Hussman shows a risk of 50-66% [US stock]market losses

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WFJ
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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by WFJ »

SavingWithBabies wrote:
Fri Nov 12, 2021 1:54 pm
Aren't you at all worried about the whole "who wags the tail" problem with index funds? I don't know the absolute numbers off hand but index funds owned maybe 25% of the market a decade ago and today it's at or approaching 50%. If you have a constant incoming stream of investments into index funds from payroll deductions the funds have to buy more and more. To add another euphemism, it's like someone having a finger on the scale. At some point, won't the demand from the funds be strong than the non-fund market demand and what happens then? Has that already happened? Also isn't there a chance that the amount of investable funds (invested in passively managed funds) will exceed the realistic value of the entire index?

I googled after writing the above and this is the article I read about the ownership percentage: Passive investing automatically tracking indexes now controls nearly half the US stock market. That was as of March, 2019, which is getting close to 3 years ago. If anyone has up to date data or another source for this data (article says their source is "Bank of America Merrill Lynch"), I'd be curious.

Oops, I think my somewhat rhetorical question was addressed in the first post of this thread. For the record, I do worry about this but I also hold index funds as a very large amount (~50-60%) of my portfolio.

From article.
"Passive management now accounts for 45 percent of all assets for U.S. stock-based funds."

This is just a comparison for US based stock funds, not all other investment vehicles using individual stocks in their portfolios, which excludes, pension funds, hedge funds private equity, Family offices, activist investors, etc. When passive indexing is compared to all holdings of US equities, it is still a small, but growing portion of AUM. The US market is decades from the day where the index tail is wagging the equity dog.

This is an example of managing the denominator to to persuade people for some reason or another. Article uses (Passive US stock based funds/Passive + Active US stock based funds) but should use (Passive US stock based funds/All US equity holdings) for the ratio of passive investing in the US. This is not the first or last time statistics have been manipulated to further an agenda.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by WFJ »

Campitor wrote:
Fri Nov 12, 2021 2:14 pm
@Steveo73

I guess I did a poor job expressing my thought. I don't think indexing is an un-wise investment strategy but most laypeople adopt it because it has become a meme; this doesn't mean its a bad choice or sub-optimal investment strategy.

What I intended to express is that most people are unwilling to learn how to invest intelligently in order to do something beyond indexing. The knowledge and effort required to beat the S&P500, consistently over many years, is not something the average investor would cultivate.

When you factor in the fees charged to have an actively managed portfolio, indexing is a superior strategy in most cases. The only active management financial services that I'm aware of, that beat the index consistently, over many decades, and offer good returns that outweigh the fees, have a minimum entry cost of hundreds of millions of dollars.
Some do, but are usually adding a lot of unobservable risk/volatility.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by WFJ »

Most successful long term investors are able to recognize when they are wrong and switch to a different model, rinse repeat. Investing is filled with mathematicians, engineers, doctors (hard scientists) who apply complex models in an attempt to explain and profit in the world of investing. Nearly all fail. Hussman's model is terribly wrong and sadly for his investors, he can't figure out that it's wrong and adjust his investing after 10 years of total failure. It's shocking that he charges over 100bps for terrible performance.

One also has to be aware how these "investing gurus" are being compensated. A terrible investor with a high AUM is always going to make more money than a great investor with a small AUM and asset collectors usually act in the interest of collecting assets and not performance. Perma-bears may raise more money pounding the table to preppers than they could actually raise investing from the general public. This is their niche and acting accordingly to satisfy the market.

IMHO, ZIRP-like policy, which began in 2010, is still working it way through financial markets and will last much longer than anyone could predict. Looking at investments as "yield only" the S&P 500 is still tragically undervalued relative to yields one can obtain in other investment vehicles (Bonds). If any point in the past was "fail value" 10 yr bond yields were 2x-4x that of the S&P 500, meaning bond yields need to increase to 3%-6% or indexes will increase 2x-4x. I don't think yields will go up, thus according to the "yield adjusted model" indexes will continue to rip. When ZIRP ends, model will be thrown out.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by steveo73 »

Campitor wrote:
Sun Nov 14, 2021 12:56 pm
I agree since most people have fulltime jobs and can't equal the performance of a professional investor who studies the market day in and out and has thousands of trades under his belt.
The vast vast vast majority of people who believe they are professional investors under perform the index.

