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Comment by nodesocket | Hacker News Reader

I've come to realize that Hacker News for the most part is not a good forum for discussing the market. There seems to be a lot of disdain and calling it a "rigged" system that makes the rich richer. Just look at the comments at the bottom of this thread. That sort of mentality is ill-informed of finance and the market.

The market is not only for millionaires and billionaires. You can trade $6.95 on ETRADE now and can even trade for free with Robinhood. I actually hold about 80% of my holdings in ETRADE and 20% in Robinhood. I use Robinhood for buying smaller chunks of shares (lowering dollar cost average) or more risky smaller trades.

Savings accounts are stupid! They offer fractions of percent interest. Look at exchange-traded funds that track an index such as the S&P 500 or Nasdaq Composite. My personal favorite ETFs are the tried-and-true SPY and QQQ.

I wrote a blog post on Robinhood and leveraging capital using margin on my blog for those interested:

https://justink.svbtle.com/leveraging-capital-using-robinhoo...

View on HN

"Savings accounts are stupid, you should leverage into the stock market" isn't a particularly sensible way of thinking about managing your money.

Dumping all your money into the market ignores that fact that there's a dependancy between how likely you are to need the money and how well the market is doing. Did equities just crash 30%? That means the economy is probably in the toilet, and you might be about to lose your job. I bet that cash portfolio is looking pretty good right about now.

Every dollar should have a purpose and be invested accordingly. If you're investing for a 10-year+ horizon, then you should absolutely put the money in the stock market because you can afford to ride out any drawdowns. But if for example you're saving for a deposit on a house, or if you can't afford to lose the money, then cash is probably the right choice.

No, it really isn't. There are much lower risk options than stocks or bonds that are liquid. All of the savings accounts I have seen for quite some time pay below inflation, so you are actually losing money using them. Most people do as you say though.

I thought about mentioning government bonds or term deposits, but I wanted to keep the post simple. My point is that the stock market isn't always the answer.

I don't know what interest rates on savings accounts look like in the US, but in the UK they're competitive with government bonds. Banks often use them as a loss-leader to sell more profitable products like credit cards and mortgages.

I'm curious to know what offers a better yield than a savings account with less risk than a stock or a bond. Even the US two year note has a negative real yield right now, so it's hard to see how to get an above-inflation return without taking significant risk. The five-year inflation-linked bond has a negligible yield, and means locking away your cash for a significant time [1].

[1] https://www.treasury.gov/resource-center/data-chart-center/i...

interest rates on savings accounts [...] in the UK [are] competitive with government bonds.

Looking at the rates for UK government bonds, it looks like those are also below inflation (e.g 5 year yields are around 0.6%). If there were any savings accounts paying above inflation, I think exchange rates would be shifting accordingly in the absence of capital controls. I suspect that savings accounts representing a poor RoI is therefore a global phenomenon.

The only thing which I can think of that the parent could be referring to is the money market. I think I'm as lost as you as to what he is getting at.

I'm really talking about retail savings accounts: most banks in the UK pay give 2%-3% on deposits up to a cap, with no interest paid on funds deposited above the cap. However, it's often possible to get around the cap by opening multiple accounts. You can stash amounts into the mid tens of thousands like this, but for higher values it gets a bit trickier.

These are retail products. It's true that an increase in the yield on government bonds would move the exchange rate, but the kind of institutional investors that move money in enough bulk to affect an exchange rate have little interest in retail deposit accounts.

> I'm curious to know what offers a better yield than a savings account with less risk than a stock or a bond.

Why are you looking for a single, magical asset class with superior risk-adjusted returns? If you invest in a diversified portfolio of stocks, government bonds, real assets and cash, you'll find it earns a solid rate of return with less volatility.

What are these options that are liquid and pay above inflation?

> No, it really isn't. There are much lower risk options than stocks or bonds that are liquid.

Yes, what you want is the repo market, or the eurodollar market. But wait, see what happend on these market during the last crisis ? If you really want a risk-free market, what you want is tradind the fed funds market, except :

1. You can't since you aren't a bank.

2. The interest rate is shit.

3. It's basically what you already do when you have your money on a bank account.

There is no such thing as a free lunch, if you want something safe and liquid, it's not going to pay well.

In theory its all great until you get punched in the face. Meaning, reserve cash isn't important - until it is.

The main problem isn't a rigged stock market, it's that relatively few people can meaningfully participate in it.

From https://www.theatlantic.com/magazine/archive/2016/05/my-secr...:

> The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 percent of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all. Four hundred dollars! Who knew?

It would be instructive to re-ask this question as "what would you do to pay for a $400 dollar expense in 6 months". I suspect the answer would be different. There's very good evidence to show that people are bad at planning for nebulous future risks, especially compared with current needs/wants.

Robinhood should add a direct-deposit option which automatically buys shares of indexes in a preset mix once sufficient capital has been deposited, I suspect that would materially help.

In Australia this actually happens in a rather structured way; Superannuation, or defined contribution benefits as it is usually called in Europe. Your employer (full or part time) is required by law to contribute 9.5% of your salary (over the top) into a regulated fund with your name on it (i.e. the funds are no longer accessible to the company). In your younger years this is normally put into a growth focused investment (stocks etc), when you get closer to retirement most employees elect to move to a more cash / hard asset class (bonds, property, and sometimes corp bonds). The real pity is that most super administration companies charge whopping fees and most employees stick with the administrator chosen by their company.

Alas, the superannuation is mostly restricted to fairly expensive options, ie high fees. That's because providers have to clear some regulatory hurdles keeping competition down. You can't just tell the government "Yeah, I'm using vanguard index funds for my mandatory 9.5%."

At the moment, Host Plus might be the best option (read 'cheapest option') for Australians. Not sure if that's still the case.

You can set up a self managed super fund (SMSF)[0], you do become the trustee of your own super fund and you do need to follow super regulations but it does give you the ability to a large percentage if not all your super money into a low fee index fund.

[0] https://www.ato.gov.au/Super/Self-managed-super-funds/Thinki...

Yes. But that only makes sense for people who already have a sizeable chunk of super---since there are fixed costs for an accountant to sign off on your investment decisions.

>There seems to be a lot of disdain and calling it a "rigged" system that makes the rich richer

Based on current evidence world over, it does appear the case. I know of no one either famous or even within my social circles who's become rich solely by investing in the markets alone. Unless one has deep domain expertise within a sector or has information to which they're privy, it is unlikely one will earn returns that significantly outweigh the market in the medium to long term. So, yes, it is not hard to imagine that equity wealth is concentrated among an elite few who also have an incentive to not let newer members in to improve their own returns.

The market does not exist to make anyone rich. The math never works out. Desperate and clueless people delude themselves into thinking otherwise, and more reasonable people use the market as a glorified lottery ticket.

