Investing

Is Stock Market a scam?

  • Last Updated:
  • Apr 28th, 2017 10:16 am
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Deal Addict
Jan 27, 2015
1037 posts
465 upvotes
Edmonton, AB
rodbarc wrote: Sorry, I wouldn't say that. Finance is not my background. My full-time job has nothing to do with investing or trading. Discipline is the biggest reason, I think, that I can consistently keeping implementing the same plan, which is nothing new or out of this world. Anyone that dedicates can do that too, it's a skill to learn like any other. The majority don't want or don't care for the extra effort - that's a different matter. Temperament plays a big role - I know many indexers that couldn't tolerate 2008 crash. I'm sure many others will panic during next crash. Behavioral finance should be mandatory for every investor. None of that makes it a scam, it's the ability to separate emotions. Easier said than done, but I'm a strong believer that anyone can learn and do it if they put their mind to it and get support for those that can help with techniques.

Rod
You called it: temperament. This is the key ingredient that is missing from a vast majority of investors.

Read this little nugget: http://www.investmentzen.com/blog/how-i ... dex-funds/

Not many people realize this but investing in individual companies requires a tremendous amount of time and patience, not to mention discipline.
Deal Addict
Jan 27, 2015
1037 posts
465 upvotes
Edmonton, AB
treva84 wrote: Yes, perhaps there is a misunderstanding.

At the end of the day I agree that the stock market is not a scam, and that indexing is a very prudent approach. However I think indexing is not a panacea and I suppose the points I was trying to convey were i) EMH is theoretical and not always practical and ii) the CAPM definition of risk is also theoretical and not practical. This means that there is opportunity inefficiency, which can be exploited.

I would love to claim I have a way to determine the top performing companies in advance, but sadly I don't. I would love to be the next Warren Buffet and become a multi-billioniare from a standing start, but this is exceptionally unlikely to happen.

Also, just out of curiosity, have you ever heard of the Lindy effect? The idea is that what is non-perishable is more likely to exist the longer it has existed. It's the idea behind "sticky" dividends; i.e. those companies with a long dividend history are more likely to keep paying dividends then those with a short dividend history. The reason I bring it up is because you mention most companies will eventually fail - I'm just curious what your take on the this is.
Very interesting theory. Yes, I've heard of the Lindy effect but never thought of applying it to companies that only pay dividends. Some companies do become "too big to fail" but I will be the first to point out that I am not smart enough to know in advance which companies will do well and which won't.

Total return should be looked at, not merely dividend yield. But again, I'm preaching to the choir. LOL.
Deal Fanatic
Nov 9, 2013
5885 posts
7465 upvotes
Edmonton, AB
FinancialFreedom wrote: Very interesting theory. Yes, I've heard of the Lindy effect but never thought of applying it to companies that only pay dividends. Some companies do become "too big to fail" but I will be the first to point out that I am not smart enough to know in advance which companies will do well and which won't.

Total return should be looked at, not merely dividend yield. But again, I'm preaching to the choir. LOL.
Yeah it is interesting - if you check out What Works on Wall Street the author talks about how large cap "market leaders" - those with cash flows and sales above average (and in my opinion moaty companies) out perform large cap stocks in general by total return - I think it's more indirect evidence for the Lindy effect.
Buy right, hold tight. Keep calm and go long.

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