It's this idea that if you work hard enough and study the market you can win that is where this falls apart. The point is these people lose to the market.

This is where the disconnect lies. The belief that if you work hard enough or are smart enough you will outperform the market is a false premise. It's the domain of the amateur investor or maybe better put the investor who under performs.

One of my investing principles is that I cannot predict the future consistently and no one can. When you get that premise in your head which is simply reality then your perspective changes. This is the domain of professional investors.
Campitor wrote:
Sun Nov 14, 2021 12:56 pm
When interests rates took a nose-dive, and the FED put QE into hyperdrive, it forced the majority of the working population, who were smart enough to know Social Security alone wasn't going to meet their retirement needs, into stocks or real-estate.

Other than hard skills (bartering home grown produce or skilled labor a.k.a ERE resiliency) what attainable alternatives do the common folk have in today's current market? Keynesian economics is about manipulating economic incentives and I say it has done a pretty good job in that regard.
This is a different lens on the issue and it's not a lens that is conducive to creating a portfolio that will last.

It comes back to why are you investing ? Is it to create a portfolio to fund your retirement ? If it is then the idea of the super investor is something that you have to put aside. It's the domain of the amateur investor or childish investing.

One book series that I read for free years ago was Bernsteins investing for adults series. I really recommend people read those books. I read them years ago but I'm pretty confident he said that investing along the lines of thinking you can consistently predict the future is for children.

The proof is clear within this thread. Look at Hussman's performance. It's terrible. It's the domain of the amateur investor.
Last edited by steveo73 on Sun Nov 14, 2021 9:03 pm, edited 1 time in total.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by steveo73 »

WFJ wrote:
Sun Nov 14, 2021 3:01 pm
Some do, but are usually adding a lot of unobservable risk/volatility.
This is the point. There is no Nostradamus out there. People do get hot hands. I know a professional investor. Big massive trades and big massive profits.

I remember trading with him and I read the market well. He said I had a good feel. I can't rely on that over the course of my investing life. He doesn't rely on his hot hands and he does it better than anyone I know.

I tell you a couple of stories:-

1. The professional investor who has been successful doesn't use stop losses. This flies in the face of everything you are told about beating the market.
2. The professional investor takes big massive punts.

--> There is a lot of risk/volatility with these approaches. It's not consistent and it's risky.

I tell you another story. When I was an amateur investor I loved the idea of writing options and profiting. One company did this and I think did it really well. They went bust.

Another good one is Long Term Capital Management. These guys were brilliant. They looked great for a while. They went bust.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by WFJ »

All true, successful traders cut their losers and let their winners run. One of my weaknesses for being a good trader is I am not able to let winners run, too eager to take profits after they become LTG. I have a strict 10% sell rule when entering a position which avoids total disasters, also follow the cockroach theory for when a company makes an initial "We had a bad quarter" announcement as more will likely follow (GE was probably my biggest loss avoidance with this heuristic).

I've been watching CNBC since watching "Steals and Deals" in the early 90's and guess what, every year has been the end of indexing and the perfect year for stock picking, according to the brokerage companies who advertise on CNBC and get paid to churn investments. The analogy I use is a 6'9 255 guy who can run a 4.5 40, 35+ in vertical and can sink a 20ft jump shot exists, but he's not going to show up at your local YMCA for your pickup game. Successful traders are the same, they will work for you for about the same as LeBron James will ($20 mil).

