U.S. stocks in freefall

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AZAttorney11
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Re: U.S. stocks in freefall

Post by AZAttorney11 » Wed Oct 25, 2017 8:21 am

CULater wrote:
Wed Oct 25, 2017 7:52 am
Anyone who doesn't see the similarity between investing in stocks and gambling should re-acquaint themselves with the meaning of "risk". Expected return is not actual return. Everyone who walks into a casino has a positive expected return and a strategy to realize that return. Everyone who invests in stocks has a positive expected return and a strategy to realize that return. The Boglehead strategy is to buy and wait for the inevitable payoff that accrues to the patient believer. That's not a bad strategy - it might even be the best strategy - but don't forget it is just a strategy and nothing is guaranteed. The risk is that you can wait patiently for years and wind up losing to the house, just like every other gambler with a plan.
No, no, and no. I’m not sure you understand what positive expected return is. It’s certainly not “everyone who walks into a casino has a positive expected return.”

CULater
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Re: U.S. stocks in freefall

Post by CULater » Wed Oct 25, 2017 8:23 am

AZAttorney11 wrote:
Wed Oct 25, 2017 8:21 am
CULater wrote:
Wed Oct 25, 2017 7:52 am
Anyone who doesn't see the similarity between investing in stocks and gambling should re-acquaint themselves with the meaning of "risk". Expected return is not actual return. Everyone who walks into a casino has a positive expected return and a strategy to realize that return. Everyone who invests in stocks has a positive expected return and a strategy to realize that return. The Boglehead strategy is to buy and wait for the inevitable payoff that accrues to the patient believer. That's not a bad strategy - it might even be the best strategy - but don't forget it is just a strategy and nothing is guaranteed. The risk is that you can wait patiently for years and wind up losing to the house, just like every other gambler with a plan.
No, no, and no. I’m not sure you understand what positive expected return is. It’s certainly not “everyone who walks into a casino has a positive expected return.”
The key word is "expected". I expect that people overlook that.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

dspencer
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Re: U.S. stocks in freefall

Post by dspencer » Wed Oct 25, 2017 8:27 am

CULater wrote:
Wed Oct 25, 2017 8:23 am
AZAttorney11 wrote:
Wed Oct 25, 2017 8:21 am
CULater wrote:
Wed Oct 25, 2017 7:52 am
Anyone who doesn't see the similarity between investing in stocks and gambling should re-acquaint themselves with the meaning of "risk". Expected return is not actual return. Everyone who walks into a casino has a positive expected return and a strategy to realize that return. Everyone who invests in stocks has a positive expected return and a strategy to realize that return. The Boglehead strategy is to buy and wait for the inevitable payoff that accrues to the patient believer. That's not a bad strategy - it might even be the best strategy - but don't forget it is just a strategy and nothing is guaranteed. The risk is that you can wait patiently for years and wind up losing to the house, just like every other gambler with a plan.
No, no, and no. I’m not sure you understand what positive expected return is. It’s certainly not “everyone who walks into a casino has a positive expected return.”
The key word is "expected". I expect that people overlook that.
Everyone who walks into a casino does NOT have a positive expected return. Expected return has a real definition and it is negative for someone gambling at a casino. Maybe you mean they "expect" to win money by being lucky. Even then that would not be everyone, only fools.

CULater
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Re: U.S. stocks in freefall

Post by CULater » Wed Oct 25, 2017 8:36 am

dspencer wrote:
Wed Oct 25, 2017 8:27 am
CULater wrote:
Wed Oct 25, 2017 8:23 am
AZAttorney11 wrote:
Wed Oct 25, 2017 8:21 am
CULater wrote:
Wed Oct 25, 2017 7:52 am
Anyone who doesn't see the similarity between investing in stocks and gambling should re-acquaint themselves with the meaning of "risk". Expected return is not actual return. Everyone who walks into a casino has a positive expected return and a strategy to realize that return. Everyone who invests in stocks has a positive expected return and a strategy to realize that return. The Boglehead strategy is to buy and wait for the inevitable payoff that accrues to the patient believer. That's not a bad strategy - it might even be the best strategy - but don't forget it is just a strategy and nothing is guaranteed. The risk is that you can wait patiently for years and wind up losing to the house, just like every other gambler with a plan.
No, no, and no. I’m not sure you understand what positive expected return is. It’s certainly not “everyone who walks into a casino has a positive expected return.”
The key word is "expected". I expect that people overlook that.
Everyone who walks into a casino does NOT have a positive expected return. Expected return has a real definition and it is negative for someone gambling at a casino. Maybe you mean they "expect" to win money by being lucky. Even then that would not be everyone, only fools.
Expected return is the amount of profit or loss an investor anticipates on an investment that has various known or expected rates of return. It is calculated by multiplying potential outcomes by the chances of them occurring, and summing these results.
It's all in the gambler's (er, investor's) head in the end isn't it? Or are you saying that the outcomes of buying stocks are known facts?
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

MoonOrb
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Re: U.S. stocks in freefall

Post by MoonOrb » Wed Oct 25, 2017 8:37 am

dspencer wrote:
Wed Oct 25, 2017 8:27 am
Everyone who walks into a casino does NOT have a positive expected return. Expected return has a real definition and it is negative for someone gambling at a casino. Maybe you mean they "expect" to win money by being lucky. Even then that would not be everyone, only fools.
+1

The Casino has a +EV. Casino gamblers have a negative EV*. Investing isn't rigged to ensure a positive return for the house like casino games, so it's impossible to know for certainty whether investing will be +EV or -EV, but all historical evidence strongly points to the conclusion that buy and hold, diversified investing is +EV.

