Real estate and starting companies. That's how the richest people I know got there without being bankrolled by their family.
The rest of us can keep heads down on a W2 and argue about compounding interest, day trading vs long term investing, IRA's and getting faster promotions via interviewing often.
> That's how the richest people I know got there without being bankrolled by their family.
> The rest of us can keep heads down on a W2...
which, if they weren't bankrolled by family or inherited money, they would've had to keep their heads down on a W2, and save enough capital to start investing.
That’s become less and less true as the capital required to start a business has diminished and virtual products allow for rapid and unprecedented scale.
For me and my brother we were immigrants, divorced household, single mom as some bread winner, didn’t attend Ivy League schools, paid for college through debt, and started a business with savings from working full time at system administration, which was self taught, while being in college.
Fast forward 20 years, DigitalOcean IPO’d.
Our mother did provide a roof over our heads but we had no inheritance, and no friends and family round.
We built a service oriented business doing web hosting first. Service businesses are traditionally much cheaper to start because there is no product development cost to front with zero revenue.
Then after a decade of that we built digitalocean as a product business which was financed from the cash flow of our original business.
By the time we closed our series Seed in Digitalocean we were already well past $1MM ARR and in one year went from $100k ARR to $18MM ARR.
Having less resources does force you to be more scrappy and figure things out that other people who have a safety net often give up on.
Doesn’t matter if you were raised by an alcoholic who fed you beatings for breakfast. Many people will still claim luck and argue that no one should ever try to do great things, much safer to wagemax and invest in index funds and not step out of your lane.
Your story is the correct attitude and the reality of creating real wealth. Unfortunately many will denigrate your story.
but one must also temper the idea that you can be self-made, just as long as you put in the hard yards. Wasn't there a recent ask HN front-page thread about how the poster was ready to give up being an indiehacker and an entrepreneur?
it is indeed much safer to min/max wage & work-life balance, and spend that time improving yourself. Then, use the capital to invest. But you will not reach billionaire status doing this - but you can make enough to be comfortable.
Hard work alone will not garauntee success, but I think there is also a tremendous amount of knowledge that you can pick up that a lot of entrepreneurs seem to ignore, that greatly increases their likelihood for success and also reduces how much time they spend going in the wrong direction.
Likewise there are also so many great mentors out there now, and many of them are happy to give a helping hand, expecting nothing in return, because they recognize how much others have helped them, that if you aren't reaching out to those folks and finding them, then you are doing yourself a disservice.
Don't build in a vacuum. And by that I don't mean simply get customer/user feedback, but I mean have mentors, both active, and inactive - that are constantly reviewing your ideas with you. The inactive ones come from reading books like innovators dilemma, and the active ones, you need to find and reach out to and get them on-board, just like you would reach out to VCs and pitch for funding.
Thanks for sharing, big congrats! Do you feel there were others that tried a similar path but failed ? And why do you think that is ? E.g: do you think if you started over from today you would have a good chance of creating another service like DO?
I think there are several major lessons there that can be generalized to an extent.
1. If you don't have the funds to start a business directly, you may have to acquire them indirectly. In our case building a service business was much faster and you could literally setup a single server at a datacenter and call yourself a web host. So the startup capital was small and something that you could certainly acquire by saving while working a high paying job like System administration back in the day.
2. Be in the right place at the right time - this one is key for pretty much everyone everywhere and is one the of the main factors in success and failure. By itself it isn't everything but it is a huge component. We started doing web hosting before AWS existed and when the largest player in the space was Rackspace. There was plenty of room for small up-start individual providers and the internet was still rapidly expanding and also very much still catering to the early adopters.
3. Learn Business - You hear the stories of people like Mark Zuckerburg starting something in college and then building one of the largest companies in the world, but those are ideas that require a special time and place in history. Where the product is the key driver to it's success in many ways, and many non-consumer startups don't get as much attention, but I would certainly recommend learning business. That doesn't mean get an MBA, but read business books. That's what we did between our first company and then starting DigitalOcean. We definitely made a ton of mistakes with the first business and the books helped to elucidate what we did wrong, while also showing us what are the right questions to ask to avoid those same mistakes in the future. I think of business lessons like laws of physics, it's better to know them if you are going to be building around them and certainly the results speak for themselves. The first business peaked at around $5MM in revenue and $DOCN will do over $500MM this year.
Another DO? Definitely not. It was a time and place that allowed us to be successful. Plus if DO exists competing with it head on wouldn't make sense. Also if it didn't exist, I imagine someone would make a similar company that would succeed. You can see this clearly with all of the different versions of Heroku that people tried to build. DigitalOcean's success means that there is a market for the service that it provides and so, someone would have come along and created something to fill that void.
Lastly, I think that a lot of great businesses have to sound a bit stupid at the beginning. If they didn't sound stupid then someone would have built it already. Occasionally you can have a good sounding business idea, but then literally, nothing compelling should exist in the space as a competitor. Otherwise, it would already be done. So in a sense the fact that it sounds "stupid" means that it's different. Now is it good different, or bad different, that's a question that you have to figure out. But often that difference is the crux of what is the key driver for your success.
For us it was creating a simple version of AWS and competing directly (though in our case we felt it was indirect enough) with them. For Airbnb it was the crazy idea that people would pay money to stay in a strangers house. Occasionally an idea actually makes sense from the start. If you use a data warehouse and tried to do analytics before Looker it was a bit of a pain in the butt so Looker does seem straight forward. And certainly DataDog already existed in many different flavors, such as Nagios, but repackaging something and then riding another wave (AWS) can create massive success if the "wave" is large enough.
I think to truly count yourself as "fantastic" at the game of startups you would need to create 3 successful businesses. Because so much of it is chance, timing, luck, that can't be ignored. But if you can do it 3 times, I think that definitely speaks to a person...
Congratulations. I can relate with your journey - going from living in cockroach-infested apartments to bootstrapping a $70m ARR business. Random question, but do you think it's feasible to go public without institutional investors? My co-founder & I have been seeing a ton of businesses with seriously weaker financial metrics going through SPAC's (see GETR). But, we're wondering if this outcome is gated by first raising from VC or PE.
Thank you. We turned down VC because we're concerned about the stranglehold they have on exit outcomes. I guess everything is negotiable, and I need to get better at communicating our concerns around control in a way that builds trust with investors. It's cool that you're open to having conversations like this. I imagine when you're publicly successful, you get inundated with people seeking help.
Greenspun started an early Web business, before some of today's founders were born. :)
The best personal finance advice I know of comes from the Bogleheads community (basically, total-market index investing with low expense ratios and allocated for risk tolerance and tax efficiency, and misc. forum advice like recognizing your salary probably has bigger impact than any investing details): https://www.bogleheads.org/wiki/Main_Page
The sorta defeatist attitude in this essay contradicts his own life story. If being wealthy requires so many family connections or luck, how did he do it then? I think there are still plenty of opportunities for smart, hard-working people to get ahead in society without favoritism.
> gave Ferraris to employees who recruited 10 programmers,
I might be misremembering from when that was first promoted, but I though it was a year's use of a Ferrari (a Spider or similar).
> Greenspun defends those expenditures as inexpensive ways to retain and attract talent. He also writes that it created the impression of a wildly successful company.
At the time, it seemed a little indulgent. Like all the fresh startups that would buy Aeron chairs for everyone, and have expensive launch parties.
But in hindsight... How else were you going to get MIT grads to feel like they were in on the dotcom boom, when they were working as TCL programmers in gloomy Cambridge? (Rather than move to the sunny SF Bay Area, where most of the action seemed to be happening, and where most of their friends were moving.)
Ironically if he never took VC and remained in charge he may have ridden the company all the way down to zero during the dotcom crash, leaving him with little or nothing.
I believe the cynicism starts when one scores the big pile of the ready, and slowly realises that very few of one's new peers have arrived there on the startup path, but in general have preferred marriage and inheritance instead. (theft, thankfully, not being so common in Cambridge circles)
how about something as simple as following what greatest investor that ever lived Warren Buffet does? Pick a few companies, do a finacial colonoscopy on them, learn their business inside out and then go all in. over 50% of his investments are in two companies (me too, just not same as his), over 75% in 6 companies…
no one gets rich by diversfying, it is just a fairy tale US workers are being fed once they start working with company-sponsored 401k’s and the like
how he got wealthy is not relevant to how the wealth is grown. if you have $1,000/month to invest or your mum/dad gave you $1,000,000/month the principle of growing wealth is the same. and it is not diversifying nor is buying index funds
So you're saying starting off with money, help overtaking profitable companies, and investing over the easiest window in history to make money is irrelevant to the claim of someone being the greatest investor that ever lived?