All of these people are missing the point. The only people that could ever meaningfully participate in the market are those for whom 6-10% returns on their income vs. 2-3% are meaningful. Everyone else needs a larger return, the stock market cannot and never will offer the kind of return on investment that a job or business can offer.

Stock markets encourage liquidity of capital. They are instruments by which hungrier, but still large investors can take money from their more well-heeled contemporaries without having to resort to ugly political action.

There are only two financial investments that really make sense from a personal point of view, mortgage loans and retirement. Mortgages make sense because it's an accessible form of leverage, take the leverage out of the picture and everyone would rent. Retirement makes sense because it's the only other scale people operate at where single percentage point differences in return make a real difference. Otherwise we'd just put all our retirement funds in a savings account.

I'd say you need a few million in the bank before financial investment starts to look better than hunting for business deals. Sure, financial investment is less risky, but savvy players can de-risk by studying the market.

This is great.... Thanks. I figured it out last month while comparing my business returns against stock .

You would be very, very surprised how few people are trying to pick stocks that they will hold for years and want to beat the market. Despite that being the generally agreed point of "investing" over speculating. I'm including active investors as well as individuals in this, short termism is very prevalent, partly because people chase the fund that outperformed over the last X months.

There is a small extent to which the drawbridge does get pulled up. Successful funds can close themselves to new business simply because they have too much money / clients for either their investment or client relations capacity. If a fund owns 4.9% several of its key investments then you can't admit new money without altering the balance of the fund and thus affecting the existing investors.

> know of no one either famous or even within my social circles who's become rich solely by investing in the markets alone

Contrary to what late-night informercials on CNBC portray, people in that position keep their mouth shut.

Here's a profile of Robert Mercer, for example https://www.nytimes.com/2015/04/11/us/politics/hedge-fund-ma...

"Mr. Mercer told the audience he was daunted by the prospect of speaking there for an hour, “which, by the way, is more than I typically talk in a month so it’s quite a challenge.”"

Here's another random scientist growing his savings into $14 million portfolio http://articles.latimes.com/2010/jan/07/nation/la-na-scienti...

If you have a major win in the market, you likely have an edge. Publicizing your egde will only draw the attention of pesky competitors trying to reverse-engineer your strategy.

> it is unlikely one will earn returns that significantly outweigh the market in the medium to long term

Do you need to beat the market to become rich? What about just earning the market return (SPY, VTI, or similar), over a 30 or 40 year time period? I know plenty of older folks who 'got rich slow' this way. Granted, historical returns might not be there for millennials in the next few decades, but it's still the best bet there is.

>What about just earning the market return (SPY, VTI, or similar), over a 30 or 40 year time period?

This is not "becoming rich," it's table stakes for retirement, and a necessary (but not sufficient) criteria for being middle class.

It's the best there is... IF you believe that the market will continue to grow. A lot of people think that we are hitting very high valuations now.

You need to be in the market to maintain buying power with stagnant wages and increasing costs. Most people do not have $400 for an emergency so they aren't participating in the market.

And if you have to borrow to buy a house/car or buy health insurance, then you are paying those richer than you to exist, their rate of return will continue to be higher than yours, and wealth inequality will continue to rise.

People don't have $400 for an emergency but they have smartphones, Jeezy shoes or various other random unnecessary crap. People don't have $400 for emergencies because they choose not to. Look at Black Friday sales -- people seem to have $400 to fight over TVs or game consoles. Even the really poor in the US seem to find money to buy TVs or subscribe to cable/satellite TV. Visit any public housing complex in America and there is a large number of homes with Satelite dishes. I am not saying there's anything wrong with that but I am also saying that people do make choices.

I am not a particular fan of Warren Buffet, but he's a billionaire and lives far more discretely than your typical 5 figure "millionaire" who's driving a leased BMW and drinking Grey Goose at the club.

Certainly there are actual poor; that's not in dispute, but the middle classes typically just prioritize things differently -- which contributes to their station.

This. We (especially you US citizens) have never be that rich ever in the whole history of mankind. Yet people keep complaining life is tough. I don't get it. But who wants to live his grandparents' life ?

No, but you need to have a decent income to invest, which most people don't have.

Yet most people have cable TV (and/or a gym membership they never use).

I wonder if you realize that the market return people are trying to beat is effectively the average return over some period, and therefore you're saying that on average people don't get above average returns?

Also, as others have said on this thread, using compounding it would be possible to do extremely well without beating the market.

Just to address a few comments, I meant it's hard to beat the market i.e. have your investments grow faster than the benchmark index. That's a different matter than 'growing rich' or 'doing well'. Sure, you can and in fact, after burning my fingers, all my investments are in index funds too.

But, my point referred to the original comment that the system isn't rigged. There's a high probability it is and because of how capital and information flows work, there's a select few who will benefit instead of a wider majority.

You do realize that there is a substantial fraction of the population that does not have any money to invest?

Substantial seems to be an understatement:

http://www.cnbc.com/2015/04/09/half-of-americans-avoid-the-s...

"More than half of Americans, 52 percent, are currently not investing in the stock market—either by buying individual stocks or mutual funds, or through a retirement account such as a 401(k) or IRA, according to a new Bankrate.com survey. Among the non-investors surveyed, 53 percent said they don't have the money to invest and 21 percent said they don't trust stock brokers or financial advisors."

They could still be investing, just not in the stock market. Buying a larger house (with the goal of taking on renters), buying a rental property, or just a plain savings account, which is a proxy investment in Treasuries.

I wish I could buy a house just to live in. A rental property would be a dream. However, buying a house still requires an initial investment and good credit, which is tough to get when you make $10/hr. Then you have to be able to afford maintenance, disaster insurance, and an emergency fund if something happens to your job. You've got to get a house in an area with enough housing demand that you can rent it out, which is getting harder due to the fact that most new jobs are only being created in a handful of cities like SF, Houston, and NYC. This creates a lot of demand in those areas, which makes buying a house there out of reach for most normal people. And even if you manage to get a good house in a moderately okay area, the value of a house depreciates on a long enough timeframe. All this means that real estate investment is only truly available to those with preexisting capital.

While I don't mean it as a counter-point to your particular situation, on a broad scale US homeownership rate has been overall rising, in some areas more than another https://www.census.gov/hhes/www/housing/census/historic/owne...

That seems to suggest that 27% or roughly 1 in 4 Americans cite not having enough money to invest in the stock market. To be clear that is different from saving money or returning it to real estate investments or into a family business. I'd say that falls in line with expectations given unemployment rates and median wage vs cost of living statistics nationwide.

