaps even more important than having the patience to wait for the flower to bloom afterwards. Trades are like farts: if you have to force it, it's probably shit.
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Are there consistent winners who (1) win consistently with short-term plays; and (2) don't rely on inside information? Based on my limited knowledge that such people are either extremely rare or non-existent.
I do think that there are people who win consistently with long-term plays. With "winning" being defined as either making a good return, like in the neighborhood of 8 percent, or outperforming the market indices in general. By all accounts, people who can consistently outperform the markets in general are very rare, but I am willing to believe that some exist.
People who consistently make money on short term swings? That's something I'm extremely skeptical about. If I hear about a short-term player consistently making money, I think he's either a liar or a cheater. But I'm open to evidence to the contrary.
And by the way, I myself made a bunch of money a few months back on a short term play. I bought QQQ right after it tanked due to a Trump tariff announcement and it seemed obvious that the market had overreacted. I've never tried anything like that before and it paid off very well. But I think that kind of situation is extremely unusual.
I think a strategy of keeping most of your investments in SPY, and then occasionally (every couple of years, but only when a real opportunity presents itself) making strong, reasonable bets during major events where you have high confidence can get you outsized returns (e.g. I almost doubled my net worth during the first couple months of COVID).
The issue is that psychologically, waiting around for those types of events is really boring. And success begets failure, as you really want to start looking for opportunities where your edge is smaller or realistically non-existent.
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I'd add the qualifier consistent high volume winners.
It's one thing to take a chance where you see one, it's another to produce enough ideas to run a fund.
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Probably related to getting math, right?
Before I took my finance courses, I would have told you I was horrible at math.
Now, I'm just convinced that math teachers are horrible at their job.
And worse comes to worse, that's what excel spreadsheets are for.
Math teachers in general are bad at their jobs, because they're people who 'just get it' and don't need much teaching, so they assume everyone else is like that too. The best math teacher I ever had was a seminarian randomly assigned by his superior to teach high school algebra- clearly very intelligent, but had needed to actually study to learn the material.
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You don't need more than arithmetic.
You can't be dumb if you're going to become a consistent winner in the markets. But you don't need to be smart.
Eh, I'd say at least a decent grasp of algebra helps quite a bit
In what situations?
If you have a target retirement (or investment or whatever) amount you need to solve some fairly simple algebra to figure out how much you need to invest per month etc. But I also think algebra is generally useful in a lot of different circumstances and knowing it makes a lot of financial planning easier.
I see. I probably use some of it without realizing it. ¯\_(ツ)_/¯
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It takes money to make money, as they say.
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I agree, but it's pretty hard to use that strategy to get to the point where you have "fuck you" money, i.e. enough money so that work is optional. Which makes sense, because having "fuck you" money means you can sit back and live it up while other people work for you. It's logically impossible to be in a situation where anything more than a small minority of the population gets to sit back and live it up while other people work for them.
Basically, for most people it will require (1) being born in a wealthy country; and (2) a lifetime of careful saving and investing.
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