MaxPen
MaxPen
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October 23rd, 2019 at 5:32:59 PM permalink
Quote: Ace2

The 11k Dow base is the very top of a cycle (up 10x from 1980 and culminating with the dot-com frenzy). From that top, 2.5x isnít great but not bad (about 6.5 % pa with dividends). The ride is never straight up, but over the the long term it is unquestionably up.

For an equal comparison, letís also measure gold from its 1980 top of $1000. 20 years later it was down 70% at $300, now itís at $1500, for a 40-year nominal return of 1% (after inflation about negative 4% !!!). Over the same 40 year period, $1000 invested the Dow would now be worth $27,000, before dividends...$55,000 with 2% dividends reinvested. So since 1980 the Dow outperformed gold by 3600 %.

Gold pays no dividends since itís not even an investment...assets generate income, and they are valued by their earnings potential. Gold has no earnings so itís simply worth what the next sucker will pay for it.

You cannot compare the Dow, which is an investment in the US/Global economy to gold, which is at best ďa store of value used during ancient timesĒ

All asset classes (stocks, real estate) are long term when it comes to capital gains. And ďlong termĒ might be as long as 25 years, though youíd have to be very unlucky t to have to wait that long, like you invest everything (which you should never do anyway) in the Dow in 1929.



Nothing you said is incorrect. It does fall in line with the mantra of the day. Couple things though;

I do find it curious as to how you use a 40 year time frame to make a point but then say things usually work out in 25 years.

Why are modern central banks so interested in ancient stores of value?

With P/E ratios about 3x what they were in 1980 what is driving today's prices for equities?

Do you think the creation of the mutual fund market created in the 80's has been a factor in driving equity markets?

With the continuous creation of debt, which is today's money, wouldn't the price of everything be "unquestionably up"?
Last edited by: MaxPen on Oct 23, 2019
Ace2
Ace2
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October 23rd, 2019 at 7:04:51 PM permalink
You donít have to look at 40 years, instead look at decades. The Dow cumulative return with dividends (assume 2%) was:

1980s: 260%
1990s: 340%
2000s: 20%
2010s: 190%

Multiply that out and itís a 5400% total gain.

Iíll agree that gold is probably worth more than currency, since currency always ends up being worth nothing. So tying a currency to gold is better than nothing.

No use for traditional mutual funds. SPY cost 10 bps or less and beats all of them.

The PE ratio around 1980 was probably less than half of the long term average. I believe that was primarily due to sky-high interest rates which severely discounted the value of future earnings.
Itís all about making that GTA
Lovecomps
Lovecomps
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October 25th, 2019 at 10:08:57 AM permalink
I have been a day trader for almost 22 years and there are reasons why (80%-95%, depending on the survey that you're reading) why people fail and a lot of them can be carried over to Las Vegas. It can be made into +EV but, for example:

Many people are underfunded to do it to the point where it can provide a living. This is akin to sitting down at a $25 blackjack table with just a C note and expecting to survive.

Most people don't do their research. Think of playing any game without knowing the rules.

Greed...trying to make it all very quickly by taking single posistion a with a large portion of their capital, or putting what the have left in one posistion. Have you ever seen a person hit a bad street and put what they have left on a hardways bet or a single number on the wheel and pray?

Last of all, people try the trading version of the Martingdale system. The stock went down today, so it should be up today. You might get away for a bit but in the end it'll eat you alive.

Why have I survived for so long if it's a negative "game." Well, first of all I don't treat it like a game. 2% max in any one posistion. I have my ways of doing research but also arrange posistion that aren't systems are they are just ways of have a cap on losses. Not buying naked options, or using call spreads would be examples of this.

For what it's worth, I've also been on the wrong side of a trade more times than I could ever count. Sometimes you're just plain wrong or, sometimes, a little luck bad comes in. The best example is taking a posistion and then, the next day, some know-nothing analyst says something contrary to your posistion.

