Hi fellow traders. I’ve been thinking seriously about the markets and how some people with massive human, and computer support, who have PhDs all other advantages available to them have been unable to beat the market year in and year out (I’m talking about most fund managers), while others have made windfall fortunes within a relatively short period of time. Right now I’m thinking about Richard Dennis who turned a few hundred dollars into roughly $200 million over many years, but he seemed to make it mostly during the inflationary markets of the 1970’s , during a period in which “anyone with a simple trend-following method and a dart board could make a million dollars.” (Quoted from Wikipedia). It appears a large part of his profits would have come from market inefficiencies, and his ability to pyramid, another aspect that I think is an integral part of his success. Years later you have Tim Sykes the penny stock trader of the 2000’s. While most can agree he acts like an immature child, he reached financial success at a young age, but I believe a good part of that was do to luck, and not skill. He started with $12,000, and turned it into 1,650,000 within a few during the dot-com bubble. That is not the reality of an efficient market. I have a brother who in 1.5 years took $2,000 of spare cash and made $20,000. He put $10,000 to student loans, and rode the other $10,000 back to $2,000. He had a very crude system of by oil companies on good news. He also seemed to have no idea of what ‘Stop loss’ or ‘Risk control’ means. He knows now. We also have the young man who worked for a Silicon Valley startup, who less than a decade ago bought $3,000 worth of bitcoin when it was at $0.08, and now has over $25,000,000 in the bank. The question I’m asking is how do some people outperform the market, not by 25%, %50, or even %150, but by multiplying their money by 10x or even 1,000,000x over a relatively short period of time? We also have Jordan Belfort Selling OTC stocks with %50 spreads, when with blue chips he might get %1. My thesis is the primary elements that lead to such performance is 1. Pure luck 2. Extreme emotions of most market participants. Greed leading to bubbles, and Fear leading to crashes. 3. A market or instrument with relatively few participants with little sophistication(SP E mini futures vs Local concert ticket secondary market.) or (Apple stock/options vs OTC companies) 4. Volatility (Bubble, or crash like price action). 5. Extra ordinary risk. Not cutting losses, or investing %100, or %200 in a position, or correlated position. Essentially, I have concluded that the more inefficient a market (Location, Asset Class, instrument, etc) is the higher the probability of Outstanding success is, and therefore I would be wasting my time trading /CL, AAPL, or any other popular instrument. The only way to make extraordinary gains is to look for extraordinary inefficiencies, and to be willing to take on extraordinary (something I know is not a great Idea). At this point I am a college student who has been trading for less than 1 year, and I am still learning, and obsessed with the markets. While I know a lot, there is certainly more that I don’t know, which I why I posted this looking for your opinion. I want to see what I’ve got right, and MORE IMPMORTANTLY what I’ve got wrong. I most of you reading this have far more experience, wisdom and knowledge of the markets and trading than I do, and I want to get your opinions on my general theory concerning the relationship between luck, inefficiency, risk, and reward. Sincerely, Robert
its just outliers returns , more noise to keep you chasing . a lot of people play the lotto chasing the huge return of $1 into --> $ 7 million or w.e 95%+ lose who play . So I block ALL that from my head timsykes- dont care jordan scamfort- dont care guy who bought bitcoin - dont care
That's about right, but now you have limited it to 5 choices. Must I choose just one? Shouldn't a conservative trader be diversified across all elements? Like 10% devoted to luck, 22% allocated to volatility. etc?
Risk vs Reward... is a factor, obviously...a big, main factor, -- to Win big, you have to bet/trade big, or aggressively, As well as being in The Perfect Storm of scenarios; All the variables are positively lined up and working for you, ...the right guy for the job, forces within your control are working, forces outside of your control are working, etc etc,
Guys like Tim Sykes did it the hard way by capturing Alpha through active trading (and kudos to him for doing that). I'd say the vast majority of guys who make windfall profits do so by buying and holding some asset over a several year period. The money is made purely by exposure to some form of Beta. The hard part is to have a significant portion of your net worth tied up in an asset for several years and having the conviction that it will pay off in the end, especially when in a drawdown. Some examples: 1. if you bought property in Southern California in the declining markets of the mid 90's and sold in mid 2007 a $100k investment would have turned into about $350k (much higher if bought on loan). Same thing if you bought in the depth of the GFC in Feb 2009 and held thru today. San Fransisco is much higher growth rate where $100k invested in the early 90's would be worth $600k today on an unleveraged basis. 2. Be a long term employee at a publicly traded tech company. The play here is to participate in periodic stock grants and accumulate over multiple years. People with zero investment knowledge have amassed fortunes through this. For example an employee who would have started working at Amazon in the late 1990's who got $10k worth of stock each year would have an account balance of over $11 million today 3. Simple Dollar Cost Averaging: everytime the Nasdaq100 falls (50 day average cross below 100 day average) buy $10,000 worth of the index. Based on this simplistic rule, if you started in 1986, your account would now be worth more than $3 Million (the total of your $10k contributions would have been a bit over $300k over those years)
Guys like Tim Sykes did it the hard way by capturing Alpha through active trading (and kudos to him for doing that). Tim Sykes is an incredible talented .... at marketing. He may have once made some decent profits while living at home from $ given to him. Easy to take big risks when you have no real consequences. Shooting stars are common in trading. Someone in the right place with the right strategy can make huge gains - most end up giving it all back. Only a rare few have been able to keep their gains & sustain large gains over the long haul. Sykes has refused to produce any evidence of his claims despite aggressive campaigns by many over the years. The one trader I once utilized for their talents sent me 3 decades of trading records audited by two independent fiduciary (auditing) firms, he even provided the contact info so that I could validate the audits where not fudged and that was for extensive training from one of the 'market wizards' for about $40 per month. I think Sykes signals is $175 per month. I thing a good trader has to be fiercely independent thinkers, it sure doesn't hurt to have some street smarts as well. Beware of infomercial like charlatans selling the get rich quick dream to the masses.
As a matter of fact.... I held Bitcoin in 2011, it was cheap cheap cheap. That's before I fully understood crypto currency trading. I sold my odd lots out fast and locked in gains. It was extremely volatile at that point in time, and I figured I'd rather keep my profits than lose all invested. Just the other day I read a Bloomberg article, and my attitude changed from great trade to "I'm an idiot," in a matter of minutes. That little sum would be worth almost 8 million today. Does it really matter now? No. But, to conclude.... yes, if you do not have a statistically significant edge you will have to take outsized risks to earn those gains.