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Rule #1 Investing.

Ralph

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Just wondering if anybody's read the book & what they thought of it..........
 
Ralph said:
Just wondering if anybody's read the book & what they thought of it..........
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Haven't read it. But here's the problem: in order to consistently beat market returns (in other words, to accomplish it by means other than random chance or by taking on greater risk), there needs to be an inefficiency which can be exploited. This book posits an inefficiency. Is it really there? Maybe, I don't know. But supposing it is: exploitation of an inefficiency reduces that inefficiency. Which means that even if these strategies worked once, it doesn't mean they'll continue to work, especially if the book really catchs on.

My personal opinion, for what it's worth, is that it's far simpler to not even play that game, and just invest in index funds. You'll spend a whole lot less than the book's advertised 15 minutes per week on investing, and while you might not make the fortunes suggested by this book, you also won't blow your retirement funds either.
 
Ziggurat said:
Haven't read it. But here's the problem: in order to consistently beat market returns (in other words, to accomplish it by means other than random chance or by taking on greater risk), there needs to be an inefficiency which can be exploited. This book posits an inefficiency. Is it really there? Maybe, I don't know. But supposing it is: exploitation of an inefficiency reduces that inefficiency. Which means that even if these strategies worked once, it doesn't mean they'll continue to work, especially if the book really catchs on.

My personal opinion, for what it's worth, is that it's far simpler to not even play that game, and just invest in index funds. You'll spend a whole lot less than the book's advertised 15 minutes per week on investing, and while you might not make the fortunes suggested by this book, you also won't blow your retirement funds either.
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I've allways been a bit sceptical of books on investing--especially when they
smack of "get rich quick".

I traded commodities for a number of years. They say it's all about mastering fear & greed and I found out the hard way that was exactly true.

A very high percentage of my trades went in my favor initially. Rather than take reasonable profits though, greed kept me in the trade too long---and eventually the market moved against me. Fear kept me out of trades I should have taken.

85% of commodity traders don't make a profit. I was one of them. The best I can say is I only lost a small amount of money over several years. I didn't lose my house or anything like that.

One thing I learned though when I was trading--there's a million "how to make a million trading commodities" books out there.

Rarely were they written by good traders. The succesful traders were too busy trading...and had neither the time nor the need to write a book and did NOT want to share their methods with others.
 
Looks like another successful application of the Original "Get Rich Quick" Book idea.
ie Write a book about how to "Get Rich Quick", and proceed to get rich on the sales of said book.:D
 
Not read it, by my Rule #1 of investing is 'If you can't afford to lose it, don't invest it.'

I used to work in a large investment company, and have seen many tales of woe from people investing life savings, retirement funds etc.

Of course, these days many many things are linked directly or indirectly to the stock market, (most pension funds certainly are) but that is usually a mutual trust fund of some sort that spreads the rick between hundreds and thousands of people.

You can win big, but there is a risk you will lose the lot. Better safe than sorry.
 
I would strongly suggest reading "Fooled by Randomness", it's a very skeptical view of financial prediction amoung other things.
 
The basic formula behind Rule #1 is simple - much like shopping:
* Find a wonderful business you understand
* Know what it’s worth – exactly what it’s worth – by predicting its future stock price
* Buy it at 50% off... and sell at full price when the market corrects its value
* Repeat until very rich
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Sounds like the Doctor Phil of investment strategies. Oversimplify the problem and then come up with some platitudes. Rinse, repeat.

linky.
 
IllegalArgument said:
I would strongly suggest reading "Fooled by Randomness", it's a very skeptical view of financial prediction amoung other things.
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Synchronicity at work.

I was thinking about starting a thread to discuss whether people who have been successful at business are anything more than lucky. This was prompted by the BBC TV programme "Dragons' Den" where hopeful business starters try to impress wealthy people to invest in their businesses. Implicit is an assumption that because these people have made a load of money thn they are better than the rest of us at spotting a winning conept and turning it into a profitable business.

The problem with this concept is that it 1,000 businesses are started by risk-taking people and these businesses have entirely random fates, but you only interview the single most successful business owner, he/she is very likely to think he is a genius.

Beyond a willingness to take the risks necessary for an entrepreneur, i.e. I am disqualified immediately, what evidence is there that some people have a genuine talent for business?

I read the Amazon reviews of the book you cited and certainly the suggestion that successful financial traders are merely lucky seems to be supportable.
 
Badly Shaved Monkey said:
Beyond a willingness to take the risks necessary for an entrepreneur, i.e. I am disqualified immediately, what evidence is there that some people have a genuine talent for business?
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Although spotting new talent with any consistency may be close to impossible, some people definitely do have genuine business talent, as demonstrated by a lifetime of consistent accomplishment in that regards.

