Hacker News Reader

Comment by matt3210 | Hacker News Reader

At one point I knew I could beat the market with l33t software skills. I was wrong and only realized it after donating about 3k to Wall Street.

View on HN

I have net managed to beat the market.

My estimate is that I've earned approximately $3/hour for the time I've spent doing so. And I was trading in such thinly traded options that it wasn't a matter of "scaling up" - I was literally only able to make money because I was picking up the pennies nobody else cared about.

(And/or trading on events that were were rare, obvious, and in an area I understood, which also doesn't scale)

Good fun and educational. Not quitting my day job. Because, of course, if you do the math on it, I've lost money playing the market relative to almost any other use of my time unless you consider it an investment in education and entertainment.

Did you consider writing a bot?

Automation carries… risks.

https://en.wikipedia.org/wiki/Knight_Capital_Group

Folks have an unhealthy mentality about beating the market, imo. You don’t need to beat the market if you’re not a fund manager trying to advertise your record. You just need to do well.

The market is up 27% YTD. Most global trends suggest, to me, a greater centralization of wealth into the US. Just dumping everything into the SP500 is likely more than great for 99% of people for the near future.

You are correct. You just need to beat inflation. (So 27% vs. 2.7%? Pretty sure anyone can be a Wall Street wolf these days.)

I completely agree. Diversified low cost index funds are amazing. Matching "the market" has been a spectacular risk/return for a long time now.

(And to be clear, I keep approximately all of our investments there. But I have a small puddle I play with to remind myself not to play with real money. :-)

Just because the SP500 did +27% this year does not mean it will continue to do so.

Historical data shows a more nuanced picture.

Every so often I receive commercially sensitive information about my company which I'm not allowed to disclose before it's formally communicated to the stock market. For fun, I try to predict what impact it'll have on the share price (though of course I can't actually trade!)

I can successfully predict the direction of the share price movement 50% of the time and successfully predict the magnitude of the share price movement 0% of the time.

But in what time frame, can you predict that?

None.

>I can successfully predict the direction of the share price movement 50% of the time

50% performance when there are two options is chance, no? So that just means that you can't predict it at all.

Technically there is a third possibility that the price will remain exactly the same. But the odds of that are even lower.

...that's the joke.

Maybe consider using a stock market simulator, make trades based on inside information, and see where you end up in one year? That would be interesting.

In the beginning, I donated about $10k to Wall Street. Got smarter, went to university for first finance, then economics. Learned to actually trade. Crushed the market, made nearly $100k annually with starting capital of only $30k. Then realized my life expenses were a significant part of that, I didn't have enough capital to grow it fast enough to both live life and accumulate capital to make trading more worthwhile than simply getting a job with that education. Getting a job + having easy passive investments (like a market fund) was less hours, less stress and more profitable than being a full time trader starting with a middling amount of capital. Also trading is less fulfilling than things like building, entrepreneurship, having a normal job plus hobbies, etc... Lots of traditional entrepreneurial paths also beat the market pretty handily.

It's good story but entrepreneurialism is a lot more than just a chosen career path, like teacher, software developer, product manager. It requires ideas, networking or connections, and usually capital.

And then that leaves working the 9-5 (or if you're in IT it's more like 8 to 6), and maybe getting 10-20% of your salary in bonus at the end of the year.

Rinse-repeat.

Trading is at least exciting.

> only realized it after donating about 3k to Wall Street.

An education in finance is expensive, not matter where you get it from.

3k is much, much cheaper than many college degrees, even from state schools with in-state tuition.

Luckily you learned the lesson when you were young and only lost $3k instead of $3M when you were old.

I too don’t understand why technical analysis isn’t classified as a genre of fiction…

I think some make money trading just that or am I wrong? I’m not talking about youtubers

Some people win the lottery.

You should still be skeptical if they try and sell you on their patented lottery number picking strategy.

The market is a mind game. If enough market participants care about it, then it defacto becomes a signal to be aware of.

In fact if you're a trader (not a long term investor) that manages to make money in the markets you will by definition use some form of technical analysis.

Ugh. I vividly remember when my stepfather tried to get me involved. He was retired, and had a nice nest egg built up from a small business. He was a smart man.

But he was paying thousands of dollars per year for a monthly newsletter that contained <some brand of analysis>. And he patiently showed me how he started with a row in the table that met <his criteria> then followed to the column that met <other criteria> and that was the choice he made in the market.

And I'm thinking, whatever information he's getting in that newsletter is at least a month old by the time he gets it. And he's not doing anything a program couldn't do, with the information in digital form. And he should know that -- he was a computer programmer earlier in life. As far as I could see, there was zero chance he was beating anyone or anything with that technique, and starting in a several thousand dollar hole.

Maybe I was wrong, but I don't think so.

sounds like he had a hobby.

An expensive one.

I'd spend that money on piano/drawing lessons or something. Or take a few trips around the world.

Better return on investment.

could have been worse - video games, prostitutes, etc.

That’s peanuts! Congrats for realizing it early

I don't know OP but 3k can be a significant amount of money for some people esp when younger. I realise people often lose more, but that can also be because they have more money padding to lose.

The stock market is an expensive addiction. If you read subreddits like r/wsb, you’ll frequently see people losing hundreds of thousands of dollars, mortgaging houses, gambling their future on another 0dt option bet. It’s a good thing he only lost 3k!