LTCM and many others fell to the "we just need more leverage to keep the strategy successful" fallacy and failed for this reason. Any successful trading strategy is copied, margins decrease and traders need to either leverage to make the same profit or find another strategy. Engineers, mathematicians, academics are not able to recognize the market is constantly dynamic and will adjust to their strategy. Hussman strikes me as being one of a mathematician who can't adjust, completely stubborn or is rational in that he can raise more money from preppers than from the general public. Watching him and others is extremely valuable as their capitulation is a sign of the top. If Hussman goes all in on low cost indexing, then it's time to start investigating stock picking and preparing for a long bear market, not before.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by Lemur »

@WFJ

I kind of do the 10% rule but I do it with covered calls. If the underlying blows past my strike, then I don't regret hitting max profit (at least not anymore, I did once miss out on huge upside with SQ that I think about occasionally lol) and deploying my capital elsewhere to ride the next wave. I usually do this with the stocks I'm heavily invested in so I can reduce cost-basis on potential disaster scenarios. I think our thinking is along the same lines here.

As the saying goes, selling your winners and holding your losers is like cutting the flowers and watering the weeds. The antidote to this problem is having a long-term investing horizon. I've several stocks I intended to "hold forever" that I ended up just taking the capital gains on. Had I held, I'd arguably been in a much better financial position - AMD especially was 50% of my portfolio at one point, SQ, MSFT (bought back in). On the other hand, not taking profits and watching the underlying fall and trying to average down your cost basis may put you in a catching the falling knife scenario - and then you will wonder why you were so greedy before. It is a bit of a catch-22.

In the end, sometimes its best to just never regret taking profits. For several reasons, I think this is a rational thing to do in a volatile market where a headline on what the Fed is up to or what the mass media thinks about COVID this week can send stocks into a frenzy. Stocks are so cyclical at the moment that you can always just buy back into your "forever" positions when a new support is reached. For instance, right now I'm waiting for AMD to drop back down to $135 which is where I sold it last due to a covered call (I had a $100 cost basis). Edit: Want to mention, the choice of $135 here is anchoring bias now that I think about it - to clarify, basically you want to buy back in after a short-term selloff.

One reason is that innovation is faster nowadays then it was before. A good solid blue-chip can suddenly find itself in a vulnerable position and potentially outmaneuvered by the new tech startup that has the sudden backing of multiple venture capitalist / billionaires. I think that is one of the reasons (besides quarterly reports) that professional money managers are also having a hard time letting their winners run as well. In the information age, the retail investors get the information just as fast. Seeing companies with Price to Sales ratios 10x over their peers but with better stock performance is completely irrational but it is what it is. Everyone has the next Apple/TSLA at their finger tips supposedly (See: https://en.wikipedia.org/wiki/Rivian).

Second, while I think this advice about letting the winners ride is wise, I've also seen too much opportunity these past few years to ride momentum into a short-term trend and then jump out (yes - timing the forbidden word ;) ). For example, COVID crash was perfect to go ride the tech stocks. It was obvious in hindsight and that is what I personally did (I should've not danced in and out of AMD though in hindsight, would've had a 3x bagger without the capital gains). I think Jason before he left the ERE boards hit a 5 bagger on Zoom :) .

Third - It is an easier time then ever to time sector rotations. For instance, I noticed that FinTech has taken a beating the past two weeks (Paypal, SQ, Visa, SOFI, etc.) so I did the contrarian thing and start selling puts on the way down on Visa and SOFI. I'm in the red at the moment (timing is not perfect) but my conviction is that these will turn around. Timing never has to be perfect - you just have to control your emotion to hold through the recovery. Position sizing is important in this regard. Don't do this on stocks you don't want to be stuck with, otherwise you will crack (my lesson learned on a horrible trade with Moderna). You know when you see a sector rotation when a stock is falling and all its peers are falling as well with no good reason. You will know when support starts hitting when you get a green day or 2 with most of the family members. Now we're seeing inflation data.... so I am starting to heavily pile into inflation hedged positions (VISA, WMT).

