Stocks considered negative expectation "game"?
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i have no clue how i posted twice i didnt click twice im a patient computer competent person who knows not to do that
Quote: heatmapThe stock market either makes or breaks people. Most casinos only offer negative expectation games. Is the stock market, in your opinon, considered to be a mostly negative expectation endeavour? What would you rather choose, a life of stocks or a life as an "ap"?
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i have no clue how i posted twice i didnt click twice im a patient computer competent person who knows not to do that
There is no long term period the stock market hasn't gone up. It's completely +EV if you diversify and keep it in there. I think I heard there's never been a 10 year period where it's gone down during that 10 years.
ZCore13
LOL. how soon many forget...Quote: Zcore13I think I heard there's never been a 10 year period where it's gone down during that 10 years.
ZCore13
try Feb 1999 to Feb 2009
millions lost millions on the stock market
companies were bailed out (losing BILLIONS) for being horrible companies (remember that CRAP)
but not all companies got bailed out (LOL - most horrible ones got bailed out)
those (most) that made the financial crisis were 'rescued' and others were left to rot.
R.O.T
Quote: Zcore13There is no long term period the stock market hasn't gone up. It's completely +EV if you diversify and keep it in there. I think I heard there's never been a 10 year period where it's gone down during that 10 years.
S&P 500 9/2/29 = $31.82
S&P 500 9/4/39 = $12.64
A drop of 60.3% over a 10-year period.
I don't need to go back that far:
S&P 500 2/1/01 = $1373.47
S&P 500 3/16/11 = $1256.88
A drop over more than a ten-year period.
Quote: WizardS&P 500 9/2/29 = $31.82
S&P 500 9/4/39 = $12.64
A drop of 60.3% over a 10-year period.
I don't need to go back that far:
S&P 500 2/1/01 = $1373.47
S&P 500 3/16/11 = $1256.88
A drop over more than a ten-year period.
Now factor in inflation.
I think the only time the US stock market has been down over a 20 year period was right after the 1929 crash.
Looking at the period 1999 to 2009 is cherry picking in a way because it’s from the very top of a very brief bubble to the VERY brief bottom of an extreme bust. The bottom was around March, then from there market went up over 50% by the end of 2009...the Dow closed over 10,000. Only someone who panick-sold at the bottom lost money.
At some point of a bust, the big players decide prices are low enough and start buying again. The rebound is usually very quick.
The worst time for stocks might have been from 1964 to 1981...in 17 years it basically did nothing. Primarily due to a highly inflationary environment. High interest rates discount future earnings. Besides, why invest in the stock market when you can get 12% or better in a risk free CD.
ZCore13
Maybe you aren't invested in Japan.Quote: Zcore13Maybe it was 20 years. Anyway, mine will be in 30+ years, so I'm not too worried.
ZCore13
Quote:On Dec. 29, 1989, the Japanese analogue to the Dow Jones Industrial Average (DJINDICES:^DJI) reached an all-time intraday high of 38,957. Two decades later, the Nikkei's value was still 73% below that mark.
not factoring inflation, diversified portfolio of stocks have gone down in value:
*over a 5 yr period, many times
*10 yr periods do happen
*15 yr periods: have never lost value
*20 yr periods: have always beat any and all other investments [as a class]
Note that if you want to point to something like the 2008 crash, you have a 12 year period, but that would be for someone who put all their money in stocks on one day , the previous height. If you had been buying stocks regularly all along for, say, a 10 yr period, and more importantly in this case, didn't sell at the bottom, this crash was not so bad [we know now, it was scary at the time]and actually was an opportunity since once it hit bottom, it went right back up. In fact, if you did that buy-all-on-one-day thing on the right day in 2009, the whole story is one of fantastic gains.
But believe me, I and everybody else looked at our valuations at the height and wanted to shoot ourselves at the 12 yr bottom, forgetting we bought stocks over time. I did make myself buy instead of sell around the bottom; I regret not buying more.
The ones to really bemoan is when the market goes down and stays down. Ugh.
Quote: 7crapsLOL. how soon many forget...
try Feb 1999 to Feb 2009
millions lost millions on the stock market
companies were bailed out (losing BILLIONS) for being horrible companies (remember that CRAP)
but not all companies got bailed out (LOL - most horrible ones got bailed out)
those (most) that made the financial crisis were 'rescued' and others were left to rot.