Some folks' elementary or middle schools had stock picking lessons with fake money: https://news.ycombinator.com/item?id=21642395

From mine, all I remember was getting the impression that putting money in particular stocks without knowing what you're doing is a bad idea. Pretty valuable lesson, I guess, as I've never bought individual stocks since then...

You might have learned the wrong lesson there, if your goal is to build wealth. But it’s a good idea to prevent losses

Not really, indexing beats hedge fund managers over something like a 12 year stretch.

hedge funds are not the same thing as picking individual stocks. Not even close. Index funds are an averaging mechanism to reduce risk, not to maximize return (you can easily beat the average by allocating on the p75 instead for instance)

The problem isn't allocating, it's reallocating correctly. That problem space is much more complex for an entrenched account.

Fair, etfs do help with that

I'd be interested in something a little (but not a lot) higher risk reward than index, so I'd appreciate if you expand on this. What is the p75?

Balancing your portfolio to include the top 25 or so best performing companies of the index

Therefore ETFs that track that - eg $XLG is the s&p top 50. Unsurprisingly, consistently beats the s&p500. Same for $QQQ - in this case the skew is for more tech stocks (which were the best asset class in a decade)

A 3k bankroll isn’t remotely close to enough working capital to employ any kind of useful risk management strategy and get any kind of return worth the bother.

Right but if you are wrong you are only out 3k. Many people with more money think they have a good strategy and lose a lot before they realize it wasn't bad luck and risk management but a bad idea.

Well it's true, you do need an idea. But good ideas aren't hard to come by when you understand basic risk management. Take for example recent events. Say your idea is if this election goes one way, it's neutral/slightly bearish for TSLA, if it goes the other way it's wildly bullish for TSLA. Since one possibility isn't going to result in much movement you ignore it. For the other one you structure some options trades to go long where gamma will runaway in your favor. Assuming polls are to be believed, you have a roughly 40% chance of that bet paying off, and you can structure it to pay off a heck of a lot better than 150%. And if you're wrong? Well them's the breaks, but your risk management strategy means you're still in the game to give it a shot at the next good idea. And even then you won't lose your whole bet unless you picked an extremely aggressive expiry.

This is, incidentally, basically how VC works too.

You also need an idea that's somehow different from the rest of the market. (It's the difference of opinion/point of view that makes a market.)

If everyone has the exact same expectations as you, no one is going to offer you the options trade structure at a price that would be profitable for you.

Of course, but at the scale of a responsible retail options gambler (think a high six to low seven figure bankroll, properly managed), you can pretty reliably find people willing to take the other side of your seeming long shot. The temptation to pick up pennies on the train tracks is ever present.

Need for a different idea depends on the full size. If there are 10 shared available for $10, then nearly anyone could buy them all up and so all ideas are saturated at just one poor person. However if the idea is for a large company there are thousands of shared traded every day, and so if your idea is the company will go up in value almost nobody could buy enough shares to make a difference - even rich would struggle to find enough free money to move the value of the company by $1.

In the market there are ideas on all levels, some really are the $100 trade that will make money but that is the most possible to trade. However many ideas are on the large end where there is plenty of room for more people. If you think a fortune 100 company is under valued by $10/share you can make a ton of money (assuming you are right of course) and safely tell all your friends without affecting your ability to make money.

> If you think a fortune 100 company is under valued by $10/share you can make a ton of money (assuming you are right of course)

Inherent in this $10/share profit opportunity is that not everyone agrees with you. (If everyone did agree with you, the discrepancy/opportunity would collapse from $10 to under a penny.)

There is the risk. Those who don't agree might be right. However we can see at larger changes in price over a year all the time so sometimes the others are wrong.

telling which is an evercise I can't help you with. I invest in index funds.

Eh, I started with not much more than that (£5k) about ten years ago, and now have an eight figure equities portfolio, built entirely from that seed capital.

All buy & hold forever, layered sell-off, buy the next thing, take some profit for me and the taxman. Enough moved into stable instruments (bonds, real estate) that I can afford to lose the whole shebang.

So yeah, $3k is plenty, if you buy inevitable winners. Just… look at the broad sweep of the future and buy supply chains. Shovels in a gold rush and all that.

I've taken comfort in the thought that there are millions of people much more clever than me. If they have not figured out how to game the market there's no chance I will.

So I don't even try.

We've all been there. The house always wins.

Actually, we haven't all been there. Some of us took to heart the lesson from War Games (1983), and apply it liberally:

"An interesting game Dr Falkon: The only way to win is not to play."

okay.

I don't know if the stock market is really the same as Global Thermonuclear Warfare

The principle can be broadly applied. The stock market and our society as a whole, the money never trickles down, it floods upwards, and the few people at the top will never be me, and it will never be you. Don't play the game.

Reminds me of an Andy Capp comic:

Andy: I need to borrow a fiver to put on "Flighty Horse" at 5pm. It's a certainty! I can't lose!

Flo: Where did we go on holiday?

Andy: Yer mum's.

Flo: Where did your bookmaker go on holiday?

Andy: Jamaica.

Flo: Think about it.

But that's not true in the world of stocks. If all the stocks go up, all of the owners are richer. And they do tend to go up, at least on average.. in recent history.

The futures and options markets are zero-sum. For every winner, there's an equal and opposite loser.

Zero-sum is true for stocks, too, if your goal is to generate alpha. For every alpha-generating stock participant, another one must lose.

Reply on news.ycombinator.com