Hacker News Reader

>Plus, say through in-depth research and know-how, you do manage to beat the market. At best, you've created a part-time job for yourself. Unless you're managing other people's money, or have a 7-figure+ portfolio, I expect the time taken to do the due diligence necessary to consistently beat the market - if indeed such a thing is possible - would end up paying a lower hourly rate than you could earn doing other, more reliable, less zero-sum things.

Of course most people wont suddenly have a 7+ figure portfolio, but will first have a 5+ and then 6+ figure portfolio. Yes I researched something for days when I was only investing $30K and that could be called a low hourly rate job, but I was learning an immense amount and now can do the same research in only a few hours all while dealing with a significantly larger amount so my "hourly rate" keeps going up.

And for what it is worth I am really enjoying the process.

Fair enough - if you enjoy doing it, then it's a hobby and it doesn't matter how much you make. But I certainly wouldn't want to put an entire 7+ (or even 6) figure portfolio in a single stock, or even a handful of them. Say that your analysis is dead-on, but some completely unforeseen event strikes the couple of companies you've invested in. There goes a good chunk of your life savings.

I certainly don't think there's a problem with devoting a small percentage of your portfolio (say 5%) to stock picks, or even a larger percentage split over multiple stocks, if you enjoy doing it. I occasionally do it with 5% too. But with retirement savings, I like to have as many guarantees as possible. By investing globally in index funds, I have as much confidence as possible that unless the world implodes, my savings will grow over the coming decades. If I pick individual stocks, even a decent number of them - holding say 10-15 at a time - and even if I actually AM really good at it, it is entirely feasible that I could lose money in the long term through bad luck alone. So even if I can increase my expected value through stock picking, I also significantly increase my risk.

I find personal finance fascinating too, but I prefer to spend my hobby time studying multifactor investing (regression analysis, etc.) and researching the optimal funds to achieve a moderate small and value tilt, while maintaining low costs and broad diversification.

Rather than a short comment a few different books I could recommend that you might like on this hobby/topic are:

-Your life or your money (personal finance more than investing) -The Warren Buffett Way -The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market...

Thanks, I'll take a look. I did read the Intelligent Investor years ago and enjoyed it, but honestly between searchtempest, family, and relaxation time, I'm also pretty happy to have a portfolio that can run on autopilot. :)

My top book recommendation BTW would be the 4 Pillars of Investing by Bill Bernstein.

Ah if you read Intelligent Investor you are ahead of most and The Warren Buffett Way would then just be a light fun rehash read (usually the book I recommend before Intelligent Investor). The Five Rules for Successful Stock Investing at least for me was a good book that explained reading financial reports. I'll check out 4 Pillars of Investing, thanks

Great counter-point. Just to be clear, I'm not knocking that index funds are a good investment option - I'm knocking the often repeated mantra that if you are going to be lazy, invest in index funds.

The the truth is, you can't be lazy - it's simply not an option. It's the burden of having savings. You need to research your investment decisions and understand your financial goals even if you decide you want a passive investment strategy. Why? Here are a few scenarios where investing the majority of your savings in index funds probably won't make sense:

i) You are approaching retirement age and will be living off your savings in the next few years. You have saved just enough to live out your expected lifetime. ii) You are a young hacker and will be bootstrapping with your friends in a few years (sounds familiar?). You are close to saving enough to pay for your personal burn & even server costs for a year.

i) & ii) are clear cases where the users need liquidity and are unable to handle index fund volatility.

No one lazy would realize this. The truth is those who decide they don't want to actively manage a portfolio still need to understand a lot of things (savings accounts, CDs, annuities, bonds, treasuries, etc.) before they decide to jump into index funds.

Essentially, I think investing is a part time job regardless of your strategy. It's the burden of having savings.

Absolutely. Index funds reduce the burden, but don't absolve you of making decisions. Asset allocation, as you say, is still hugely important. So is geographical diversification.

Actually Buffet is talking about investing in an index fund VS investing on the advice of an investment professional. He is referring to the same biases of professional investment advisers that the previous poster was referring to. Basically ordinary investors do have an asymmetric advantage over investment advisers and 'professionals'.

Hence, it may not be your intention, but you are using Buffet's quote to make the exact opposite point of what Buffet himself originally intended. And he has often spoken on this subject. See also Mohnish Pabrai and his book 'The Dhandho Investor'.

Yes, I realize he is talking about index funds vs high cost mutual funds or paying an adviser for stock picks. And I agree that direct investing in stocks should be superior to high-cost mutual funds. (In fact, even if we did believe in the EMH, that would only mean the expectation is roughly the same as an index fund, just with a lot more volatility.)

Still, the default advice of the supposed world's greatest stock picker is to stick with index funds. It's not, "Here are my rules of thumb for picking great stocks," or something along those lines. (I strongly suspect that Graham's advice would have been the same if index funds had been an option in his time.) That suggests to me that at the very least, he clearly believes that picking stocks is difficult. So sure, Warren Buffet, someone who you would expect to be highly biased toward stock picking, doesn't completely rule it out. But he doesn't endorse it in general either.

I still think it's incredibly dangerous for anyone to follow "default advice". If you have had the luck of having investable savings (most of the world doesn't so consider yourself very lucky), please do yourself a favor and educate yourself on your financial goals and options.