Robinhood being free of commission and having no minimum is a good start for the larger pool of people without much to put up. Personally I started with $500 from student loans and a scottrade account. I wish Robinhood was around when I was starting. You could start investing/trading in theory with just $1.00 but there is the problem that many S1 stocks are not too great. However a good $45 stock that goes up and down by $3 over a 2-4 week period is accessible. Even if not, $45 to $48, then back down to another stock at $45 in the range can lead to similar results. However one must not get into the trap of only wanting that particular price point, it's just an example. With Robinhood I would have been able push out to higher amounts sooner due to the lack of commission fees.

To me, a $45 start anyone working can figure out. Part of the problem if you ask me is the normalization of the notion of "you can't", etc. I've been reading Mass Flourishing and The Complacency Class this past week; the "you can't" notion, the loss of risk aversion seems to be the key driver. However I think it's also where we put of value regarding information. Instead of watching a sports game or the Bachelor, read a few books about investing and trading which you can get at a library; worldcat.org can help one find such libraries that hold those collections. However many would scuff if they were told to make that trade off.

> To me, a $45 start anyone working can figure out

this is the problem, some people are working and can't really spare a single dollar, much less 45 of them.

I'm going to contest that. Its absolutely ridiculous to claim that someone who makes any amount of money per month cant spare $45 of that. Maybe they use the $45 they COULD spare to buy slightly better food, which is a valid way to spend 45 bucks. But its ridiculous to believe that a person can't downgrade SOMETHING and save $45 a month. I know a guy who lived off of kraft prepared meals and milk for 2 months to get out of some debt and launch a business at the same time. He spent a dollar a day on "nutrition". Maybe not the healthiest 2 months of his life, but don't tell me that you cant sacrifice to save 45 bucks.

Its like saying you can absolutely not sleep an hour a day less to do something productive youd really love to do.

This. Also it's not like you need to develop that $45 with one paycheck. Put $5 or whatever a side for 9 weeks.

To me the whole 'it can't be done with some people' is just an excuse to be risk averse.

That's the problem. Science fiction told us we would have robots doing all the work for us but most left out the part about 1% owning all the robots. That's not sustainable.

It is actually the very definition of sustainability because cheaper robots drive down the price of future robots. What were you trying to say?

He was trying to say that the cheaper robots better have weapons ;)

Savings accounts are stupid if you are investing tens or hundreds of thousands of dollars in free cash, after establishing an emergency fund of several months' income.

Savings accounts are not stupid if your life savings accumulated over many years is only $2,000 or $3,000 and you never know when you'll need to tap into them for an emergency.

The accusation of it being rigged goes far beyond brokerage fees.

It has to do with earned income tax vs capital gains tax, sales taxes, out-of-balance property taxes, educational opportunity, legal recourse, inheritance, etc.

P.S. I agree with your conclusion, even if your argument is weak.

Anybody can participate in the market and take advantage of capital gains and write-offs (losses). I'm not following your logic.

EDIT: Love that I'm getting down voted for saying anybody can participate which is a fact.

>Anybody can participate in the market

Except for people living paycheck to paycheck because they're on welfare making minimum wage. In other words about 20% of the population, if they're smart with their money, can participate in the market.

Just 3% of hourly workers in the US make minimum wage which means that "20% of the population" is highly incorrect. https://www.bls.gov/opub/reports/minimum-wage/2015/home.htm

Only 63% of Americans are working or looking for a job. The rest are supported by others or the government.

Sorry, anybody can participate, even people living paycheck-to-paycheck. For example, instead of buying that $5 Starbucks, save up and buy a share of $SBUX which is currently at $54.53.

> even people living paycheck-to-paycheck. For example... save up and buy ...

So your solution for living paycheck to paycheck is to simply not live paycheck to paycheck. It's surprising no one's thought of that before.

Ah yes the "if only poor people would stop blowing their money on Starbucks" argument. You are either trolling or you are unbelievably sheltered.

I don't think you understand the concept of paycheck to paycheck. Although it may be the case that some people living paycheck to paycheck spend outside their means on luxuries like brand name coffees, there are also those people for whom paycheck to paycheck is forced on them due to external factors. Now I didn't downvote you but I think those who did did so to hint that your perspective could use a reality check.

When I was living paycheck to paycheck I could only dream of a fancy latte. But it meant not eating for the next 3-4 days, $5 goes a long way.

You can buy a lot of 10-cent ramen for $5.

So, you've never met a poor person that's also responsible?

While you probably are poor people at Starbucks, most of them don't go there.

Please travel more.

> Please travel more.

Last year alone I went to Chile, Sweden, Romania, Czech Republic, Germany, Belgium, and Ireland. Don't make assumptions about people and things you don't know. Have I traveled more than you?

Gambling always favor the party with more capital.

The current market is cultivated more as a place for gambling than meaningful investment avenue for advancing economies. That's where the sentiment come from.

No one is complaining the access to the market is lacking. Rather, all are forced to join a market that has obvious flaws that the rich and powerful are not interested in fixing. And if not join the market, you stand to lose for sure.

Saying anybody can participate is as ridiculous as Republicans saying poor people will have "access" to health care without any concern of its affordability.

You live in a bubble. You should go talk to some real people.

Poor people do have access -- it's called Medicaid. Medicaid exists in all 50 states.

you're getting downvoted for your comment being irrelevant to the discussion. If most of your income is salary, you will be paying a much higher effective tax rate than if most of your income is capital gains. The latter correlates with being wealthy.

> If most of your income is salary, you will be paying a much higher effective tax rate than if most of your income is capital gains.

Correct only for individual incomes above $165,000. Current long-term capital gains rate with ACA surcharge is 23.8%, and according to https://www.taxact.com/tools/tax-bracket-calculator.asp the effective income tax rate for a single individual goes above that at $166,000. Having any family or other dependents introduces new deductions, and so does contributing to an IRA or 401(k), extending that runway.

This also ignores the fact that planning to generate stable income via long-term capital gains is akin to planning on generating stable income by consistently winning the lottery.

1) the lottery has a negative expected value, investment does not. In the long run, this is a qualitative difference.

2) That is federal income tax, you've missed state, medicare and social security, and are also completely discounting the fact that the capital gains rate is bounded from above by the income tax rate.

3) most importantly, 165000/year isn't very much money. It is plenty to generate personal wealth. Most of the actual income in america is made well in excess of 165k/year, and much of that income is in the form of capital gains.

If you need a better breakdown, I can't do it better than this https://fivethirtyeight.com/datalab/the-top-1-percent-earns-...

The article you linked concludes that "the wealthiest 1 percent are an outlier: 36 percent of their income comes from capital gains". As the graph suggests, that number quickly decreases to 10% and 5% when the group encompasses the wealthiest 5% and 10%.

So for those three groups the income not subject to capital gains tax constitutes 64%, 90% and 95%.

This is before the capital gains are even broken down into long-term vs short-term (which are taxed at plain old income tax rates).

I am still not seeing what led you to believe that the effective tax rate will be significantly lower.