*We can put aside the example of gamblers who exclusively play poker, who may end up with a +EV by virtue of their ability to stay ahead of the rake and outplay enough other people in their games.

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Re: U.S. stocks in freefall

Post by Da5id » Wed Oct 25, 2017 8:48 am

dspencer wrote:
Wed Oct 25, 2017 8:27 am
CULater wrote:
Wed Oct 25, 2017 8:23 am
The key word is "expected". I expect that people overlook that.
Everyone who walks into a casino does NOT have a positive expected return. Expected return has a real definition and it is negative for someone gambling at a casino. Maybe you mean they "expect" to win money by being lucky. Even then that would not be everyone, only fools.
I think that "positive expected return" is being used in two ways here. The patrons of casinos and lotteries "expect" to come out ahead, they are mostly wrong about that. A few people actually have positive expected return in casinos. Historically card counters in blackjack (not currently possible). Currently poker players playing in casinos against noticeably worse poker players have a positive expected return (house gets some money, worse players lose money, better players make money over long haul). That can be done for example by poker players who are very good playing in lower stakes games to get weaker competition. I don't go to casinos in any case :)

Everyone thinks this thread is so fun (I kind of do too). I think it is easier to joke about it after a long bull market. Will be less humorous when the market is down say 40-50% from its highs and many people near/in early retirement are panicking and perhaps not constitutionally or financially able to "stay the course". Others are losing their jobs at the same time as their net worth is crashing, not so fun. That presumably will happen at some point. Not predicting when of course, or even if such a crash will ever happen again, but obviously it could.

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HomerJ
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Re: U.S. stocks in freefall

Post by HomerJ » Wed Oct 25, 2017 8:57 am

CULater wrote:
Wed Oct 25, 2017 7:52 am
Everyone who walks into a casino has a positive expected return and a strategy to realize that return.
I think you don't understand what "expected return" is. Casinos have very exact "expected returns" because the rules are known. Because the games are set up precisely to make sure that the gamblers have a NEGATIVE expected return. Playing craps the exact correct way, avoiding the bad bets with 2x odds behind the line, the gambler still has a negative 0.8% return. And of course. most people don't play craps the exact perfect way. But casinos have made sure that even if everyone did, they would still make money over all the bets. Sure, some people get lucky and some people get unlucky, but in total, the casinos make money, even if everyone played the game perfectly.

"Expected return" is a math construct, not just what Joe Bob thinks is going to happen THIS time after reading that new craps book.
Everyone who invests in stocks has a positive expected return and a strategy to realize that return. The Boglehead strategy is to buy and wait for the inevitable payoff that accrues to the patient believer. That's not a bad strategy - it might even be the best strategy - but don't forget it is just a strategy and nothing is guaranteed. The risk is that you can wait patiently for years and wind up losing to the house, just like every other gambler with a plan.
We ARE the house, when we invest in broad market index funds. That's one difference. The second difference is there are way too many variables in the stock market to precisely determine "expected returns". That doesn't stop PhDs from trying, and presenting their views as fact, but no one knows enough to predict anything in the stock market.

Very different from casinos.

Money management is about the only concept that carries over from gambling to investing (i.e. don't bet it all at one table, etc.).

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Re: U.S. stocks in freefall

Post by frankbrenowitz » Wed Oct 25, 2017 10:06 am

CULater wrote:
Wed Oct 25, 2017 7:52 am
Anyone who doesn't see the similarity between investing in stocks and gambling should re-acquaint themselves with the meaning of "risk". Expected return is not actual return. Everyone who walks into a casino has a positive expected return and a strategy to realize that return. Everyone who invests in stocks has a positive expected return and a strategy to realize that return. The Boglehead strategy is to buy and wait for the inevitable payoff that accrues to the patient believer. That's not a bad strategy - it might even be the best strategy - but don't forget it is just a strategy and nothing is guaranteed. The risk is that you can wait patiently for years and wind up losing to the house, just like every other gambler with a plan.
I don't understand this at all. A person walking into a casino may think he or she is going to "beat the house", but the very rules of the games are written to provide a positive return to the casino, not the gambler. Regardless of the gambler's state of mind, a third party observer would see that gambling is a zero sum game with a negative expected return to the person. The longer one wagers in a casino, the greater the likelihood of financial loss. The market, on the other hand, is not a zero sum game. It consists of thousands of companies with millions of employees who are providing goods and services and executing strategies to earn a profit for their shareholders. While many business strategies fail (hence the value of diversification) the view of a third party observer would be that participating in the ownership of broad economic activity has a positive expected return. That the gambler and the investor both bear risk of loss in their respective endeavors may evidence a similarity, but it is like a platypus and a duck are similar because they both have bills.

