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Comment by WalterBright | Hacker News Reader

It's not just about who has money to invest. Investors who have better investment strategies make a LOT more money in the long term:

http://www.businessinsider.com/forgetful-investors-performed...

and because of that the people with better strategies will accumulate a much larger share of the market.

Most investors have poor returns because they defer to their self-defeating cognitive biases, they don't take the time to understand investing, and they often naively believe they have a simple "system" which will outsmart the market.

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I don't really understand your comment.

> Most investors have poor returns because they defer to their self-defeating cognitive biases, they don't take the time to understand investing, and they often naively believe they have a simple "system" which will outsmart the market.

The article you cite directly contradicts this. It claims that investors who have the best returns are those who specifically don't take the time to understand investing, and that there very much is a simple "system" that works, namely, forget about your investment account entirely, or at least let it sit dormant for a few decades and do nothing.

More to the point, your comment smells like justifying the wealth disparities, and counters the WP article ("If you start out with wealth, you don’t have to be a financial genius to tap the miracle of compounding and end up with real money.") with... nothing but a vague claim that smart investors can make a lot of money.

Wealth disparities will always exist as long as information takes time to distribute and is not public. This is, I think, what the GP means when an "average investor" thinks he has information or a system that the market doesn't and trades on it. If that trade succeeds, it reinforces his behavior. If it fails, something else must have gone wrong but he keeps letting his system drive his money until he can't take the losses (or he makes a bunch of large trades successfully and quickly retires).

It's the equivalent of poking the market with a stick with a pavlovian response when there's several academic fields that would explain a great amount for you instead (which was expensive before the internet).

I've tried a couple stock "systems" of my own construction. Got my ass handed to me every time. They only worked on historical data :-)

My point is that buy and hold is actually a more sophisticated investment strategy than one might think. For one thing, knowing enough about investment vehicles to pick the right buy and hold is straightforward only if you know what you're doing. And secondly, uneducated investors are usually convinced their clever strategy they made up on the spot will beat the market - they just refuse to believe in buy & hold. And thirdly, cognitive biases that destroy investment returns are fairly well documented in the book "Thinking Fast and Slow".

The article completely supports my point, in showing how awfully the average investor does compared with the buy and hold investor.

Buy and hold is infinitesimal in comparison to day trading options and directives, where fortunes can be amplified exponentially in minutes from insider trading or narratives from news publications which have an effect on the reactionary "dumb money" of the common public traders.

They can also be lost just as quickly when the market doesn't conveniently act like you think. If the system was rigged in the way you suggest, hedge funds would do much better as an asset class than they actually do (after fees, they've significantly underperformed an S&P 500 index fund). WRT your claims of rampant insider trading, when the SEC sees heavy option volume before public news breaks, frequently, someone goes to jail.

With off shore accounts, dark pools, HFT, and an excess of money, one can imagine there are loop holes.

https://www.bloomberg.com/news/articles/2014-07-23/don-t-tel...

http://www.npr.org/2013/04/09/176579895/to-find-insider-trad...

Buy and hold is an above average investment strategy. Many people panic sell in lows, and impulse buy in highs. They believe, implicitly, that they can market time.

Buy and hold indexes. That's the smart approach.

The only alternative that makes sense to me is to follow Peter Lynch's advice and buy what you know. Do this with money you can afford to lose.

When Apple released the original iPod I begged my Dad to buy me one and raved about it. Based on my excitement, he bought several thousand shares of aapl and still holds them. The gain on that single investment is greater than all the income he earned in his lifetime. You cannot expect to make these kinds of investments. Take a sliver of what you have and put it behind something you believe in. Put the rest in index funds.

Edit: I meant to tie this comment back to the original title about wealth disparity. Point being, my Dad has created generational wealth from a single lucky investment. It's just luck and a system that let's you keep your winnings.

I know a couple that invested the bulk of their net worth into Apple when Jobs returned. They advised me to, too. I didn't <sob>.

If it makes you feel any better, I heard about Bitcoin when it was under $1, thought it was a cool idea, didn't have any disposable money to buy any, and promptly forgot about it.

If it makes you feel any better, I heard about Bitcoin before you could even buy it, and I had a fairly powerful (for the time) quad-core machine I could have done a bunch of mining with.

If it makes you feel any better, there's a good chance you'd have mined thousands of bitcoins, gotten bored and forgotten about them, and lost the wallet file eventually :)

Another thing that kills off many investors is failing to understand the time value of money. For example, there was a recent reddit thread about a person saying she was climbing out of debt by paying off the lowest interest rate loans first and deferring the high interest loans until last.

I had to read it several times as I thought I was misreading it. I have many other anecdotes on that point, but that one takes the cake.

There's an effective strategy called the snowball strategy. You pay off your smallest debts first, disregarding interest rates. This works because it takes advantage of psychology - you make progress by eliminating debt items faster.

It is not the strategy with the optimal use of money, but if you feel defeated because you seem to be making no progress then you are less likely to have the motivation to live frugally, and thus actually do worse overall.

It can be more important to encourage yourself than to actually optimize your cash depending on your personality and situation.

Such would be a notable example of cognitive bias interfering with rational fiscal decision making. I mentioned earlier about such biases resulting in poor investment results.

