I'm a young professional and new to investing. Please forgive me this basic question. I've been trying to learn to invest from reading books and google searches. Google takes to me to sites like bogleheads, seekingalpha, etc. Many of the sites I end up at are obviously trying to sell me something.

In the last few weeks I've already dumped a large amount of money into index funds and a few select stocks. My instincts tell me that that the boglehead dogma (that keeping costs low and settling for market gains is the best bet) is mostly correct. But then I see stuff like this: http://seekingalpha.com/article/2346075-if-you-are-an-alpha-seeker-looking-for-the-next-big-energy-play-load-epsilon-energy-now and I see 2p2 has an active trading thread... The linked article claims that his pick "should" be doubling or tripling in the next year and a half. His past picks look like they've done pretty well. Is he just lucky, or does he have insight which the market clearly hasn't reacted to despite it being published. Reaping those returns with it being a +EV play would obviously be tempting, but my gut says it's too good to be true. I'm a gambler at heart, but I want to retire some day. Are there legitimately good stock pickers publicizing free money, or is just newsletter selling, click-bait, commission earning, etc.?

I think your edge in most of these recommended plays is pretty small if it exists.

That said, if you're intelligent and have a number of unusual traits, you can do far better than buy and hold. Multiples better. If you're the other 99(.9?)%, index is your best bet, all considered.

If you want to go your own way, this forum is pretty great. An example of a good pick by a forum local was PRSC two years ago. Have a read of the OP for how a solid thesis plays out exactly as planned. An example of horrible picks are Sklanky's various biotech plays.

I wouldn't be investing in indexes now, by the way. You missed the run. Wait for the next bargain. I think your 5 year EV is slightly negative right now, with lots of variance of course.

As for your article, I don't know the field, but I'd point out that the stock you linked is a pink sheet. With that comes frequent scams, non-scams but misinformation and hype designed to make the owners rich and fleece retail buyers, "offerings" that dilute the stock heavily to enrich the owners, pump and dump type schemes, and often opaque, poorly audited financials. Be wary.

Thanks for the response. I'm definitely wary of that stock and those types of article. The guy's profile makes vague salesman style claims like "I have managed money from time to time and the average return of my portfolio is higher than 70% per year. "

I've seen some articles that agree with your assessment of the market. Many say we are due for a correction and/or anemic returns in the near future. But there are just as many (more?) people saying/implying that the markets are reasonable and will still give reasonable returns even in the next 5 years. As a novice it seems like people just make stuff up.

They do, all the time, but understanding the correct reasoning isn't that difficult.

The markets will likely continue to go up or churn while it offers the best rate of return, panic doesn't set in and corporate profits keep rising handily. I agree that is more likely than not.

However, it's all probabilistic. What's more likely:

a) You're getting a bargain when the market is 2.5 times higher than five years ago
b) You're paying too much when the market is 2.5 times higher than five years ago.

a) You're getting a bargain when the market is well above the last major all time highs
b) You're paying too much when the market is well above the last major all time highs

The Bs have it. I think everyone would agree that the market is not a bargain and within 5 years, interest rates will be going in the wrong direction. That implies:

- strained upside EV (you're very unlikely to get 150% in five years. cf. 2009)
- higher than normal downside risk (if anything happens, there is lots of profit and leverage to come out)

You stay out of those spots, IMO, unless your horizon is 30+ years. I don't think it's even a close call.

You can buy and let it run with a stop/loss or profit taker stop loss, which I think is a decent bet, but blindly chucking it in now and trusting the index at these kind of highs seems a little off. Buying and holding now, you're well on the wrong side of 8%/year (the long term average), without any question.

Let me put it another way. What do you think the odds are that this goes to 150 before 250?



How different is the answer from the same +- % question made in 2009,10,11,12,13?

There is no way one could argue that today is as good a time as 2009,10,11,12, or 13 to buy. However, couldn't one have used similar reasons (although with progressively less basis) to argue against buying in 2013,2012, and 2011. Also I'm looking at the market for the last 20 years and I worry it's fallacious to project similar patterns onto the next 5. Of course you do say it's probabilistic.. There are plenty of individual stocks that follow big runs with more big runs or big losses with more big losses. Is that not a reasonably probable curve for the total market? 250 feels just as likely as 150 to me. Again thanks for engaging me on this.