And if you go by your principle argument, several others are far greater than Buffet, such as James Simons, who's strategy is diametrically opposed to Buffet's.
well we're back to this infinite circle of crap at this point. Aside from random people, there are thousands of people whose entire career, well-being and life depends on portfolio performance, and close to 90% of them underperform a random portfolio. Why can't they just "copy Warren Buffett"? maybe it simply hasn't occurred to them yet?
they are an equivalent of Michael Phelps. I like to swim, but I probably in all honesty could not really keep up with him. In fact, I would probably just die if I did.
This is hilarious. You're wrong for like every reason, but I'll give you 3:
1. Berkshire has not significantly outperformed the S&P500 for 20 years. Go take a look, they've basically converged. Markets become more competitive over time. People lose their edge.
2. Investment returns in excess of diversified market returns (which represent underlying growth across the entire economy) ARE zero sum. If you get them, Berkshire does not and quant firms do not and hedge funds do not. If you can beat these guys, don't use your money. Go get a job doing this.
3. Watching Michael Phelps swim is a terrible way to learn to swim. Anatomically he's totally aberrant, but he's also optimizing for fractions of a second racing across an indoor olympic pool. That's all inapplicable to basically everyone swimming anywhere.
You're choosing not to hear what folks are saying and I wish you luck. Your hubris will be rewarded justly by markets, but perhaps only after a few confidence building wins that convince you random jitters of a trend line are really signs of your hidden brilliance yet to be recognized.
Berkshire doesn't have a chance to outperform because it's too big. It can do a little bit better (either in EV or in some risk adjusted EV measure) but it's able to capitalize on opportunities smaller traders have.
I have a buddy that's a wealth advisor with a high net worth (100M+) wealth management firm. Wealth preservation -- and really diversification -- is all ultra-high net worth folks care about. They buy lots of index funds.
I'm not sure if this is some prosperity gospel silly-ness, but I think folks reading this deserve a disclaimer: Buffett's college mentor was Benjamin Graham -- the father of value investing, Gates mom was friends with Buffett and set up Bill's first contract with IBM, Zuckerburg's parents offered each of their children the opportunity to go to Harvard or open a McDonald's franchise. Six of the top 1000 richest people have the last name Walton. Failure -- as most of the world know's it -- never exists for most folks in the Forbes list. They were always going to be very very comfortable. Putting too much stock in their success is like watching Skii-Ball at Chuckie Cheese to learn bowling.
$100M is not ultra high net worth. and also absolutely no one here is talking about “wealth preservation.” what I was saying is that none of even those “ultra high” earners made their money diversifying.
once you are super rich surely you’ll set some money aside to make sure you stick around in high society. but no one - not a single soul has ever gotten rich that way.
Warren Buffet is pretty diversified, owning stakes across many different sectors. He’s also advocated investing in index funds with the old ‘time in market’ line
The top 1000 richest people are probably not good examples for the rest of us. They're extreme outliers. Much like professional athletes few make it to the top 1000. The average Joe is not going to make it.
There will only ever be thousand people in the top 1000 richest people. There is no guide that can help you become one, you will have to displace one of them to get that title and you cannot displace them by copying them by the way so the argument that the advice doesn't match their behaviour is kind of useless because you want unique circumstances that nobody else had before you.
and investing in “index funds” is not gambling?! :) if you buy index funds do you even know what you bought? or is it just “hey everyone else is doing imma do it too?”
Most index funds are quite transparent about their constituent assets. The purpose of index investing is to capture the market as a whole which includes assets held by the few people who make their millions / billions and the many others who blow up their accounts going all in in single stocks.
jokes aside surely there are plenty of people who gambled and lost their entire accounts on 1 or 2 stocks. but there is a difference in buying biotech startup out of Springfield MO and buying Apple
my basic argument isn’t that you should blow your savings on some single stock of some rando company but that doing something like 45% Apple, 20% Amazon, and spred another 20% among 2-3 companies in energy etc… is much better option than buying index fund. and over last decade would
have 100x your money over VTSAX… and is just as “safe”
But there is zero reason to believe that any of those companies will continue giving the same returns. It's entirely feasible that they will plateau, or even begin to fall, whereas the rest of the market will continue to climb. There are plenty of historical examples of "solid" investments that evaporated over time, so it's not like this is unprecedented.
No, it isn't "just as safe", by any stretch of the imagination. "Safety", in the context of investing, refers to the distribution of possible outcomes around the expected return of an investment. In most instances, diversification will reduce the standard deviation of the expected return of a portfolio, without sacrificing the expected return. In other words, a diversified portfolio is safer, all else equal. This has been known for at least 70 years. You're not providing any counterpoints to established investment theory. You're simply making false claims that contradict both the theory and the empirical evidence.
I don’t want (and even if I did chances are I never would be) Buffet-rich. But that doesn’t mean I cannot be smart with money I set aside for investment. These studies offer one way of looking at things, they are based on “work looong time, put money for retirement into something you can’t pick (in most company plans or have limited options), pay high fees for… and be happy you are “millionaire” when you are with one foot in grave…”
I might be misunderstanding the context here, but are you starting from the assumption that investors are trying to get rich?
I think many investors are trying to preserve what wealth they've accumulated through saving/inheritance, and are very happy with modest returns, or even just preserving what they have.
I’ve been following the bogleheads philosophy since I graduated college. I’ve done it while working normal jobs, pursuing startups, side projects, sabbaticals abroad and everything in between. I’ve had some luck with startups, but the majority of my savings has come from monthly contributions.
I’m now at a point where my investments in index funds kick off nearly enough to cover my expenses. It’s an incredible thing that I’m super proud of.
Your take here is reckless and I hope nobody takes it seriously. I’m not advocating for putting your life on hold to work a 9-5 just to save - but if you’re not sticking some cash into safe investment vehicles as you go then you’re just playing on hard mode.
You do you, man. But you haven’t replied to anyone asking your thoughts on alternatives and if total market index funds hit the ground we’ve got bigger fish to fry.
Is this disagreement really about different meanings of 'safe'?
I think most people would agree that we're in a bit of a weird time financially. It seems possible to me that total market index funds might go sideways for a while, and that we might, in fact, have bigger fish to fry as well.
On the other hand, if you've paid down your debts, and emergency fund is in good shape, and you still have extra cash, is there a better bet than a total market index fund?
This is right but your implication is wrong. You get rich from working and index funds are a way to preserve and modestly increase that wealth. Boglehead thinking probably won't help people making minimum wage or whatever because if you invest almost nothing to begin with you'll get fairly little out. It also won't make you super-rich if that's what you want.
when your health is poor and corporate America has drained every ounce of life out of you
This sounds completely wrong. Working a salaried job in tech is one of the least stressful, lowest risk, and highest paying ways to earn money. It's easy mode (if you can get in the door). Hustling leveraged real estate or some other kind of "passive income" is much harder and riskier.
you cannot be serious?? have you ever met a healthy “salaried tech worker”?! I know a few but percentage-wise I’d say 98.48% are about as healthy as my 76-year old Mum. This has to be a joke, right?
I worked at a obline gambling/games company for 5 years. I think half of the people started a company while working there. Nobody worked 40 hours. Maybe 10,20 or so. Company was basically a automatic train with everybody having a party on it.
I got much healthier with my last job as salaried tech worker. 4x a week gym or running outside during lunch breaks, frequent early finish and off rock climbing. Once I started going to gym, all those colleagues obsessed with the projected image of professionalism said fuck it, and they started doing similar things. Now half of IT does something active during lunch breaks, finishing at same time but much happier and filled. It took just one guy who had the balls to not give a fuck that much. Just to clarify this is banking world and working on/next to core package of our bank, not some laid back low paid government job or similar.
If you dont like your current dev work, negotiate or move, its stupidly easy compared to any other engineering or sciences, anywhere in the world.
If you want to become wealthy without learning a ton about finances then read the total money makeover by Dave Ramsey or spend a few months listening to his podcast (go back a couple years before some of the new personalities who will be replacing him have started to come on).
Then, if you get curious enough to learn more advanced topics (don’t look to Dave for these) then head over to boggleheads.
The path to wealth is boring consistency. But it’s a much shorter path than most people think with the right discipline.
I really don't think Dave Ramsey is a good source of information for very many people. The debt snowball method is the best example of this. There's no reason anyone should be employing that strategy unless they just need the mental satisfaction of paying off "a debt" to get on the right headspace to pay off the rest.
That’s a common counter argument. But if you listen enough then you understand that he (correctly) identifies that personal finance is more psychology than math. And the aggressive debt repayment he advocates makes the accrued interest trivial.
People who follow his plan pay tens of thousands of dollars in debt off in 1-2 years on modest incomes.
You can also just live below your means, buy the least expensive house and car, pay those off. Sell if you get the chance for a ton, and repeat. Over your life, you will accumulate if you don’t spend stupidly. It’s boring, and it ain’t quick but it does work. The problem with this is that some people live in very expensive areas where no house is cheap enough to deliver a payoff time below 30 years without making seven figures a year.