> That is federal income tax, you've missed state

Mmm, okay. Well, I am not a CPA and not sure about other states, but California makes it easy by treating any capital gains (long-term or short-term) as income, so (at least for CA) the effective tax rate of someone relying on long-term capital gains will be pushed up, not down.

I agree though that if some other states have favorable treatment of long-term capital gains, the numbers would look different.

> medicare and social security

Both are subjects to wage limits, and at $166,000 (which will be a higher value once the state tax is incorporated) we're well past those limits.

> the lottery has a negative expected value, investment does not. In the long run

But a capital gains requires a sale, which means the position has been exited, and there's no long-run. True, it might be a partial sale of an asset, and in some case the proceeds of a sale are invested into another position, but at this point you're pretty much betting the new assets will increase in value and be a candidate for a sale. Hence my lottery comment.

I'm not saying you don't have a point in your original post, but you should absolutely not use the stock market as your savings account. There's a reason it's recommended that you have 6 months of living expenses liquid.

Yes, you're very likely to gain much more by investing in index funds. But "the market can stay irrational longer than you can stay solvent." If there is a stock market crash, that's likely to coincide with personal issues, like losing your job.

Even if you can weather the market, having to pull out money at the bottom of the market will destroy your gains.

> There's a reason it's recommended that you have 6 months of living expenses liquid.

Do you mean cash equivalents? Public stocks are liquid.

Personally I think the 6 months advice is too conservative. If everyone calculated the damage inflation tax did to their savings account each year, probably more people would be willing to take a bit of a risk and invest their savings (or a greater portion of it).

You're right, public stocks are liquid and I meant cash equivalent.

There's a lot of variance on how much is recommended in an emergency fund. Most seem to say 3-6 months. I know if I lost my job I could cut down my living expenses and stretch it out. But if I had to move for a job, had an extended gap, or had to take a lower paying job I might have to dip into those investments prematurely. Having to cash out at the bottom of the market burns years of investments where it would have been better if you just held onto cash even if your interest rate is a pittance. Just like putting money into 401k is more than negated if you have to cash out early.

Everybody has different risk tolerances and the amount needed in an emergency fund varies depending on a bunch of things (if you have debt, variety of incomes vs a single paycheck, gap between expenses and earning). I've never seen anyone actually do a study or source why they chose 3-6months--so it's really hard to argue for or against. I'd be curious if anyone has done a study.

It hurts to have money just sitting there, but I'm not trying to eek out every penny. I really don't think all those extra risks are worth it. Keep your living expenses low and it won't be that much money ;)

6 months is not conservative. We aren't all programmers with a list of recruiters to talk to when we lose our jobs.

I get that. That's why you diversify your assets and hold a bit of cash as well. But 6 months is a bit extreme.

It's not as if a diversified portfolio is going to drop to zero during a major recession (unless the government collapses, in which case cash might not be useful either). It might lose around 30%, depending on how you diversify and how extreme the recession is.

Completely agree that the market should not be where you put all of your money without having liquid reserves. I'm not advocating that.

Howerver as a long-term (> 10 yrs) strategy and assuming you also keep a pool of capital in a checking and savings account ETF's are the way to go if you just want to fire and forget.

Maybe we should simply have an economy where everybody lives on capital gains, nobody has to work, and finally everybody will be happy.

Yes, but only those with capital can have capital gains.

If 0.2% of your income is available for investment, that will be different than if 20% of your income is available.

"Love that I'm getting down voted for saying anybody can participate which is a fact."

'Anyone' can chose to play poker against people who are much smarter than them, who count cards, who use computers, who have 20 years experience and are buddies with the casino owners.

Now maybe that game would not be theoretically rigged, but one would be pretty stupid to play it.

Investing in the market doesn't mean that you fight smart people. You could just buy an index fund and not worry about picking stocks.

I'm no expert, but I'd like to think that there is no free money. Unless you are hiring a professional with proper track record who will be actively investing (lots of fees involved), you are taking large risks; anything above what banks/government bonds are willing to give for inflation (+ small opportunity cost) - is mostly gambling.

I think, many people think stock market does nothing for poor, because:

5% of 1,000 = 50

5% of 1,000,000,000 = 50,000,000

No amount of compounding will help the poor and any loss will be much much worse.

I like the investing accrediting idea and wish it applied to stock market as well, but I guess some people might not like reducing of their choices (https://en.wikipedia.org/wiki/Accredited_investor)

> you are hiring a professional with proper track record

The statement is somewhat of an oxymoron. A professional with a proven track record wouldn't be interviewing to manage your money - with the current cost of the capital they would raise a small hedge fund, stay out of public life and keep most of their track record to themselves, being occasionally portrayed as "reclusive" billionaires, e.g. Renaissance Technologies.

I concur, though, using a financial advisor is good for diversification and as a second set of eyes on private or any convoluted deals, but anybody asking for your money in order to bring untold riches is manipulating people.

It's hopeless. I don't know where this victim mentality comes from. I won't even put a political label on it because I truly don't understand how people can think this way.

It's like complaining that top 10% of good looking people get 80% of all the good acting jobs.

Or that the top 10% of people with athletic prowess win 80% of sporting events.

Or that the top 10% of good chess players win 80% of tournaments.

Or that the top 10% of engineering graduates grab 80% of the good jobs.

Or that the top 10% of people with great grades get 80% of the good jobs.

And, while doing this, blaming those people for one's lack of success in the respective fields.

Well, yeah, the top 10% of the people who are genetically better swimmers will win 80% of the swimming competitions. Me? I suck. Because I am not anywhere close to that genetically optimized group. I can get much harder and improve but I am simply not good enough. And that's OK. I don't know where this idea that we are all equal in every respect comes from. There are people far more capable and far less capable than every single one of us in just about every single human activity and the top 10% within any category will do better than the 90%. That's just the way things work.

Wealth is that same. Some people have money because they are lucky and otherwise dumb as a brick. That's not the case for most people who have money. They've taken risks, worked hard or worked smarter than others (or all three of these factors). And, no, they are not trying to oppress the rest. The gifted swimmer who laps me at that open water meet doesn't even know I exist. Blaming him or her for my shitty standing isn't aligned with reality at all.

Yet, I don't think these realities are going to convince people attached to this rich-hating ideology to reconsider their position. I don't understand where it comes from.

I am speaking only of the US here. I don't know about the circumstances elsewhere. Here in the US, opportunities for advancement have never been better. Not by a long-shot.

Actually, social mobility in the United States is declining (https://en.m.wikipedia.org/wiki/Socio-economic_mobility_in_t...) at a time when the difference between the top 1 percent and the bottom 1 percent is obscene. There are people in this country with tens of billions of dollars while others are going bankrupt due to medical bills or working paycheck to paycheck, unable to save for retirement.

