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you can't lose versus the market


ERICOPOLY
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I had a thought today.

 

Given that the market is efficient, you can't underperform the market over the long run (aside from commissions).

 

The reason you can't lose is that you have no disadvantages versus everyone else.  Because all information is known to all.

 

 

Now... it's easy to sell people on the idea that you can't beat the market, but I've yet to hear this one.

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I had a thought today.

 

Given that the market is efficient, you can't underperform the market over the long run (aside from commissions).

 

The reason you can't lose is that you have no disadvantages versus everyone else.  Because all information is known to all.

 

 

Now... it's easy to sell people on the idea that you can't beat the market, but I've yet to hear this one.

 

Good thread.  Lets count the systematic ways it's easy to lose in the market.

 

1) Buy high, sell low.

 

2) Trade frequently.

 

3) Follow the herd after it heads toward the cliff.

 

4) Buy things that have little or no intrinsic value or are priced higher than their thoughtfully considered intrinsic value.

 

5) Speculate without limiting the maximum possible loss to an acceptable amount.

 

6) Use leverage that isn't nonrecourse.

 

7) Buy things without understanding how their value is created or destroyed.

 

8) Trust managers who have not demonstrated trustworthiness.

 

9) Enter venues where people may be trampled in a panic.

 

10) Put all your eggs into one basket.

 

11) Buy a company in an industry that is being overtaken by technological change that will eventually destroy their profits.

 

12) Buy a high cost producer or a cyclical company near the top of the cycle.

 

13) Buy a highly leveraged company that doesn't have a great edge when interest rates are low.

 

14) Buy a company that doesn't have a good edge in a commoditized industry.

 

Now someone else's turn.  :)

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I had a thought today.

 

Given that the market is efficient, you can't underperform the market over the long run (aside from commissions).

 

The reason you can't lose is that you have no disadvantages versus everyone else.  Because all information is known to all.

 

 

Now... it's easy to sell people on the idea that you can't beat the market, but I've yet to hear this one.

 

I've used a similar argument and you can have all sorts of fun with it.  Not that I believe the markets are efficient.  ;D

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I had a thought today.

 

Given that the market is efficient, you can't underperform the market over the long run (aside from commissions).

 

The reason you can't lose is that you have no disadvantages versus everyone else.  Because all information is known to all.

 

 

Now... it's easy to sell people on the idea that you can't beat the market, but I've yet to hear this one.

 

Good thread.  Lets count the systematic ways it's easy to lose in the market.

 

1) Buy high, sell low.

 

2) Trade frequently.

 

Now someone else's turn.  :)

 

 

--> you can't underperform the market over the long run

--> Because all information is known to all.

 

But want all investors to know everything ? Have all investors seeked all available knowledge ?

 

The knowledgeable investor

 

An investor surely can't lose long term against the market, with the following conditions:

a) someone purchases stocks with some deep margin of safety,... and

b) someone stays away from the crowd, a lurking Mr. Market,

 

The Blind Watchmaker

 

An investor will surely lose long term against the market, with the following conditions:

a) someone purchases stocks randomly without knowledge of Graham & Dodd,... and

b) someone stays in the mindless mass crowd of investors, a drunk Mr. Market

 

 

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Short Elon Musk

 

Also, a similar thought would be brought up on the 2+2 forums when someone would bitch about poker being all luck: 'There's a quick and easy way to test whether an activity involves skill; ask whether you can lose on purpose. In games of skill, it's clear that you can lose intentionally but when playing roulette or the lottery you can't lose on purpose.'  Which is actually a Michael Mauboussin quote.

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I had a thought today.

 

Given that the market is efficient, you can't underperform the market over the long run (aside from commissions).

 

The reason you can't lose is that you have no disadvantages versus everyone else.  Because all information is known to all.

 

 

Now... it's easy to sell people on the idea that you can't beat the market, but I've yet to hear this one.

 

I pretty much used the same argument on another board in a different era. The argument I used is that if one has extremely low costs and under performing the market then by efficient market implication it must be because they must be taking lower risk than the market. Not that I believe in this but was pointing out the logical implications of a belief in efficient markets.

 

Vinod

 

 

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Well there are publicly traded stocks that own other stocks.  Because of the high commissions, you would expect underperformance to exist *somewhere*.

 

How can it possibly be efficient to own other stocks and to slap a management fee on top of that?  Either that company owns mispriced stocks, or the company itself is mispriced.

 

In games of skill, it's clear that you can lose intentionally but when playing roulette or the lottery you can't lose on purpose.

You can.

 

In roulette, you can predict the motion of the ball.  See Ed Thorp's work on it.

 

In the lottery, you can lower your EV by trying to split the pot with other people playing the lottery.  Some numbers are overchosen in the lottery- important dates, lucky numbers, superstitious numbers (or the opposite of them), etc. etc.

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if you want to lose money ask me :) the easiest way to lose even billg's money is short whatever buffet buys and write options to whateever eric buys :) or we can do a trades of a illiquid stock at a price predetermined by me

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I had a thought today.

 

Given that the market is efficient, you can't underperform the market over the long run (aside from commissions).

 

The reason you can't lose is that you have no disadvantages versus everyone else.  Because all information is known to all.

 

 

Now... it's easy to sell people on the idea that you can't beat the market, but I've yet to hear this one.

 

  If you stay fully invested at all times, and have enough stocks in your portfolio to smooth out fluctuations, it is really hard to underperform the market. You can buy stocks which start with an A, stocks which finish with an Z, tell you cat to chew the newspaper to select them, throw darts on the WSJ, etc. As long as you pick your stocks more or less randomly, and allocate the same amount of money to them, you will certainly beat a capitalization-based index (before comissions).

 

  But there is an absolutely guaranteed way to underperform: switching between stocks and cash/bonds, trying to time the market. I remember that Peter Lynch said that most investors in Magellan managed to lose money because of that.

 

 

 

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