Reddit's Stock Threads Become a Must-Read on Wall Street

A lot of success in investment seems to me to gravitate around what the general populace thinks is valuable or should be valuable. I often find that can sometimes drastically differ than assessments I form based entirely on niche expertise I have in a domain. It's a lot more about asessing perception, ability to manage consumer/investment perceptions, and momentum of perception than it is about assessing functional advantage.

When I make an assessment in an area with niche expertise, I often realize I need to then think a lot more about how other people will perceive and assess the same information. Usually my assessment of others' perception better predicts success than my personal assessment, anecdotally speaking.

The good news is, from my niche expertise domains, I usually have a fairly good sample of interactions with those outside the domain to sample their misperceptions and find what it is people think vs what is actually going on. What I fail at is then predicting the irrational decisions that follow after because that distribution seems to be almost random.

Because of this, I stick with indexes which are a sort indirect popularity listing.

I would add this quote from Fooled by Randomness:

Unfortunately, the inherent randomness of stock markets means that, just like millions of monkeys hammering on typewriters for long enough can eventually produce Shakespeare, so can unskilled investors produce great track records. In fact, it is very likely that some will.

Consider for example a cohort of 10,000 investors who, for the sake of argument, are relatively incompetent: each year they only have a 45% chance of being profitable. In other words, you would basically be better off investing based on the flip of a coin.

Nevertheless, despite their lack of skills, after 5 years based on probabilities alone we can expect almost 200 of them to have been profitable every year. They would boast flawless track records and enjoy praise for their exceptional skills.

Of course, in the long run, the randomness that sustains these “acute successful randomness fools” will turn against them. Wall Street has seen many traders, who after years of success have one devastating quarter where they lose everything in one huge blow-up.

Often their short-lived success was due to the fact that they simply happened to be at the right place at the right time, i.e. pure luck.

We often mistake luck and randomness for skill and determinism.

The results almost feel like magic, but I am wary the market is being propelled heavily upward at the moment, and even a trump tweet has and can derail it. But as the saying goes, 'make hay while the sun is shining'.

When I started investing, being an EE and working in IT, I tried this: I bough AAPL and RIMM. One did better than the other.

I'm now basically all-index all the time.

First: “The markets will remain irrational longer than you will remain solvent.” Fed policy pumped in too much dumb money. If you don’t think like them, you lose.

Second: “Markets create their own reality.” Dumb money eventually creates smart results. Today access to capital is far more important than any other factor in success.

Third: “Opportunity is blood in the water.” Good investments are entrenched stable markets. Disruptive technologies kill margins for everybody.

Another was Pep Boys, the name is stupid, hard to pitch to an institutional investor, but made tons of money when someone got over their embarrassment.

Aside from biases, He called out La Quinta, you experience doesn't have to be super deep. The guy recognized it was clean, inexpensive, not the Ritz but a solid deal for what you got.

The last strategy that I thought was sorta odd (but makes sense) is companies that own big chunks of other companies. Their example was AT&T being cheap, but owning big chunks of cell phone companies. We sorta saw the same thing play out with Yahoo and Ali-baba.

Peter Lynch! One up on Wall Street! Probably super dated now, but was a pretty interesting perspective on trying to see things other people didn't see.

A second problem with (2) is that working in a particular industry makes you already massively `overweight' that sector. If something goes wrong with that industry, you could be out of a job. The last thing you need is for your investments to go wrong at the same time.

  Buy/sell where you have unique expertise. *If you work in the toilet hardware industry, buy/sell stocks related to that industry.*

Most of the success came from adjacent segments. You have enough knowledge and experience to make an educated guess on the adjacent segments but you are not involved enough to be knee deep into it and can’t see the forest from the trees.

Before you point to S&P 500: I'm from/in Europe, please account for that in your reasoning :)

For every 1 person who works in the tech industry, there are 1,000 people who don't, but still made fortunes investing long in it, through none other than direct stock picking. That is to say, you have no unique advantage, there are 1000x more people lacking your expertise who perform just as well, I could see no stronger evidence for the irrelevance of such expertise, at least in public markets.