The boglehead/indexing route is of course the way to go and you already seem to realize this. The issue many people have is that indexing is not as interesting/exciting/sexy as throwing down some cash on a hot stock pick.

IF you are someone who needs a little action, put the bulk of your savings into index funds and leave x% in your brokerage account or whatever to play the market. If you can make some outsized returns great, just dont risk your retirement doing so.

Most of the people on seeking alpha and other sites are just talking their books or in some cases are pump and dumpers.

This. Indexing is the way to go 99.999% of the time.

The market is definitely beatable, but you have to have the right temperament and experience. It will take years of reading, watching, and investing before you really understand how to get an edge.

Legitimately good stock pickers do exist, but they're a small minority. When you're starting out it's often difficult to tell who's good and who's just a shill. The guy you linked to is not dumb. He knows the energy patch, and he knows what makes a good story. But the way he makes his money is by identifying a company, buying a bunch of it, and then publicizing it. Look at what happened to EPSEF after he published that article -- up 16% in a day! Now it may eventually continue up, but anybody who buys after he's published the article is way behind the game compared to the author.

You've got the right idea. Look at these guys' track records and see how their picks have performed after the initial pop.

There's way more information and data out there than anyone can possibly process. You can eliminate a lot of the noise, though. There's no guarantee that someone with a good track record will continue to perform. But you can be sure it's safe to ignore anyone with a bad track record.

I think there's about a 75% chance SPY hits 250 before 150. The average return on the overall market in the last hundred years is 9.4%. So if the market follows its average, we should expect it to hit 250 in a little more than 2 years. For it to hit 150, it would need a 30% decline. On average that happens about once in 10 years.

The intermediate trend is up, and sentiment is still pretty worried. We're not at the exuberant bullishness that characterizes market tops. The market is a bit pricey vs history (CAPE at 26), but this is still consistent with positive long-term returns.

Economically, the US is on a sustained recovery with no significant problems on the horizon. Europe will be stagnant for a decade or more but a collapse or euro-zone breakup looks very unlikely. China might crash at some point but people have been predicting that for years and they keep on going. The only thing I'm worried about would be a Russian invasion of Ukraine, which would probably turn out to be a short-term buying opportunity.

The answer would be basically the same for 2010-2013. Then we had cheaper valuation but more worries about Europe and bank solvency. In 2009 volatility was much higher and the trend was down. At that point we were experiencing something essentially unknown in anyone's investing lifetime, so it would have been foolish to make strong predictions. 50% would be the least-wrong answer.

Its like winning sportsbetting or winning at the nosebleeds over a career.
If you're one of the lucky ones who can do it, you'll know because you'll do it successfully and your results will speak for themselves.

I think 'index or pick' is a bit too binary. It's probably better off to really examine your own personal intellectual abilities, figure out if you have any outlying cognitive talents, then try and determine if it's actionable. The reason 'index' is such a popular refrain is because it's safe and for 98.324561% of people, the correct answer.

Markets are driven by operators where the mean IQ of a typical low level functionary is 120, all the way up to freaks like Jim Simons. You're not going to 'out game' them and you're not going to see anything that someone else hasn't already seen and hedged. It all boils down to whether or not you have that weird, far outlying insight that allows you to think a level above it all, profitably. The vast majority of people don't but if you can, you'll know by your results.

If you bought the Nikkei index in 1990 you would have paid $39000 for it. Today it is worth $15000. It took 25 years for the market to unwind. Just because something has a high market cap does not mean it is a good investment. The top DOW stock usually underperforms the market by 3% a year.

For every stock there is a buyer and a seller. The seller thinks they are getting the best of it. The buyer thinks they are getting the best of it. What is the investor to do, try to make logical picks. Ask 100 people on the street what their favorite stocks are and cross them off your list.

Do you honestly think you're good enough to beat the market long term? Think long and hard about that. If not there's now way you can argue with indexes that charge 5-10 bps /yr. asset allocation is what will determine your long term performance.

