Investing

Starting in Stocks

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  • Jul 10th, 2012 10:44 am
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Newbie
Jun 23, 2012
87 posts
9 upvotes
Calgary
cjottawa wrote:
Jul 5th, 2012 8:10 am
Bingo.

Active traders I've listened to seemed to focus on absolute return ("I made 12% this year!") instead of return relative to the market.
IOW, "I made 12% this year" isn't impressive when the market returned 15%.
Not true. Most of the active money managers and sophisticated individual traders focus on 'alpha' and not absolute return.
Newbie
Jun 23, 2012
87 posts
9 upvotes
Calgary
S5 wrote:
Jul 5th, 2012 8:07 am
See FS22's reply above.



Nope. Those macro factors will also affect individual stocks, afterall what is an index but an assortment of individual stocks? Uncompensated company specific risk remains and free variance(before higher trading fees and tax events inherant in active management) is not beneficial to investors.

If you really believe they are the same I suggest you read a good investment primer like A Random Walk Down Wall Street or The Four Pillars of Investing.
General market direction dictates price movement of 3/4 stocks. so it is true that macro factors will also affect individual stocks.

I have not read those books, will read them and build case for passive investing. May I suggest you read something like 'how to make money in stocks by William O' Neal to lay a case for active investing?
Member
May 2, 2012
291 posts
260 upvotes
Ottawa
Rhinox87 wrote:
Jul 5th, 2012 10:39 pm
Not true. Most of the active money managers and sophisticated individual traders focus on 'alpha' and not absolute return.
1. we're discussing private investors; my assertion stands
2. most active, institutional investors fail to beat the market over the long term - their clients would have been better in index funds
Newbie
Jun 23, 2012
87 posts
9 upvotes
Calgary
cjottawa wrote:
Jul 6th, 2012 7:14 am
1. we're discussing private investors; my assertion stands
2. most active, institutional investors fail to beat the market over the long term - their clients would have been better in index funds
I'm a private investors and I keep track of my alpha. I also know a few other people who do the same.

Secondly, how would you explain holding index funds to someone who lost almost 50% in 2008-2009, especially someone who is on the brink of retirement? how much longer should they hold to break-even? TSX still isn't back to where it was in 2008 and possibly might not get there any time soon as commodity cycles are topping and most of the resource stocks are a mess.

In comparison many private investors were sitting in cash in 2008 and so were some of the institutional investors.

Make of this what you want. I'm done discussing, sorry for sidetracking the thread OP.
Deal Addict
Jul 23, 2007
3808 posts
1601 upvotes
Rhinox87 wrote:
Jul 6th, 2012 6:31 pm


In comparison many private investors were sitting in cash in 2008 and so were some of the institutional investors.
The Enemy In The Mirror by Andrew Hallam

What can you miss by guessing wrong?

Studies show that most market moves are like the flu you got last year, or the mysterious $10 bill you found in the pocket of your jeans. In each case, you don’t see it coming. Even when looking back at the stock market’s biggest historical returns, Jeremy Siegel, author of Stocks for the Long Run and professor of business at University of Pennsylvania’s Wharton School, suggests that there’s no rhyme or reason when it comes to market activity. He looked back at the biggest stock market moves since 1885 (focusing on trading sessions where the markets moved by 5% or more in a single day) and tried connecting each of them to a world event.

Seventy-five percent of the time, he couldn’t find logical explanations for such large stock market movements—and he had the luxury of looking back in time, and trying to match the market’s behaviour with historical world news. If a smart man like Siegel can’t make connections between world events and the stock market’s movements with the benefit of hindsight, then how is someone supposed to predict future movements based on economic events—or the prediction of events to come? It’s as improbable as guessing which of the moths frantically flying around your light bulb is going to be fried first.

If anyone ever convinces you to act on their short-term stock market prediction, it could end up being a very expensive mistake. Let’s look at the U.S. stock market from 1982 through December 2005 as an example.

During this time, the stock market averaged 10.6% annually. But if you didn’t have money in the stock market during the 10 best trading days, your average return would have dropped to 8.1%. If you missed the best 50 trading days, your average return would have been just 1.8%. Markets can move so unpredictably, and so quickly. If you take money out of the stock market for a day, a week, a month, or a year, you could miss the best trading days of the decade. You’ll never see them coming. They just happen. More importantly, as I said before, neither you nor your broker is going to be able to predict them.

Legendary investor and self-made billionaire Kenneth Fisher, who writes a column in Forbes magazine, had this to say, about market timing:

“Never forget how fast a market moves. Your annual return can come from just a few big moves. Do you know which days those will be? I sure don’t and I’ve been managing money for a third of a century.”
Deal Addict
Jul 23, 2007
3808 posts
1601 upvotes
I don't know why investors keep thinking it's so easy to beat the market. If you have a few successful years, you do think it's easy, until the market turns around and strikes back.