Just from market mechanics, someone has to be buying all that stock at the all-time-highs, repeatedly, it's not the people with tech expertise, it's not possibly only index buyers, they would simply run out of money.

Of course, from an egocentric perspective, you would credit yourself with being some genius stockpicker if, coincidentally, you worked in technology and bought tech stocks.

Consider a different situation where you were an energy industry expert, you would have lost money in long positions most of the last 6 years, and in four of those years, you would probably lose money as frequently as you would win it across all trades.

I haven't been an active investor for 15 years so it took a little time to fire up my investing analysis tools. This is what I found out.

Index funds are highly incestuous. There is a high correlation across the top index funds because they largely have the same stocks. The exceptions seem to be reits, oil, foreign, and financial index funds.

The rest of the index funds all seem to be heavily weighted in big tech stock.

So - if that is true, why not buy the heavily weighted stocks directly and do your own financial analysis on them? For instance, I look at past 5 year sales growth. Then I look at yoy sales growth. Then I look at P/S over the last 5 years (to see if it is out of whack). Then I look at PEG over the last 5 years (to see if it is out of whack). Then I look at gross margins. Then I look at dividend yield. All of this data is available for free.

Can I ask what tech stack you used?

I like the catch phrase, lol

I do think it’s hilarious how much credit WSB gets in the press. A very few have made millions. The rest have collectively lost countless millions. If sophisticated firms are now analyzing the actions of WSB members, they just became even more the fish in a barrel.

Michael Burry is wrong. Going with index funds is no more and no less than investing in the entire market, so unless the entire stock market fails (i.e., every publicly traded company collapses, which would be akin to the economy collapsing), you'll be fine.

And even if there's a major rout, if you put in a little every month via continuous, automatic investing (sometimes mistakenly labelled "dollar cost averaging"), you'll probably do well over the long term. Someone putting a little in at a time (which most of us do monthly for retirement) would have even done pretty well through the 1930s Great Depression (notwithstanding high unemployment, etc) to come out on the other end 25+ years later.

If you believe the economy will completely collapse and not ever recover you're also likely to be someone who has an underground bunker.

WSB really hit the primetime in February/March this year.

https://i.imgur.com/oRxJe4F.png

How that experience translates into macroeconomic forecasting, such as when he said farmland was the next big play, or now passive investing is bad, I don't know. Has he crunched the numbers, or is he using some theoretical framework to try to predict macroeconomic events? In any case his words attract a lot of attention now, even when he may be speaking outside his areas of expertise.

You are playing with YOUR money.

That's whats nonobvious. saying "well of course" dismisses this broader trend which is the institutional validation of something that's been extremely nonobvious.

Part of this is stock moves - but some are purely the underlying options, a lot more of what WSB trades. Given that (many) options have little to no movement (where little is < 100 contracts a day) cataloging and tracking this sentiment activity can be incredibly valuable, assuming you have all the data.

I'm pretty convinced that a number of people are profiting by buying a position, then making a post about why that's the correct position to be in, then after they the post position, they sell it to the people reading their post.

If you hold the position at the time of your post, that's considered evidence that you believe in the position and your advise.

/wsb/ is good for sheer entertainment and/or straight up gambling and is completely fine for 99% of people. It's also very bad for the occasional "I just lost my rent money what do I do" or that kid who killed himself after using robinhood.

(Also, thanks for posting this. I love these kinds of dashboards.)

1. Dividends. 2. Liquidation. 3. Speculation.

“Fundamentals” focuses on the first two. Unfortunately an expanding money supply creates capital inflows that will never be matched by returns. So everybody has to focus on speculative returns, which seem to be more about marketing.

I wonder if someday there’ll be a Benjamin Graham equivalent for speculative hype investing. Maybe a Bogle for the vast array of tech synthetic derivatives.

Better advise is to read some books on personal finance and invest in low cost index funds.