R.O.T
you're LOL but your post is not very meaningful
you chose the only 10 year period at least that I know of where there were 2 crashes - the tech implosion that began in 2000 and the mortgage disaster of 2008
here is a historical reference re the Dow:
When it was first published in the mid-1880s, the index stood at a level of 62.76.
the Dow closed at 26,572.23 this past Friday
your post indicates correctly that investing carries with it risks - not exactly a monumental insight
in 2018 36,750 people died in car crashes
does that mean you shouldn't drive your car to work if public transportation is not a viable option which it is not for millions?
Quote: WizardS&P 500 9/2/29 = $31.82
S&P 500 9/4/39 = $12.64
A drop of 60.3% over a 10-year period.
I don't need to go back that far:
S&P 500 2/1/01 = $1373.47
S&P 500 3/16/11 = $1256.88
A drop over more than a ten-year period.
I 'think' with dividends a dollar invested in the S&P 500 is worth more on 3/16/11 than on 2/1/01. But probably not including inflation.
But to answer the OP's initial question. THE STOCK MARKET IS CLEARLY +EV! There will be up periods that exceed the +EV, and down periods as well. I think the average EV, including dividends, on stocks over the past century is something like 8-10% a year.
Just like a casino AP, you need to have good bankroll management.
Quote: Zcore13There is no long term period the stock market hasn't gone up. It's completely +EV if you diversify and keep it in there. I think I heard there's never been a 10 year period where it's gone down during that 10 years.
If it's +EV if you diversify, shouldn't it also be +EV without diversifying?
Quote: TomGIf it's +EV if you diversify, shouldn't it also be +EV without diversifying?
Depends on what you mean by "without diversifying."
If you were 100% into Enron stock, then not diversifying beyond that would have cost you everything.
If you are 100% into 4 week T-bills, then not diversifying beyond that might just barely be +EV over the long run, depending on inflation and interest rates.
If you are 100% into an S&P index fund, then not diversifying beyond that will most likely work out well for you.
Let's use 20 years. I think the DOW closed around 11k in 1999. Today it's like 27k. So you got 2.5x during that period. But had you been in Gold which closed at 290 or so and is 1500 today you would have a 5x gain over the same period. 1999 was the last time I remember buying $1 gas and today I pay $3. Investing in the Dow would have me behind on dollars to gas today.
How come all the talking heads dump on the metals and pump the stocks? When you start asking yourself real questions you will realize that 95% or more are being sold empty promises and being misdirected in the market. In other words they are the fish at the table. Some fish will get lucky and be fed. But the story about how there is enough food to have them all fat and happy is all a big lie they gobble up. They will all eventually end up prey.
If you are a story maker or one who really understands what is going on then it is most likely +EV otherwise it is a crapshoot. Since everyone is being destroyed thru inflation anyhow maybe it's less -EV than other options even if you are a fish.
Quote: TigerWuDepends on what you mean by "without diversifying."
If you were 100% into Enron stock, then not diversifying beyond that would have cost you everything.
If you bought Enron the day before they crashed they might still have been +EV. That's where the 'E' comes into play.
20:20 hindsight is a wonderful thing.
Unless that's speculation that are building wealth for your children that seems like -EV to me since there's a fair chance you will never see that money.Quote: Zcore13Maybe it was 20 years. Anyway, mine will be in 30+ years, so I'm not too worried.
ZCore13
Quote: AxelWolfUnless that's speculation that are building wealth for your children that seems like -EV to me since there's a fair chance you will never see that money.
That's the goal. I'd be completely fulfilled if I could leave them a nice amount.
ZCore13
Quote: TomGIf it's +EV if you diversify, shouldn't it also be +EV without diversifying?
Yes. But I prefer decreasing variance, I've had stocks go bankrupt (NTEK) and others increase 35 fold (BAP) Both on purchase theoretically had the same upside and downside potentials. That's why they were priced at the market price. One worked out, the other didnt.
Quote: TigerWuDepends on what you mean by "without diversifying."