There’s a balance of course, but I know a few people who go too far into the “save everything” category. They are slaving away in their 20s and 30s, prime time for exploration and fun, for a retirement when they are older and have other responsibilities.
I have a family member who had a serious health scare when she was younger, and still lurks over her head. It’s really a different perspective: why have no fun now saving for a day that might never come?
Of course, you do need to save something, because retirement will hopefully come. Balance is everything.
That sounds backwards and wrong to me. When you are young, you have the most flexibility and can find fun everywhere.
Like when you are in your 20s, living with roommates (even if you can afford not to) is fine and could be fun, and you can just enjoy friends coming over for beers vs more expensive outings etc.
And if you save enough, you have the "dry powder" to buy that house or whatever when time comes.
On the flip side, if you don't save when you are young, and you can't afford shit when you are older - it gets not cute really fast. Like being 40 and not having a house because you never got your shit together for a down payment (because you lived it up the prior 2 decades) is pathetic.
I see your point. Although I do call for some balance - don’t waste it all, but don’t be a packrat either.
> Like when you are in your 20s, living with roommates (even if you can afford not to) is fine and could be fun, and you can just enjoy friends coming over for beers vs more expensive outings etc.
Fair. I’ll just say we have different definitions of fun :) (nothing against what you said, people enjoy different things. I am actually jealous of people who find that stuff fun).
Hard to judge without having walked in their shoes. I grew up with nothing, and I have no family support network. If I am laid off, fall ill, whatever - there is nowhere to which I can turn. YOLOing in my 20s felt like the deepest kind of irresponsibility for someone trying to crawl their way out of childhood poverty.
Oh wow, I had the exact opposite reaction. Very close to a childhoold in poverty - lost my family when I was 5, adopted, homeless, etc. - but when I graduated college, my apartment rent was $2000 in DC, I was vacationing in Norway, and eating and drinking at the most expensive restaurants. I made a bet that I was going to make decent amount of money in salary, and that bet has paid off. Debt-free from university, sizeable retirement accounts and savings, etc. Now, I wasn't able to afford to buy a home or condo at 25 like my peers, but I thought I was okay given I was starting over.
I realized I lived through a peculiar hell when I was young, so I definitely made up for it buy working hard, playin' hard.
As an immigrant who grew up with nothing and have no family support network, now that I make ridiculous money working at FAANG, I spend it all because I know I’ll be fine if I go back to nothing.
That seems irresponsible to me. Shouldn't you be at least saving enough to never have to go back to living like that, no matter what happens, knowing how it feels? Knowing how to live like that and actually living with nothing are 2 different things.
> I spend it all because I know I’ll be fine if I go back to nothing.
It's good that you'll be fine if you go back to nothing, but it very much isn't a reason to spend all the money.
Reasons to spend all the money could be eg that it makes you happier (I very much doubt that) or that it makes the world a better place (you didn't say how you spend the money, so perhaps?).
I'm probably gonna get downvoted for this, but a $5k vacation won't bring you lasting happiness. At best it's great in the moment, it'll bring you some fond memories, and perhaps it'll give you some bragging rights. And then that's it. It's nothing compared to achieving your dream. And you don't achieve your dream while on vacation.
What is your dream though? Not to discount what you're saying, but so many people talk about saving to achieve their dream. From what I can tell, these folks' dream is actually: to save money so they can some day achieve their dream.
No downvotes from me, but people take vacations for other reasons.
I know people who are basically close to burnout all the time, and a week here and there of no-responsibility vacation would do wonders for their mental health. It’s not necessarily always about fulfilling a dream, but it can be about doing a little self care.
Just because OP isn't going on vacation doesn't make them a hoarder. Just as those that enjoy vacations aren't throwing money away. As you suggested, each person has different dreams. And, that's expected.
I have a lot of pictures from vacations I took with my parents. My dad is gone now, and mom doesn’t travel much anymore. I’m glad we took those vacations when we could.
(They don’t necessarily need to be expensive vacations, though.)
If your strategy is to run through life with no buffer what do you expect to happen? What scenario do you envision where you aren't wiped out? Get into a motorbike accident on your $5k vacation and bam, bankrupt. So much for the low stress holiday!
Some people must have nerves of steel, I couldn't sleep living life like that. A stiff breeze takes most people out financially and the feel comfortable going on vacations!
If you want to live in a society of relaxed, happy well-off people then you're going to have to do some work for someone else that you never collect on. That is literally the only way to achieve good outcomes. We call it "savings" and it is a great idea.
Take the 5k family vacation but also the house you can afford to pay off in less than 15 years. Too many people buy the best house they can afford and suffer too much interest.
I appreciate that I don’t have to worry about financial insecurity. Layoffs are not scary to me. My biggest fear is lack of health insurance and healthcare costs when unemployed.
I love the belief in the efficient market hypothesis as an active investor, because it means so much less competition. I am saddened by the belief in the efficient market hypothesis as a lover of fellow humans, because it is such a colossal untruth that it harms people immensely and takes away agency.
If you understand an industry or market segment deeply, you can indeed do much better than the index within that segment. It’s a fact born out by my own experience - you can separate a MongoDB from an AWS if you know a bit about technology and don’t look simply at press releases and Gartner reports.
I think the efficient markers hypothesis kinda accounts for that.
Like, if Mongo is mispriced relative to Amazon, and you confidently see it, you will trade accordingly and erase the price difference.
In what I recall from my CFA studies, research shows that only genuine insider information can consistent outperform the assumption that all information is already priced in.
And for example, let's say you perceive Amazon and Mongo as mispriced, but what if that's because some even bigger expert than you saw something you didn't and traded accordingly?
(For what it's worth, I used to work for one of the world's most significant hedge funds. Our win/loss rate on trades was something like 52/48. So even as literally the worlds top investors who spent more effort, brainpower and money to gain insight, we were right just a bit over half the time. It really drew the point home that a random non-insider individual who thinks can do that over decades is likely delusional)
It has to do with amount of capital, time horizon on the investment, how early you are, and all manner of things. It’s much easier for the individual investor to deploy capital than a hedge fund that has huge bags and therefore needs to make huge trades. There are benefits to being small as well as negatives to being huge.
Writing off any ability to beat the market is defeatist because it happens all the time. Someone has to buy the mis-priced stock and it isn’t high frequency firms who exit positions every night.
I agree that someone has to buy the mispriced stock. I disagree (because of evidence to the contrary) that someone can consistently identify the genuine mispricings in a way that pays off on risk adjusted basis.
There are some market inefficiencies that have been documented but they seem rare. The post earnings announcement drift (PEAD)[0] is a thing that exists but shouldn't if markets were totally efficient. That gets used for gains pretty consistently but not 100% of the time. Euan Sinclair had a book where he mentioned a return of 9-27% when traded on annually.[1]
Some of the big players have moves like that which work well given the right market conditions. My guess is that they have many, many patterns like that to trade on or models which are right more often than not. I don't know anything though since I'm a 101 retail investor... Positional options trading and volatility stuff makes my brain hurt :(
Have you seen strategies like that before? It's really interesting to dig into but seems to require a lot of knowledge to know how to trade on.
The main problem with efficient market hypothesis is that it pretends that the only way to get money out of the economy is by providing economic value for others who also provide economic value.
It ignores the fact that participants within the system are only efficient with respect to the basic incentive structure created by the monetary system which itself is highly inefficient and wasteful.
The government could essentially just print money to incentivize people to push a boulder up and down a mountain for no reason... You can be sure that those who will get paid the most will the the fittest ones who can push the boulders up faster than anyone else; the most efficient boulder pushers if you like... But can it be said that these people are efficient at all in the grand scheme of things?
Is it an efficient market if the monetary environment within which those markets exists is itself artificial and inefficient?
Totally. It is a valid critique. Suggesting that it's valuable in a hypothetical environment is similar to the "not true communism" defense used by communists to explain past failures.
Uh, yes. Have you not been paying attention to the weekly "what potential fed action is the market pricing in this week?" articles?
Efficient markets take into account everything from politics to corruption to the odds of natural disasters. I'm not sure where you read otherwise.
You think investors don't price in the political risk of dealing with, say the Chinese government? You think bond investors aren't paying attention to the fed?
The monetary system is always artificial because all monetary systems are man made inventions.
It is inefficient because it requires a constant injection of money because of growing inequality. People think the newly injected money is causing inequality but the reality is that the inequality is growing regardless of whether you inject money or not and injecting more money acts as a temporary pain killer.
A wealth tax deallocates money from the rich to the poor. You might call this redistribution but who is to say that the wealth hasn't been artificially redistributed to the rich?
This cannot be true since most of the newly printed money goes towards big corporations (e.g. via big government contracts) or through loans to individuals and companies (based on collateral). Who has collateral? It's not the poor! The other way money enters the system is through interest paid out by reserve banks on deposits... Again, it's not the poor who hold huge deposits at the Fed.