I recommend again "Thinking Fast and Slow"'s section on how cognitive biases interfere with sound money management. Being aware of them can be very helpful in countering one's own unhelpful tendencies. Interestingly, the book details how professional money managers fall victim to them, even when they are made aware of such biases.

This is one aspect where computer algorithmic investing can do better. One can dispassionately program out such biases.

Of course that's true, but do you honestly think individual cognitive blind spots and biases are a bigger factor than the structural and systemic issues?

I think the two are tightly intertwined.

We have structures and systems that use your cognitive blind spots to strip you of any wealth you might have been able to accumulate.

All that article is saying is that the best strategy is buy and hold. That's nice but nobody is going to get rich off that advice or accumulate any significant share of the market.

Maybe not, but buy-and-hold of low-cost index funds and dollar-cost averaging investing has historically resulted in above-average investment returns and easy paths to retirement.

If your goal is to get rich or a significant share of the market then just be like Buffett: brilliant at risk estimation and a real eye for spotting value in the market. Of course, that experience takes years to acquire.

Except for a lucky few (who get all the attention as if they've cracked a secret code to producing wealth), no one really gets rich from investing.

There are two ways to get rich: (1) be smart and work your tail off, or (2) get lucky.

Path #1 involves a bit of #2, but not as much as some people might believe. Also, "working hard" doesn't mean going to work and putting in a lot of time/effort day after day; it has more to do with constantly seeking to improve skills that are of value to the world, expanding your network, and doing more with less.

That last bit is important: too many people do improve their earning potential significantly over time, but never feel "rich" because they imperceptibly scale their lifestyle and spending patterns to match (or surpass) their increased earnings.

At the end of the day, investing should be regarded as a way to simply stretch the money you do make farther (on a long-term scale). That's not to say it can't significantly contribute to one's wealth over time, but without extraordinary luck, investment returns are usually more of a slow and steady multiplier to your own earnings.

If you're investing to become rich, you might as well play the lottery.

I graduated with a small amount of student loan debt. (I say that only to set an initial condition of negative net worth at age 21.)

I am smart and work my tail off, and most of my net worth today is traceable to the following three factors:

1. A solid, strong income from technology work; no gaps in employment.

2. Spending less than I make. http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...

3. Investment returns on the surplus that #2 and #1 make available.

It's a three-legged stool. Take any of the legs away and it fails to work.

I'm at the point now where most years I make more gains in net worth from the market (#3) than I do from #1 and #2 combined. If I had held all of the surplus in cash and bonds, I'd have way less than half of my current net worth. Way less.

You can get rich from investing without being lucky, just not quickly. 7% returns become very big money over time if you let them ride for a few decades. Of course you have to have some primary income source to be able to save to invest money, but if you can earn 50k per year and save 10k per year in your 401k, you can easily retire a millionaire.

I know several wealthy people making 5-10% on net worths in excess of $25 to 50m. 10% on $50m is $5m. That's a lot (and plenty to live well).

I literally don't think I've ever spoken with an individual that has $50m in net worth it's certainly not the norm.

Honestly, how would you know? Most people don't talk about their wealth. I'm not aware of ever having spoken with anyone worth $50MM, but it's possible that it's happened.

Of course, you're absolutely right that net worth that high is exceedingly rare. This is much smaller than "the 1%".

Not only is it rare, but they do not mingle with peons.

They absolutely do mingle with peons, they just don't tell the peons.

One anecdote was when one of these guys went on a UK game show. People in the market who knew him were laughing their heads off at the thought of him doing word and number puzzles.

Also, I think they can be approachable. Often they're looking for investments to make, or charities to donate to. Or they have political opinions they want heard.

What they don't want so much though is yet another guy who wants their money, so if you do have something to bring to them, it had better be good.

See the book "The Millionaire Next Door" about how ordinary people with ordinary incomes get rich. It is not about being smart or lucky.

You don't get rich (in an acceptable timeframe) by investing. You stay rich by investing (if you do it well), and you keep a good annual yield coming in by investing well.

> You don't get rich (in an acceptable timeframe) by investing

In realistic terms, you don't get rich in an acceptable timeframe by any means. You could found a billion dollar business or you could lose your shirt. You could win the lottery or waste a few bucks. You could marry or inherit money, or you more likely could not.

There is no reliable path to wealth except investment long term. And even that is infeasible if you aren't fairly high income.

Read the book, please. It shows how (non-rich) people do it. It's going for $.25 on Amazon. Anyone can afford it.

It's $7.99 on my version of the Kindle store. Where do you see $.25?

Not GP, but there's a used paperback copy of the 1998 version for $0.25: https://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/... (or a used hardcover for $0.02 and a new one for $0.60)

It is also likely available for $1.50 in late charges at the public library...

The local public library has it, too.

https://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/...

The used paperback version is $0.25

Person, no. Family or institution very much yes. All it takes is for something to never sell stocks an always invest dividends as cheaply as possible, then wait. Sure there is going to be pressure to use that money for something, but someone can seed an organization whose only goal is to grow.

Suppose a long now charity whoes goal is interplanetary colonies once it hits 10% world resources it starts spending dividends.

> nobody is going to get rich off that advice

I know lower middle class people that have, if by rich meaning their stocks are well into 7 figures. Few, however, have the patience to stay the course for decades, and fortitude to gut out the various crashes.

The benefit of buy and hold depends bit on when you buy as shown in this graphic

http://www.nytimes.com/interactive/2011/01/02/business/20110...

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