Fourth - Watching one industry is generally a good idea. To develop some expertise in the actual business but also in how the family of stocks move. Find your darlings (hot growth stocks), quiet kids (reasonably valued), and your boomers ("recession proof" blue-chips that typically have a dividend). In semi-conductors, your darlings would be AMD & NVIDIA. Boomer would be Intel. The quiet kid is Micro Technology MU. Not necessarily a new company, but one that is looking reasonably valued compared to peers and it starting to get chatter online. Notice where the trends are at for everyone in the group. Sometimes money flows in and out of family members. When times are getting hard, we turn to the old wise member of the family (boomer). When there is a party for the celebration of the running of the bulls, we hang out with AMD. When we're volatile or quiet, the middle child is usually a good bet while the party-goers are having a hangover.

An example today would be how AMD has had its bull-run recently with a strong quarterly report so what will probably happen now is it will consolidate, sell off a bit, and trade relatively sideways for a bit before its next revelation. But AMD having a blast of a party should be a good hint that other semi-conductors will have a good party as well - Micron Technology has its quarterly report coming up. So I invested heavy into them and my expectation is the run-up will start before earnings about a month out. They're also valued cheaply compared to its peers (AMD / NVIDIA) but not as cheap as Intel. Intel will suddenly come in favor again when the growth spigot is turned off, the headlines start spelling out recession, and money flows from growth to value.

Some of this could sound slightly irrational - part of trading is understanding behavioral finance and your own emotions. You don't have to be perfect...
You only have to be right "60% of the time" - Peter Lynch

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by WFJ »

IMHO, there are a few investors who can outperform the market, but in almost all cases, the performance is fleeting and lumpy. Based on your trading activity, I would set up a blind index fund as a control portfolio and measure the performance of your active fund, including the amount of time * some hourly wage you could earn working at Chipotle or enjoy doing something else. Another issue is that overtime and with experience, trading rarely results in more profit, trading is not a skill, but profits are mostly due to luck. Learning this is usually an expensive lesson, called "Graduating from Trading School".

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by steveo73 »

WFJ wrote:
Sun Nov 28, 2021 4:24 pm
Another issue is that overtime and with experience, trading rarely results in more profit, trading is not a skill, but profits are mostly due to luck.
No one can predict the future consistently. This is what gets me about people who think you can out-think or out-smart the market. It's delusional because it misses the key point about predicting the future consistently. It's not about education or being smart or whatever other fantasy you tell yourself.

I'm going to re-iterate one comment that I think was misread that I previously posted. The trader I know who has been successful doesn't use stop losses. He lets his losses run until hopefully they come back. I don't trust trading rules at all. If you have a close stop loss you can get pushed out of the market. The trader I know calls this having a weak hand. I've also seen him down well over 1million dollars of his own money. I assume he has been down hundreds of millions of other peoples money.

Lastly the drama about a 50% drop astounds me. We just had a drop of about that level. If you can't handle that then you need to adjust your portfolio.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by Lemur »

I did this math already … FWIW @WFJ I beat the market in 2020 with my stock picks but have lagged this year. After taxes, about a wash. If I consider hours spent, then yes I am losing. I mostly agree with your sentiment. But my aims are not to beat the market every year. I consider the activity as time well spent. For now at least, I don’t need to beat the market every year. There is an allure to having at least one of your stock picks becoming a multi-bagger and thrusting you into a new stage of financial independence. I also like the manual choices of my actions as opposed to mostly herd investing through 100% index fund. Nonetheless, I compromise as at least half of my net worth are in index funds. The rest are in positions that I believe can act as an inflation hedge. One position is heavily weighted as my potential multibagger. If I outperform, great. If not, that was a risk I was willing to take. In the end, the masses should probably listen to Jack Bogle. Even Warren I recall suggested most stick with 90% S&P and 10% bonds. These are wise IMO and I don’t want to be misinterpreted in what I am suggesting most people should do.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by steveo73 »

Lemur wrote:
Sun Nov 28, 2021 8:13 pm
In the end, the masses should probably listen to Jack Bogle. Even Warren I recall suggested most stick with 90% S&P and 10% bonds. These are wise IMO and I don’t want to be misinterpreted in what I am suggesting most people should do.
I just want to adjust this a little. The top performers follow those guys. The under performers don't. It's nothing about the masses or the great unwashed or anything like that. It's about being a professional investor and investing to get the best risk adjusted return. The alternative is to be an amateur investor. You can do this for fun but it's like gambling for fun.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by white belt »