The idea that money printing helps the poor is a narrative fabricated to serve the rich and could not be further from the truth. Maybe if/when UBI is implemented, a case could be made but now there's nothing backing that narrative.
Currently, all the newly printed money only serves to subsidize the operations of the rich; allowing them to reduce their margins down to 0 which creates insane anti-competitive moats.
The efficient market hypothesis has nothing to do with the monetary system or with getting money out of the economy, whatever that is supposed to mean.
> In what I recall from my CFA studies, research shows that only genuine insider information can consistent outperform the assumption that all information is already priced in.
Even if you assume there are no information inequalities outside of inside information (there are), markets are myopic. Expectations focus around one scenario which is why you see slow adjustments to trends.
Btw, it is actually worse than people think: I have countless anecdotes from execs who run companies, who were "experts", who had substantial inside information and were still unable to predict industry trends better than me. There is a social, cultural, institutional context...you see vastly different investor behaviour even between countries that are very similar (i.e. US/UK). This focus on information above all is a conceit to assist the construction of economic theories, not a distinction that is useful in practice.
Also, you may or may not have worked for a very impressive hedge fund but win rate tells you nothing about profitability. I know a fund that made one decision in 1992, made poor decisions constantly after, almost everyone who works there is worth $100m+, and they manage $100bn. You can go 10 years with only one good idea and outperform everyone else. Win rate means nothing.
> It really drew the point home that a random non-insider individual who thinks can do that over decades is likely delusional)
You are, of course, correct, and it has been proven time and time again. People think that just because we had a few years of 0% rates that they are somehow geniuses who can do 15% CAGR for 50 years without a problem.
In reality, almost nobody can beat the S&P500 low-cost index fund, after all expenses. People still dream, though.
The EMH is not perfect but it seems to be the most accurate. When a stock tanks, usually this precedes negative developments about the company that are later made public. Price action precedes news. Markets are not efficient all the time, but efficient enough of the time to make it useful, at least from a theoretical perspective, anyway.
I remember seeing a retailer that was literally dead in the water the second they IPO'ed then 5x and collapse twice over ten years...they still aren't dead but have collapsed permanently.
Large companies are often able to generate low-quality growth that keeps things going for a few more years. The trick is distinguishing between high and low quality growth.
Tech companies can add more sales people, that is easy, it can keep things going whilst equity markets are open. Quality growth can't be bought like a salesperson. MDB was always seemed anomalous to me, I am not surprised they are down 65% because competition is only increasing. But, either way, the real money is on the long side (predicting which companies are going to fail is a lot easier than predicting success, the problem is funding that position and what happens in the middle because companies have so many ways to fake success until the next bear market).
Can you do it for years though? How about decades?
The evidence is that even the Harvard-trained finance grads, best of their class, making 1 million a year, heading the very best funds, with 2nd degrees in mathematics etc., cannot do this.
I almost feel like the discussion at this point should proceed straight to "no anecdotes please, show your work" (evidence, data, the more the better).
The evidence is extremely strong that the index fund strategy vs. human fund managers contest is really just another form of the computer chess strategy vs. human chess player one (or Go, if you prefer that). Just think of it as 'computer game players vs. human game players,' as a category. It really isn't much of a contest in the long term.
The computers have been winning, and will continue to win, as history is ever more on their side.
As you might guess from my username, one area where I made insane gains is in cryptocurrency, and not because of a Ponzi “greater fool theory” but by carefully analyzing bitcoin and Ethereum (primarily) from economic, technological, and philosophical principles and making investments that I have held for a very long time. My gains are so overwhelmingly absurd and contrary to the supposed “Harvard experts” that making such a calculated, reasoned bet should have been impossible.
Yet I have made investments in so many things over the years, so I don’t know how to square it other than, “I personally read the evidence, investigated the tech, thought about it logically, ignored the experts (and HN might I add!)”.
According to the efficient market hypothesis such things should be impossible.
And I 110% disagree or my many and varied investments wouldn’t continue to far better than an index fund.
As another recent example I went hard into oil and gas via ETFs back in May. Why I did this is for various reasons but my conclusion was that demand would surge and supply was constrained. Almost a 2x and that’s in liquid positions. I have taken some profits but still gonna wait a bit.
According to EMH I shouldn’t be able to do this, yet here I am sitting on tons of gains.
Look at a timeframe of 10-20 years. You will likely lose a lot of money in some bets and be worse off than if you just did the index. But who knows, good luck to you
Logically if everyone did exactly what you say is correct, no one would ever stick their neck out and do anything!
My experience shows that more risk = more reward, and if you are careful and a student of history, you can take risk properly without blowing up.
For anyone reading this thread, just follow the path of EMH to it conclusion - trying to make an investment in a single asset is for fools. Clearly this is wrong!!!
Each person only lives once (I believe so ?!) is up to them to decide how to live their lives.. people can take calculated risks while still investing the majority of their money in boring indexes because most likely they will do better that way.
I think it's a bit fool to live in the WSB life style, but I know plenty of people who do. They make a lot of money and lose a lot of money. They're usually more worried about retirement than I am and we make the same amount of money... this folks usually like gambling too... To each their own.
> My experience shows that more risk = more reward
you got it the wrong way around. More reward = more risk, but the inverse might not be true.
Imagine you took crazy risk - you jump off a building, and hope that a gust of wind keeps you from dying. What is the reward?
> trying to make an investment in a single asset is for fools. Clearly this is wrong!!!
you've misunderstood the instructions for index investing and EMH. It's not saying you shouldn't concentrate and be active in choosing - it's saying that if you do, you better be someone who is more informed, and capable of pricing an investment than the market. So do you really think the average person is in that position? If not, they're better off following the market index.
Contrarian investing (and contrarian opinions) are the way for the individual. Doesn’t mean every bet has to be opposite the herd but as an individual you need to lean into your strengths (nimbleness and ability to pivot quick) to beat the big guys.
For last 15 years it was about making gains at all, but now that inflation is 10% it’s how you prevent losing your money.
So much of the future depends on a tiny, unelected body that controls the global economy (the Federal Reserve) that you need to think about interest rates a lot. I come from the Austrian perspective but I understand mainstream economic reasoning so I can put myself into that mental framework when thinking about the future. However fundamentally I am a classical economic liberal, free market, Austrian.
I think inflation is here to stay for a while. I don’t think Biden and society in general can stomach a massive recession. Putting cash into short term treasuries can get you a guaranteed 5% which could be safe play given how crazy the markets are.
I am cold on AI. Everyone and their mother has been predicting self driving cars, massive job losses to automation, and so on for years. Never happens and not going to. I would avoid this industry as an investor. As labor it can be advantageous as talent is over-compensated.
I’m skeptical of electric cars. Renewables make sense in places but also a skeptic on the time frame. Would avoid electric car and ESG equities.
Residential real estate in places without strong rent control vibes is a good bet. If you can do it yourself even better - the government subsidizes your mortgage and small time landlords avoid a lot of the political intrigue. If you can get an investment property or a small multi family, I would consider swapping equities for that and let rent follow inflation each year.
Short Europe and China. Long Africa and India.
A bunch of opinions here but hopefully this fills in some pieces.
This is not applicable. What is your exact positions, and time frame (exactly)? Then we will see if you hit or miss.
That may be the only thing I "like" about WSB: "positions or ban". Otherwise everybody would pretend that they are a genius investor doing 50% yearly easily, etc.
Anyway, it's not impossible to beat the market, but I don't know a lot of people that beat it consistently over long periods of time. Really, a few names come to mind. That's all out of millions and millions of investors. That's hard data.
Last time I checked, the “mutual funds don’t beat the market” is kind of a myth perpetuated by S&P Dow Jones Indices to hype their own index products. First of all, what is the S&P 500 if not a handpicked collection of stocks? To say mutual funds don’t beat the S&P 500 is to say that S&P is the best stock picker out there. I find that unlikely. Second, something like 10% of mutual funds do beat the S&P 500 on long time horizons.
Where did you find that 10% beat S&P? First of all, that's low %, but I don't think even that is accurate. So you have 1 in 10 chance of identifying who might beat the S&P. Congrats.
Can you share a source for that? As far as I remember, the odds are around 1 in 300 (this is from memory, but that information is from Bogle's books directly). I think that research was done since 1970, but I am not sure.
> And over a full 20-year period ending last December, fewer than 10 percent of active U.S. stock funds managed to beat their benchmarks.
Still, if it was 1 in 300 I think they would say “fewer than 1% or fewer than 0.5%”. So I’m assume between 9 and 10 percent beat the S&P.
I suggest reading the linked article with the mindset that nearly all of the content comes from S&P directly. It’s basically a market piece. For instance, when they say the mutual funds don’t perform consistently, they use a crazy metric of picking the top 25% performers from one year and seeing how many are in the top 25% next year. Basically their point is that mutual funds won’t beat the S&P every single year, and therefore the S&P is better. But if course, unless you’re only investing for a single year, you should care more about the expected total return. Just my two cents.