CULater
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Re: U.S. stocks in freefall

Post by CULater » Wed Oct 25, 2017 10:50 am

So, a guy walks into a casino and starts gambling on slots, craps, etc. -- the games that do not involve knowledge or skill, just luck. Over the short run, he has an expectation of a positive return, and he might turn out to be right. But we know that the longer he gambles, the more likely it is that he will experience a negative return because the long term expected return is negative. The odds are known and the law of large numbers will be his downfall.

Another guy walks into his broker or fund company and starts "investing" in stocks using index funds -- the ones that do not involve knowledge or skill since you're just telling the broker "buy everything." Over the short run, unless he is completely naive, he knows he could lose money. But the longer he "invests", the more likely he thinks it is that he will experience a positive "expected return." The thing is, nobody really knows how to calculate expected return with any precision. All documented attempts to do that have turned out to be way off the mark. Nobody ever realized a given expected return by investing in stocks. It is a precise term that lacks any precision.

Why is that? Because the longer you hold stocks the greater the uncertainty about returns. Uncertainty is a far more important factor than expected returns. A long term investor must be prepared to endure a huge amount of uncertainty; for example, by keeping his money on the table even if he loses half of it, and doesn't know if he will subsequently have that half-loaf cut in half, and so on and so on. And then, if he believes in rebalancing, he must "double down" when he loses money in stocks by spending perfectly good money in cash or bonds to invest in more stocks.

You see where I'm going here. Casino games have a poor expected return over the long run because the odds are known, and not much return uncertainty over a long time period. Investing in stocks may have a higher, but unknown, expected return that can't be calculated; but a whole bunch of return uncertainty over time. The main difference I see is that over the long run you know you'll lose money playing unskilled casino games but over the short run you may not. With stocks you don't know what will happen when you invest over either the short run or the long run. You pays your money and you takes your chances.

Now, I'd rather gamble my money on stocks than on casino games but that doesn't mean that's the best thing I could do.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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triceratop
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Re: U.S. stocks in freefall

Post by triceratop » Wed Oct 25, 2017 10:59 am

CULater wrote:
Wed Oct 25, 2017 10:50 am
So, a guy walks into a casino and starts gambling on slots, craps, etc. -- the games that do not involve knowledge or skill, just luck. Over the short run, he has an expectation of a positive return, and he might turn out to be right. But we know that the longer he gambles, the more likely it is that he will experience a negative return because the long term expected return is negative. The odds are known and the law of large numbers will be his downfall.

Another guy walks into his broker or fund company and starts "investing" in stocks using index funds -- the ones that do not involve knowledge or skill since you're just telling the broker "buy everything." Over the short run, unless he is completely naive, he knows he could lose money. But the longer he "invests", the more likely he thinks it is that he will experience a positive "expected return." The thing is, nobody really knows how to calculate expected return with any precision. All documented attempts to do that have turned out to be way off the mark. Nobody ever realized a given expected return by investing in stocks. It is a precise term that lacks any precision.

Why is that? Because the longer you hold stocks the greater the uncertainty about returns. Uncertainty is a far more important factor than expected returns. A long term investor must be prepared to endure a huge amount of uncertainty; for example, by keeping his money on the table even if he loses half of it, and doesn't know if he will subsequently have that half-loaf cut in half, and so on and so on. And then, if he believes in rebalancing, he must "double down" when he loses money in stocks by spending perfectly good money in cash or bonds to invest in more stocks.

You see where I'm going here. Casino games have a poor expected return over the long run because the odds are known, and not much return uncertainty over a long time period. Investing in stocks may have a higher, but unknown, expected return that can't be calculated; but a whole bunch of return uncertainty over time. The main difference I see is that over the long run you know you'll lose money playing unskilled casino games but over the short run you may not. With stocks you don't know what will happen when you invest over either the short run or the long run. You pays your money and you takes your chances.

Now, I'd rather gamble my money on stocks than on casino games but that doesn't mean that's the best thing I could do.
You're confusing multiple definitions of the word "expected". In the context of investing, expected returns refers to mathematical expectation (It does not matter that we do not know the distribution of returns). The gambler's notion of expectation is different than the investing community's notion.

