Stop Playing The Stock Market "Game"

51hh | May 18, 2013 | 1,693 posts since 2010

From (5/17; Chuck Jaffe; MarketWatch.com):

"Sure, the game teaches folks that they can beat the market. But it’s only a few participants — in the game or the real thing — that do. What real life proves is that you’re probably better off if you forget about “beating the market” for any long stretch of time, and simply make sure you are participating in it — with a balanced, cautious, diversified approach — for a lifetime."

Somehow the whole article cannot be downloaded (my computer glitch) -- SB/Ken: help.

My point is that the stock market is not a game:

1. It is long term (short-term (say 1-2 years) gain or loss means nothing), the recent gain is good, but can it be sustained?

2. If one cannot dedicate sufficent time for in-depth learning and experimenting, it is much more prudent to develop a balanced, cautious, diversified portfolio according to one's time horizon and risk tolerance.

3. Bear in mind, the stock is representative the company's long-term fundamental financial perspective; thus a value-centric approach which study the basic evaluation of the said stock is crucial.

4. It is real money (i.e., one's hard-earned savings) that is at stake; it is NOT paper loss, as Wall Street would like to put it lightly. It will be REAL loss, if one is not prudent.

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Answers

51hh | May 18, 2013 | 1,693 posts since 2010

Yt,

By "long-term", I meant at least 5-years, so that stock market investing is worthwhile. One should not put money they need within 5 years into the stock market. By "fundamentals", I am coming back to the theoreticaly (maybe naive) vision that one buys a stock since one sees this company has the potential of growth in its business model and management efficiency (in Buffett/Ben Graham camp).

Mike D. and In Fed I Trust?? Come on, Yt, you should know better than that:D

BR,

51

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ytytytyt | May 18, 2013 | 155 posts since 2013

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Dear 51hh,

I think the proponts of long-term are fundamentally wrong. I will be happy to walk you thru the steps that might show what is fundamentally wrong with this. If you're interested, let us start by defining the "long-term". What exactly, or for that matter approximately, is "long-term" according to you?

Yours Truly,
- Anon
In FED I Trust :-)

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ytytytyt | May 18, 2013 | 155 posts since 2013

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Dear 51hh,

Okay ... let us talk only theory and history.

First history - The word "game" of course originates from the "game theory" that was used in the mathematics for working on possibilities/probabilities of "coin-toss", "dice-throw", "card-draw" etc. It is rather unfortunate that the word "game" has permeated from such things into the securities.

It is grossly in-appropriate if one uses it in the context of serious business of money making using various securities (bonds, currencies, commodities, stocks etc). The usage of the word "game" is so prevalent, than one can hardly do anything that can put a distance between the fun/entertainment/chance associated with game, and the dead serious nature of the business. (Interestingly one hardly uses the word "game" in association with space research where whole lot of possibilities/probabilities are involved as well. Something like game of Mars Landing, or maybe game of mining the Asteroids!)

...

Next theory - And remember before answring, this is merely to try to make you see a particular point. If you consider "long-term" to be five years, then can you and will you explain why long term needs to be (365x5) = 1825 days? Would you consider 1824 days also as a long-term? If yes, then I've got more questions, If not then explain what is different/special about that 1 day which makes the time-frame reach 1825 days?

(Agan put aside any preconceived notions you may have, and let us see if get somewhere.)

...

BTW Gordon Gekko avatar, and tag line In FED I trust is merely to make clear where I stand! As you know the US Federal Reserve is quite an honorable body, staffed by very sharp and dedicated professionals, and chartered by the Congress to carry out an important business of the people, with a structure that makes it extraordinarily non-political . It does not deserve the vilification we see here on this site.

Yours Truly,
- Anon
In FED I Trust :-)

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51hh | May 18, 2013 | 1,693 posts since 2010

Game: I happened to be somewhat expert in game-theoretic approach. It is not the reckless gambling we are referring here. For example, in game theory, one would conduct mathematical analysis on the "worst-case" scenario; once determined, propose tactics to minimize the loss in such a worst-case scenario. The formal game theory have been applied to war fighting as well as stock investing. Thus to be clear, here we are talking that if one regards stock market as a casino and randomly invest one's hard-earned money there, then one is like a kid playing losing game on one's money.

Long-term: The 5-year mark is determined by stock market fluctuation; typically a bull-bear cycle is five year as a definition. So the long-term I am referring is closely related to one's time horizon (defined as the duration that one would need the money from the present time). The minimum time horizon should be five years for one to even think about stock market. The reason is if one faces a bear market, it will take an average of five years to bounce back. Of course, you can argue why not 4 years or ten years. But the point is one needs to think long term when one invests in stock market; and the long term shoud be five years or longer. For example, if one has $50K that one needs to buy a house in three years. If this person put it all in stock market, she/he will not recover the loss if a bear market happens to hit her/him right away. Thus the $50K is regarded as short-term money that should be kept away from the stock market; i.e., one does not have the length of time needed to recover the market loss.

And whether Fed. is doing its job cannot be determined now but it is a long-term rating; say after 10-20 years. Inutitively, they are doing only the obvious (reducing rate to zero and QEs as a band-aid approach), which is not the smartest approach in my book. But like you said, they are the smart brains; what do a novice like me know anything?

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ytytytyt | May 18, 2013 | 155 posts since 2013

Dear 51hh,

Had you addressed the question(s) directly about 1825 days vs 1824 days, we might have gone ahead with our exachange about the "theory" here. Absent it, I believe its not possible.

The practical matters about stock market investing I believe needs to come after the theory, rather than before or simultaneously. BTW colloquially I guess one uses the term "stock investing" as an all encopassing term to include Bond, Currency, Commodity, REIT, etc as well, when in fact each of these are vastly different to make the all encompassing term to mean little to nothing when applied to these.

It is great that you are an expert of "game" theory, so then I believe you'd know and redily agree, that the stock market movement is not "random" as say the event a dice-throw, followed by the outcome of the same is (assuming an un-tampered/fair dice).

And whether Fed. is doing its job cannot be determined now but it is a long-term rating; say after 10-20 years.

Oh ... but it can be.

Each and every monthly release by the BLS of the unemployment and inflation number is the measure of how is the policy of the FED working out. There is no need to wait 10-20 years.

Yours Truly,
- Anon
In FED I Trust :-)

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