Lets say throwing darts at a stock page and using that to buy one single stock. If the entire page is +EV, randomly picking just one should also be +EV. Betting systems shouldn't change the odds
Quote: TigerWuIf you were 100% into Enron stock, then not diversifying beyond that would have cost you everything
Why would the amount matter? Shouldn't the EV be the same (as a percentage) regardless of how much is invested in it? If dart throwing led to buying Enron in 2001, having 0.1% or 100% the day before it crashed would be the same EV.
Quote: ChumpChange80% of day traders lose money. But...Charles Schwab just nixed their trading commissions this month so there goes the vig.
This is only sort of true. For regular Joes like you and me, you are probably losing a penny or two per share on each trade, I think there is always that 'spread' that little guys always get the wrong side of. It is invisible to us, as all you see is that you bought IBM at 111.36, and are not aware the second after your trade it is now 111.35. Or something like that.
Quote: TomGLets say throwing darts at a stock page and using that to buy one single stock. If the entire page is +EV, randomly picking just one should also be +EV. Betting systems shouldn't change the odds
Yes, the ENTIRE PAGE is +EV, but the individual companies may not be. Some of them might be -EV, but you don't know which ones, so you buy an index fund and the majority of the companies that are +EV will compensate for the ones that are -EV. That's the whole point of diversifying.
Quote:Why would the amount matter? Shouldn't the EV be the same (as a percentage) regardless of how much is invested in it? If dart throwing led to buying Enron in 2001, having 0.1% or 100% the day before it crashed would be the same EV.
Because you don't know what the EV is of one single company. But if you take hundreds or thousands of companies and invest in ALL of them, then your OVERALL EV is much better, historically speaking.
Quote: TomGIf it's +EV if you diversify, shouldn't it also be +EV without diversifying?
theoretically it would be with tremendous variance
you could lose everything or become wealthy with a $10K investment in a single stock
but in reality it probably isn't because of the possibility of getting crushed with the bid/ask in the penny stocks
even in the larger stocks the small investor gets beat compared to the big money managers on the bid/ask
and they have other sneaky ways to get a much better deal than the small investor - i.e. their transaction can be executed much faster because they have special ways to route it
if you buy into a well known, large respectable mutual fund all of those disadvantages become very small because the money manager will get a very good deal on his buys and sells re the bid/ask, the routing and negligible transaction fees - and in the better funds the aspects of his better deal will be passed on to you
because of the availability of index funds, particularly with 2 very large financial institutions, the small investor can match or almost match the gains of the market as a whole - these 2 institutions have very, very low fees on their index funds
but many investors will not do that well because they treat the market as a game which they think they can beat - due to their pride and self confidence
and a great many fail to match or better the indexes
Quote: unJonI put my excess money in VTI and VXUS. Two Vanguard low fee ETFs. Don’t need to think about it. Can stay there as long as I need it. Better return than the alternatives for the variance. It’s a no brainer to me.
I've owned VTI for a while. I'll join you in VXUS on Monday. Low expense ratio (0.09%) for any ETF that invests in foreign stocks. I own EWZ, INDA, ADRE, SPEU and a few foreign ADRs. (YNDX. SNP, TSM, BASFY, BAP etc...)
Why I Am Selling My Favorite ETF - Vanguard Total World Stock ETF (NYSEARCA:VT) | Seeking Alpha https://seekingalpha.com/article/4135119-selling-favorite-etf
Quote: TigerWuYes, the ENTIRE PAGE is +EV, but the individual companies may not be. Some of them might be -EV, but you don't know which ones, so you buy an index fund and the majority of the companies that are +EV will compensate for the ones that are -EV. That's the whole point of diversifying.
Without any additional information about each company, how can we calculate the EV? Shouldn't we just take the total value of the entire page and divide it by the number of companies and that gives us the Expected Value for each individual stock?
Quote: TomGWithout any additional information about each company, how can we calculate the EV?
We can't, not without information.
Quote:Shouldn't we just take the total value of the entire page and divide it by the number of companies and that gives us the Expected Value for each individual stock?
That would give you an average market cap value, yes. That's basically what the indexes represent for the S&P, Dow, and other markets, but they are a little more mathematically complicated than just totaling the value and dividing. But all that just tells you what the company is worth right then and there, and not what it might be worth in the future.