You say "it is a precise term that lacks any precision". Not true! As you acknowledge later, It's a precise term that lacks certainty. Precision and uncertainty are different things. You even concede that stocks have a positive (unknown) expected return, so I do not see how it is at all similar to gambling which has a negative expected return.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

AZAttorney11
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Re: U.S. stocks in freefall

Post by AZAttorney11 » Wed Oct 25, 2017 11:00 am

CULater wrote:
Wed Oct 25, 2017 10:50 am
So, a guy walks into a casino and starts gambling on slots, craps, etc. -- the games that do not involve knowledge or skill, just luck. Over the short run, he has an expectation of a positive return, and he might turn out to be right.
No. A gambler playing slots (other than perfect strategy on video poker) never, ever has a positive expected return. Same for a gambler playing blackjack, roulette, etc. Expected positive return is a term of art. It has nothing to do with the mental state of a gambler or investor.

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Re: U.S. stocks in freefall

Post by flyingaway » Wed Oct 25, 2017 11:14 am

The discussions have become so complicated for this thread.

I just want to know: buy or sell.

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Re: U.S. stocks in freefall

Post by MotoTrojan » Wed Oct 25, 2017 11:19 am

CULater wrote:
Wed Oct 25, 2017 7:52 am
Anyone who doesn't see the similarity between investing in stocks and gambling should re-acquaint themselves with the meaning of "risk". Expected return is not actual return. Everyone who walks into a casino has a positive expected return and a strategy to realize that return. Everyone who invests in stocks has a positive expected return and a strategy to realize that return. The Boglehead strategy is to buy and wait for the inevitable payoff that accrues to the patient believer. That's not a bad strategy - it might even be the best strategy - but don't forget it is just a strategy and nothing is guaranteed. The risk is that you can wait patiently for years and wind up losing to the house, just like every other gambler with a plan.
The casino has a negative expected return, with some variation/standard-deviation on top of that. I am not sure how you can equate that to the stock market. An equivalent "buy-and-hold" approach to a casino (go in with $XXXX, and sit at the blackjack table until "retirement") is expected to have you walking out broke.

Can the world economy collapse? Yes. Can the dealer hit a 21 when they are showing a 5? Yes. Both have risks, but the expected/average results tilt to different sides of the eqn.

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Re: U.S. stocks in freefall

Post by Doom&Gloom » Wed Oct 25, 2017 12:17 pm

sketchy9 wrote:
Tue Oct 24, 2017 7:52 pm
CULater wrote:
Tue Oct 24, 2017 3:17 pm
dspencer wrote:
Tue Oct 24, 2017 1:51 pm
CULater wrote:
Tue Oct 24, 2017 10:20 am
I know this market is in for a tumble. Not because it keeps going up, but because it doesn't go down. The dip-buyers can't get in because there are no dips. Just what it did the last times just before it crapped out.
Are you short the market? Do you have a time table for this prediction? How much will it tumble? Otherwise, aren't you just stating the obvious? Sooner or later the market will decline like it has many times in the past?
Sooner rather than later. This market is on it's last legs. I never short, but I do take money off the table when the odds of craps is high. As Edward Thorpe has pointed out, there is a lot of similarity between investing in stocks and casino gambling. Right now, there's a whole lot of similarity. Lots of risk for not much expected return. House wins.
1. The odds of craps are the same on every roll. You of course already knew that each roll is an independent event, and that previous rolls do not influence the current one. Don't fall for the gambler's fallacy.
2. I don't see how boglehead-style investing can be compared to gambling. I don't think anyone here would disagree that there is a degree of chance involved in how the market behaves (e.g. will any number of aspiring international supervillains finally get the nuclear breakthrough they've been after and threaten or attack the world? Can't really control for that). However, to imply that chance is the primary determinant of returns seems a bit off. Moreover, although we assume the market will cycle into the troughs eventually, we also believe that the fundamentals of the US economy and US policy are sound and are what will drive it back to the peaks. There's definitely an element of faith involved in that belief but it's faith in the structure of the economy and its people, not in random chance or hoping that I'll roll a 7 before I crap out.
I will make one feeble attempt to clarify a point (which I bolded above) here that seemingly led to this fun thread going totally off the rails.

I am certain that Thorp (not Thorpe) was comparing investing to gambling with an edge such as he did with card-counting. That is gambling with a positive expectation--not gambling as an uninformed person walking into a casino with a pocketful of money and "expecting" to walk out with more than he walked in with.

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Re: U.S. stocks in freefall

Post by 2b2 » Wed Oct 25, 2017 12:40 pm

The casino guy has a positive "desired" return.
The investor guy has a positive "expected" return.

Very different animals.

2b2

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Re: U.S. stocks in freefall

Post by Earl Lemongrab » Wed Oct 25, 2017 1:08 pm

flyingaway wrote:
Wed Oct 25, 2017 11:14 am
I just want to know: buy or sell.
Don't try to time the market. If your allocation calls for more stocks, buy some. If your allocation calls for fewer, sell. If your allocation is good, hold. Ignore the noise, especially some of the noise on this thread.
This week's fortune cookie: "You will do well to expand your horizons." Ow. Passive-aggressive and vaguely ominous.

