Investing

Starting in Stocks

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  • Jul 10th, 2012 10:44 am
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Deal Addict
Nov 26, 2005
3085 posts
249 upvotes
Vancouver
FunSave22 wrote:
Jun 30th, 2012 3:15 pm
Wanting to see evidence and using said evidence is a bad thing?




Sharpe's The Arithmetic of Active Management is most certainly a rule.

It's a mathematical proof. Similar to how the circumference of a circle must be 2*pi*r, Sharpe's proof must be also be true.
lol these studies always assume perfect market, which never exist in real world.
there is no rule in human emotion & greed, there is no rule in politic, there is no rule in corruption, manipulation, insider tradings etc.

look at how SEC operate, they never go after the naked shorters from institutes. they always go after the powerless retails.

look at LTCM, full of phds and nobel price winners yet they went bankrupt.

throw these studies away. they are more like propaganda to brainwash the herd.

the perma-bullish market since 70s has already ended in 90s for japan and 2000 for US.
look japan index, 0 gain for 28 years.
look at s&p500, no gain for 12 years.
buy and hold is dead.
bottom line, buffett's formula only works in 70s-2000.
Deal Addict
Aug 28, 2010
3521 posts
1218 upvotes
Halifax
ccyk wrote:
Jun 30th, 2012 3:30 pm
lol these studies always assume perfect market, which never exist in real world.
No they don't.

The link I just gave to Sharpe's proof don't assume a perfect market. And A Random Walk Down Wall Street or The Four Pillars don't either.
Deal Addict
User avatar
Jan 4, 2009
3735 posts
1495 upvotes
on the links
FunSave22 wrote:
Jun 30th, 2012 3:15 pm
Wanting to see evidence and using said evidence is a bad thing?
If you treat said "evidence" as an absolute gospel, yes.

Case in point :arrowd: :arrowd: :arrowd:
ccyk wrote:
Jun 30th, 2012 3:30 pm
buy and hold is dead
Sr. Member
Mar 19, 2010
918 posts
99 upvotes
Markham
ccyk wrote:
Jun 30th, 2012 3:30 pm
buy and hold is dead.
It all depends on what you are holding.

If you are holding a non dividend payer, then you are correct.

I have been holding "NVO" since 1997. Convince me as to why I should sell it?
Deal Addict
Nov 26, 2005
3085 posts
249 upvotes
Vancouver
FunSave22 wrote:
Jun 30th, 2012 3:38 pm
No they don't.

The link I just gave to Sharpe's proof don't assume a perfect market. And A Random Walk Down Wall Street or The Four Pillars don't either.
i pretty much stopped reading after this line
If "active" and "passive" management styles are defined in sensible ways, it must be the case that

(1) before costs, the return on the average actively managed dollar will equal the return on the average passively managed dollar and
I just don't get how 1) is right? it is assuming active and passive's return are the same, which is never the case in real world and means this paper assumes perfect market.
market is active investors+passive investors.
like 80% or 90%, whatever % you want to call, will make money, balance% will lose money. and assume passive investors just invest in funds/etf/index/whatever.
it could be 10% of active make 10%, 90% of active make 0%, 100% of passive lose 0.1%, if market is 50% active and 50% passive.
Deal Addict
Nov 26, 2005
3085 posts
249 upvotes
Vancouver
angelok wrote:
Jun 30th, 2012 10:30 pm
It all depends on what you are holding.

If you are holding a non dividend payer, then you are correct.

I have been holding "NVO" since 1997. Convince me as to why I should sell it?
well there is always exceptions to any rule, but it you could trade it right, like sell in mid 08 buy back in 09, returns should be better.
if you are holding us bank stocks or autos, they are crap buy and hold.
never look into this company b4, but from yahoo finance(sometimes data error), p/e 27 p/cf 20.5 yield 1.3%. something doesnt add up to support its price? it has very low debt tho. good luck.
Deal Addict
Aug 28, 2010
3521 posts
1218 upvotes
Halifax
ccyk wrote:
Jul 1st, 2012 11:47 am
I just don't get how 1) is right? it is assuming active and passive's return are the same, which is never the case in real world and means this paper assumes perfect market.
It has to right. It's just math.


Before costs, the average return all of the passively invested dollars is the market return.

All of the remaining investors are active investors. So before costs, the average return of all actively invested dollars return also has to be the market return.


After all, the average return of all investor dollars (before costs) must be the market return. And if the average before costs return of the passive dollars is the market return, there's no way for the average before costs return of the active dollars to be anything but the market return.
Deal Addict
Nov 26, 2005
3085 posts
249 upvotes
Vancouver
FunSave22 wrote:
Jul 1st, 2012 12:17 pm
It has to right. It's just math.


Before costs, the average return all of the passively invested dollars is the market return.
this is already perfect market assumption, sadly.
Deal Addict
Aug 28, 2010
3521 posts
1218 upvotes
Halifax
ccyk wrote:
Jul 1st, 2012 12:41 pm
this is already perfect market assumption, sadly.
Huh?

The average before cost return of passive investors in the S&P 500 will be the return of the S&P 500. There's nothing about the perfect market here.


You can replace S&P 500 with any other type of market. It's still going to be true. It's a truism. It doesn't rely on perfect market.
Deal Addict
Nov 26, 2005
3085 posts
249 upvotes
Vancouver
FunSave22 wrote:
Jul 1st, 2012 12:48 pm
Huh?