WFJ wrote:
Sun Nov 28, 2021 4:24 pm
IMHO, there are a few investors who can outperform the market, but in almost all cases, the performance is fleeting and lumpy. Based on your trading activity, I would set up a blind index fund as a control portfolio and measure the performance of your active fund, including the amount of time * some hourly wage you could earn working at Chipotle or enjoy doing something else. Another issue is that overtime and with experience, trading rarely results in more profit, trading is not a skill, but profits are mostly due to luck. Learning this is usually an expensive lesson, called "Graduating from Trading School".
Although I agree that tracking performance is important, I think your perspective is counter to how many on this forum think about structuring their activities for the following reasons:

1. How do you draw the distinction between work and play? If someone listens to a podcast about market/industry/commodity/macro idea Z at 2x speed while commuting to their job* or tending their garden, does that count as work or play? What if they are listening to something just because they want to know, rather than because they think it'll give them an actionable trade insight? I suspect that many successful traders have an unquenchable curiosity about the world that manifests as self-actualization through learning. Further, I've heard many forum members say that separating work and play becomes impossible if one is using a web of goals methodology.

2. Working at Chipotle is salary-man work. It requires you to physically be there, work a set schedule, and pay taxes on all income. It is a very stable source of income, but also highly symmetric (you get paid proportional to the hours you work). I would say active trading falls much more under the businessman quadrant (in fact I think it has a lot a lot of parallels to entrepreneurship). You set your own schedule, have location independence, however your source of income will be volatile. Active trading can provide even more flexibility than entrepreneurship because of the ability to allocate and re-allocate capital with the click of a button, rather than having to deal with physical constraints of labor, brick and mortar space, vendors/suppliers with set delivery schedules, and so on. It makes sense that both startups and active trading have a ~90% failure rate. **


* = Just as an anecdote, I listened to macro podcasts for at least a year before attempting to utilize any of the information for my investing. Originally, I just liked listening to new ideas that stoked my interest in how the world works. Then I was trying to make sense of why Macrovoices was freaking out about this COVID thing in January 2020. At the very least, this allowed me to frontrun the masses on stocking up on various grocery items and helped me to prepare other loved ones for the pandemic.


** = Taleb argues that a barbell approach might include stable salaryman work combined with highly asymmetric trades that have capped downsides. I think this is also why conventional advice for monetizing risky/rockstar activities (to include trading) is to not quit your day job.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by The Old Man »

steveo73 wrote:
Sun Nov 28, 2021 9:55 pm
It's about being a professional investor ... The alternative is to be an amateur investor.
Remember you can also be a talented amateur.
https://youtu.be/IRQay63waQI

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by jacob »

You'd get a rather more accurate reflection of the trading vocation if you compared it to professional poker playing. Not talking about poker stars or occasional casino players but people who grind poker games for a living. The skill sets for reading the hands, games, and players, and the meta-strategies for game-selection and money management are nearly analogous. There's a poker journal here viewtopic.php?t=10798

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by Campitor »

A few months ago I read Maria Konnikova's "The Biggest Bluff" and it details her journey from amateur to professional poker player. It's seems the top priority skill, which helps master all the other meta-skills in the game, is learning to manage emotions so they don't overwhelm one's thinking processes and strategies. Anyone wanting to be a serious amateur investor should read it in my humble opinion.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by steveo73 »

Campitor wrote:
Mon Nov 29, 2021 12:50 pm
It's seems the top priority skill, which helps master all the other meta-skills in the game, is learning to manage emotions so they don't overwhelm one's thinking processes and strategies. Anyone wanting to be a serious amateur investor should read it in my humble opinion.
The trader I know can take massive positions and have them go against him but he keeps his cool. One story is that the billionaire whose hedge fund he was managing rang him up at 2 or 3 in the morning. He had put a massive punt on a Forex position. The market had gobbled it up. They would move the market because their positions were so large. That is in the Forex market. It's crazy. The market went his way but not enough. He knew he had stuffed up big time. The trader said well we can't do anything now and went back to bed.