Quote: TomGWithout any additional information about each company, how can we calculate the EV? Shouldn't we just take the total value of the entire page and divide it by the number of companies and that gives us the Expected Value for each individual stock?
no. because if you see a stock priced at $1.45 you might have to pay $1.85 to actually buy it
the stock shows a price of $1.45 - that's just based on the last transaction
it doesn't mean there is somebody willing to sell it to you at that price
it is like saying you saw +EV at a small racetrack because you saw a strong favorite go off at 5/2 and you wanted to bet $1K
but the pools are so small, that after you bet your $1K to win the fave would have only paid even money
so to say you saw a +EV situation in which you wanted to bet $1K is meaningless
Quote: TigerWuWe can't, not without information.Quote: TomGWithout any additional information about each company, how can we calculate the EV?
So each individual stock has no known EV. Add up 1,000 unknowns and come up with an answer we know must be positive? That doesn't make any sense
Quote: TigerWuQuote: TomGShouldn't we just take the total value of the entire page and divide it by the number of companies and that gives us the Expected Value for each individual stock?
That would give you an average market cap value, yes. That's basically what the indexes represent for the S&P, Dow, and other markets, but they are a little more mathematically complicated than just totaling the value and dividing. But all that just tells you what the company is worth right then and there, and not what it might be worth in the future.
I was using value and expected value interchangeably. I am used to doing that for casino games, but it might not be correct for stock prices.
Example
Bonavista 5 years ago was 13.00 and today 0.51 with a dividend of 7.84%
Cardinal 5 years ago was 10.00 and today 2.38 and div of 7.56
Vermilion Energy 5 years ago 69.00 and today 20.33 and div 13.58
Bonterra Energy 5 years ago 57.00 and today 4.04 and dividend 3%
Surge Energy 5 years ago 7.30 and today 1.14 and div 8.77%
I am not cherry picking as the whole sector has been ignored. You can pick any energy stock almost and see the same numbers and some way worse. One day those who bought at the bottom will see terrific gains as oil increases But for now many investors are WAY under water
Quote: TomGSo each individual stock has no known EV. Add up 1,000 unknowns and come up with an answer we know must be positive? That doesn't make any sense
We only know it "must" be positive based on HISTORICAL data. The U.S. stock market has never lost money given enough time. That's where the +EV comes from.
Quote: TigerWuWe only know it "must" be positive based on HISTORICAL data. The U.S. stock market has never lost money given enough time. That's where the +EV comes from.
If we believe that the historical data means the EV of the entire market is positive, that would mean that the EV of throwing darts is also positive.
Quote: TomGIf we believe that the historical data means the EV of the entire market is positive, that would mean that the EV of throwing darts is also positive.
If you threw enough darts over a long enough period of time, then it should be. But not if you just threw one dart once and stuck with that one forever.
Quote: TomGIf we believe that the historical data means the EV of the entire market is positive, that would mean that the EV of throwing darts is also positive.
That's essentially what I've done. I trusted that the overall trajectory of the entire stock market is positive, or as we say here, +EV. I believed that if I threw enough darts (bought enough different stocks) I would to a large degree mimic the entire stock market. Others may have done it easier by using index ETFs or index mutual funds. Look at buying a stock like playing a hand of BJ with a count of +10. Certainly can lose, but if I'm allowed to play thousands of such hands I know I'm on the right track.
I have started looking at it this way...... There are around 250 stock market days a year. Let's say I have $1,000,000 in the market. And let's say over time the average appreciation of the average stock, plus dividends, is 8% a year. So my daily EV is +$320. I'll look at that account and not see the up $10,000 this week, nor the down $4,000 last week, but rather, I made $1600 last week, and $1600 last week. And I plan my life on making something less than that. Exactly how much less I haven't figured out yet!
Quote: TigerWuIf you threw enough darts over a long enough period of time, then it should be. But not if you just threw one dart once and stuck with that one forever.
That brings us back to the place where each individual dart throw has an unknown EV, but when you add up enough of these unknowns, we know it must be positive. I can’t understand how that can be
Quote: TomGThat brings us back to the place where each individual dart throw has an unknown EV, but when you add up enough of these unknowns, we know it must be positive. I can’t understand how that can be
I think BEFORE I know where the dart has landed, each individual dart has an EV of +8% a year. Just with a lot of variance. When I divide my portfolio into a hundred darts, it still has an EV of +8%, just with lower variance.