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Re: U.S. stocks in freefall

Post by Doom&Gloom » Wed Oct 25, 2017 1:13 pm

2b2 wrote:
Wed Oct 25, 2017 12:40 pm
The casino guy has a positive "desired" return.
The investor guy has a positive "expected" return.

Very different animals.

2b2
*sigh*

It depends upon which "casino guy" you are talking about (very different animals):
The advantage player has a positive expected return.
The rube aka gambler has a negative expected return.
Each has a "positive desired return"--whatever that is.

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Re: U.S. stocks in freefall

Post by protagonist » Wed Oct 25, 2017 1:36 pm

CULater wrote:
Wed Oct 25, 2017 10:50 am
So, a guy walks into a casino and starts gambling on slots, craps, etc. -- the games that do not involve knowledge or skill, just luck. Over the short run, he has an expectation of a positive return, and he might turn out to be right. But we know that the longer he gambles, the more likely it is that he will experience a negative return because the long term expected return is negative. The odds are known and the law of large numbers will be his downfall.

Another guy walks into his broker or fund company and starts "investing" in stocks using index funds -- the ones that do not involve knowledge or skill since you're just telling the broker "buy everything." Over the short run, unless he is completely naive, he knows he could lose money. But the longer he "invests", the more likely he thinks it is that he will experience a positive "expected return." The thing is, nobody really knows how to calculate expected return with any precision. All documented attempts to do that have turned out to be way off the mark. Nobody ever realized a given expected return by investing in stocks. It is a precise term that lacks any precision.

Why is that? Because the longer you hold stocks the greater the uncertainty about returns. Uncertainty is a far more important factor than expected returns. A long term investor must be prepared to endure a huge amount of uncertainty; for example, by keeping his money on the table even if he loses half of it, and doesn't know if he will subsequently have that half-loaf cut in half, and so on and so on. And then, if he believes in rebalancing, he must "double down" when he loses money in stocks by spending perfectly good money in cash or bonds to invest in more stocks.

You see where I'm going here. Casino games have a poor expected return over the long run because the odds are known, and not much return uncertainty over a long time period. Investing in stocks may have a higher, but unknown, expected return that can't be calculated; but a whole bunch of return uncertainty over time. The main difference I see is that over the long run you know you'll lose money playing unskilled casino games but over the short run you may not. With stocks you don't know what will happen when you invest over either the short run or the long run. You pays your money and you takes your chances.

You are all arguing semantics.

Forget about semantics. CU's main point is completely correct.

Casino: The odds are known and are not in your favor. You may win in the short run, but the longer you play, you KNOW that your performance will come closer to the known odds and if you play long enough you will lose.

Stock Market: The odds are never known. Within relatively recent history we can say that investing resultED (emphasis on the "ED") in an x% gain, and we are hopeful, based on this, that in the future we will continue to win. But we have no idea what the odds of winning are because the future is unpredictable. The market is most susceptible to unknown "black swan" events . And uncertainty multiplies over time (eg we can guess about tomorrow but we are completely clueless about a millenium from now), whereas in the casino analogy one can become more certain over time.

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Re: U.S. stocks in freefall

Post by DanMahowny » Wed Oct 25, 2017 2:37 pm

Just to correct a few assumptions being made here . . .

There are many casino games (nearly all) that are +EV for the advantage player.

James Grosjean's book "Exhibit CAA: Beyond Counting" explains all. The book can be found on eBay, but typically sells for $7,000 to $10,000. And it's worth it.

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Re: U.S. stocks in freefall

Post by Doom&Gloom » Wed Oct 25, 2017 2:50 pm

DanMahowny wrote:
Wed Oct 25, 2017 2:37 pm
Just to correct a few assumptions being made here . . .

There are many casino games (nearly all) that are +EV for the advantage player.

James Grosjean's book "Exhibit CAA: Beyond Counting" explains all. The book can be found on eBay, but typically sells for $7,000 to $10,000. And it's worth it.
+1

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Re: U.S. stocks in freefall

Post by chisey » Wed Oct 25, 2017 2:53 pm

DanMahowny wrote:
Wed Oct 25, 2017 2:37 pm
There are many casino games (nearly all) that are +EV for the advantage player.
The only ways I know of for a smart/skilled player to have an edge on the house or competition are to play poker well enough to stay ahead of the rake or to cheat/count cards at blackjack. What other games are you referring to?

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Re: U.S. stocks in freefall

Post by parsi1 » Wed Oct 25, 2017 3:06 pm

all I know is that casinos are opposite to stock markets.
the longer you stay in a casino the more you lose, and the longer you stay in stock market the more you win.
:confused did i say it right or I have it reversed. :?:

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Re: U.S. stocks in freefall

Post by HomerJ » Wed Oct 25, 2017 3:13 pm

protagonist wrote:
Wed Oct 25, 2017 1:36 pm

You are all arguing semantics.

Forget about semantics. CU's main point is completely correct.

Casino: The odds are known and are not in your favor. You may win in the short run, but the longer you play, you KNOW that your performance will come closer to the known odds and if you play long enough you will lose.