They are talking about 2000-2021; what I mentioned is from 1970 (again, that is from memory, I don't have the book in front of me, at the moment). But almost surely that number is nowhere near 10% that can beat S&P in the last 50 years.
Not a lot of funds even continuously exist for 50 years - most of them closed.
It is true that about 10% of large cap mutual funds beat the S&P 500 over a 10 year period (see the latest SPIVA study). At 20 years it goes down to about 5% that will beat the S&P 500.
> I almost feel like the discussion at this point should proceed straight to "no anecdotes please, show your work" (evidence, data, the more the better).
wallstreetbets figured it out: "positions or ban" :) It's a rule there.
Two economics professors walk down a campus street, discussing the efficient markets hypothesis. One of them exclaims:
— Look, there's something green down there on the pavement; looks very much like a $20 bill!
— Nope, — answers the other, — it can't be. If that were indeed a $20 bill, somebody would have picked it up already!
The efficient market hypothesis postulates some kind of a static equilibrium. The reality is not static, and the processes that lead to a new equilibrium are neither instant nor independent of subject area knowledge. Due to this, during that last year's bull market, I made a ton of upside on stocks where I understood the business and could make sense of obscure tech news, and nearly nothing on stocks that otherwise seemed like winners and were recommended by likes of fool.com.
that's why the EMH is just a hypothesis, and not a truth or fact. And even in the theory, they don't claim perfect efficiency - just nearly perfect. Some people obtain mispricings, take advantage of it, but in the process, push that efficiency up just a tid bit more.
"A Random Walk Down Wall Street", which the author praises, is one of the worst books you can ever read if you have worked on compounding your knowledge in a certain field and understand how businesses work. The book essentially tells you to give up on trying to pick good companies and buy an index fund. It pompously asserts that even the best investors are only successful because they got lucky. For most people, buying an index fund is the right thing to do, but if you truly think you understand businesses, the book simply tells you that you do not and you should give up.
Extensive research shows that short of genuine insider information (which is illegal to trade on) - just having good research is not enough to consistently outperform the market.
As I mentioned in my other post - even top hedge funds are "wrong" nearly half the time, despite having the best insight and resources.
I learned a long time ago to visualize "Goldman Sach's industry X special fund" as the counterparty to any trade I do. Give me a bit of humility.
People interested in this topic should really read "Trillions" by Wigglesworth. Maybe the most consequential book I read in 2022, as someone who read about a book a month, mostly nonfiction.
The book, first of all, does a good job of laying out the complete case for why index funds beat human managers, starting out by telling the story of an investor who made that very bet (literally), who ironically most people would put on the other side of that: Warren Buffett. Buffett bet a fund manager that an index fund would beat the best of any funds his opponent would select. A decade or so later, Buffett was proved right and declared the winner.
If even Warren Buffett is betting on index funds as beating active investors, why are most people so reluctant to?
But besides that... why are index funds - which you can also think of as 'fully automated/computerized investing' - so effective?
There's a few reasons, but a really simple explanation is: over time, a bunch of fund managers are just going to recapitulate the market, and the advantage computers have is, they can duplicate that functionality but their fees are zero (or 0.001% per year, whatever is the tiny amount it costs to run the servers). Human fees are not zero. Therefore, the computers win.
Another one is just that the whole market, diversified, ends up being the best hedge against... everything. Is Elon Musk a genius one day, and now getting pilloried as an idiot as the head of Twitter? If he's a big part of your portfolio, and you bought in a year ago, that really hurts. When you hold the whole market following impersonal computer rules, you are insulated from this.
And it turns out, when you look at the full impartial record of active investor picks, it's pretty poor really.
A final thought that book suggested to me: if you have over 10 million dollars, you probably can't beat what the market can do. Wave the white flag and throw it all in an index fund. The computers have won, and just as we acknowledge that with chess and Go (art's probably next), index funds are an extension of same.
> if you have over 10 million dollars, [...] throw it all in an index fund.
Close to what I'd do. I'd first consult an expert about asset protection, then get a modest house and a different-city apartment, and then put everything remaining in three index funds (ITOT, IXUS, and a little AGG, or equivalents).
Warren Buffet is not betting on index funds. If he was, Berkshire Hathaway would not exist. Buffet uses index funds to manage some of Berkshire’s money, and he famously bet a meager sum (for him) that actively managed funds wouldn’t beat the S&P, but if you look at what Berkshire does, then you would see they are still very much into active management. The success of Berkshire should really prove to everyone that it’s possible to beat the market. Will most beat the market? No. But it’s obviously possible if you have the talent.
> should really prove to everyone that it’s possible to beat the market
none of the bogglehead investment advice claim that it's not possible to beat the market - the claim is that it's hard, and if you're average person (and face it, most people are average people), the best advice is to do what is more likely to succeed, rather than the small chance thing that might succeed beyond your wildest dreams.
Therefore, the best advice for the average person is to buy index funds, rather than follow the path of Buffet.
> The success of Berkshire should really prove to everyone that it’s possible to beat the market.
Since 2008, BRK is just keeping up with SP500, and even that seems to be due to outsized bets on Apple, which offset earlier mistakes of not investing in Apple, Microsoft, Alphabet, Amazon…and instead going with IBM/Heinz.
That is a lot of risk for no gain over 15 years. Obviously, Buffett is playing with money he can afford to lose, but he is smart enough to advise others who cannot afford to lose to invest differently.
Are you sure? Just some back of the napkin math: S&P 500 is 5.17 times higher since the bottom of 08. BRKB is 6 times higher. And performance this year is even more dramatic. S&P is down 20%. BRKB is up 3%. In 08, too, the decline in Berkshire was much less than the S&P. Clearly Berkshire has been a better bet at most points in time.
Of course, I should not debate that it is possible to beat the market, but the question for an individual is, is the potential return over the relatively risk-less SP500 worth the risk? And the data for the past 14 years or so indicates that BRK’s edge may have decreased.
I write “relatively risk-less SP500” because on a sufficiently long timeline, I assume US federal government is bailing out SP500, or the US federal government has big problems (such as does not exist in the form it is in now).
Broadly, I've found that Nassim Nicholas Taleb has the best advice here. I think his "barbell" strategy is perfect. Never invest "moderately," just put most in something really safe, and set some aside for big long-shots.
(You can also apply this strategy to not just "money," but e.g. jobs and projects)
I'm surprised to see so much anti-Boglehead sentiment comments here actually. I personally think Greenspun is super entertaining and emailed him for some career advice years ago (which he replied to).
Through introspection I learned why the market premium exists for passive investors. In the early 2010s I was lucky to have started working and somehow invested in real estate at their all time lows. Did pretty ok (coulda done better but can't complain). Only recently did I get into index investing, and boy, it's psychologically difficult . As Cat Stevens says, "it's not easy to be calm when you've found something going on."
I kept noticing how I wanted to make moves based on news and data and charts and "intuition." But the market does not move intuitively. People will overvalue and undervalue securities, and I believe this plus behavioral mistakes is where the market premium comes from for the people who just sit tight.
For those who have a 401k and don't look at it much, it's easier than for people like me who never invested through tax-advantaged vehicles.
I agree - this hate for the Boglehead philosophy is weird. Back in the 90s, I watched an interview with Jack Bogle. I then started regular automated index fund investing in addition to maxing out my 401k. I was well paid but never earned a FAANG salary.Thanks to my investments, I was able to retire comfortably a few years ago. The power of compounding over a sufficiently long period of time is pretty amazing despite having been through several big crashes.
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[ 0.19 ms ] story [ 206 ms ] threadThe rest of us can keep heads down on a W2 and argue about compounding interest, day trading vs long term investing, IRA's and getting faster promotions via interviewing often.
which, if they weren't bankrolled by family or inherited money, they would've had to keep their heads down on a W2, and save enough capital to start investing.
For me and my brother we were immigrants, divorced household, single mom as some bread winner, didn’t attend Ivy League schools, paid for college through debt, and started a business with savings from working full time at system administration, which was self taught, while being in college.
Fast forward 20 years, DigitalOcean IPO’d.
Our mother did provide a roof over our heads but we had no inheritance, and no friends and family round.
We built a service oriented business doing web hosting first. Service businesses are traditionally much cheaper to start because there is no product development cost to front with zero revenue.
Then after a decade of that we built digitalocean as a product business which was financed from the cash flow of our original business.
By the time we closed our series Seed in Digitalocean we were already well past $1MM ARR and in one year went from $100k ARR to $18MM ARR.
Having less resources does force you to be more scrappy and figure things out that other people who have a safety net often give up on.
Point is it can be done either way.