Last of all, don't confuse what I do with investing. Investing would be the equivillant of buying the WYNN, for example, and holding on.

It's +EV.
The best things in life are not free.
Ajaxx
Ajaxx
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October 25th, 2019 at 5:23:41 PM permalink
Quote: Lovecomps

Why have I survived for so long if it's a negative "game." Well, first of all I don't treat it like a game. 2% max in any one posistion. I have my ways of doing research but also arrange position that aren't systems are they are just ways of have a cap on losses. Not buying naked options, or using call spreads would be examples of this.

I would love to get your thoughts on a few questions, as I am really curious about whether it's worth the time to learn day trading and have never been able to ask a day trader who's stuck with it for as long as you have:

  • How much do you base your decisions on fundamental vs. technical analysis?
  • Do you use a Level II screen? Why or why not?
  • Over the whole of your career, are you able to beat the returns from diversified index funds like SPY, and if so by how much?
  • Over the whole of your career, are you able to beat returns you'd get from non-securities investments, like buying a home and renting it out, and if so by how much?
  • To what extent do you incorporate socially-responsible investing principles or ethical considerations into the positions you take?


Thanks in advance for your insights!
"Not only [does] God play dice... he sometimes confuses us by throwing them where they can't be seen." ~ Stephen Hawking
TigerWu
TigerWu
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October 26th, 2019 at 8:21:01 AM permalink
Quote: Ace2


Iíll agree that gold is probably worth more than currency, since currency always ends up being worth nothing. So tying a currency to gold is better than nothing.



Much like fiat currency, though, gold is only worth something because we all agree it is.

Quote: SOOPOO

Who would intentionally live in California?



Living in California is by no means near the top of my list but it is even farther from the bottom.
Lovecomps
Lovecomps
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Thanks for this post from:
OnceDear
October 26th, 2019 at 3:08:13 PM permalink
Quote: Ajaxx

I would love to get your thoughts on a few questions, as I am really curious about whether it's worth the time to learn day trading and have never been able to ask a day trader who's stuck with it for as long as you have:

  • How much do you base your decisions on fundamental vs. technical analysis?
  • Do you use a Level II screen? Why or why not?
  • Over the whole of your career, are you able to beat the returns from diversified index funds like SPY, and if so by how much?
  • Over the whole of your career, are you able to beat returns you'd get from non-securities investments, like buying a home and renting it out, and if so by how much?
  • To what extent do you incorporate socially-responsible investing principles or ethical considerations into the positions you take?


Thanks in advance for your insights!



Well let me help you out. I've never been much of a fan of technical analysis. Most of what I do deals with options, not stocks themselves. I've evolved over the years and rather than just buying the option and hoping that I'm right I've become a swing trader and mostly sell the options and collect the time value from the buyer (spreads, covered calls, and other methods). Doing that, the most important Greek to me is the Delta.

I still am a traditional trader, but I rarely use either technical or fundamental analysis. I stick with common sense. For example, and pardon the politics, when President Trump started the whole tariff thing with China my first thought was "Wynn, MGM, etc. get more money from Macau than the do from Vegas." I bought a bunch of WYNN puts. Check out what has happened to the stock starting around August to the present. Another example, again not to be political, but, after President Bush was elected I thought that, with the former CEO of Haliburton as his VP, isn't he going to feed a lot of contracts to his old cronies? That was a buy and hold, granted..but just more common sense.

Do I beat SPY? We'll that's a mixed question. I trade for income but my long term holdings have good years and bad. As for non-security investments, like real estate, the answer is that I don't do it. I know what I'm good at and stick with it. My only real estate is my own home. I don't trade commodities because, unlike stock, I have no use for the end product rather than being an airline that's hedging the price of oil and whatnot. On the other hand, once in awhile, I won't take a score but will buy the stock instead.

I buy or sell stocks and options based on income opportunity. I couldn't care less if they are socially responsible or not.