Stock Market: The odds are never known. Within relatively recent history we can say that investing resultED (emphasis on the "ED") in an x% gain, and we are hopeful, based on this, that in the future we will continue to win. But we have no idea what the odds of winning are because the future is unpredictable. The market is most susceptible to unknown "black swan" events . And uncertainty multiplies over time (eg we can guess about tomorrow but we are completely clueless about a millenium from now), whereas in the casino analogy one can become more certain over time.
Yes, but note that the stock market is NOT just random events like rolling dice. Value IS being created from human labor and human capital and material goods. In general, the economy and the stock market should grow in value over the long run because there are positive inputs into the system.

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Re: U.S. stocks in freefall

Post by HomerJ » Wed Oct 25, 2017 3:18 pm

DanMahowny wrote:
Wed Oct 25, 2017 2:37 pm
Just to correct a few assumptions being made here . . .

There are many casino games (nearly all) that are +EV for the advantage player.

James Grosjean's book "Exhibit CAA: Beyond Counting" explains all. The book can be found on eBay, but typically sells for $7,000 to $10,000. And it's worth it.
Nearly all? Name some please.

I used to count cards, and yes that can result in a +EV (although I did it back when you could still find single-deck blackjack in Vegas. 6-deck shoes makes it less effective nowadays).

Poker can be a skill game as well.

Craps, roulette, slots - these cannot have positive +EV. The next roll or spin is independent of the previous ones, unlike blackjack where the previous hands do affect the following hands.

You CAN adjust your betting on a hot streak in craps, but in the long run, craps is a negative EV game.

Edit: Also, why would that book cost $7,000 -$10,000? No one can print more? Sounds like that guy found the real way to make money.

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Re: U.S. stocks in freefall

Post by fantasytensai » Wed Oct 25, 2017 3:38 pm

Can we please get back to the subject at hand - freaking out about 0.5% drops in the market?

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Re: U.S. stocks in freefall

Post by NewPhoneWhoDis » Wed Oct 25, 2017 4:14 pm

DanMahowny wrote:
Wed Oct 25, 2017 2:37 pm
Just to correct a few assumptions being made here . . .

There are many casino games (nearly all) that are +EV for the advantage player.

James Grosjean's book "Exhibit CAA: Beyond Counting" explains all. The book can be found on eBay, but typically sells for $7,000 to $10,000. And it's worth it.
I thought this was a joke but it's actually real.

lol

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Re: U.S. stocks in freefall

Post by protagonist » Wed Oct 25, 2017 4:17 pm

HomerJ wrote:
Wed Oct 25, 2017 3:13 pm
protagonist wrote:
Wed Oct 25, 2017 1:36 pm

You are all arguing semantics.

Forget about semantics. CU's main point is completely correct.

Casino: The odds are known and are not in your favor. You may win in the short run, but the longer you play, you KNOW that your performance will come closer to the known odds and if you play long enough you will lose.

Stock Market: The odds are never known. Within relatively recent history we can say that investing resultED (emphasis on the "ED") in an x% gain, and we are hopeful, based on this, that in the future we will continue to win. But we have no idea what the odds of winning are because the future is unpredictable. The market is most susceptible to unknown "black swan" events . And uncertainty multiplies over time (eg we can guess about tomorrow but we are completely clueless about a millenium from now), whereas in the casino analogy one can become more certain over time.
Yes, but note that the stock market is NOT just random events like rolling dice. Value IS being created from human labor and human capital and material goods. In general, the economy and the stock market should grow in value over the long run because there are positive inputs into the system.
Were that true, since there have always been human labor and capital and material goods, growth of the economy would have been steady from the dawn of civilization. And we know that has not been the case. History, including economies, are more cyclical- or really chaotic- than linear. We just happen to be lucky enough to be alive at the high point.

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Re: U.S. stocks in freefall

Post by LadyGeek » Wed Oct 25, 2017 4:26 pm

The discussion is trending off-topic (expected returns for casinos). Please stay on-topic, which is about the US stock market.
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Re: U.S. stocks in freefall

Post by HomerJ » Wed Oct 25, 2017 5:15 pm

protagonist wrote:
Wed Oct 25, 2017 4:17 pm
HomerJ wrote:
Wed Oct 25, 2017 3:13 pm
protagonist wrote:
Wed Oct 25, 2017 1:36 pm

You are all arguing semantics.

Forget about semantics. CU's main point is completely correct.

Casino: The odds are known and are not in your favor. You may win in the short run, but the longer you play, you KNOW that your performance will come closer to the known odds and if you play long enough you will lose.

