Author Topic: Using stock simulator makes stock picking look easy - what am I missing?  (Read 3522 times)

DieHard_772

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Hey all,

First a disclaimer: I'm still a relative investing newbie.
 I have been investing in index funds for a little over two years,  I have never bought individual stocks,
not sure I plan to.  I just want to keep learning, so I appreciate the feedback here from experienced people.

 At the beginning of 2016, I got a stock simulator for my Android called "Stock Trainer."  It gives you $20,000
to start with, and it tells you what your stock is worth as the market changes.
 I have "bought" shares in the big companies like Google, Coke, Apple, and others...

I have barely sold anything (only some of my Netflix when it went up 40% and I wanted to lock in the gains, and one
other random stock that I bought on impulse--and got rid of on impulse to when it seemed like a dud).

Today I am up about 22%, which feels pretty good.  I know for sure my index funds are not up 22% for the
equivalent amount of time.

Did I just get lucky?  Is the simulator missing extra fees and taxes?  (the fee is worked into the original stock purchase, and
there is no mention of taxes)  I hear people all the time say that it's hard to pick winners.  I have mainly
stuck to the established leaders.  What are the pitfalls to stock picking that I am not seeing with the
simulator?


Any feedback or perspective is appreciated to help me learn more about the world of investing.

Thanks

AlanStache

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At one time owning Eastman Kodak seemed as good as owning google/apple/netflix/etc today, you can get really big losses very easily that wipe out modest gains.

The 'simulator' may also be missing your reaction it it were real money, would you have sold if XYZ went down 15% but let it ride because it is not real money?

maizeman

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I have barely sold anything

What you are describing is a buy and hold strategy with individual stocks.

It's already better than the sort of active trading that tend to produce returns significantly worse than the market index.

At one logical extreme (buying and holding stock of hundreds of thousands of individual companies), you've basically just recreated an index fund and should have about the same expected return and variance as an index fund.

As you move towards the other logical extreme (buying and holding the stock of a single company), your expected return stays the same, but your variance starts to increase. In any given year, some sets of 5 companies will have returns that are much higher than the market as a whole, and other sets of 5 companies will have returns that are much lower than the market as a whole.

Quote
Did I just get lucky?
Yes.
Quote
Is the simulator missing extra fees and taxes?  (the fee is worked into the original stock purchase, and
there is no mention of taxes)
Potentially, but those don't make a big difference over short time frames like this.

Quote
I hear people all the time say that it's hard to pick winners.  I have mainly
stuck to the established leaders.
It is hard to consistently pick winners.
Quote
What are the pitfalls to stock picking that I am not seeing with the simulator?

That, even with buy and hold, about half the time you'll under perform the market, sometimes by a lot.

When I first got interested in investing, I did some individual stock buys. At the time, peak oil was the watchword of the day, and I talked myself into putting a lot of my early savings into a handful of oil company stocks assuming the value of their proven reserves would continue to increase because "they aren't making any more of it."* I was beating the market for quite a while, AND collecting better than market rate dividends at the same time.... until I wasn't anymore.

They say the worst thing than can happen for somebody with a propensity to gamble is to win the very first time they play.

*Generally this is an argument people use to try to convince you to invest in real estate, but same logic (or lack thereof) applied here.

Tyson

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Look how people panic when the stock market as a whole starts to drop.  Now multiply that times 10 and you get an idea of the stress involved with stock picking.  Its gambling.  You 'might' make more money than 9% especially in the short term.  But you are also MUCH more likely to do worse than 9% (or even take large losses) over the long term. 

Plus in a bull market, it's a lot easier to pick winners because many things are going up.  When the market is flat or dropping, oh boy!

MightyAl

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VTI = Vanguard total stock market index.

Data from yahoo finance:
Price as of Jan 1, 2016 = 98.33
Price as of May 1, 2016 = 123.01
Total gain = 25% since Jan 1, 2016.

So it appears you didn't do quite as good as the total market index. 
You picked some individual stocks in a bull market where everything went up. 
You held riskier investments with high P/E and you did not beat the total return of the total diversified market. 
If stocks went down during this period, chances are you would have significantly underperformed the market.

A rising tide lifts all boats.  My wife has a friend that wants to do a talk to their MOMS club about stock picking and all the money she has made the past few years.  I told her to be careful with that as it has been tough to lose money the past few years and a bear market will put everyone in check. 

