Dabbling in the stock market

[lemur]

Yes and the reasons for that are well known (around diversification, herd following & fee's) google it if you want to know more.

Trading as a retail pro is a much different game. 95-98% of people fail. Just as most people dont have what it takes to become a pro golfer or a pro musician, most people don't have the right aptitude to become a pro-trader.

However, for those who make it, its a great business with huge advantages.

 

[Stupid Boy]

I looked at fund buts to be honest their performance rates for 5 year terms aren't great with a lot actually showing a negative...

I guess i'll just bite the bullet and go for it... I have a very supportive partner who is in charge of my finances in order to stop any relapses ... she may even get involved as well...

 

[lemur]

I looked at fund buts to be honest their performance rates for 5 year terms aren't great with a lot actually showing a negative...

I guess i'll just bite the bullet and go for it... I have a very supportive partner who is in charge of my finances in order to stop any relapses ... she may even get involved as well...

Stupid boy. Don't do it. The markets are not a place for somebody with no experience or know how. You will just make a lot of expensive bad investments.

 

[lemur]

Humans are optimists.

If a person could scientifically, repeatedly, demonstratively, outperform the market, they would be getting multimillion pay packets to manage the largest funds in the world i.e. pension funds for countries and the world's largest companies.

Banks would willingly loan them money, so they can magically apply their edge, and make telephone number returns for themselves, and pay off the bank interest.

There are only a handful of people in the world who have demonstratively beaten the market over the real long term, i.e. not 1 deal, 1 yr, 5 yrs, 10, 15yrs, but a lifetime.

I liken it to a race. People says they will win, people believe they will win, but they can't all win.

I personally know five retail pro's who have stellar performance.

Note an edge for a retail pro is not the same thing as an edge for a fund. As the amounts involved gets larger, liquidity moving the market becomes an issue. For that reason, it is much easier for a retail pro to find an edge than it is for a fund.

 

[Bronte]

I have a very supportive partner who is in charge of my finances in order to stop any relapses ... she may even get involved as well...

Based on this maybe you should just let her decide where you should save/invest your money.

 

[lemur]

Define Stellar.

As you say, one advantage of doing small trades is that you will not affect the market price of an asset. If a fund fancies a company at a price and starts taking a stake, they will push up the price, as they have so much money that they must invest.

That does not take away from the fact, that are very few documented cases in the world of people beating the market over a lifetime.

Re: the latter statement. How do you know this? Its a cliche right? How many traders do you know personally?

Stellar is between 100 and 1000% a year. Some top traders set themselves a target of 2% day. They don't achieve this but they can come close.

The best way to trade is to compound short term gains.

Of course, to reach the level of performance above requires a level of skill and discipline that few people have.

 

[nuac]

Thank you lemur and others for interesting posts on a topical subject.

What is an "edge" in this context?

 

[lemur]

Thank you lemur and others for interesting posts on a topical subject.

What is an "edge" in this context?

An 'edge' is an advantage. So for example, when you sit down at a roulette wheel in a casino, the house has a 6% edge. The longer you play the more likely it is the casino will win. Professional blackjack players turn the tales on the casino by counting cards and put the edge on their side by about 1% (51:49). But even this small edge is enough for them to make money.

Professional traders know how to get an edge in the market in contrast to the 'gambling' like behaviors of amateurs who tend to trade on the basis of what they think is going to happen.

 

[Marc]

An 'edge' is an advantage. So for example, when you sit down at a roulette wheel in a casino, the house has a 6% edge. The longer you play the more likely it is the casino will win. Professional blackjack players turn the tales on the casino by counting cards and put the edge on their side by about 1% (51:49). But even this small edge is enough for them to make money.

Professional traders know how to get an edge in the market in contrast to the 'gambling' like behaviors of amateurs who tend to trade on the basis of what they think is going to happen.

I hate to get all uppity about statistics but I am statistician so I guess you can forgive me a small indulgence:
The house edge for Roulette in the US for a standard 38 number American wheel is 5.26%
The five number bet (0,00,1,2 and 3) has a house edge of 7.89%
If the casino offers “surrender” the house edge is cut to 2.63% on even-money bets
European-style wheels (37 numbers including a single 0) The house edge is 2.7%
If en prison is offered, the edge falls to only 1.35% on even-money wagers.
“Professional roulette player” is an oxymoron. No betting system will change the casino’s advantage.
A fair roulette wheel cannot be beaten in the long term.