Stock Market: The odds are never known. Within relatively recent history we can say that investing resultED (emphasis on the "ED") in an x% gain, and we are hopeful, based on this, that in the future we will continue to win. But we have no idea what the odds of winning are because the future is unpredictable. The market is most susceptible to unknown "black swan" events . And uncertainty multiplies over time (eg we can guess about tomorrow but we are completely clueless about a millenium from now), whereas in the casino analogy one can become more certain over time.
Yes, but note that the stock market is NOT just random events like rolling dice. Value IS being created from human labor and human capital and material goods. In general, the economy and the stock market should grow in value over the long run because there are positive inputs into the system.
Were that true, since there have always been human labor and capital and material goods, growth of the economy would have been steady from the dawn of civilization. And we know that has not been the case. History, including economies, are more cyclical- or really chaotic- than linear. We just happen to be lucky enough to be alive at the high point.
What do you mean? Capitalistic economies have always grown, not steady, but the trend is always upwards, until war or disease or something else disrupts it. There is indeed positive input into the system. It's not a closed static system. That's why it has a positive expected return. It's not just random ups and downs like a dice game.

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Re: U.S. stocks in freefall

Post by oldcomputerguy » Wed Oct 25, 2017 5:20 pm

flyingaway wrote:
Wed Oct 25, 2017 11:14 am
The discussions have become so complicated for this thread.

I just want to know: buy or sell.
Yes.
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Re: U.S. stocks in freefall

Post by CULater » Wed Oct 25, 2017 5:23 pm

One of the most significant factors affecting your stock returns is when you enter the market and when you exit -- your investment horizon. If luck wasn't a major determinant of returns, that wouldn't be true. Not unlike games of chance.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: U.S. stocks in freefall

Post by Uncle Pennybags » Wed Oct 25, 2017 5:31 pm

CULater wrote:
Wed Oct 25, 2017 5:23 pm
One of the most significant factors affecting your stock returns is when you enter the market and when you exit -- your investment horizon. If luck wasn't a major determinant of returns, that wouldn't be true. Not unlike games of chance.
The earlier one gets in the market the better, it's not market timing it is time in the market. Buy and hold, don't do something just stand there. Boglehead investing is easy.

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Re: U.S. stocks in freefall

Post by HomerJ » Wed Oct 25, 2017 5:32 pm

CULater wrote:
Wed Oct 25, 2017 5:23 pm
One of the most significant factors affecting your stock returns is when you enter the market and when you exit -- your investment horizon. If luck wasn't a major determinant of returns, that wouldn't be true. Not unlike games of chance.
Your point is valid, except that people here don't enter the market at one discrete point.

I didn't buy my stock index fund just in 2000 at the top of the bubble. I also bought some in 1992-1999, and 2001-2017.

Some of those purchases have indeed done better than others. But they all averaged out to a ton of money. Even the absolute worst time to buy, in 2000 at the highest valuations in history... I still got a positive return over the long-run. Read that again. The worst possible time to buy still generated a positive long-term real return.

And leaving the market is also usually done over a series of years, although you can control that better, deciding not to pull out stock money during a crash for instance, and instead use bond money.

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Re: U.S. stocks in freefall

Post by Rashen » Wed Oct 25, 2017 8:42 pm

omg 0.5% decline is a free fall???
how are you gonna call the 5% drop?

lol

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Re: U.S. stocks in freefall

Post by Engineer250 » Wed Oct 25, 2017 9:30 pm

CNBC referred to today as a "sharp decline" before stocks regained some losses. So 1% is a sharp decline now CNBC? And we didn't even end on that much!

Marketplace radio's Kai Ryssdal calls days like today "mostly flat". He is correct. Still, happy to see this thread degenerate into gambling comparisons, it means nothing to worry about. I predict tomorrow will end positive. The market was fickle today but it won't last. No buying opportunity yet.
Where the tides of fortune take us, no man can know.

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Re: U.S. stocks in freefall

Post by MoonOrb » Wed Oct 25, 2017 9:50 pm

If not for this thread popping up in my recent activity I wouldn't even know that the market was down.

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Re: U.S. stocks in freefall

Post by lazydavid » Thu Oct 26, 2017 11:02 am

Engineer250 wrote:
Wed Oct 25, 2017 9:30 pm
CNBC referred to today as a "sharp decline" before stocks regained some losses. So 1% is a sharp decline now CNBC? And we didn't even end on that much!
Indeed. Leaving the percentages aside, I "lost" $2k yesterday. In last year's relatively mild post-Brexit drop, I "lost" $22k. And this is on a base that is 39% larger today than it was last year.

It's got to be a contextual bias. Now that we've gone longer than any time in history without an intraday drop of at least 3%--nearly a full year--these small movements become the news just because they're bigger than the typical ones.

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Re: U.S. stocks in freefall

Post by packet » Thu Oct 26, 2017 4:17 pm

flyingaway wrote:
Wed Oct 25, 2017 11:14 am
...I just want to know: buy or sell.
Punt.

Trying to stay close to topic... another day NOT in free fall has passed... :)

:beerCheers,
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Re: U.S. stocks in freefall

Post by oldcomputerguy » Thu Oct 26, 2017 4:21 pm

Engineer250 wrote:
Wed Oct 25, 2017 9:30 pm
CNBC referred to today as a "sharp decline" before stocks regained some losses. So 1% is a sharp decline now CNBC? And we didn't even end on that much!
Wait... we had a decline today? :o :?
Anybody know why there's a 20-pound frozen turkey up in the light grid?