But it's not even that the top 1 percent doing well that is the problem. It's that the top 1 percent is doing extraordinarily well in a time when the rest of the country(with the exception of a handful of cities in the US) is seeing a decline in quality of life. A rising economy should benefit everyone, but it seems to only be benefiting the capital owners right now, which is making a lot of people very angry.

My point. My only point. Is that the rich have nothing whatsoever to do with what you are describing.

They don't have a secret club where they meet to conspire on how to keep people poor. No, they do what they do every day: Focus on their businesses and investments.

The reason we have the problems we have are far more complex than simply blaming the rich.

Part of it is that we've "bred" the drive to succeed out of most people. No, this wasn't some fantastic conspiracy. I think it happened naturally due to how the US has developed.

I read an article recently about how China is outpacing the US in the rate of business creation by a staggering margin. The level of investment in China on new ventures is mind boggling. That means they are promoting a culture of entrepreneurship as well as supporting it.

This gap you describe is only filled with effort as well as intelligence. When unions create an environment where a guy inserting a screw into a hole gets paid $50 an hour, what do we expect that will lead to? And, when they create an environment where buying a robot to do that job requires the company to continue to employ that person at the same pay rate even when you don't need them. Well, again, what do we expect this will lead to?

Unions have resulted in huge job losses in the US. Until that mentality changes they will not come back, despite what politicians might claim.

I don't have the time to cover other scenarios, the above are not the only drivers. Nothing prevents anyone in the US from making as much money as they want other than themselves. That's the only limitation. You have to be willing to make the effort and take some risks.

And it doesn't have to cost almost anything. I mean, look at the people posting videos on YouTube making gobs of money on ads. Most of the people in that middle class gap everyone refers to are walking around with iPhones or other smart phones.

That's what's funny about this whole ideology, people on Welfare with iPhones. On the assumption they have access to a phone or a camera, anyone can make videos on YouTube and make money. Is it easy? No, of course not. Will it require lots of effort? Damn right. Will some fail? Most will fail. Yet, it's there, it's possible and it is within reach.

I don't understand, do people want to be handed wealth without making an effort or an investment?

>Wealth is that same. Some people have money because they are lucky and otherwise dumb as a brick. That's not the case for most people who have money. They've taken risks, worked hard or worked smarter than others (or all three of these factors). And, no, they are not trying to oppress the rest. The gifted swimmer who laps me at that open water meet doesn't even know I exist. Blaming him or her for my shitty standing isn't aligned with reality at all.

Yeesh. This is factually incorrect. You are saying "this is what you think the world must be like, given that's the pyramid in many other places."

But you are just badly mis-caliberated.

The top 0.1% control most of the wealth, and the top 0.01% control a disproportionate amount even amount the top 1%.

Anyway - this is a great article : http://www2.ucsc.edu/whorulesamerica/power/investment_manage...

> The top 0.1% control most of the wealth

So what? I can still make millions and so can anyone else.

The top 0.1% of anything control the most coveted aspects of that thing.

Really? And this is a revelation how?

This manner of victim thinking is defeatist. One thing has nothing to do with the other.

Here's a perfect example of a guy with a very simple idea that, as of 2012 (can't find current data), developed a SIX MILLION DOLLAR business. With a freaking paperclip. No code. No computers. No need to learn Python or ever touch a server. A freaking paperclip was his development tool. Here, read it:

https://goo.gl/mqUbts

I'll repeat what I said a few times now: Opportunities in the US have never been better. Anyone can reach for the stars. Yet, it does require taking risks and being willing to work hard and smart in order to succeed.

What the wealthy do is utterly irrelevant.

You aren't getting it.

You keep repeating that the wealthy don't matter, I suppose because you are saying that on your own you can be wealthy. Then you provide an example of an individual who did.

Again, you are incorrect, vastly so. Firstly, measuring people who succeed is absolutely incorrect because it ignores the survivor bias. For that one guy who made it on shark tank, there are many others who failed on a per episode basis.

Similar patterns appear in real life, and are possibly more stark.

Secondly, not everyone is going to be an owner or an entrepreneur - some are not cut out for it, some are more interested in being professionals or doctor.

You are arguing that it's possible, and that looking at failure is being defeatist.

What me, science, and the rest of HN is saying is: " sure it's posisble. That's not what everyone is talking about."

Most people don't and won't make it. Most people will not, even after a good effort reach an average standard of living and retirement similar to what America once promised.

Social mobility has decreased, your examples are influenced by a survivor bias. The point of showing the wealth distribution is not to show what the wealthy are doing, but just how few people manage to even make it to comfortable and well to do standards.

Todd: Most of society is never going to make it. Even the ones who try won't. A very small number will get lucky enough to cross that barrier.

> Most people don't and won't make it.

Exactly. And that's normal.

Most people can't shoot a hoop from mid court and make it. Why? A multitude of reasons.

I don't understand your point. What do you want? Equality? Everyone should be able to shoot a hoop from mid court and nail it?

Everywhere that idea has been tried ended-up in misery and even greater inequality, with the ruling class truly oppressing the population.

I also find this statement perplexing:

> reach an average standard of living and retirement similar to what America once promised

America promised no such thing. Opportunity. That's what the US offers. What anyone does and can accomplish with it is up to them. You have the opportunity to succeed or fail.

People seem intent on blaming anywhere from 0.1% to 10% of the population for the ailments of everyone else. And, in the process of doing so ignore all other factors. This is the only reason for which the middle class is eroding, no other reason at all. Not education, not policy, not regulation of our industries, not trade deals, not currency manipulation, not technology, not productivity, not anything else, just those rich bastards sucking-up all the oxygen. That's just wrong at the outset.

Let's just agree to disagree. It's Monday. Time to work.

You've played a little Logical trick here.

1) shoot a hoop from the middle of the court/equality

No one said being the 0.1% was the goal.

The goal was to be able to have a fair game on the court.

Which brings us to the last part "opportunity". You reduced it to america promised people an opportunity.

This is both illogical (if it was just an opportunity, then in theory no one had to Come from England to america did they) and moving the goal posts.

America promised a particular type of opportunity (the American dream), and the fair possibility for people to attain it.

So it's not just opportunity which was promised, it was a good opportunity, and attainable.

This has measurably changed. The echo chamber on HN may occlude this if you've not really seen other industries or other countries/history.

Finally, I don't know who you argue with. It looks like you've not really had the chance to argue with people who know more than the buzzwords.

> The goal was to be able to have a fair game on the court.

OK. That also means no advantages for anyone. Cut Welfare, cut support programs, cut grants, cut subsidies, etc. Fair means nobody is favored in any way.

To take the "shooting the hoop" analogy further, it also means that if someone is out of shape, doesn't exercise and isn't willing to make the effort to get up every day and work hard to be able to make it they fail.

