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PaperclipPerfector  4mo ago (text post)   4588 thread views

Small-Scale Question Sunday for July 7, 2024

Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?

This is your opportunity to ask questions. No question too simple or too silly.

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Peter Lynch is the GOAT. I found One Up to be the best book on investing I’ve ever read.

It's a bit old though. Have you found anything more recent, of similar quality?

I have, for the most part, given up on individual stock picking and activist investing. When I was younger, I read such things as The Intelligent Investor, A Random Walk Down Wallstreet, Get Rich Carefully, among others, but I’ve since become a FIRE follower and Boglehead. I have a small portfolio of individually picked stocks, but 90% of my net worth is tied up in index funds, mostly S&P 500 and target retirement funds. I still dabble with stock picking (and even options trading during the COVID insanity) but for the most part I just do boring, automated ETF purchases.

I won’t get rich fast, but ideally I will get rich eventually. I also don’t have to worry about picking stocks, beating the market, or questioning where I should invest my money. I simply transfer it to Vanguard and call it good.

ThisIsTheWay.jpeg

Can you pick individual stocks and beat the market? Yes. What is required? Something close to a full time job of research and modeling to do it. If you're comfortable making investing your full time job, go for it! Most people are not because it is heinously boring.

You exaggerate. It does not require several hours each day, from what I've learned. You should do a couple hours of research into a company and learn a little about its industry before you make the first purchase. And you should know what category of company it is. A cyclical would have to be watched more closely, but no one is forcing you to buy cyclicals. After the buy-in you don't need to watch it like a hawk or do "modeling". The same principle of patience applies to individual stocks as it does to index funds. Just leave it for several years while ignoring short term swings. If it's a great company like Berkshire Hathaway, or Microsoft or Apple, you can leave it for a decade or two. Follow the news about the companies/industries from time to time, and read the quarterly and annual reports of the companies you own. But that does not take huge amounts of time, and it's not like you'll be owning 20 companies if you know what you are doing. A handful is enough to mitigate risk.

This reads a lot like "It isn't that hard to win the Super Bowl if you're really good at football."

How do I get good at football?

How do I become good enough to do this low time consumption research and investing? 10Ks and 10Qs are dozens to over a hundred pages of dense language, how do I know what to pick out of them so I don't have to scrutinize every word? How do I know when I know enough about an industry? How do even define "risk" so that I can "mitigate" it (the use of the word "mitigate" really makes me suspicious. Risk cannot be "mitigated" in the sense that it can be fundamentally reduced. Risk can only be transferred. Whatever else you might think of him, this was the highly accurate central point of N.N. Taleb's Black Swan series).

More systemically, are you really going to say that with a few hours here and there of cursory research, one can assemble a portfolio that truly generates long term alpha? It's easy to delude yourself into thinking you're a genius for riding beta and then, when a drawdown happens, to pat yourself on the back for "being patient" and maybe even "buying the dip." But let's not peek at the Sharpe ratio and discover our portfolio is actually just a volatility monster over exposed to a few factors that would be laughed out of any actively managed fund's investment committee.

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