Here's the about face of a professional hedge fund manager writing in Kiplingers. The first article was published in 2006.

My Jack Bogle Problem

Some of us can beat the dickens out of the market if we try. We should be encouraged.

By Andrew Feinberg

-------------------------------------------

The second article came out in March of this year from the same author.

A Humbling Year for a Hedge-Fund Manager

Mutual-fund managers who beat the market for a time have a nasty habit of reverting to the mean.

By Andrew Feinberg
Deal Addict
Nov 26, 2005
3085 posts
249 upvotes
Vancouver
Stryker wrote:
Jul 7th, 2012 5:55 pm
I don't know why investors keep thinking it's so easy to beat the market. If you have a few successful years, you do think it's easy, until the market turns around and strikes back.

Here's the about face of a professional hedge fund manager writing in Kiplingers. The first article was published in 2006.

My Jack Bogle Problem

Some of us can beat the dickens out of the market if we try. We should be encouraged.

By Andrew Feinberg

-------------------------------------------

The second article came out in March of this year from the same author.

A Humbling Year for a Hedge-Fund Manager

Mutual-fund managers who beat the market for a time have a nasty habit of reverting to the mean.

By Andrew Feinberg
if people survived 2008/09 crash, everything else is easy.
Deal Addict
Nov 26, 2005
3085 posts
249 upvotes
Vancouver
Stryker wrote:
Jul 7th, 2012 4:13 am

If anyone ever convinces you to act on their short-term stock market prediction, it could end up being a very expensive mistake. Let’s look at the U.S. stock market from 1982 through December 2005 as an example.

During this time, the stock market averaged 10.6% annually. But if you didn’t have money in the stock market during the 10 best trading days, your average return would have dropped to 8.1%. If you missed the best 50 trading days, your average return would have been just 1.8%. Markets can move so unpredictably, and so quickly. If you take money out of the stock market for a day, a week, a month, or a year, you could miss the best trading days of the decade. You’ll never see them coming. They just happen. More importantly, as I said before, neither you nor your broker is going to be able to predict them.
this argument is flawed

1. why stop at 2005 and start at 1982? cherry picking. he has data all the way back to 1885 afterall. why not select 1929-2008? thats annual return of 3.06% for dow. even if using 1900-presenthttp://stockcharts.com/freecharts/histo ... a1900.html (12896.67/68.13)^(1/112)-1=4.79%

2. as much as missing 10 best trading days, he forgot to also include data for missing 10 worst trading days. I strongly believe the result does not favor his conclusion. it is common sense when stock market drops it drops fast and quick. percentage wise it will be bigger than gaining days' percentage.

3. also look at the 100 year chart, see all the losing decades 1906-1925, 1937-1949, 1964-1982, 2000-now, which stock market stayed flat.
it was only when there is a major industrial breakthrough or world event that stock market will step up and stay forever. mass production of automotive after 1929 crash, post-war boom, computer innovation.

4. also need to consider currency valuation. it should be noted that US debased its dollar in 1933/34 by some 40% and again abandoned gold standard in 1971, and started printing money out of air, which greatly inflate stock market with lag.
Deal Fanatic
User avatar
Jun 26, 2005
9511 posts
1549 upvotes
Toronto
Everyone who's playing stocks and the market should read these articles. Its free and full of very good info. Not those fake news out there.

Pay special attention to Sam seiden's articles. Trading plan in this issue is VERY important for your success.

http://lessons.tradingacademy.com/
Deal Fanatic
User avatar
Jun 26, 2005
9511 posts
1549 upvotes
Toronto
ccyk wrote:
Jul 8th, 2012 1:46 pm
if people survived 2008/09 crash, everything else is easy.
Anyone can survive a crash like that if they only used STOPS. As I learned, you need to find out you are incorrect ASAP, STAT !! Keep your stops tight.
Deal Fanatic
User avatar
Jun 26, 2005
9511 posts
1549 upvotes
Toronto
Well said. It is because the concept is flawed. "Beating the market" is not the goal.
Stryker wrote:
Jul 7th, 2012 5:55 pm
I don't know why investors keep thinking it's so easy to beat the market. If you have a few successful years, you do think it's easy, until the market turns around and strikes back.

Here's the about face of a professional hedge fund manager writing in Kiplingers. The first article was published in 2006.

My Jack Bogle Problem

Some of us can beat the dickens out of the market if we try. We should be encouraged.

By Andrew Feinberg

-------------------------------------------

The second article came out in March of this year from the same author.

A Humbling Year for a Hedge-Fund Manager

Mutual-fund managers who beat the market for a time have a nasty habit of reverting to the mean.

By Andrew Feinberg

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