Winning Odds

[trickshot]

Quote from Here2learn:

Obviously, there are many many more consideration in trading than simply betting Red/Black. But in its simplest form, stock prices either go up, or down.

Does this make the chance of blindly picking a winning stock the same odds as flipping a coin? Or, am I missing something. Short term/Long term?

If that were the case, then blindly choosing shorts and longs could be profitable with proper money management and diversification. Correct?

If so, then having even a little edge like looking at even the simplest technical or fundamental analysis should definitely make a trader profitable. Yet, so many loose.

What is missing that voids the 50%/50% theory, Red or Black, Coin Toss?

Thoughts?

No because there is frictional cost when you buy and sell.

 

[Kassz007]

Quote from nutmeg:

"I would like you to imagine a national coin-flipping contest." Let's imagine all 268 million people in the United States are asked to wager one dollar on their ability to call the flip of a coin. "If they call correctly, they win a dollar from those who called wrong." After each flip the losers drop out, and on the subsequent flip the stakes multiply. Each person has a 50-50 chance of calling each flip and approximately half of the people will lose and drop out each round. After ten flips there would be approximately 260,000 people that had successfully called ten consecutive coin flips. After 20 flips, based purely on chance, there would be approximately 250 people that had called 20 consecutive coin flips - a seemingly miraculous feat.

The surviving callers would have over one million dollars each at that point. Press coverage and inquiries about their coin calling ability would increase with each successive flip. Several callers might even attempt to profit from their good fortune by writing books on coin calling, setting up 900 phone lines, or by sending mass mailings or spam Email solicitations offering to share their secrets with intrigued members of the public.

As with winners of the lottery, its obvious that those remaining would have been blessed with good luck. But what if a large percentage of remaining coin flippers had a common characteristic or trait. What if a disproportionate number had came from one town or had been educated by one "patriarch." Would this signify that more than luck was involved in calling coin flips?

It is at this point when its intriguing to compare the coin flippers to investors. There are literally millions of investors and stock pickers trying to beat the stock market. Clearly, based on the laws of probability, many will be successful in significantly outperforming the market even over long periods of time. The question is: are successful stock pickers effectively equivalent to lucky coin callers or are there some common characteristics, styles or traits among the outperformers that signify that more than just luck is involved? It is in this context that Buffett introduced the fictional land of Graham-and-Doddsville.


"I submit to you that there are ways of defining an origin other that geography. In addition to geographic origins, there can be what I call an intellectual origin. I think you will find that a disproportionate number of successful coin-flippers in the investment world came from a very small intellectual village that could be called Graham-and-Doddsville."

http://www.investorhome.com/coinflip.htm

Interesting stuff. Thanks for posting.

 

[TraderZones]

Quote from jack hershey:

Obviously, you are correct that trading involves a choice among two things.

You have completed step one in the reasoning process.

Traders do not make this choice, however.. BLAH BLAH BLAH Yada Yada Yada

There is Jack again, going over Niagara Falls in a barrel...

AFTER IMPACT

 

[peilthetraveler]

Quote from Here2learn:


What is missing that voids the 50%/50% theory, Red or Black, Coin Toss?

Thoughts?

Inflation for one.

But Knowledge is what voids the 50/50 theory. Yeah, if you know nothing about a stock, then its a 50/50 chance it will go up or down but thats only in your eyes. This is why we have to get as much information about a stock as possible to see where the odds are taking this stock. You gotta examine the coin to see if its weighted on one side.