The average before cost return of passive investors in the S&P 500 will be the return of the S&P 500. There's nothing about the perfect market here.


You can replace S&P 500 with any other type of market. It's still going to be true. It's a truism. It doesn't rely on perfect market.
1) passive holders can hold individual stocks and different market indexes, so it is never the true market return.
my hypothesis is that passive holders tend to hold under-preform stocks/etfs in long term.
2) can passive investor short the market? if you factor into that, total profit is different from index return as well.
Deal Addict
Aug 28, 2010
3521 posts
1218 upvotes
Halifax
ccyk wrote:
Jul 1st, 2012 1:55 pm
1) passive holders can hold individual stocks and different market indexes, so it is never the true market return.
No, then they are both passive and active.



The total passive holdings of all passive indexers will have a before cost return equal to the return of the market they are indexing.

The proof isn't making a statement about an individual investor. It is saying the that average of all of the passive holdings in a market has a before cost return equal to that of the market. Meaning that average all of the active holdings in a market must have the same return.
Jr. Member
May 2, 2012
192 posts
43 upvotes
ccyk wrote:
Jul 1st, 2012 1:55 pm
1) passive holders can hold individual stocks and different market indexes, so it is never the true market return.
my hypothesis is that passive holders tend to hold under-preform stocks/etfs in long term.
2) can passive investor short the market? if you factor into that, total profit is different from index return as well.
So you were unable to scroll down slightly and read the definitions? Allow me to correct your ignorance.

A passive investor always holds every security from the market, with each represented in the same manner as in the market. Thus if security X represents 3 per cent of the value of the securities in the market, a passive investor's portfolio will have 3 per cent of its value invested in X.

An active investor is one who is not passive. His or her portfolio will differ from that of the passive managers at some or all times.
Deal Addict
Nov 26, 2005
3085 posts
249 upvotes
Vancouver
chevron wrote:
Jul 4th, 2012 12:28 pm
So you were unable to scroll down slightly and read the definitions? Allow me to correct your ignorance.

A passive investor always holds every security from the market, with each represented in the same manner as in the market. Thus if security X represents 3 per cent of the value of the securities in the market, a passive investor's portfolio will have 3 per cent of its value invested in X.

An active investor is one who is not passive. His or her portfolio will differ from that of the passive managers at some or all times.
erm, thats different from passive investor in real life. shouldnt this be a perfect market assumption?
i have yet to know a live person that hold every stocks in world.
Newbie
Jun 23, 2012
87 posts
9 upvotes
Calgary
NakorOranges wrote:
Jun 21st, 2012 9:54 am
Hi all.

Ive been doing some research for a while and I’ve decided I want to try some trading!

To give you some background, Im 24, a student with a physics degree, about to finish my mech eng degree (8 months to go), and am so far debt free by sacrificing my summers to the reserves (im out now) and doing coops, all said around 50K in tuition so far with another 8K to go…plus rent. Gah. But the fantasy world of school is about to end and I feel I should get some experience in investing.

Since Im young-ish and stupid the way I want to try this is with stocks. Around the structure of how I want to do this the best choice seems to be with Questrade (Ive read the threads here so I know some of the conflict), but the 50$ free trade commissions, the 5$ trades after that, and the TFSA system (I have no money in any of them yet) has drawn me in. Ill worry about inactivity fees if I get that far and don’t lose all my money.

So Ive decided to throw $1000 in with questrade and see what happens. While I would prefer not to lose my money, I can survive the hit since Im so close to the end of school anyway. Im currently at a COOP job I have a lot of extra time to spend at so a more active style of trading is feasible and appealing to my foolishness.

But I’m not a complete idiot, so I thought I would ask here first if actively trading (swing/day) is even possible on such a small start without getting killed on commissions?

I think doing is the best way to learn something and that is really what this is about, but making a bunch of useless trades won’t teach me anything either.

Any input is much appreciated!

Thanks, Matt.

EDIT: I should add in no way am I asking for "stock tips"
Nice to see another engineer starting trading! I'm currently a grad student pursuing PhD in medical imaging and have been trading for 3 years now. Best system that has worked for me would be playing breakouts on high EPS and high growth names. I follow IBD's system pretty religiously, here's where it all started: http://www.amazon.com/Money-Stocks-Comp ... +in+stocks

If you need more info, pm me and I'll direct you towards more resources etc. Glad to see you're not asking for tips and or listening to everyone's advice here. Take every opinion including mine with a grain of salt.

good luck.
Newbie
Jun 23, 2012
87 posts
9 upvotes
Calgary
FunSave22 wrote:
Jun 30th, 2012 3:15 pm
Wanting to see evidence and using said evidence is a bad thing?




Sharpe's The Arithmetic of Active Management is most certainly a rule.

It's a mathematical proof. Similar to how the circumference of a circle must be 2*pi*r, Sharpe's proof must be also be true.
Mathematics does make sense. But it is based on sum of all actively managed portfolios. What if it was viewed as a distribution? you would probably get a gaussian curve like anything else in life, with some portfolio managers beating the market, some lagging the market and some matching market returns. Of course mean would be less than avg. return of market because of MERs'. Trick then would be to try and be at the highest std. dev. on the positive side.

So at the end of the day if you beat the market, someone else has to lose as total return equals to what the index advanced.

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