Two things worth noting if you're curious about doing it. Even though you can read and there are set-ups with every brokerage, don't paper trade. It's just not the same and you can't judge your character and whether or not you have the stomach or personality for it when you can lose 50K and then get it back by hitting a reset button.

Second, despite the sayings of fear vs. greed, neither will be your undoing. The true answer is pride. If you screw up, get screwed over by some outside event, or are just plain wrong own up to it and get out. Tomorrow is another day. I'd be richer that Jeff Bezos if I'd always been right but I've been on the wrong side so many times that I stopped counting years ago. I just can do the gut check and own up to it.

As a final aside, one thing I've never done is sell naked options. Look up what it means if you like. Low, but almost guaranteed returns but one bad event can wipe out years of trades

P.S., and this is a personal feeling, never get involved in metals like silver or gold for either trading or holding. Never have, and never will.
The best things in life are not free.
Ajaxx
Ajaxx
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October 26th, 2019 at 9:20:54 PM permalink
Quote: Lovecomps

... I still am a traditional trader, but I rarely use either technical or fundamental analysis. I stick with common sense. For example, and pardon the politics, when President Trump started the whole tariff thing with China my first thought was "Wynn, MGM, etc. get more money from Macau than the do from Vegas." I bought a bunch of WYNN puts. Check out what has happened to the stock starting around August to the present. Another example, again not to be political, but, after President Bush was elected I thought that, with the former CEO of Haliburton as his VP, isn't he going to feed a lot of contracts to his old cronies? That was a buy and hold, granted..but just more common sense.


Thanks so much for taking the time to answer some of my questions. The common sense you outlined above seems solid to me, but I'm curious how narrow the window of time is to take positions in response to current events before the news is priced into the market. Wouldn't developments as highly public as an escalation of the Chinese trade war or the election of a president lead to an almost immediate shift in the price of affected securities like Wynn or Halliburton? The market isn't psychic of course, so that first shift will always end up being an under- or an over-correction to some extent, but I am never confident that with my limited knowledge I'll be able to tell one from the other with enough consistency to have an edge in the long-term.

Quote: Lovecomps

As a final aside, one thing I've never done is sell naked options. Look up what it means if you like. Low, but almost guaranteed returns but one bad event can wipe out years of trades


Selling something you don't actually have is indeed risky business.
Last edited by: Ajaxx on Oct 26, 2019
"Not only [does] God play dice... he sometimes confuses us by throwing them where they can't be seen." ~ Stephen Hawking
billryan
billryan
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SOOPOO
October 26th, 2019 at 9:27:11 PM permalink
Nothing you described is day trading.
Lovecomps
Lovecomps
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October 27th, 2019 at 11:09:45 AM permalink
Quote: billryan

Nothing you described is day trading.



A lot of it is, but it's better referred to as swing trading. There's been plenty of momentum trading (either in the stock or the averages as a whole) ,and trades driven by an event- all in and out within a few hours and sometimes even minutes over my career. My methodology has just changed as I've gotten older and I was just trying to illustrate certain points. In those cases stocks are easier to trade than options because the spreads are much smaller. The biggest downside with that way (pure day trading) is all the extra money lost to commissions (they only just recently went away) over the years.

One of my real point is do you have the stomach for it? I must be doing something right after over two decades.
The best things in life are not free.
MaxPen
MaxPen
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October 27th, 2019 at 11:18:17 AM permalink
Quote: Lovecomps

A lot of it is, but it's better referred to as swing trading. There's been plenty of momentum trading (either in the stock or the averages as a whole) ,and trades driven by an event- all in and out within a few hours and sometimes even minutes over my career. My methodology has just changed as I've gotten older and I was just trying to illustrate certain points. In those cases stocks are easier to trade than options because the spreads are much smaller. The biggest downside with that way (pure day trading) is all the extra money lost to commissions (they only just recently went away) over the years.

One of my real point is do you have the stomach for it? I must be doing something right after over two decades.



Why would you need a stomach for trading if you have an identifiable edge? Have you been gambling for 2 decades and still winning?

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