He would be in bad positions and lie down and have a nap.

Another good story is when he held his position on his own account and his account went to 1.6 million dollars in losses. This is on one position. He held that position for like 6 odd months. When he got out of that position he took us out to lunch.

I still think the whole concept is stupid. I've seen big money be made but it's big punts and it's inconsistent.

I'm now a professional investor. I've created a portfolio that is robust and reliable. It's simple. I think about my garden, playing guitar and doing jiu-jitsu. These are skills that hopefully I can improve and get more enjoyment out of. I may go back to trading. I'd do it with Forex if I was going to but I'd only do it with money I was prepared to lose. It'd be a gamble. It'd be like my mates punting on the horses.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by steveo73 »

jacob wrote:
Mon Nov 29, 2021 8:48 am
You'd get a rather more accurate reflection of the trading vocation if you compared it to professional poker playing. Not talking about poker stars or occasional casino players but people who grind poker games for a living. The skill sets for reading the hands, games, and players, and the meta-strategies for game-selection and money management are nearly analogous.
There is some truth here but it's the amateurs assessment of the professionals and it misses massive points. The skill set for reading hands, games, players etc is more to do with feel than it is to do with odds. Grinding is also a funny way to look at trading. It's not like that.

Poker players work on odds. Odds don't work like that when it comes to trading unless you take the professional approach of creating a portfolio. Creating a portfolio is extremely different to successful trading.

You do need to understand the economic picture but at the same time you need to have a feel for the market. Then you take a position. Then you have to hold that position. I know people believe money management techniques are great but if you look at traders like Soros or the guy I know that isn't how they make money. They get a feel, they bet big and they make big dollars. The don't follow money management techniques. These are the guys who make the big dollars.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by WFJ »

white belt wrote:
Sun Nov 28, 2021 11:42 pm
Although I agree that tracking performance is important, I think your perspective is counter to how many on this forum think about structuring their activities for the following reasons:

1. How do you draw the distinction between work and play? If someone listens to a podcast about market/industry/commodity/macro idea Z at 2x speed while commuting to their job* or tending their garden, does that count as work or play? What if they are listening to something just because they want to know, rather than because they think it'll give them an actionable trade insight? I suspect that many successful traders have an unquenchable curiosity about the world that manifests as self-actualization through learning. Further, I've heard many forum members say that separating work and play becomes impossible if one is using a web of goals methodology.

2. Working at Chipotle is salary-man work. It requires you to physically be there, work a set schedule, and pay taxes on all income. It is a very stable source of income, but also highly symmetric (you get paid proportional to the hours you work). I would say active trading falls much more under the businessman quadrant (in fact I think it has a lot a lot of parallels to entrepreneurship). You set your own schedule, have location independence, however your source of income will be volatile. Active trading can provide even more flexibility than entrepreneurship because of the ability to allocate and re-allocate capital with the click of a button, rather than having to deal with physical constraints of labor, brick and mortar space, vendors/suppliers with set delivery schedules, and so on. It makes sense that both startups and active trading have a ~90% failure rate. **


* = Just as an anecdote, I listened to macro podcasts for at least a year before attempting to utilize any of the information for my investing. Originally, I just liked listening to new ideas that stoked my interest in how the world works. Then I was trying to make sense of why Macrovoices was freaking out about this COVID thing in January 2020. At the very least, this allowed me to frontrun the masses on stocking up on various grocery items and helped me to prepare other loved ones for the pandemic.


** = Taleb argues that a barbell approach might include stable salaryman work combined with highly asymmetric trades that have capped downsides. I think this is also why conventional advice for monetizing risky/rockstar activities (to include trading) is to not quit your day job.
1. I'd define it as would the person engage in the activity without any financial repercussions. I've had several relatives who enjoy farming and do this in their retirement, but know that it is not possible to make any money doing it, farming is a hobby on gentleman's farms in the rural South. There is no doubt the stock market provides a seemingly interesting puzzle for one to sharpen their intellect, but it's a rouse to increase trading activity. I will let another classic film make the point.