And that's the root of the problem I have with some of this narrative. Those who can't make it or fail blame the athletes who do make it for their ailments and call out for "fairness". What they really want is something for nothing.

> This is both illogical (if it was just an opportunity, then in theory no one had to Come from England to america did they) and moving the goal posts.

I don't think you know what "opportunity" means to an entrepreneur. You can take opportunities to the bank. In sharp contrast to that, ideas are worthless.

> America promised a particular type of opportunity (the American dream), and the fair possibility for people to attain it.

Pure fabrication on your part my friend. Show me one document that says the US ever promised "a fair possibility to attain the American dream". No such thing.

And, even if it were, what's fair anyway? One of the most overused words or concepts.

Let's explore "fair" for a moment.

When I launched my first business I had to work 18 hour days 7 days a week to make it go. All self-funded BTW. I did that for about 18 months. I then worked about 16 hour days 5 to 6 days a week for another couple of years, still in the garage. Three years later it made sense to move it out of the garage into a 10,000 square foot industrial building. I was finally able to only work 12 hour days. I don't think we took a non-working vacation in ten years.

What the hell is "fair" in this context for someone who looks at what I achieved through that effort? Should I give them half my money so they can live without working? Or half my money so they can start a business and compete with me? Or half my money so they can have a lifetime pension and retire at 50 years of age?

No. "Fair" means that if you want what I have you either work harder or smarter than me, or both. You, and anyone else, have the opportunity to do so, just like I did. I am not special at all other than I am willing to do what has to be done. That's it. I could have chosen to stay at my prior job earning $120K a year and go sailing every weekend. I chose to work over 16 hour days for three years and risk hundreds of thousands of dollars to chase after a personal dream.

As a wise man told me: "Having a business gives you great freedom. You get to choose which 20 hours of the day you want to work. Most people don't want to have that freedom yet are quick to envy or critique those who do have it."

Want it "fair"? Stop complaining about rich people and get to work. Nobody is stopping you.

Look I'm very happy you succeeded and made it. I don't envy you, or covet your success.

I do disparage your lack of information on developmental statistics and societal behavior.

Matter of fact the most regret is not having a reading/article list ready at short notice, to help with this discussion.

It would help by showing, for example:

1) Even people who argue for welfare are arguing for actual fairness.

1.1) studies show that child development (which relates to scores) is influenced by maternal and grand maternal nutrition levels, and so poverty results in disadvantaged kids without any fault on their part.

This kills the fair concept you hold. Which is why I'm for fairness in this area. I want it to be fair, and I don't think kids who are suffering through no fault of their own, should be disadvantaged by unfairness masquerading as "fairness"

2) reduction in social mobility means that yes, even if you work hard, you will tread water. So not all entrepreneurs make it. Many many more fail.

And lots of people work 18 hour days, 7 days a week and still tread water.

3) evidence for the American dream, other than the fact that large chunks of my family made it and lived in an America where this was accepted and the reason people were attracted

4) bias, systemic, gender, age and racial, and how they persist despite laws, despite efforts to rub it out (and it has improved since this fight stil started.

The world is inherently unfair. People are losing even after putting in as much effort as you.

The fair, is in that someone gets to compete on the same platform as you. That they enter the court without handicaps.

Here's another interesting case (from another thread on HN) of someone who worked his ass off to rise way above average:

https://billmei.net/blog/silicon-valley-job-search

Thousands of people want to be him. Few are willing to do what he did. I am sure some of them blame the rich for their ailments.

Oh man. I just read your blog post.

You have a list of returns on the SPY, etc.

First off.. notice what happened in 2008? Reset! It was -40% EOY, but have a look at what within 2008! You've got skin for that?

Do you know what a margin call is?

Know how W. Buffet made so much bank off of 2008? He had some cash.

Also.. Those amazing returns from 2009 to now. Quantitive Easing. Mean anything?

I agree with your initial sentiments, but your fianancial advice has me wondering how old you are.

If you're not old enough to live through what happened in 2001/2008 then you have some serious blind spots.

And I don't mean just alive in 2001/2008, I mean riding high on your investment choices thinking you're a genius only to have everything come crashing down.

When things come crashing down again (and they will) you won't pull your money out because you'll think it's just a dip on the way back up.

If you're young enough, that's all you know, small dips that rise to new heights.

If you're older, you've seen dips that go back up, then dip lower, then go back up, and lower, etc... and each step of the way you think, don't sell now it's going to go back up. That later turns into, don't sell now or I'll lose money.

And finally, you've ridden it all the way to the bottom with no cash. Let's hope in this down turn that you still have a job.

Sorry, if that sounds a bit dark, but I've seen this before and you should be careful with how you invest your money. Cash or equivalents should be a component of your portfolio.

I keep a few years of expenses in cash equivalents. Once you achieve that you become immune to market swings and job turnover.

Most people don't know what the word capital means. The gap is massive for real reasons not just access to trading platforms. The bottom 90% shouldn't have to give a shit. An electrician should be able to specialize in their field and trust that their retirement is taken care of by financial pdofessionals. Same as a financial professional should be able to trust an electrician to wire their house correctly for a fair price that will last 40+ years.

An electrician isn't, or shouldn't be, dependent on what so called "financial professionals" tell them. It isn't rocket science. Save a portion of your salary. Build up an emergency fund. Invest in passive index funds. Don't try to game the market. Don't get into debt. Don't assume someone will take care of you. This used to be common sense (save the index fund advice).

In fact, an prudent electrician is probably better of than a lot of students nowadays with worthless degrees and a mountain of student debt.

Thanks for posting this. Sums of a lot of my feelings when reading the more ill-informed comments related to markets. Btw, Interactive brokers I personally prefer. Etrade and likewise others I find be too much oriented for beginners.

Robinhood I tried once but hate that it's only for the phone. My terminal is much more capable of trading than my phone.. though I get why Robinhood was designed like that... to appeal to those who are more phone oriented.

"Savings accounts are stupid! They offer fractions of percent interest. Look at exchange-traded funds that track an index such as the S&P 500 or Nasdaq Composite. My personal favorite ETFs ... (and on and on)"

Question. Be honest. How old were you in 2008 ?

If you had had your savings in the market in 2008 and didn't sell it, it would still be worth more now. Moreover if you were investing regularly then you would have been buying the super cheap stocks available in 2009.

If you used your stocks as a savings account in 2008, then you would have seen most of your savings disappear right before you got fired.

Mid 30's. Also you really don't know what you are talking about. If you bought nearly anything after Nov 21st 2008 and held, you'd be way in the green since then.

Let me give you a even more conservative example. SPY which tracks the S&P and it is very conservative (in terms of stocks), is up 151% since Nov 21st 2008 way above pre-2008 levels. Not to mention all those beautiful dividend payments you received.

https://www.google.com/finance?chdnp=0&chdd=1&chds=1&chdv=0&...