Quote: TomGThat brings us back to the place where each individual dart throw has an unknown EV, but when you add up enough of these unknowns, we know it must be positive. I can’t understand how that can be
It's just averages and the way the economy works.
Let's say there are only five stocks in the market, and let's say we know what the EV is.
1 - +EV
2 - +EV
3 - +EV
4 - +EV
5 - -EV
If you threw a dart and hit #5, you would lose because it has -EV. But, if you bought an index fund with all five stocks, the four +EV would overcompensate for the -EV, causing a +EV overall.
Let's say we DIDN'T know what the EV was for the five stocks:
1 - ?EV
2 - ?EV
3 - ?EV
4 - ?EV
5 - ?EV
Because of the way the modern economy works, and based on historical data, we know that the market will continue to grow, albeit at an unknown rate. That's why we don't take chances throwing darts unless we're Warren Buffett. We would just buy all five stocks, because we know it is going to average +EV over time, even though a -EV company may be in the mix every once in a while.
At the casinos I see almost no one winning, I seem to be the only one who is able to stay in a casino for days on end and keep up a winning streak. In the stock market most investors make money, and although most traders lose money still the percentage of winners at stock trading is higher than the percentage of winners at casinos.
Most of these guys who come in touting skewed statistics about how the stock market lost money over such and such period are people who don't have a nickel in the stock market, so they put it down.
Quote: TigerWu
Because of the way the modern economy works, and based on historical data, we know that the market will continue to grow, albeit at an unknown rate. That's why we don't take chances throwing darts unless we're Warren Buffett. We would just buy all five stocks, because we know it is going to average +EV over time, even though a -EV company may be in the mix every once in a while.
LOL! Your overall point is valid. But you don't know much about Warren Buffet, do you? He was not a 'dart thrower' like me. He did research and analyzed the companies he would buy. Us 'dart throwers' just assume the price of any stock is fair at the time we buy it, because half the world thinks it should be higher and half the world thinks it should be lower.
When you say 'we don't take chances throwing darts', this is where I disagree with you. As long as you have enough darts to throw, I think throwing darts is safer than just picking a few 'good' stocks.
Quote: SOOPOOLOL! Your overall point is valid. But you don't know much about Warren Buffet, do you? He was not a 'dart thrower' like me. He did research and analyzed the companies he would buy.
I know. It's just a metaphor for picking individual stocks versus broad market index funds.
Quote:When you say 'we don't take chances throwing darts', this is where I disagree with you. As long as you have enough darts to throw, I think throwing darts is safer than just picking a few 'good' stocks.
I also agree with this... see my above comment about throwing enough darts over a long enough period of time.
I think there's a bit of an issue with this:-Quote: SOOPOOI think BEFORE I know where the dart has landed, each individual dart has an EV of +8% a year. Just with a lot of variance. When I divide my portfolio into a hundred darts, it still has an EV of +8%, just with lower variance.
Within the wider stock market, there are stocks where the bid/offer spread is large to massive. these might be fledgling companies where the capitalisation of the whole company is just a few million and the shares are very illiquid. You might need the stock to grow by 20% just to make up for what you lose on the bid/offer spread. Sure, some of these might take off like a rocket, but very many fizzle and die. Without massive insider insight, why embrace those?
Then there's sector co-variance. Your darts might see you buying all dot com companies, or all in businesses that fall fouls of some trend (politics?) . Just a very few Blue chip stocks swing the indexes, broadly proportionate to their capitalisation.
If you want lots of variance, you can have it. If you want to diminish it, then diversify across sectors. If you think you have an insight in the 'next big thing' then go for it. But be sure some smart alec big investor will be ahead of you, possibly driving the market in ways that can crush you.
Personally, I'm too old to embrace some of the variance offered by the markets. I'm diversified and doing just fine. I'm rubbish at darts.
Quote: SOOPOOI think BEFORE I know where the dart has landed, each individual dart has an EV of +8% a year. Just with a lot of variance. When I divide my portfolio into a hundred darts, it still has an EV of +8%, just with lower variance.