But that actually does you little to no good as an investor, because as an investor, you compete not simply with your chosen businessman against other businessmen, but also against other investors. If this businessman has a proven track record, other investors will want to lend him money as well, not just you. And that competition between investors will drive down the amount of money that this successful businessman has to promise to give back to his investors (rather than keep for himself). In fact, it will drive down the expected rate of return on your investment until it pretty much matches the expected rate of return for investments in less-talented businessmen. The only difference is he can keep more money for himself.
 
The real secret to investing is not buying at the peak. The majority of investors buy when info comes out in the news saying "Oil has hit & all time high", or some similar story. But what they need to do is wait until after they have assesed the company as being one they plan on investing in, and then spotting a low.
 
Badly Shaved Monkey said:
Synchronicity at work.
The problem with this concept is that it 1,000 businesses are started by risk-taking people and these businesses have entirely random fates, but you only interview the single most successful business owner, he/she is very likely to think he is a genius.

Beyond a willingness to take the risks necessary for an entrepreneur, i.e. I am disqualified immediately, what evidence is there that some people have a genuine talent for business?

I read the Amazon reviews of the book you cited and certainly the suggestion that successful financial traders are merely lucky seems to be supportable.
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The main reason I love the book, it's has some of the best down to earth descriptions of chance.

There's a concept in the book called the "invisible dead", the author was at a museum with frescos of thanking god for surviving a sea journey. He commented on the fact that people that survive the journey would never make frescos cursing god.

Failure rates may be very high, but if the dead are invisible people may never notice it.

There's a lot of "dead" investors out there, but they keep quite.
 
IllegalArgument said:
There's a lot of "dead" investors out there, but they keep quite.
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The way I have summarised this to myself is that all history is victors' history. The same applies to the tales from my own field of alleged expertise, stories of miracle cures in medicine.
 
Here's my investing advice:

"Never sell anything for less than you paid for it."
 
What's the fastest way to make $1 million dollars in the stock market?

Start with $10 million and trade heavily.
 
Badly Shaved Monkey said:
The problem with this concept is that it 1,000 businesses are started by risk-taking people and these businesses have entirely random fates, but you only interview the single most successful business owner, he/she is very likely to think he is a genius.
Click to expand...
There is that, of course. Warren Buffet addresses that idea in this article. His idea, which I find compelling, is that sure, if you had enough people randomly flipping coins ten times, you would end up with a few winners who flipped heads ten times in a row, and a lot of losers. Those winners might incorrectly assume they have some special talent.

However, he counters that by asking, what if 40% of those winners all came from Omaha? Suddenly you would be interested in finding out what is special about coin flippers from Omaha. He then goes on to explore the investing history of people taught by Graham and Dodd, and argues that a disproportionate number of market super performers were taught by them. This is compelling evidence not of random winners, but of the superior performance of a particular set of intellectual theories for investing.

If some people flip a coin 10 times in a row and gets heads everytime, that deserves a yawn. If you find out that half the winners used a technique of flipping with their index finger rather than their thumb, and put wax on their fingernail, well, you'd probably start investigating index finger coin flipping pretty seriously.
 
Ziggurat said:
Haven't read it. But here's the problem: in order to consistently beat market returns (in other words, to accomplish it by means other than random chance or by taking on greater risk), there needs to be an inefficiency which can be exploited.
Click to expand...

Over the years, I've come to think that 'beating the market' may be unreasonable expectations. If anything, you want to beat inflation.

In reading The Wisdom of Crowds, this idea finally crystallized, as the author presents a case for group decisions being more relible and accurate than individual expertise. It follows that the market's growth is as close to maximum efficiency as possible. He points out that there are exceptions, but they tend to be in illiquid specialized markets.

Unfortunately, individual opportunities may vary. Diversity is its own value, real estate is both an investment and a necessary expense, and education as an investment has obvious returns, too. Some people have company investment plans, some people have their own businesses... it's difficult to reduce investment strategy into a single rule of thumb.
 
Ziggurat said:
Haven't read it. But here's the problem: in order to consistently beat market returns (in other words, to accomplish it by means other than random chance or by taking on greater risk), there needs to be an inefficiency which can be exploited. This book posits an inefficiency. Is it really there? Maybe, I don't know. But supposing it is: exploitation of an inefficiency reduces that inefficiency. Which means that even if these strategies worked once, it doesn't mean they'll continue to work, especially if the book really catchs on.

My personal opinion, for what it's worth, is that it's far simpler to not even play that game, and just invest in index funds. You'll spend a whole lot less than the book's advertised 15 minutes per week on investing, and while you might not make the fortunes suggested by this book, you also won't blow your retirement funds either.
Click to expand...

Ziggurat, I am impressed. So rarely do I see such economically sound reasoning. Bravo!

Aaron
 
There are many mutual funds out there that routinely outperform the indexes.

Why is this? Well, the people running the funds devote a huge amount of their time to research, and I hate to say it, may be privy to insider info your average pure stock investor doesn't have access to.

I'd say for the average investor, mutual funds are the way to go.
 
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