> If you bought nearly anything after Nov 21st 2008 and held, you'd be way in the green since then.

You can always pick a crisis, and say that hold equity after crisis or before crisis, and wait for years, everything is green. Just pick a correct time period. The chart is obvious to naked eye, and an elementary schooler can make that argument correctly.

You ignored the fact that who caused the crisis and who are hurt the most. Whatever you said is an camouflage over a much more profound issue.

The fact that less rich or powerful can still grow matters much less than the relative ratio and wealth and power distribution.

The fact is obviously that the world's current market structure make rich become richer, powerful become more powerful. And let's pray that does not eventual causes society and economy breakdown.

"Also you really don't know what you are talking about."

Savings account (and other) rates are not low like they are because of chance or happenstance or a computer bug ... they are that low for a reason.

People are terrified. Smart, big money is terrified. Policymakers (at least thoughtful, informed ones) are terrified.

Nobody has any idea how all of this turns out. The 8 year melt-up in stocks is the result of hot, hot money dancing in and out of the market, desperately trying to eke out a return - all the while knowing that there will be a terrible, desperate scramble for seats when the music stops.

In your model of the markets that you are sketching out for us ... who is the sucker ? Who is it ? Not quite sure ?

The sucker is you.

It seems to me that the suckers are all the people who were too "terrified" to invest over the past 10 years.

"Also you really don't know what you are talking about. If you bought nearly anything after Nov 21st 2008 and held, you'd be way in the green since then."

Apparently it's likely you who 'doesn't know what he is talking about' given that you displayed as much to us in your rebuttal. ---> Stating that 'the market is up' since a historical low is more than meaningless. You should know that if you're offering advice on stocks via a blog.

I believe that a retail trader can 'make money' on ETrade about as much as the average joe (or even intelligent joe) can beat Deep Blue at chess - which is not.

This is not some deep insight, it's fairly well known.

Did you even look at the graph?

Let's assume you bought SPY (very conservative ETF index) right before the crash at its high of 156.33 (Oct. 12th 2007 ). If you just held and did nothing, you'd be up a hefty 81%. This is not including dividends or even better a DRIP which would compound dividends and automatically bought more on the way down lowering your dollar cost average.

https://www.google.com/finance?chdnp=0&chdd=1&chds=1&chdv=0&...

Funny how my evidence that directly refutes your claim is getting down-voted.

> I believe that a retail trader can 'make money' on ETrade about as much as the average joe (or even intelligent joe) can beat Deep Blue at chess - which is not.

If you bought at the worst time possible right before the crash and just held SPY, you'd be up 81% not including dividends. I'd say an "average joe" can manage that.

I think you make a good point, and I wish I'd taken advantage. My brother, who makes $12/hr, took his entire savings in March '09 and invested in commodities. He saw massive growth, while I bought toys and had fun. I made no money, and learned a good lesson.

What you are saying is 'all you have to do is buy low and sell high' and you can make money on the market.

Do you understand the fallacy in that logic?

Did you read their comment? He assumed you did the opposite of buying low: "Let's assume you bought SPY (very conservative ETF index) right before the crash at its high of 156.33 (Oct. 12th 2007)" Note the "at its high". Even if you miraculously had horrible luck and bought into an index at literally the worst possible time, you would have still made money.

This holds for practically any index out there. I personally hold VFINX. These are the returns for VFINX if you bought at the yearly highs and the yearly lows, per year:

2006 | 1.95x | 1.70x

2007 | 1.53x | 1.72x

2008 | 2.82x | 1.67x

2009 | 3.50x | 2.16x

2010 | 2.34x | 1.90x

2011 | 2.12x | 1.79x

2012 | 1.87x | 1.65x

2013 | 1.65x | 1.31x

2014 | 1.34x | 1.16x

2015 | 1.23x | 1.13x

2016 | 1.28x | 1.10x

2017 | 1.07x | 1.00x

That's right: the far column is the absolute worst case scenario, what would happen if you were miraculously horribly bad at choosing when to invest. Even in the worst case scenario, investing at the worst point in the worst year, $90 would have turned into $153. Investing at the best time would have given you $315! As long as you don't instantly sell the fund you'll come out on top.

This isn't rocket science, it's not some complicated stock pick, it's not hard to buy, and it's backed up by a hell of a history: index funds with low expenses give you a good return, no matter who you are. I know one person with $400 in VFINX and I know one person with several million in it.

And if you bought in 2007, before the recession, at the absolute worst possible time, you would still have nearly doubled your money in the last ten years - a 1.72x return.

Warren Buffet put a bet on this ten years ago, against a series of hedge funds, and as of now, with just months to go, he's winning. Not "winning against the worst", not "winning against the average"... the index fund - VFIAX (the Admiral class of VFINX) is beating every single fund handily, even though the bet started at a time advantageous to the hedge fund.

You're missing the point.

It's not possible to 'time the market'.

If you, or anyone else could, they would be Trillionaires.

By picking an arbitrary point in time - and comparing it to another arbitrary point in time (say, 'today'), you create a straw-man argument.

"Even if you miraculously had horrible luck and bought into an index at literally the worst possible time, you would have still made money."

Yes, stocks went from some low point, to a higher point today.

When you say 'this holds true for every index' - well, a broad ranges of indexes roughly encompasses the entire market.

Ergo - you're really just investing in the stock market, not indexes.

Unless you know something very specific about VFINX - and have research that other people do not have on the constituent companies, then you are just throwing darts at a wall. If you made money, great, if not, then it's the same thing.

What someone who doesn't have specific information is doing when they play the market willy nilly, is simply riding the overall market. And like other asset classes, it goes up and down.

There are historical averages for markets, and in the long run you can expect to earn just a little under that.

Interest rates are at an historic low, and we have bubble-like conditions in the market - if the Fed increases by a couple of basis points, much of that gain will go away.

The logic is more like this: You buy broad-based index funds and hold long term. Long term, the "when" doesn't matter.

Most people have no savings at all and are just swimming in debt or are living paycheck to paycheck. If you have any money to put into the stock market at all, you're better off than the vast majority of the people.

Are there any forums in the vein of hacker news that are just for discussing financial topics? I love hn for the tech stories but agree that it's not as good for markets and investing.

Bogleheads forum.

Most people don't know what the word capital means. The gap is massive for real reasons not just access to trading platforms. You wa

Dollar cost averaging doesn't really work. (There were a few studies about this. It's relatively easy to backtest these strategies with historical market prices.) Ie splitting up a lump sum buy into multiple buys.

(But buying shares as your money trickles in eg from wages instead of waiting can be a good idea, if the transactions costs are low enough.)