Classic boomer response and there is nothing wrong with it because it is predominantly true, based on your life experience over the past 40 years. However 8% doesn't seem to be so great when you consider how much purchasing power has declined in that same time frame.
The creation of the mutual fund in the 80's is largely responsible for being the fuel for the great expansion.
The questions people need to answer soon is. What happens next as the boomers retire and want their money? Who is going to buy what they are selling? Can their kids afford to buy them out?
The boomers grandkids are already being sold the new dream of tiny homes (glorified dog houses on wheels) and pod living.😂😂 I'm pretty sure they are not going to be able to do it.
I have a feeling the next 20-40 years is not going to be as reliable as the past.
I've done great at darts. I use my luckiest pick, BAP. I picked it because it was a nickname I had for my sister as kids. No other reason. Bought 600 shares at $6. Sold some as high as $240. More than makes up for $10,000 of Enron became $0. Same for a few others. If you get one that multiplies by 10 that makes up for a bunch that go bankrupt. GLXZ, well known to the forum, was up almost 10 fold for me when I sold a bunch.Quote: OnceDearI'm rubbish at darts.
OnceDear, I don't embrace the illiquid stocks. The few I have bought are more for 'fun' Most have had ties to someone on this forum. I've done extremely well on these. I had Caesars and made some multiple before I sensed its debt was too huge and sold before the tumble. I had Shuffle and made a bunch there too. GLXZ also a big winner. My loser has been NTEK, but it was only around $1500 if I remember.
As far as your bid/ask spread point, for the great majority of my holdings its only a penny or two.
And my darts tend to diversify me.... I don't focus on one industry. A "money manager expert" analyzed my portfolio and came up with me being over exposed to healthcare. But not ridiculously so. I think if you look at my WoV portfolio you would see a quite diversified portfolio.
Quote: MaxPen
The questions people need to answer soon is. What happens next as the boomers retire and want their money? Who is going to buy what they are selling? Can there kids afford to buy them out?
There's going to be another real estate bubble burst, although maybe not as bad as 2008. Or maybe worse, I don't know. Houses are way overvalued in many parts of the country. Boomers and retirees are going to try and sell their 1200 sq/ft home for $650,000 and the market is going to laugh in their faces and offer $150,000, take it or leave it. And then you have the people with a 3,000 sq/ft home that can't sell it because nobody will want a house that big anymore.
People can't afford houses nowadays (regardless of whether or not that's their own fault; that's a whole other issue). They're getting used to renting or living in small houses and apartments with roommates.
https://www.zerohedge.com/markets/bank-crisis-hits-india-bank-stops-functioning-people-crying-outside-bank-branches
The Punjab Maharashtra Co-operative Bank (PMC), in India, has been caught cooking the books and misreporting non-performing loans (NPL) of Mumbai-based real estate developer Housing Development and Infrastructure Ltd (HDIL). As Reuters reports, PMC hid the bad loans with 21,000 fictitious accounts, which has spooked depositors, investors and government officials,
******
CNBC TV18 reported depositors are feeling "anger and pain" as they learn capital controls have limited them to only withdrawing $100.
Video shows that depositors get to withdraw 25,000 rupees ($350) over 6 months. Maybe that's a one time withdrawal now, and come back in 6 months to see if the bank is still open, which it won't be.
Why?Quote: vegas. They are all on sale as the buyers have turned their backs on their whole energy market
Quote: TigerWuIt's just averages and the way the economy works.
Let's say there are only five stocks in the market, and let's say we know what the EV is.
1 - +EV
2 - +EV
3 - +EV
4 - +EV
5 - -EV
If you threw a dart and hit #5, you would lose because it has -EV. But, if you bought an index fund with all five stocks, the four +EV would overcompensate for the -EV, causing a +EV overall.
So long as when you add up the total positive expected value of those first four stocks it exceeds the negative expected value of the last one, picking one of them randomly is +EV. Even if you end up with the losing one, throwing a dart was still +EV. Bets that are +EV lose all the time. Likewise, picking randomly, you could end up buying the one stock that is -EV and still winning a lot of money on that company: -EV bets win all the time.
Quote: MaxPenThe questions people need to answer soon is. What happens next as the boomers retire and want their money? Who is going to buy what they are selling? Can their kids afford to buy them out?
I'll be buying those shares. PRAM SOLVED!