First meme trader
https://www.youtube.com/watch?v=KXzNo0vR_dU
All traders end here.
https://www.youtube.com/watch?v=MpmGXeAtWUw

2. Chipotle can be anything that is a part time job (maybe Planet Fitness is a better example) that represents easy opportunity costs opposed to studying something that is inherently unsolvable.

The premise that trading is a skill has not been established. The most valuable skill in the investing world is convincing people with money that you have investing skill and nothing to do with actually having investing skill. In recent times, most investing "skill" is the ability to take on and mask portfolio risk, which results in higher risk adjusted returns, until it blows up. Bill Hwang is a recent case where even highly "sophisticated" investors (Credit Suisse) were duped into handing a chain saw to a 12-year-old in an art gallery and being shocked at the resulting damage.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by zbigi »

jacob wrote:
Mon Nov 29, 2021 8:48 am
You'd get a rather more accurate reflection of the trading vocation if you compared it to professional poker playing. Not talking about poker stars or occasional casino players but people who grind poker games for a living. The skill sets for reading the hands, games, and players, and the meta-strategies for game-selection and money management are nearly analogous. There's a poker journal here viewtopic.php?t=10798
I'm not sure it's that similar. In poker there's the actual game (the position you're in, the hand you hold, board cards, the pot size to stack size ratio etc) and the psychological game, where you basically observe which one of the players may have lost their cool and let emotions overtake them. (BTW if the players you're against are both solid on fundamentals and don't loose their cool, then the game is not really profitable). The only ("only") complex/intractable part of the game are the human beings you're up against and their internal psychological states.

Compared to poker, where you only need to guess internal states of people at the same table (something that humans have evolved to do), I see trading and investing in general more like trying to predict the weather. You have some inputs from the weather stations, some models, but the system you're trying to predict is so hopelessly complex, dynamic and non-linear, and you're missing so many inputs/data about the current state, that it really feels like reading tea leaves to me.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by jacob »

zbigi wrote:
Mon Dec 13, 2021 3:03 pm
I'm not sure it's that similar. In poker there's the actual game (the position you're in, the hand you hold, board cards, the pot size to stack size ratio etc) and the psychological game, where you basically observe which one of the players may have lost their cool and let emotions overtake them.
Which is basically what pit traders do. And what clicker traders do when they recognize certain market movements.
zbigi wrote:
Mon Dec 13, 2021 3:03 pm
(BTW if the players you're against are both solid on fundamentals and don't loose their cool, then the game is not really profitable). The only ("only") complex/intractable part of the game are the human beings you're up against and their internal psychological states.
You're describing the poker equivalent of an analyst/value investor. There are also traders who specialize in psychology and have no real idea of what they're trading as much as who they're trading. Meme stocks to pick something familiar for example.
zbigi wrote:
Mon Dec 13, 2021 3:03 pm
Compared to poker, where you only need to guess internal states of people at the same table (something that humans have evolved to do), I see trading and investing in general more like trying to predict the weather. You have some inputs from the weather stations, some models, but the system you're trying to predict is so hopelessly complex, dynamic and non-linear, and you're missing so many inputs/data about the current state, that it really feels like reading tea leaves to me.
The analogy works best if you recognize a few types of players already. Consider what a game of poker would look like to someone who doesn't know what "6.4%" means (20% of the US population). A newbie who knows what the winning hands look like but nothing else? What would their understanding of the game be like? How would their understanding/playing style change if they learned/memorized the probability of improving a given hand in their next draw? Alternatively, if you ever learned bridge from a competent players who knows what they're doing. You're sitting there with a cheat sheet trying to make the right bid. You learn a few rules for taking tricks ... meanwhile the proficient player seems to know what kind of cards everybody is still holding and what you'll be forced to play next. How do they know that?

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