Comment by alecco
3 years ago
All these Financial guides are very interesting. But beware of falling into the illusion of being a good-enough active investor. It's like entering the Pro league as an overconfident amateur. The other players are the best in the universe. And they have cybernetic extensions: algorithmic trading with virtually limitless amounts of resources and information. And sometimes they have "alpha" you'll never, ever get your hands on. They prey on "dumb money" like naive/retail investors and pension/mutual funds.
And at these times of high rates and inflation, the only safe move seems to be money market accounts and take the delta inflation hit. Try to focus your time in more valuable things like your friends and family. And keeping your sources of income.
Agreed, strongly. Which is why the online edition has some “Cautionary words”:
> Pricing Money is a beginner’s guide: it says so in big letters on the front cover. I believe it to be an excellent beginner’s guide — presumably many authors believe their own books to be excellent — but, being a beginner’s guide, it will not immediately make you a world-renowned expert.
> It was written around the turn of the pedant’s millennium. In some parts it shows its age. It has been slightly freshened by the addition of green-boxed updates, but these have been written very concisely, more to point to developments than to explain them fully.
> Please do learn from and be informed by Pricing Money. But also be cautious: it is not enough to make you a world-renowned expert; it does not list the many details that are both dull and necessary; some things have changed since it was written; it cannot be your risk manager.
I’m not going to argue that asset managers and trading desks have plenty of resources and that they can transact very quickly and cheaply. But having been on the inside of small and large asset managers for almost ten years, I can say there’s a lot of groupthink and rather brain dead behaviour to be seen on a trading floor.
Call me jaded but I’ve worked with both systematic and discretionary traders. The algos I’ve seen tend to be heavily overfit, and stop working as soon as they hit production. The discretionary traders usually have a tonne of gambler’s tics and have a bad habit of assigning narratives to market noise.
Most institutional traders aren’t the best in the universe. They just do dumb things faster and at bigger scale than day traders.
Indeed, institutional traders and asset managers are still the "buy side" and as such are not crazily more informed than retail.
The real sharks are on the sell side, using low-latency arbitrage and massive leverage, and have the ability to unwind risky positions over months. Fleecing buy side and retail is highly profitable for them.
In their defense of course they'll say they're "providing liquidity", and given how much buy side tends to pile up on one side of the trade, you can see their point: somebody's going to take the other side of these big moves.
Agree that people should not do active investing, although the solution would be passive investing (index funds), which allow you to focus on friends & family without missing out of the economy's long term gains.
This is a terrible moment for index funds.
Hot take but I'll bite, what's your rationale? We're only ~9% down from VTI's ATH and what happens now doesn't matter when your investing horizon is 15+ years.
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i feel that this assumes the large investors on wall.street are playing the same game as retail investors. Given the size and scale of their accounts, I'd imagine it's an entirely different playbook.
My (limited, retail only) experience tells my gut that most retail investors do it to get rich, and not to learn the markets, learn the risks, and build a business. They are different goals, granted both do seek to make long term gains.
I like to believe that retail investors can make it if they put in the effort and learn to manage risk appropriately. At least I need to tell myself that as I work towards making money in the markets myself.
I am definitely dumb money right now, and I could also be delusional, but saying there is no hope so give up and just do something else completely is just defeatist.
Surely it must be possible to learn how to do whatever these so called "smart money" types are doing. Or at the very least learn how they operate so we can identify and avoid their attempts at predation.