Your story is the correct attitude and the reality of creating real wealth. Unfortunately many will denigrate your story.
it is indeed much safer to min/max wage & work-life balance, and spend that time improving yourself. Then, use the capital to invest. But you will not reach billionaire status doing this - but you can make enough to be comfortable.
Likewise there are also so many great mentors out there now, and many of them are happy to give a helping hand, expecting nothing in return, because they recognize how much others have helped them, that if you aren't reaching out to those folks and finding them, then you are doing yourself a disservice.
Don't build in a vacuum. And by that I don't mean simply get customer/user feedback, but I mean have mentors, both active, and inactive - that are constantly reviewing your ideas with you. The inactive ones come from reading books like innovators dilemma, and the active ones, you need to find and reach out to and get them on-board, just like you would reach out to VCs and pitch for funding.
1. If you don't have the funds to start a business directly, you may have to acquire them indirectly. In our case building a service business was much faster and you could literally setup a single server at a datacenter and call yourself a web host. So the startup capital was small and something that you could certainly acquire by saving while working a high paying job like System administration back in the day.
2. Be in the right place at the right time - this one is key for pretty much everyone everywhere and is one the of the main factors in success and failure. By itself it isn't everything but it is a huge component. We started doing web hosting before AWS existed and when the largest player in the space was Rackspace. There was plenty of room for small up-start individual providers and the internet was still rapidly expanding and also very much still catering to the early adopters.
3. Learn Business - You hear the stories of people like Mark Zuckerburg starting something in college and then building one of the largest companies in the world, but those are ideas that require a special time and place in history. Where the product is the key driver to it's success in many ways, and many non-consumer startups don't get as much attention, but I would certainly recommend learning business. That doesn't mean get an MBA, but read business books. That's what we did between our first company and then starting DigitalOcean. We definitely made a ton of mistakes with the first business and the books helped to elucidate what we did wrong, while also showing us what are the right questions to ask to avoid those same mistakes in the future. I think of business lessons like laws of physics, it's better to know them if you are going to be building around them and certainly the results speak for themselves. The first business peaked at around $5MM in revenue and $DOCN will do over $500MM this year.
Another DO? Definitely not. It was a time and place that allowed us to be successful. Plus if DO exists competing with it head on wouldn't make sense. Also if it didn't exist, I imagine someone would make a similar company that would succeed. You can see this clearly with all of the different versions of Heroku that people tried to build. DigitalOcean's success means that there is a market for the service that it provides and so, someone would have come along and created something to fill that void.
Lastly, I think that a lot of great businesses have to sound a bit stupid at the beginning. If they didn't sound stupid then someone would have built it already. Occasionally you can have a good sounding business idea, but then literally, nothing compelling should exist in the space as a competitor. Otherwise, it would already be done. So in a sense the fact that it sounds "stupid" means that it's different. Now is it good different, or bad different, that's a question that you have to figure out. But often that difference is the crux of what is the key driver for your success.
For us it was creating a simple version of AWS and competing directly (though in our case we felt it was indirect enough) with them. For Airbnb it was the crazy idea that people would pay money to stay in a strangers house. Occasionally an idea actually makes sense from the start. If you use a data warehouse and tried to do analytics before Looker it was a bit of a pain in the butt so Looker does seem straight forward. And certainly DataDog already existed in many different flavors, such as Nagios, but repackaging something and then riding another wave (AWS) can create massive success if the "wave" is large enough.
I think to truly count yourself as "fantastic" at the game of startups you would need to create 3 successful businesses. Because so much of it is chance, timing, luck, that can't be ignored. But if you can do it 3 times, I think that definitely speaks to a person...
Also this whole journey started a decade ago. There are many more avenues for liquidity and for raising capital. However it is a bit gated.
However if you have good advisors and ensure you retain control with board structure and dual class voting shares you shouldn’t look at as a negative
The best personal finance advice I know of comes from the Bogleheads community (basically, total-market index investing with low expense ratios and allocated for risk tolerance and tax efficiency, and misc. forum advice like recognizing your salary probably has bigger impact than any investing details): https://www.bogleheads.org/wiki/Main_Page
> gave Ferraris to employees who recruited 10 programmers,
I might be misremembering from when that was first promoted, but I though it was a year's use of a Ferrari (a Spider or similar).
> Greenspun defends those expenditures as inexpensive ways to retain and attract talent. He also writes that it created the impression of a wildly successful company.
At the time, it seemed a little indulgent. Like all the fresh startups that would buy Aeron chairs for everyone, and have expensive launch parties.
But in hindsight... How else were you going to get MIT grads to feel like they were in on the dotcom boom, when they were working as TCL programmers in gloomy Cambridge? (Rather than move to the sunny SF Bay Area, where most of the action seemed to be happening, and where most of their friends were moving.)
(OTOH, "homies on lock / for insider trading" https://www.youtube.com/watch?v=JaXZI81gRvk
fwiw my spouse doesn't interpret this ad as parody: "for once you send me a video with normal people in it")
no one gets rich by diversfying, it is just a fairy tale US workers are being fed once they start working with company-sponsored 401k’s and the like
And if you go by your principle argument, several others are far greater than Buffet, such as James Simons, who's strategy is diametrically opposed to Buffet's.
1. Berkshire has not significantly outperformed the S&P500 for 20 years. Go take a look, they've basically converged. Markets become more competitive over time. People lose their edge.
2. Investment returns in excess of diversified market returns (which represent underlying growth across the entire economy) ARE zero sum. If you get them, Berkshire does not and quant firms do not and hedge funds do not. If you can beat these guys, don't use your money. Go get a job doing this.
3. Watching Michael Phelps swim is a terrible way to learn to swim. Anatomically he's totally aberrant, but he's also optimizing for fractions of a second racing across an indoor olympic pool. That's all inapplicable to basically everyone swimming anywhere.
You're choosing not to hear what folks are saying and I wish you luck. Your hubris will be rewarded justly by markets, but perhaps only after a few confidence building wins that convince you random jitters of a trend line are really signs of your hidden brilliance yet to be recognized.
I'm not sure if this is some prosperity gospel silly-ness, but I think folks reading this deserve a disclaimer: Buffett's college mentor was Benjamin Graham -- the father of value investing, Gates mom was friends with Buffett and set up Bill's first contract with IBM, Zuckerburg's parents offered each of their children the opportunity to go to Harvard or open a McDonald's franchise. Six of the top 1000 richest people have the last name Walton. Failure -- as most of the world know's it -- never exists for most folks in the Forbes list. They were always going to be very very comfortable. Putting too much stock in their success is like watching Skii-Ball at Chuckie Cheese to learn bowling.
once you are super rich surely you’ll set some money aside to make sure you stick around in high society. but no one - not a single soul has ever gotten rich that way.
I have no idea what your 2nd paragraph is for…?
jokes aside surely there are plenty of people who gambled and lost their entire accounts on 1 or 2 stocks. but there is a difference in buying biotech startup out of Springfield MO and buying Apple
my basic argument isn’t that you should blow your savings on some single stock of some rando company but that doing something like 45% Apple, 20% Amazon, and spred another 20% among 2-3 companies in energy etc… is much better option than buying index fund. and over last decade would have 100x your money over VTSAX… and is just as “safe”
I'd like to retire like the people in this study https://www.ramseysolutions.com/retirement/the-national-stud...
If you want to be Warren Buffet rich you're playing a different game than me.
no thanks, not for me
I think many investors are trying to preserve what wealth they've accumulated through saving/inheritance, and are very happy with modest returns, or even just preserving what they have.
I’m now at a point where my investments in index funds kick off nearly enough to cover my expenses. It’s an incredible thing that I’m super proud of.
Your take here is reckless and I hope nobody takes it seriously. I’m not advocating for putting your life on hold to work a 9-5 just to save - but if you’re not sticking some cash into safe investment vehicles as you go then you’re just playing on hard mode.
I just hope nobody takes you seriously.
I think most people would agree that we're in a bit of a weird time financially. It seems possible to me that total market index funds might go sideways for a while, and that we might, in fact, have bigger fish to fry as well.
On the other hand, if you've paid down your debts, and emergency fund is in good shape, and you still have extra cash, is there a better bet than a total market index fund?
This is right but your implication is wrong. You get rich from working and index funds are a way to preserve and modestly increase that wealth. Boglehead thinking probably won't help people making minimum wage or whatever because if you invest almost nothing to begin with you'll get fairly little out. It also won't make you super-rich if that's what you want.
when your health is poor and corporate America has drained every ounce of life out of you
This sounds completely wrong. Working a salaried job in tech is one of the least stressful, lowest risk, and highest paying ways to earn money. It's easy mode (if you can get in the door). Hustling leveraged real estate or some other kind of "passive income" is much harder and riskier.
If you dont like your current dev work, negotiate or move, its stupidly easy compared to any other engineering or sciences, anywhere in the world.