I have gone the stock picking route and made some good money doing it.  Did I beat the market?  I don't know because I didn't think that I should benchmark my awesome gains.  It takes lots and lots of time and reading lots of 10-k's and doing a bunch of analysis.  Or you can just put it in an index fund and get almost the same gains and actually get some stuff done.

surfhb

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Its only a 2 year time frame! 

Go 30+ years with a couple bear markets in there and see how you do ;)

Cache_Stash

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Hey all,

First a disclaimer: I'm still a relative investing newbie.
 I have been investing in index funds for a little over two years,  I have never bought individual stocks,
not sure I plan to.  I just want to keep learning, so I appreciate the feedback here from experienced people.

 At the beginning of 2016, I got a stock simulator for my Android called "Stock Trainer."  It gives you $20,000
to start with, and it tells you what your stock is worth as the market changes.
 I have "bought" shares in the big companies like Google, Coke, Apple, and others...

I have barely sold anything (only some of my Netflix when it went up 40% and I wanted to lock in the gains, and one
other random stock that I bought on impulse--and got rid of on impulse to when it seemed like a dud).

Today I am up about 22%, which feels pretty good.  I know for sure my index funds are not up 22% for the
equivalent amount of time.

Did I just get lucky?  Is the simulator missing extra fees and taxes?  (the fee is worked into the original stock purchase, and
there is no mention of taxes)  I hear people all the time say that it's hard to pick winners.  I have mainly
stuck to the established leaders.  What are the pitfalls to stock picking that I am not seeing with the
simulator?


Any feedback or perspective is appreciated to help me learn more about the world of investing.

Thanks

I've done both simulator and actual purchasing.  When you're own money is on the line, it is a completely different ball game.  It becomes very hard to be disciplined. 

They are not the same thing at all.

Heckler

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Khan

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Since January 2016, the S&P500 is up 27.62% with dividends reinvested.
https://dqydj.com/sp-500-return-calculator/

Ergo, what you're missing is A: You underperformed, and B: that you have to do that year in, year out, for the next 30+ years(or however long you choose to attempt to stock pick.

Kroaler

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I went down that road.  I beat every simulator there was.   Thought I was some kinda genius.   Like others said, a rising tide lifts all boats.  Its easy to think your slick during a bull market.

Heres my story:

1.) Get good at simulators
2.) Start playing around with small amounts of money on tradeking to experiment with my theory.
3.) Grow funds to 300$ , and lose it all lol....
4.) Realize I was just lucky and believe people when they say the market cant be timed. 

So your next logical step it to take your simulator strategy and practice it on real market...           

boarder42

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VTI = Vanguard total stock market index.

Data from yahoo finance:
Price as of Jan 1, 2016 = 98.33
Price as of May 1, 2016 = 123.01
Total gain = 25% since Jan 1, 2016.

So it appears you didn't do quite as good as the total market index. 
You picked some individual stocks in a bull market where everything went up. 
You held riskier investments with high P/E and you did not beat the total return of the total diversified market. 
If stocks went down during this period, chances are you would have significantly underperformed the market.

this.

you must be holding some shitty index funds with high fees if you didnt beat the 22% return on your indvidual stock picking ... plus you took on risk if netflix goes out of business you lose alot of money the indexer loses a small percentage.

DieHard_772

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Hey All,

Thanks for the great comments,  it is awesome food for thought.
As I started by saying, I currently have no plans to stock pick....
I appreciate the information

PaulMaxime

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  • Absolute power doesn't corrupt, it reveals.
Using a stock simulator vs putting your actual capital at risk is a totally different thing. You are missing the emotion of it. Just like playing online poker for kicks vs sitting down at a table with real people and real money are two totally different things.

I now invest 99% in individual stocks. But it took me a long time to get to the point that I had the right temperament for it.

I think the best approach for a new person is to invest in index funds at first. See how you do through at least one full market cycle.

Most investors even index fund investors underperform the market by over 3% a year over time because they can't control their behavior. They buy when the market is high and sell when it's low among many other behavioral issues!

In the meantime, read some good investing books, study investing, learn about business. If it's something that you find interesting and fun then maybe you might want to take the next step and start buying the occasional stock. But treat it as if you are the owner of a business.

And RELENTLESSLY track your performance. Yahoo finance has the S&P 500 Total return index which tracks dividends paid as well as stock price appreciation. Unless you compare against a total return index like this you might be fooling yourself. https://finance.yahoo.com/quote/%5ESP500TR?p=%5ESP500TR