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Re: U.S. stocks in freefall

Post by Slothmeister » Thu Oct 26, 2017 5:02 pm

Nobody is buying. Nobody is selling. Market just keeps chugging up that hill.

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Re: U.S. stocks in freefall

Post by technovelist » Thu Oct 26, 2017 5:40 pm

Slothmeister wrote:
Thu Oct 26, 2017 5:02 pm
Nobody is buying. Nobody is selling. Market just keeps chugging up that hill.
If nobody is buying and nobody is selling, how can there be any trading at all? :confused
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Re: U.S. stocks in freefall

Post by Slothmeister » Fri Oct 27, 2017 9:26 am

technovelist wrote:
Thu Oct 26, 2017 5:40 pm
Slothmeister wrote:
Thu Oct 26, 2017 5:02 pm
Nobody is buying. Nobody is selling. Market just keeps chugging up that hill.
If nobody is buying and nobody is selling, how can there be any trading at all? :confused
In the big picture. Just a manner of speaking. The stock market has been pretty tame lately.

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Re: U.S. stocks in freefall

Post by prettybogle » Fri Oct 27, 2017 10:31 pm

Tons of articles and analysts keep repeating the claim that since election last year, market jumped too fast in too short time. Looking at 7 year chart of s & p, it appears market is climbing up steadily at almost the same pace as last one year except for few hickups. I do not understand why analysts/experts are fiercely claiming we are long over due for recession.

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Re: U.S. stocks in freefall

Post by ruralavalon » Sun Oct 29, 2017 1:21 pm

Since the start of this thread on August 8, 2011 Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) total return is up 143%, and $10,000 has grown to $24,346.

I just thought I'd check on how the freefall is progressing.

Things are kind of boring around here today, nothing of importance to occupy my time. I think I'll go back to reading a mystery novel.
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Re: U.S. stocks in freefall

Post by Houe » Mon Oct 30, 2017 1:23 pm

ruralavalon wrote:
Sun Oct 29, 2017 1:21 pm
I just thought I'd check on how the freefall is progressing.
Currently down 0.33% today. Not that I'm keeping track...

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Re: U.S. stocks in freefall

Post by Engineer250 » Mon Oct 30, 2017 3:58 pm

Houe wrote:
Mon Oct 30, 2017 1:23 pm
ruralavalon wrote:
Sun Oct 29, 2017 1:21 pm
I just thought I'd check on how the freefall is progressing.
Currently down 0.33% today. Not that I'm keeping track...
My 401k money goes in tomorrow so you can be confident it will be back up again before my money goes in.
Where the tides of fortune take us, no man can know.

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Re: U.S. stocks in freefall

Post by nedsaid » Mon Oct 30, 2017 4:08 pm

The S&P 500 was down 8.24 points or 0.32%. The Dow was down 85.45 or 0.36%. NASDAQ was down 2.30% or 0.03%. That hardly seems like freefall to me.
A fool and his money are good for business.

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Re: U.S. stocks in freefall

Post by triceratop » Mon Oct 30, 2017 4:12 pm

nedsaid wrote:
Mon Oct 30, 2017 4:08 pm
The S&P 500 was down 8.24 points or 0.32%. The Dow was down 85.45 or 0.36%. NASDAQ was down 2.30% or 0.03%. That hardly seems like freefall to me.
Small cap stocks were hit quite a bit. Intra-day the popular iShares S&P600 Value ETF was down 1.87%.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: U.S. stocks in freefall

Post by nedsaid » Mon Oct 30, 2017 4:16 pm

triceratop wrote:
Mon Oct 30, 2017 4:12 pm
nedsaid wrote:
Mon Oct 30, 2017 4:08 pm
The S&P 500 was down 8.24 points or 0.32%. The Dow was down 85.45 or 0.36%. NASDAQ was down 2.30% or 0.03%. That hardly seems like freefall to me.
Small cap stocks were hit quite a bit. Intra-day the popular iShares S&P600 Value ETF was down 1.87%.
This is why I like looking at the daily stylebox on Morningstar. It gives a good picture of what actually happened in different areas of the market. Well, I am still not panicked. Thanks for the info.
A fool and his money are good for business.

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Re: U.S. stocks in freefall

Post by Houe » Tue Oct 31, 2017 11:48 am

Engineer250 wrote:
Mon Oct 30, 2017 3:58 pm
Houe wrote:
Mon Oct 30, 2017 1:23 pm
ruralavalon wrote:
Sun Oct 29, 2017 1:21 pm
I just thought I'd check on how the freefall is progressing.
Currently down 0.33% today. Not that I'm keeping track...
My 401k money goes in tomorrow so you can be confident it will be back up again before my money goes in.
Yup, I hear you. :)

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