I agree that Lemur has used the correct analogy to describe trading. Where we differ is that I also believe that in the long run, it is not possible to beat the market any more than it is possible to beat the casino.

With thanks to Mensa International for the stats.

 

[lemur]

A fair roulette wheel cannot be beaten in the long term.

Where we differ is that I also believe that in the long run, it is not possible to beat the market any more than it is possible to beat the casino.

Good comments guys, here is my response.

A fair roulette wheel cannot be beaten in the long term - No but blackjack can by using the correct techniques.

It is not possible to beat the market any more than it is possible to beat the casino - how do you know this. I know pro traders who beat the mkt year in and year out.

The best trader I know is a futures scalper with 25 yrs experience. He did almost 900% last year. He keeps his account a core size and takes money out every month for living expenses and taxes which explains why he is not the richest man in the world right now.

 

[lemur]

Some percentage of these guys would be frugal, and we would still see hundreds of them on the rich list, and then their story would be documented. They don't exist. The simplest explanation is that it is not possible.

Academic/Scientific studies is how we know it is not possible for fund managers to beat the market over the long term.

Time for you to do some homework and leave your bias aside. Retail pro's and fund managers are different games so the studies you refer to above do not apply.

Google Dan Zanger, the world record holder for stock market gains. He turned $11,000 into $42m in about three years. This has been audited via his tax returns.

I know Dan. Last year his performance was negative but the year before his performance was 180% annual gain. Note that because Dan is now playing with larger sums it is much harder for him to achieve stellar performance because of the earlier argument.

The other star traders I hang out with every day on the web. If you choose to believe this is fiction there is not much I can do about that.

 

[demoivre]

Why do so many people in threads like this ( and there have been many such threads on here before ) have difficulty in distinguishing between investing and trading? Can people not see that a fund manager investing €300m in some stock for a period of time is substantially different to a retail trader getting in and out of 10 lots of FTSE futures a few times a day . Returns of a multiple of ones account size are perfectly attainable when trading a leveraged product.

 

[lemur]

I don't claim to be a professional or have all the answers. And I am interested in finding out more.

I do want to take the best route to optimise my returns.

I also have problems with some of the mantra's, e.g. I practise a bit of market timing myself - i.e. not moving completely a lump sum into the market when price-earnings are at historical highs and selling property two years ago, when price earnings were very high, and the interest rate appeared to be moving the other direction, And all the tricks of the banking trade were used i.e. Interest only and 40 year mortgages.

I have acknowledged that a small trader does not suffer from a market effect.

3 years, is not a lifetime of beating the market. So that point on a factual basis remains unopposed. I don't question his returns. Even with chance, we would expect a very significant number of people to make astronomical returns, but for those returns someone else is losing money.

I understand that if you leverage you increase your risk and possible return, but also your possible loss.

I have in my posts referred specifically to fund managers, as that is what the studies covered. And that is the option open to the typical investor, who has a full time job, and limited time for managing their finances.

Are you implying, that no funds in the universe of funds invest in the same thing you do?

google does not give much for a "Retail pro"

I can show a sequence of coin-tosses that will give stellar returns, that does not mean, that I can repeat that over the real long term.

What do you think the normal joe should do with his excess income?

'What do you think the normal joe should do with his excess income'- I think he should put it in the bank in a high interest savings a/c and stay away from the market especially investment products sold to the public which are usually garbage in my view.

'I can show a sequence of coin-tosses that will give stellar returns, that does not mean, that I can repeat that over the real long term.' - irrelevant reference. Good retail pro's have a defined edge as I stated above.

Re:funds comment above. As I keep saying, retail trading is a completely different game to fund performance.

Re:3 yrs? Dan Zanger made his money during the dot com boom and continues to trade successfully.

Becoming a successful trader is like any other profession. It requires aptitude, hard work, dedication etc It is not a quick easy money game like so many amateurs expect which is why so few succeed. Golf is a good analogy, some people take it up and become very good but most don't. The latter walk away after losing some money and say its gambling. This is like a bad golfer telling a good golfer his game/low handicap is a fluke.

 

[nuac]

Thanks Lemur for your explanation of "edge". I can understand your examples of a roulette wheel, and blackjack if you have a system

However out in the worldwide instantaneous markets can you really have a workable edge unless it is inside knowledge.

I recall Jim SLater years ago writing about the Zulu principle - to know everything relevant about a particular share/business etc. However there is always someone who knows more.

