Since a lot of us here have expressed interest in not starving to death in a gutter, I figured I'd start a weekly thread to discuss financial matters.
Ground Rules
- Remember that we're all just Internet randos. Don't bet your life savings on a hot tip from this thread.
- Keep culture war in the culture war thread. Yes, global events may impact our personal finances, but that does not mean we have to incessantly harp on culture war aspects here. If you are going to discuss it, please stick to the practical impacts of it on an individual level.
- Be kind. Remember that everyone here comes from different circumstances. We all have different resources available and different risk tolerances.
- Don't let the perfect be the enemy of the good. Better is better. Celebrate people when they take a step up and work to move their finances in the right direction. Don't flame out because they haven't followed what you consider the optimal path. Everybody has to start somewhere.
Jump in the discussion.
No email address required.
Notes -
Has anyone here had any success actively trading over a long period of time (at least 10-15 years) and beat the average market return of 10% to 11.5% over that time period? Do you have confidence you will continue to beat market, and how much time and effort do you spend actively trading? If you are making a living actively investing (off your own portfolio, not managing other peoples money, what was the approximate size of your portfolio where it was feasible?
If you do active trading, do you also active trade in your IRA?
My thought is that for most people, active trading is an exercise in futility, and the data seems to back it up. Nearly all retail investors that actively trade don't beat the market average (or even lose money), and even like 70-90% of professionally managed funds don't beat the S&P 500 each year. Over a longer period of time, the percentage drops even more suggesting those funds were just lucky.
Every other week I hear coworkers/friends/people in discord servers I'm in talking about stocks, but I can't help but feel like they're mostly gambling rather than having a system that actually works. Some of them have had successes beating the market but they've also been only trading for like 2 years. I'm always wondering if it's like a gambler bragging about his wins but never sharing his losses (but at least in the stock market the expected returns are positive). Comparison is the thief of joy as the sayings goes so I guess it really doesn't matter how other's are doing on their finances as long as you personally are doing okay, but every once in a while I can't help but feel like maybe I ought to take some time to look more into individual stocks and see if I could do better. But at the same time, for someone in my age bracket I'm doing fine, so maybe I don't need to try to do better in this area, and I can put my mental effort towards other things.
Personally I have about 6% of my portfolio in individual stocks, 1% in crypto and the rest in various index funds. I'm thinking of just selling all the individual stocks and then not having to worry about my stocks ever again, the only reason I haven't sold them is because a good chunk of them are in SAAS and security tech companies who's valuation is lower because of the AI boom, and I'm hoping they recover since my belief is that AI has not yet provided meaningful advantages in those areas.
This last couple of years have been odd. If you picked the magnificant 7 then you look like a genius. But tech can swing drastically, and honestly I don't like Meta or Amazon. I split my portfolio between a little less than 30% in individual stocks, and just in my brokerage (the IRA is all funds). I should have riskier with the IRA since I had some good hunches (my brother talked to me about Fannie Mae and Freddie Mac when they were at less than 50 cents), but I'm a buy and hold guy. For picking individual stocks I mainly choose what I'm interested in, home-town favorites who my friends work for, and if I have any macro-economics hunches (if rates stay higher for longer how do you think that affects bank stocks?).
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I've attained about a 16% average annual return over the past decade via a globally diversified, leveraged equity portfolio. I've lightly experimented with things such as leveraged fixed income on the side, but once the yield curve flattened I didn't think that would work so I exited and haven't returned to it (yet).
However, I do not consider this beating the market, as I attained the greater returns through greater risk. In fact, I underperformed by having to pay the implicit borrowing costs of leveraged ETFs and the elevated management fees compared to non-leveraged funds. This risk and underperformance I accept as the tradeoff for potentially greater total returns.
A lot of amateur investors may believe they outperformed the market, when they just got lucky via gambling, taking on greater risk, and/or tilting towards certain countries/sectors/risk factors.
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I've beaten the S&P by about 1.5% over the last 20 years. I do it with a fairly simple buy and hold strategy of broad market index funds, and a few tilts into growth and value funds, along with some real estate funds. The main thing is that I just... don't sell. I may stop putting more money into a fund, but I don't sell it. The market is pretty cyclical, so it seems to work ok.
I don't think that kind of buy-and-hold strategy is what OP is talking about regarding "active trading" though, compared to someone actively buying and selling individual stocks, relying on timing for profitable buys and sells. And I agree with the OP, this is generally a losing strategy over time compared to dumping things into funds and sitting. But it can be fun in the same way that sports betting can be: if you think you really do have a better-than-average insight into some company or another, you can lose up to 100% of your investment (avoiding margin), but you can make 100% or more.
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