If you want to become wealthy without learning a ton about finances then read the total money makeover by Dave Ramsey or spend a few months listening to his podcast (go back a couple years before some of the new personalities who will be replacing him have started to come on).
Then, if you get curious enough to learn more advanced topics (don’t look to Dave for these) then head over to boggleheads.
The path to wealth is boring consistency. But it’s a much shorter path than most people think with the right discipline.
People who follow his plan pay tens of thousands of dollars in debt off in 1-2 years on modest incomes.
if you focus on saving money, you skip $5k vacations
what’s a number in an account worth if you never use it?
There’s a balance of course, but I know a few people who go too far into the “save everything” category. They are slaving away in their 20s and 30s, prime time for exploration and fun, for a retirement when they are older and have other responsibilities.
I have a family member who had a serious health scare when she was younger, and still lurks over her head. It’s really a different perspective: why have no fun now saving for a day that might never come?
Of course, you do need to save something, because retirement will hopefully come. Balance is everything.
Like when you are in your 20s, living with roommates (even if you can afford not to) is fine and could be fun, and you can just enjoy friends coming over for beers vs more expensive outings etc.
And if you save enough, you have the "dry powder" to buy that house or whatever when time comes.
On the flip side, if you don't save when you are young, and you can't afford shit when you are older - it gets not cute really fast. Like being 40 and not having a house because you never got your shit together for a down payment (because you lived it up the prior 2 decades) is pathetic.
> Like when you are in your 20s, living with roommates (even if you can afford not to) is fine and could be fun, and you can just enjoy friends coming over for beers vs more expensive outings etc.
Fair. I’ll just say we have different definitions of fun :) (nothing against what you said, people enjoy different things. I am actually jealous of people who find that stuff fun).
If people want to live different they can. Plenty of people die in their 50s and 60s. Some earlier.
The fact is I see much more people who are too poor relative to their age living miserable lives because of that.
I realized I lived through a peculiar hell when I was young, so I definitely made up for it buy working hard, playin' hard.
It's good that you'll be fine if you go back to nothing, but it very much isn't a reason to spend all the money.
Reasons to spend all the money could be eg that it makes you happier (I very much doubt that) or that it makes the world a better place (you didn't say how you spend the money, so perhaps?).
I know people who are basically close to burnout all the time, and a week here and there of no-responsibility vacation would do wonders for their mental health. It’s not necessarily always about fulfilling a dream, but it can be about doing a little self care.
Those weeks don't have to cost anything. You could stay at home, go camping, etc.
(They don’t necessarily need to be expensive vacations, though.)
Some people must have nerves of steel, I couldn't sleep living life like that. A stiff breeze takes most people out financially and the feel comfortable going on vacations!
If you want to live in a society of relaxed, happy well-off people then you're going to have to do some work for someone else that you never collect on. That is literally the only way to achieve good outcomes. We call it "savings" and it is a great idea.
Live below your means is good advice. It says nothing about not taking a vacation.
If you understand an industry or market segment deeply, you can indeed do much better than the index within that segment. It’s a fact born out by my own experience - you can separate a MongoDB from an AWS if you know a bit about technology and don’t look simply at press releases and Gartner reports.
Like, if Mongo is mispriced relative to Amazon, and you confidently see it, you will trade accordingly and erase the price difference.
In what I recall from my CFA studies, research shows that only genuine insider information can consistent outperform the assumption that all information is already priced in.
And for example, let's say you perceive Amazon and Mongo as mispriced, but what if that's because some even bigger expert than you saw something you didn't and traded accordingly?
(For what it's worth, I used to work for one of the world's most significant hedge funds. Our win/loss rate on trades was something like 52/48. So even as literally the worlds top investors who spent more effort, brainpower and money to gain insight, we were right just a bit over half the time. It really drew the point home that a random non-insider individual who thinks can do that over decades is likely delusional)
Writing off any ability to beat the market is defeatist because it happens all the time. Someone has to buy the mis-priced stock and it isn’t high frequency firms who exit positions every night.
Some of the big players have moves like that which work well given the right market conditions. My guess is that they have many, many patterns like that to trade on or models which are right more often than not. I don't know anything though since I'm a 101 retail investor... Positional options trading and volatility stuff makes my brain hurt :(
Have you seen strategies like that before? It's really interesting to dig into but seems to require a lot of knowledge to know how to trade on.
[0] https://en.wikipedia.org/wiki/Post%E2%80%93earnings-announce...
[1] Positional Options Trading: An Advanced Guide, pg. 90
It ignores the fact that participants within the system are only efficient with respect to the basic incentive structure created by the monetary system which itself is highly inefficient and wasteful.
The government could essentially just print money to incentivize people to push a boulder up and down a mountain for no reason... You can be sure that those who will get paid the most will the the fittest ones who can push the boulders up faster than anyone else; the most efficient boulder pushers if you like... But can it be said that these people are efficient at all in the grand scheme of things?
Is it an efficient market if the monetary environment within which those markets exists is itself artificial and inefficient?
The EMH says nothing about efficiency of producing value, only about price discovery.
“The EMH only applies to an idealized analytical fiction and is not applicable to the real world” would also be a problem with the EMH.
Efficient markets take into account everything from politics to corruption to the odds of natural disasters. I'm not sure where you read otherwise.
You think investors don't price in the political risk of dealing with, say the Chinese government? You think bond investors aren't paying attention to the fed?
It is inefficient because it requires a constant injection of money because of growing inequality. People think the newly injected money is causing inequality but the reality is that the inequality is growing regardless of whether you inject money or not and injecting more money acts as a temporary pain killer.
A wealth tax deallocates money from the rich to the poor. You might call this redistribution but who is to say that the wealth hasn't been artificially redistributed to the rich?
Currently, all the newly printed money only serves to subsidize the operations of the rich; allowing them to reduce their margins down to 0 which creates insane anti-competitive moats.
The efficient market hypothesis has nothing to do with the monetary system or with getting money out of the economy, whatever that is supposed to mean.
Even if you assume there are no information inequalities outside of inside information (there are), markets are myopic. Expectations focus around one scenario which is why you see slow adjustments to trends.
Btw, it is actually worse than people think: I have countless anecdotes from execs who run companies, who were "experts", who had substantial inside information and were still unable to predict industry trends better than me. There is a social, cultural, institutional context...you see vastly different investor behaviour even between countries that are very similar (i.e. US/UK). This focus on information above all is a conceit to assist the construction of economic theories, not a distinction that is useful in practice.
Also, you may or may not have worked for a very impressive hedge fund but win rate tells you nothing about profitability. I know a fund that made one decision in 1992, made poor decisions constantly after, almost everyone who works there is worth $100m+, and they manage $100bn. You can go 10 years with only one good idea and outperform everyone else. Win rate means nothing.
You are, of course, correct, and it has been proven time and time again. People think that just because we had a few years of 0% rates that they are somehow geniuses who can do 15% CAGR for 50 years without a problem.
In reality, almost nobody can beat the S&P500 low-cost index fund, after all expenses. People still dream, though.
Large companies are often able to generate low-quality growth that keeps things going for a few more years. The trick is distinguishing between high and low quality growth.
Tech companies can add more sales people, that is easy, it can keep things going whilst equity markets are open. Quality growth can't be bought like a salesperson. MDB was always seemed anomalous to me, I am not surprised they are down 65% because competition is only increasing. But, either way, the real money is on the long side (predicting which companies are going to fail is a lot easier than predicting success, the problem is funding that position and what happens in the middle because companies have so many ways to fake success until the next bear market).
The evidence is that even the Harvard-trained finance grads, best of their class, making 1 million a year, heading the very best funds, with 2nd degrees in mathematics etc., cannot do this.
I almost feel like the discussion at this point should proceed straight to "no anecdotes please, show your work" (evidence, data, the more the better).
The evidence is extremely strong that the index fund strategy vs. human fund managers contest is really just another form of the computer chess strategy vs. human chess player one (or Go, if you prefer that). Just think of it as 'computer game players vs. human game players,' as a category. It really isn't much of a contest in the long term.
The computers have been winning, and will continue to win, as history is ever more on their side.
Yet I have made investments in so many things over the years, so I don’t know how to square it other than, “I personally read the evidence, investigated the tech, thought about it logically, ignored the experts (and HN might I add!)”.
According to the efficient market hypothesis such things should be impossible.
As another recent example I went hard into oil and gas via ETFs back in May. Why I did this is for various reasons but my conclusion was that demand would surge and supply was constrained. Almost a 2x and that’s in liquid positions. I have taken some profits but still gonna wait a bit.
According to EMH I shouldn’t be able to do this, yet here I am sitting on tons of gains.
My experience shows that more risk = more reward, and if you are careful and a student of history, you can take risk properly without blowing up.
For anyone reading this thread, just follow the path of EMH to it conclusion - trying to make an investment in a single asset is for fools. Clearly this is wrong!!!