Trading on margin!? In the most topped out market ever. You do realize that you pay interest on your margin. And when the market drops (the most likely outcome these days), your losses are magnified.

W. Buffet recommends that investors not buy on margin.

Also... ETFs are newish and rather untested at their current saturation levels. You are blindly buying a stock based on it's capitalization. This defeats the purpose of the market, which is to crowd source the balancing of supply & demand.

ETFs create a pyramid scheme out of the market. It will work for a while, but near the top (now) you better get your money out.

I think you should read what top hedge fund managers are doing these days. You will be hard pressed to find one that is all in + margin to the overall index fund. Many have significant short positions and a lot of cash.

Your blog post is just another link in the pyramid scheme nature of the whole thing. (I can do it.. so can you!)

> These days, with computer trading, that 40% drop may happen faster than 100 ms

There are circuit breakers that trigger at 7%, 13% and 20% right? Now, I don't know if they are tested against HFT these days, but I would suspect they could rollback trades if needed. Also, there is Rule 48[1] to help.

[1] - https://en.wikipedia.org/wiki/Rule_48

who's computer is faster? The traders or the circuit breaker trigger?

Correct me if I am wrong, but since all trades go through the exchanges (circuit breakers), them right? Plus they can rollback trades if needed.

Hey. I just realized I was maybe too harsh on all this.

You are right, investing is better than a savings account. However, be careful these days. Read what other top investors are doing. barrons.com & marketwatch sometimes say what other top investors are doing. Many are keeping some cash. Good to have when the market drops. Many have short positions.

The best returns come when you buy after a correction & sell high.

ETFs do well when the market is marching upwards. Maybe one more year of that but it can't go on forever. 1.1 to a high power starts to consume everything in the universe.

> See you in the welfare line dude.

Unlikely dude.

I revised my post.. have a read. What you are doing may seem great.. but it really is not a great idea. I highly suggest you roll back & get off the margin. Put some money into gold perhaps. (IAU) Keep the margin for sure bets if you can find some.

Not that it changes my opinion, but I am no longer using any margin (took some profits). My Robinhood post was originally from Nov 17th 2016, but I updated it on Feb 6th 2017.

Update your blog post then. It's bad advice and could cause others to lose money.

Sure no problem, updated. I'm not trying to hide anything. For the record I am bullish and don't think we are doomed and on the verge of a market meltdown. Perhaps a deserved minor correction.

Just look at the comments at the bottom of this thread.

No, by very definition, you shouldn't. That's the entire point of them being at the bottom.

This is such a straw man... I would like to downvote this comment, at least a couple of times.

"That sort of mentality is ill-informed of finance and the market"

Uh, no it's not.

"The market is not only for millionaires and billionaires. "

Yes, it most definitely is.

And most people who 'know finance' - know this.

The market is 'rigged', or rather, you are at such a disadvantage that it's effectively rigged and doing retail trading is essentially a losing game.

Unless you are pursuing a broad diversification strategy (i.e. buying gold, commodities, real-estate funds etc.) in order to preserve your wealth, you really are not going to win.

Retail trading entities, like ETrade are kind of a scammy thing - not directly per se - but they're selling you as fish to sharks (i.e. hedge/big funds).

If you want to make money playing stocks - you have to 'know more' than the person on the other side of the trade.*

Large funds and hedge funds each have massive, massive advantages including economies of scale, market-making, 'near insider trading' (i.e. they 'interview' insiders and ultimately gain info that's not public), colocating, computing power, the ability to move markets with trades, lead trades, the hire some of the smartest people in the world etc. etc. etc..

Unless you have near-inside (or inside) information on a specific stock - you're basically playing poker against Deep Blue and expecting to win.

Imagine you're playing poker and they are playing 10 hands, have memorized the deck, know 'all the best moves', are using a computer, and they 'take the dealer out for free drinks every night'.

You think you can beat them?

On the whole, I'd argue strongly that the best someone can hope for in trading in long run to ride the alpha of the market overall - and that's it. (Or again, to pursue some very broad strategy without having to pay a private wealth manager fees)

Did you read the story about how DraftKings works? Basically about 5% of the players make all the returns - they play almost professionally, or with data, or take it very seriously and buy data, know the strategies etc.. But DKings needs those Sharks to make the market. And they feed them fish (i.e. you and I), casual players.

Though stocks generally grow with the economy, and underlying trades there is actually an 'investment' - you're really not investing at all. You are speculating about the future surpluses against other people doing the same. Playing the stock market is more like gambling than investing - in Poker you know you're 'playing against others'. Because on E-trade one is theoretically 'investing' one does not think one is playing against others, but that really is the case.

You can try to play 'value investing' but there are just too many people with much more power playing that game as well.

Finally - I would strongly recommend that readers do not take the advice on your blog and borrow on margin for 6%. If you're borrowing at 6%, then you have to get returns > 6% in order to make this profitable. In other words: in order for that to make sense, you have to beat most of the best big fund managers in the world and be a 'truly world class investor'. What are the odds of that?

>On the whole, I'd argue strongly that the best someone can hope for in trading in long run to ride the alpha of the market overall - and that's it. (Or again, to pursue some very broad strategy without having to pay a private wealth manager fees)

Wouldn't there be no such thing as alpha in the overall market, as alpha is the returns outside of the average? Solid points though.

Sorry, you're correct. I didn't mean alpha. I meant benchmark.

I'm aware that most hedge funds are considered excellent if they average 6% annual return.

However did you look at my table for QQQ returns from the last 11 years? Only two years did not average more than 6%. If you bought QQQ on 1/5/2007 and held until now you'd be up a whopping 205% over 11 years. That's also not including the awesome QQQ dividend yield, or even more compounded with a DRIP (dividend re-investment).

Hey, if you bought MSFT yesterday at 2:09 pm and sold it at exactly 2:29 PM you could have made a 2% return in just 20 minutes! So amazing. Now just do that every day and you could make 1000% in a year! ... is the logic you keep using.

Nope. The difference is you don't need to time the market when investing over long periods of time. Timing the market requires luck. Investing for 10+ years doesn't.

If you are using the above logic of 'if you bought in 2008 and held today' - then it's about market timing, not fundamentals.

Anyhow - you cannot win over time, unless you can beat Deep Blue over chess.

And by 'win' I mean outperform the market.

Of course, some people will, some won't - but it's a game of probability there.

Again - unless you specifically have more information that the person you are trading with - then you're throwing darts at the board.

99.9% of Retail Traders do not have any special information WRT their investments. Ergo, they are not really investing.

When people say "timing the market", they mean short term timing. Holding for almost a decade is not market timing.

Stupid post extraordinaire. Respect

"You can trade $6.95 on ETRADE". Yes. Right. By the way, the fuel cost the same per gallon for a Lamborghini than for a used Toyota. Why not buy a Lamborghini then?

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