Today's XKCD...

[Askel]

Maybe it's just because I've spent way too much time immersed on binary classifiers and ROC curves, but I found this pretty funny. 



https://xkcd.com/2270/

[dandarc]

Been some great ones lately. A few days ago this one, which is speaking the truth:



https://xkcd.com/2267/

Hover-over text is great "Blockchains are like grappling hooks . . .".

[ChpBstrd]

I've thought about this paradox myself. It seems that when a stock or investment generates excitement on Marketwatch or [mutters incoherent cuss words] Yahoo Finance, it is probably about to tank. That is, the dumb money has announced its intentions. Remember Dryships, Chesapeake Energy, Rio Tinto, and Transocean?

Now, there are enough counterexamples like Bitcoin and Tesla to never bet the farm against any one thing. I wonder if a long straddle strategy is warranted for stocks that are all over the financial press.

[BobTheBuilder]

I wonder if a long straddle strategy is warranted for stocks that are all over the financial press.

I have given up on having strong opinions on stocks, too, and decided to go long straddle on amazon stock before the earnings. I laughed waking up to a hefty gain after earnings over night (can't trade earnings anyways since extended trading halts in Germany when after hours and announcements start in the USA). And I slept soundly that night. Shame that was only with testing-the-water money.

For everyone not knowing what a long straddle is: You say: "I don't know whats going to happen next, but I bet the other guys are over-confident and mispricing the call and put options". It is a convex strategy based on lack of knowledge. You make money, if the move up OR down is stronger than anticipated. You lose money if the stock moves very little, since option prices decay with time and decrease with lower volatility. Tesla options are histerically exepensive by now, so that does not work as well for extreme cases.

[nereo]

A long time ago on this forum I tossed out the question of whether a hedge fund could beat the average by developing an SP450 index fund; basically filter out the 10% of companies which seemed most in danger of tanking. IIRC another poster (Warfreak2?) ran some analyses and came up with some numbers showing returns were ~2% higher annually if you could just avoid the worst 20 stocks among 500 (market weighted).

The fact that no one has done this effectively suggests its harder to do than one might expect.

[Scortius]

This reminds me of a thread back on the 2+2 Sports Betting forum called the Barstool Pundit Weekly pick. The idea was to identify the weekly NFL game and spread that seemed to attract the most interest from casual fans. Then, you simply picked the opposite team to win. It did ridiculously well, likely due to some good fortune, but also likely due to the fact that Vegas was a lot better at picking spreads than a causal fan, and a big discrepancy in sentiment pointed to Vegas knowing something the casual fan didn't.

I was also in a fantasy football pick'em league for fun where we picked all games against the spread and simply tallied the number of correct picks. I believe EVERYONE in that league did worse than 50% and lost to the automated players 'Random PIck' and both 'Always Pick Favored' and 'Always Pick Underdog'. Humans are really bad at objectively evaluating probabilistic outcomes!

[Custom Concern]

XKCD is a consistent source of thought-provoking humor.

One could aggregate many poor judgements, say, by throwing a Dinner for Schmucks party and bringing up the topic of stock markets.

[talltexan]

A long time ago on this forum I tossed out the question of whether a hedge fund could beat the average by developing an SP450 index fund; basically filter out the 10% of companies which seemed most in danger of tanking. IIRC another poster (Warfreak2?) ran some analyses and came up with some numbers showing returns were ~2% higher annually if you could just avoid the worst 20 stocks among 500 (market weighted).

The fact that no one has done this effectively suggests its harder to do than one might expect.

I think I vaguely recall a similar idea--perhaps it was here--where a guy was going to do everything he could to pick individual stocks, then buy an SP500 index and SHORT those stocks (figuring that he was likely to underperform the market).

[Custom Concern]

I'm reading Burton Malkiel's "A Random Walk Down Wall Street" and he actually has a short paragraph about this strategy.

Back when many were picking their own stocks it was common to buy less than the round lot of 100 shares in order to afford the purchase. These odd lotters got a reputation for being awful at picking stocks. Some folks apparently picked up on this and tried using it as a contra-indicator for stocks that were to perform poorly.

Upon examination the odd lotters do indeed have worst performance. But Burton in his dismissive way just says "However, the available evidence indicates that odd-lotter's actions is not useful for the information of investment strategies".

Personally, I'd like to see the evidence.

[nereo]

I havent' heard the term "odd lotter" in quite a while. 
Most traders today don't even know what a "lot" is in regards to equities.

[Askel]

Well, they're either odd lotters or geniuses: https://www.bloomberg.com/news/articles/2020-02-26/reddit-s-profane-greedy-traders-are-shaking-up-the-stock-market

[talltexan]

I signed onto sharebuilder because I liked the idea of setting up the DCA purchase plan to move into a few companies slowly. Eventually they were bought by Capital One and then eTrade, so I lost that feature. I probably will need to go into options to do it, which will put be back into the "even lot" camp.