I think it's a bit fool to live in the WSB life style, but I know plenty of people who do. They make a lot of money and lose a lot of money. They're usually more worried about retirement than I am and we make the same amount of money... this folks usually like gambling too... To each their own.
you got it the wrong way around. More reward = more risk, but the inverse might not be true.
Imagine you took crazy risk - you jump off a building, and hope that a gust of wind keeps you from dying. What is the reward?
> trying to make an investment in a single asset is for fools. Clearly this is wrong!!!
you've misunderstood the instructions for index investing and EMH. It's not saying you shouldn't concentrate and be active in choosing - it's saying that if you do, you better be someone who is more informed, and capable of pricing an investment than the market. So do you really think the average person is in that position? If not, they're better off following the market index.
For last 15 years it was about making gains at all, but now that inflation is 10% it’s how you prevent losing your money.
So much of the future depends on a tiny, unelected body that controls the global economy (the Federal Reserve) that you need to think about interest rates a lot. I come from the Austrian perspective but I understand mainstream economic reasoning so I can put myself into that mental framework when thinking about the future. However fundamentally I am a classical economic liberal, free market, Austrian.
I think inflation is here to stay for a while. I don’t think Biden and society in general can stomach a massive recession. Putting cash into short term treasuries can get you a guaranteed 5% which could be safe play given how crazy the markets are.
I am cold on AI. Everyone and their mother has been predicting self driving cars, massive job losses to automation, and so on for years. Never happens and not going to. I would avoid this industry as an investor. As labor it can be advantageous as talent is over-compensated.
I’m skeptical of electric cars. Renewables make sense in places but also a skeptic on the time frame. Would avoid electric car and ESG equities.
Residential real estate in places without strong rent control vibes is a good bet. If you can do it yourself even better - the government subsidizes your mortgage and small time landlords avoid a lot of the political intrigue. If you can get an investment property or a small multi family, I would consider swapping equities for that and let rent follow inflation each year.
Short Europe and China. Long Africa and India.
A bunch of opinions here but hopefully this fills in some pieces.
That may be the only thing I "like" about WSB: "positions or ban". Otherwise everybody would pretend that they are a genius investor doing 50% yearly easily, etc.
Anyway, it's not impossible to beat the market, but I don't know a lot of people that beat it consistently over long periods of time. Really, a few names come to mind. That's all out of millions and millions of investors. That's hard data.
Can you share a source for that? As far as I remember, the odds are around 1 in 300 (this is from memory, but that information is from Bogle's books directly). I think that research was done since 1970, but I am not sure.
The actual stat they provide is:
> And over a full 20-year period ending last December, fewer than 10 percent of active U.S. stock funds managed to beat their benchmarks.
Still, if it was 1 in 300 I think they would say “fewer than 1% or fewer than 0.5%”. So I’m assume between 9 and 10 percent beat the S&P.
I suggest reading the linked article with the mindset that nearly all of the content comes from S&P directly. It’s basically a market piece. For instance, when they say the mutual funds don’t perform consistently, they use a crazy metric of picking the top 25% performers from one year and seeing how many are in the top 25% next year. Basically their point is that mutual funds won’t beat the S&P every single year, and therefore the S&P is better. But if course, unless you’re only investing for a single year, you should care more about the expected total return. Just my two cents.
Not a lot of funds even continuously exist for 50 years - most of them closed.
https://imgur.com/saiuwNn
wallstreetbets figured it out: "positions or ban" :) It's a rule there.
Despite having domain knowledge, there are too many factors still out of your control.
For example, the science could look great, big addressable market, then some safety issue pops up and the drug is pulled.
Or the government changes the rules.
Or the FDA does.
So while domain knowledge gives you a leg up, you go from 1/100 like an average Joe to like 5/100, in terms of accurately predicting outcomes.
Two economics professors walk down a campus street, discussing the efficient markets hypothesis. One of them exclaims:
— Look, there's something green down there on the pavement; looks very much like a $20 bill!
— Nope, — answers the other, — it can't be. If that were indeed a $20 bill, somebody would have picked it up already!
The efficient market hypothesis postulates some kind of a static equilibrium. The reality is not static, and the processes that lead to a new equilibrium are neither instant nor independent of subject area knowledge. Due to this, during that last year's bull market, I made a ton of upside on stocks where I understood the business and could make sense of obscure tech news, and nearly nothing on stocks that otherwise seemed like winners and were recommended by likes of fool.com.
The oft-cited 4% depends on US data and studied 30-year time horizons.
https://www.youtube.com/watch?v=1FwgCRIS0Wg
As I mentioned in my other post - even top hedge funds are "wrong" nearly half the time, despite having the best insight and resources.
I learned a long time ago to visualize "Goldman Sach's industry X special fund" as the counterparty to any trade I do. Give me a bit of humility.
The book, first of all, does a good job of laying out the complete case for why index funds beat human managers, starting out by telling the story of an investor who made that very bet (literally), who ironically most people would put on the other side of that: Warren Buffett. Buffett bet a fund manager that an index fund would beat the best of any funds his opponent would select. A decade or so later, Buffett was proved right and declared the winner.
https://www.advisorperspectives.com/articles/2017/11/13/ted-....
If even Warren Buffett is betting on index funds as beating active investors, why are most people so reluctant to?
But besides that... why are index funds - which you can also think of as 'fully automated/computerized investing' - so effective?
There's a few reasons, but a really simple explanation is: over time, a bunch of fund managers are just going to recapitulate the market, and the advantage computers have is, they can duplicate that functionality but their fees are zero (or 0.001% per year, whatever is the tiny amount it costs to run the servers). Human fees are not zero. Therefore, the computers win.
Another one is just that the whole market, diversified, ends up being the best hedge against... everything. Is Elon Musk a genius one day, and now getting pilloried as an idiot as the head of Twitter? If he's a big part of your portfolio, and you bought in a year ago, that really hurts. When you hold the whole market following impersonal computer rules, you are insulated from this.
And it turns out, when you look at the full impartial record of active investor picks, it's pretty poor really.
A final thought that book suggested to me: if you have over 10 million dollars, you probably can't beat what the market can do. Wave the white flag and throw it all in an index fund. The computers have won, and just as we acknowledge that with chess and Go (art's probably next), index funds are an extension of same.
Close to what I'd do. I'd first consult an expert about asset protection, then get a modest house and a different-city apartment, and then put everything remaining in three index funds (ITOT, IXUS, and a little AGG, or equivalents).
none of the bogglehead investment advice claim that it's not possible to beat the market - the claim is that it's hard, and if you're average person (and face it, most people are average people), the best advice is to do what is more likely to succeed, rather than the small chance thing that might succeed beyond your wildest dreams.
Therefore, the best advice for the average person is to buy index funds, rather than follow the path of Buffet.
Since 2008, BRK is just keeping up with SP500, and even that seems to be due to outsized bets on Apple, which offset earlier mistakes of not investing in Apple, Microsoft, Alphabet, Amazon…and instead going with IBM/Heinz.
That is a lot of risk for no gain over 15 years. Obviously, Buffett is playing with money he can afford to lose, but he is smart enough to advise others who cannot afford to lose to invest differently.
https://dqydj.com/sp-500-return-calculator/
https://dqydj.com/stock-return-calculator/
Dec 2007 to Dec 2022 is 8.86% for SP500 vs 7.99% for BRK-B.
Dec 1997 is 7.7% for SP500 vs 10.57% for BRK-B.
BRK even provides this information by year in their annual report on page 2, and the all time record is BRK at 20% versus SP500 at 10%:
https://www.berkshirehathaway.com/letters/2021ltr.pdf?mod=ar...
Of course, I should not debate that it is possible to beat the market, but the question for an individual is, is the potential return over the relatively risk-less SP500 worth the risk? And the data for the past 14 years or so indicates that BRK’s edge may have decreased.
I write “relatively risk-less SP500” because on a sufficiently long timeline, I assume US federal government is bailing out SP500, or the US federal government has big problems (such as does not exist in the form it is in now).
(You can also apply this strategy to not just "money," but e.g. jobs and projects)
Lets say a few hundred means $200. After 10 years of 200% returns you'd have $11.8mil. I could live with that.
Through introspection I learned why the market premium exists for passive investors. In the early 2010s I was lucky to have started working and somehow invested in real estate at their all time lows. Did pretty ok (coulda done better but can't complain). Only recently did I get into index investing, and boy, it's psychologically difficult . As Cat Stevens says, "it's not easy to be calm when you've found something going on."
I kept noticing how I wanted to make moves based on news and data and charts and "intuition." But the market does not move intuitively. People will overvalue and undervalue securities, and I believe this plus behavioral mistakes is where the market premium comes from for the people who just sit tight.
For those who have a 401k and don't look at it much, it's easier than for people like me who never invested through tax-advantaged vehicles.
[https://news.ycombinator.com/item?id=28339096]