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Comment by brianwawok | Hacker News Reader

Is stock investing your filltime job, or a side hobby?

As a side hobby, does it pay more than doing your main field of work (say programming?)

As someone who has spent a few years working a dayjob in finance (but is currently far far away), here is how I play the stock market.

1) Work a day job

2) Use some of profits from 1 to invest in low cost index funds

3) Do not touch any investment no matter what the talking heads may try to convince you to do.

Will I get Warren Buffet level returns? Nope. But my money will grow steadily without my intervention.

Sure you can outsmart the market. But there are a lot of really smart traders and programmers and robots working against you. Why would I expect to beat them in something I only give a few hours a week to?

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I agree a lot with what you're saying, but ...

> Sure you can outsmart the market. But there are a lot of really smart traders and programmers and robots working against you. Why would I expect to beat them in something I only give a few hours a week to?

The goal isn't to beat swing traders, options guys, hedge funds and other people. The goal many people have is to just do better than a Vanguard fund (or whatever index you like).

But you're right, if someone doing this for 40 hours a week only beats an index fund 50% of the time, how will you do better doing it an hour a week?

(Full disclosure: sometimes, I do try to beat the indexes. I view it more like tax-deductible gambling.)

True, but how much better than the index do you have to do - and at what risk?

If you have 500k to invest, and your goal is to do 1% better than the index funds.. this is easy to compute. You want to make 5k "extra" with your stock market playing. If you consult for $100 an hour, then you need to be able to do this 1% win in <= 50 hours a year (about 1 hour a week).

So you could do this for a year, measure, and see "Yes, I spent 50 hours and I made 5k extra over the S&P 500, so my time paid for itself".

However- did you account for increased risk? Very very likely you got the extra gains by extra risk (say, invest in 10 stocks you think are hot instead of the 500 of an index fund). So some years you will win, some years you will lose. How do you even calculate how more much risk your pick has over an index fund? Wall Street has a way to calculate this risk, I am not sure the average day trader does. How good is a strategy where 80% of the time you gain 1% over an index, but 20% of the time you lose 50% more than the index? (It looks really good while it works, until it doesn't!)

Ultimately, many people who trade for fun are gambling - not much different from picking horse races or football game results.

This is a very good perspective and something that hits home with me. I'm constantly struggling to do "more" beyond my areas of expertise thinking that it's going to be cheaper/make-more-money, etc.. I feel like the advice you just gave applies to many areas, not specific to the stock market or investments.

For sure. And I think there is a whole crowd of "Outsource everything" people that would say to calculate the return of your time, and outsource anything that doesn't meet that.

The place where this can fall apart, is that sometimes those other things have value in the doing of them. An example for me is mowing my yard. I think my total return is something like $30 / hr to mow my yard. However I get outside, I get exercise (push mower), and I get to make sure my yard is done exactly like I want it. So even though an accountant might say I should hire someone to mow my yard, I don't plan on it (Maybe if my freetime got so low I didn't have the time to do it anymore)..

You should outsource things based on value, not price.

Tell me more.

If I have time to do 1 thing and outsource 1 thing.. how do I pick between changing my oil and trimming my hedges?

I always wondered, couldn't you just buy a berkshire stock and chill? I mean I get that it's pretty easy in hindsight to identify that berkshire was a success and that this isn't easy to call (and that various other funds were promising at some point until they weren't), but after so many years of good returns it looks like a safe bet. Since the 60s its total returns turned out orders of magnitude above the S&Ps. (although you could say this is mostly due to the 80s, berkshire vs S&P returns have been much closer the past decade, but berkshire still did better consistently)

Another question I have is, do people expect the price to drop when Buffet ends his work at berkshire for whatever reason? (whether by choice or circumstance)

Yes, it is certainly possible to buy Berkshire and chill.

Past performance may not tell you anything about the future; if you're going to buy any company, even Berkshire, do it because you like the business and the price, not because you like the record.

In general, it's expected that Berkshire's rate of growth will approach that of the market simply because it's so big.

A correct prediction of any Berkshire price movement is worth billions of dollars. I don't know what's going to happen when Buffett turns over the reins. You can make arguments for price movement in either direction. I'm certain that the trading volume in the days following the news will be significant.

Yes. Part of the scientific explanation of Buffets return is explained in Pedersens "betting against beta" paper. Here, it is shown that investing with cheap leverage in boring stocks (like Buffet) is better than investing in risky stocks without leverage, even when the leverage is chosen such that both strategies are equally volatile.

And just holding 1 stock increases your risk a lot. You may get better returns then the S&P 500. But you WILL have higher risk.

Odds of the entire S&P 500 losing 75% of it's value is pretty low, much lower than berkshire losing 75% of it's value (feel free to replace 75% with any number and the argument stands)

While intellectually, I know this. My latest buy of S&P 500 ETFs are 7% underwater at the moment which is annoying me. Though that's an unrealized loss and will rebound at some point in the not so distant future.

So the trick for these kind of stations ("Feels bad emotionally even though intellectually I know it is false"), is to come up with an intellectual solution to it.

For example: Set up your retirement account to auto add X dollars per month, then have your SO change the password to the online account and not tell you the password. You can still get a yearly summary of what is going on, but there will be no emotions felt at the market losing 7% if you can't even see the balance.

As someone who has never played the stock market (or invested in any securities), what services do you use? Do you need to use multiple services in order to trade the different possible securities and markets?

According to an analyst friend, some of the online sites geared towards small-fry individuals are a bit shady, in the sense that they bet against their own users; I believe Etrade was in that category.

Any recommendations for a "beginner's tutorial" on how to get started?

I personally use Schwab, because (at the time I opened the account) opening an investing account also let you open a checking account with refunded ATM withdrawals. The brokerage account also has access to extended hours trading, though I don't know if that's a standard feature.

I also have a Capital One Investing account (partially because I rolled a 401k into an IRA there), and I can say that Capital One has cheaper transaction fees. But I'm an index fund investor, so I don't really care about the fees as much.

That's the extent of my experience with investing. It's not a lot, but I hope it helps.

Read more Warren Buffet, less Jim Cramer. Definitely do not read stuff where some random guy wrote it (a lot of the investing news sites.)

I'm not convinced someone who doesn't know much about business can be a good investor.

Consider the worst thing that can happen isn't losing everything you invested but rather making a huge return completely randomly. People who have a bunch of money made in an unrepeatable way are miserable and often die quickly.

Your definition of how you 'play the stock market' seems to lack any aspect of 'play'.

This is rather intentional ;)

I love to play videogames. I don't play with my retirement or money that I need to live. I have always found hard work more satisfying than gambling.

Why not just say 'I don't play the stock market' though? It's fine to not gamble on stocks, but to suggest you 'play the stock market' when you don't seems disingenuous, and undermines any message you have about it being unnecessarily risky.

Some people use "play the market" to mean, "I make investment decisions, and purchase stocks". That's the conventional meaning.

In this case, though, he's contrasting the "play" as in "fun" aspect. He doesn't do it for fun, and instead treats it as work: minimizing risk, etc.

If I were "playing" this, I could do it with Fake Money and compare strategies over time, or invest pretend money to do all the same work. I don't think I'd be able to do it if gambling with real money.

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