 

[lemur]

Thanks Lemur for your explanation of "edge". I can understand your examples of a roulette wheel, and blackjack if you have a system

However out in the worldwide instantaneous markets can you really have a workable edge unless it is inside knowledge.

I recall Jim SLater years ago writing about the Zulu principle - to know everything relevant about a particular share/business etc. However there is always someone who knows more.

Traders play the price action. Its a numbers game nothing to do with inside knowledge. If you don't have an edge there is no point in trading. etc.

 

[magicbeans]

Forgive me for my ignorance, I know nothing about trading stocks, but is the OP not talking about doing what Brendan reccomends in his book "The ask about money guide to savings and investments" ? (Investing as opposed to trading ?)

I know this book is currently under review, but is the share advice that was in it still applicable, and if so would NIB be one of the cheaper / easier brokers for a novice to invest € 1,200 per month in the top ten irish shares, and then leave them alone for 5 years plus in the hope that they might outperform deposit a/c returns ?

Thanks

 

[webtax]

Forgive me for my ignorance, I know nothing about trading stocks, but is the OP not talking about doing what Brendan reccomends in his book "The ask about money guide to savings and investments" ? (Investing as opposed to trading ?)

I know this book is currently under review, but is the share advice that was in it still applicable, and if so would NIB be one of the cheaper / easier brokers for a novice to invest € 1,200 per month in the top ten irish shares, and then leave them alone for 5 years plus in the hope that they might outperform deposit a/c returns ?

That advice is not and never was valid, investing in the top ten Irish shares at the time that book was written was essentially a bet on the Irish property market, and you can now see where that investment has ended up. Stocks give the best long term return, but you should be diversifing outside of the Irish economy also (U.S., European, Far East & Emerging markets). Use an index tracker fund if you do not have sufficient knowledge of individual shares. To maximise returns a certain element of timing is required, i.e. selling at times of excessive optimism and buying at times of excessive pessimism.

 

[Complainer]

Hi All,

I am now in a reasonably strong financial position having finally cleared all that darn gambling debt, and also given up the gambling too...

I am earning 40K now and and i'm in a postion to put away 1,000 per month into a regular savers account earning a high interest rate...

This means I would have 500 euros per month left over effectively to invest in other asset classes, the one which appeals to me is equities...

I have been studying the market for sometime now and would have studied certain aspects of the market through university, so I would have a little grounding on the subject, I have identifed 5 companies that I would be prepared to invest in over the next year with a view to holding the stock for a 5-10 year period. Therefore investing 100 euros in each company per month for the next year giving a total investment of 6,000 euros and a 1,200 euros holding in each...

My question is, how best to do this in order to minimise broker fees, I will effectively be making 60 purchases over the next 12 months, given broker fees range from 10 euros to 30 euros where should I be looking to get on to the market... as any potential gains could take a large hit given the broker fees...

Have you cleared any outstanding debts? Do you have an outstanding mortgage, or do you intend buying a property anytime soon?

 

[lemur]

you quoted his returns for a 3 yr period.

how is it a different game?

can you give me some hard examples of the edges you can repeatedly use to gain stellar performance?

i advocate that one should buy and hold funds tracking indexes.

how is it a different game? - Already spelled that out.

Edges - I have several. I am not going to reveal them here.

Never buy & hold anything. All investment/trades require timing.

 

[lemur]

As others have said the OP does not want to trade.

My feeling is that lemur's descriptions on how to make money in the market are too vague, and by quoting secret methods, they are not testable or reproducible. I don't mean to offend, but therefore I don't see any value that we can take from them.

It is not hard, the edge is not paying transaction fees and charges, you need a monkey and a dartboard or a market index, a lot of time, and a simple plan, you buy and hold.

Over the long term a crystal ball is not required, and work is minimum.

If you own a small number of companies, there is a higher risk that you will either underperform or outperform the market - you are exposed to the same general market risk, but you are highly exposed to the companies you are invested in.

Stupid Boy, it is better to diversify by owning the entire market rather than a few companies. That you only have the market risk, you have diversified away as much as possible the individual company risks.

If you use a fund, it can also eliminate the need to spend time making tax returns. (But It depends on what fund you choose)

What secret methods?

I have already said in answer to your question. ''What do you think the normal joe should do with his excess income'- I think he should put it in the bank in a high interest savings a/c and stay away from the market especially investment products sold to the public which are usually garbage in my view.