Zander
Platinum Member
- Thread starter
- #221
Your scenario is seriously flawed though.
I was a commodites trader and held a Series 3 license for several years when I was younger. I learned a lot. The most valuable lesson I learned is that 90% of commodities traders LOSE. These days I prefer to invest my human capital and brainpower in building my business rather than trying to "beat the market". That effort generates the income that I then use to invest. So when it comes to portfolio models - I like a nice simple strategy that outperforms 80% of active traders over 10 years.
Here is an exercise that illustrates my point. You are the contestant in this game. There are ten boxes, and you know how much is in each box. These are your choices, it looks something like this….
$1000 $2000 $3000 $4000 $5000
$6000 $7000 $8000 $9000 $10,000
Which box will you choose? (Remember, you know how much is in each box)
This is not a trick question. Anyone would choose the $10,000 box.
This time let’s change the rules a little. This time only the $8000 box is shown. It looks something like this….
$8000 ?? ?? ?? ??
?? ?? ?? ?? ??
Now which box will you choose?
The answer is also obvious – you would choose the $8000 box.
Why? Because the chance of increasing your winnings is not worth the risk of choosing an amount substantially less, unless of course you are a gambler....... When I want to gamble I will go to Vegas and play Craps. If KissmMy and others want to try to time the markets "seeking alpha" -go for it - your broker will appreciate the commission, and maybe you'll actually outperform the market. Of course over 10 years you will have an 80% likelihood of under-performing the market.
PS - I have other asset classes - I own commercial and residential real estate and a small amount of precious metals. I was just keeping things simple for the purposes of this forum.
I can choose $8k, or pick from the rest of the 9 unknowns where only one of the 9 is higher than $8k? No one is going to gamble those odds.
The show Deal or No Deal is a better representation of how to play your odds.
Paulie, Two of the choices are higher - 9k or 10K.
I admit it is a simple example, but it makes my point. Research shows that over 10 years index funds beats 80% of actively managed (traded) funds in the same category. So what does that tell you?
If you think you are smarter (or luckier) than professional mutual fund managers who spend 40+ hours a week analyzing and choosing securities and investments, then active trading is a good strategy. Have at it - I hope you make a large fortune!! But for the vast majority of investors a passive approaches that use low cost index funds is a better strategy.
Of course some people simply enjoy trading - if you are one of those people, go for it - just don't do it with your "serious" money.
Last edited:
