The sad truth about trading is

Index piker · Oct 31, 2009

Most of you guys would do better profit wise by adopting passive index investing than trading.

The added benefit is greatly reduced stress and more free time to devote to time consuming tasks such as quality home-life or new employment skills.

So if you are having trouble finding profitability, are new to trading you owe it to yourself to investigate the superiority of passive investing.

Nexen · Oct 31, 2009

Quote from Index piker:

Most of you guys would do better profit wise by adopting passive index investing than trading.

The added benefit is greatly reduced stress and more free time to devote to time consuming tasks such as quality home-life or new employment skills.

So if you are having trouble finding profitability, are new to trading you owe it to yourself to investigate the superiority of passive investing.

Understanding the way of the market is not an impossible task.

It takes many years to actually understand it, but so does any other profession.

Index piker · Oct 31, 2009

In my view the success of passive investing is dependent upon:
1) keeping costs low
2) diversification to eliminate idiosyncratic
market risk
3) correctly identifying your own risk level
4) controlling your emotions to stick with your plan(which should be written).

A great resource

http://www.bogleheads.org/forum/viewtopic.php?t=173&sid=2814cbbef43c301687b3a30f89684d4b

Index piker · Oct 31, 2009

Quote from Nexen:

Understanding the way of the market is not an impossible task.

It takes many years to actually understand it, but so does any other profession.

Unfortunately the facts just don't really conform to your assertion that successful trading or investing for that matter are like other professions in which one learns a specific skill set.

1) The ability to prove skill and to impart that skill to others is virtually non-existent compared to other TRUE professions like medical or dental school.

2) Study, hard work, effort precisely do not lend themselves to outperformance because there is virtually no skill to learn in the first place.

3)success is more or less dependent upon luck (idiosyncratic risk ) and the amount of market risk assumed.

Fractals 'R Us · Oct 31, 2009

Sure, I want to lose sleep at night while I "stick to my plan" LOL...

Nexen · Oct 31, 2009

Quote from Index piker:

Unfortunately the facts just don't really conform to your assertion that successful trading or investing for that matter are like other professions in which one learns a specific skill set.

1) The ability to prove skill and to impart that skill to others is virtually non-existent compared to other TRUE professions like medical or dental school.

2) Study, hard work, effort precisely do not lend themselves to outperformance because there is virtually no skill to learn in the first place.

3)success is more or less dependent upon luck (idiosyncratic risk ) and the amount of market risk assumed.

It has a high risk of failure in comparison to other proffesions that goes without saying.

However, there is actually a skill to master and that's discipline.

Index piker · Oct 31, 2009

Quote from Fractals 'R Us:

Sure, I want to lose sleep at night while I "stick to my plan" LOL...

I understand my thread will generally be viewed with skepticism here but if you are losing sleep as a passive investor you have the wrong asset allocation.

I certainly lose NO sleep over my investments and have been quite profitable since instituting my plan late last year.

Don't get me wrong I don't adhere to all of the assumptions passive indexers hold either.
1)now is always the best time to buy
2) buy n hope FOREVER
3) Leverage has no place in a passive portfolio

rwk · Oct 31, 2009

I agree that trading skill cannot so easily be taught/learned as more familiar occupations. Thare is no path that will guarantee success, and most who try will fail. But the notion that it is impossible to produce consistent returns higher than an index is demonstrably absurd.

Most traders will indeed have returns worse than index investing, but trading also has a much better upside potential. Index investors must take it as an article of faith that they will even see a positive return. I just pulled up a chart of the SPX over the past decade. It ended yesterday at 1036.19, and began around 1400. That's not a very good return for 10 years of investing.

Index piker · Oct 31, 2009

Quote from rwk:

I agree that trading skill cannot so easily be taught/learned as more familiar occupations. Thare is no path that will guarantee success, and most who try will fail. But the notion that it is impossible to produce consistent returns higher than an index is demonstrably absurd.

Sorry but you have created a bit of a straw-man argument here.

I have not said anything about an impossibility of higher returns than an index but it is highly improbable that a trader will experience such a run.
And especially on a risk adjusted basis it's virtually impossible to prove anything more than luck.(as I understand it it's just the nature of the math)

(well unless you traders here consistently out perform the pro's)

Index piker · Oct 31, 2009

Quote from rwk:

Most traders will indeed have returns worse than index investing, but trading also has a much better upside potential. Index investors must take it as an article of faith that they will even see a positive return. I just pulled up a chart of the SPX over the past decade. It ended yesterday at 1036.19, and began around 1400. That's not a very good return for 10 years of investing.

Most traders? How about most professionals will under perform a risk adjusted passive portfolio.

Sorry but your example rings a little hollow for me as being cherry picked.

You seem to forget that once you close a losing trade your capital is lost,whereas a passive investor still has his shares poised for the recovery without the cost of a transaction.
Don't forget dividends either.