Stocks being overvalued relative to historical norms doesn't seem to me to mean that their expected performance over the next 5 years is 0, which is what cash returns. If it was then why would people take the all the risks of owning equities when they can guarantee a return of 0 just by holding cash? To say otherwise is basically saying that you know more than the market just by armchair analysis of historical norms, which any joe could do and which professionals with billions to invest can do and yet still invest in equities anyway.

There are reasons why stocks are above historical norms, and I think alot of it has to do with the fact that alternative investments are also very expensive, i.e. bonds, real estate. Even gold is expensive by historical norms and it lost 30%. Stocks being expensive just means that returns over time should be less than historical norms, which are around 10% right? So the downsides to cash seem less than historical norms, but there is still a downside, and there still should be an upside to equities.

If stock picking gives you a certain percentage of alpha over expected market returns, I don't know if that is going to be greater if expected market returns are higher or not. I would think not.

Basically this investment environment sucks for anyone who has cash and wants to invest, and it will be for probably a long time to go.

I'm sure there's some formalized academic theory I'm unaware of that explains it much better, but one thing I learned (the hard way) after 2008- and being illiquid when once-in-a-lifetime deals were everywhere- was that the value of cash on hand can be much greater than its face, relative to the maturation prospects of the available opportunities in radically disrupted investing climes.

2010/2011, I had friends who were buying bulk houses from banks in places like Phoenix and Palm Coast, Florida and Las Vegas for fractions of replacement cost, even though rental demand was surging and rents were rising. That was a once in a lifetime opportunity available to people with cash. Same thing after the S&L's blew up.

There is immense value in having lots of dry powder, ready to fire when the time is right.

This concept is far too close to common sense for academics to have theorised about it.

Stocks are very very close to cash. If there are tax concerns, banks will even make loans with stocks as collateral.

Even IF you have an edge (which you most likely don't) the TINY amount of extra money you'd make compared to the extra money you'd make if you applied that same time at your job/career/side business/whatever other money making opportunity would DWARF what you'd make extra compared to indexing.

And the downside is, if you do end up being -EV, getting a 3% return vs. lets pretend the market does 8%, could be hugely detrimental to your retirement.

Basically you're risking a **** ton to win very little, and the little bit is so small that even it's not that worthwhile to go after in the first place.

Index my friend, index.

p.s. I actively trade a little bit of my portfolio though so in that sense I'm a hypocrite. But keep in mind that it's my "fun money" and if I lost it all tomorrow, it wouldn't affect my retirement/emergency fund/anything else.

This isn't correct. Most people fit into this mold of being unable to outperform an index, but that doesn't mean all do. This shouldn't be generalized for every person. Additionally, the amount of time spent improving your efficiency/productivity in your own career is likely far less worthwhile than spending a lifetime of x amount of free time studying and researching financial markets when it comes time to retirement from a monetary perspective.

No you're wrong.

Reread the original post and you'll see why my advice stands correct.

Multi millionaires and even billionaires say an extreme minority can beat the market in the LT. Warren Buffett and Bogle are both in the group that believe in that. Also, when you talk about beating the market, you have to beat transaction fees and taxes on ST gains.

Common sense should also play a factor. I find it extremely difficult to believe that there are people out there with 50k or 100k in an account, reading forums and doing this as a "hobby" that are beating geniuses, ivy league grads, insiders, and millionaires in NY with super computers, much more experience, and algorithms 30 years in the making. Ive met many millionaires, all say you ride coattails. They all say you are just a small piece and the key to wealth is to continue to feed the machine and feed the machine and feed the machine and just let it do its work for you.

your long term yearly edge (unleveraged) on average can't be better then this.... (do to EMH)



note: you might get some crazy short term luck identifying opportunities in exotic instruments f.e. Puerto Rico muni bonds or what not but that's not in any way scalable.....

lol you believe in EMH? One of the dumbest academic theories ever. Only econ professors still believe in it. Anyone with more than a passing familiarity with the market knows there are tons of exploitable inefficiencies.

To use your example of Puerto Rican muni bonds, there is $53 billion outstanding. That scales pretty far. Any individual investor could buy as much as they wanted without moving the price.

a) I'm glad someone is rich

b) ppl know what has been said through implication given the whole context of my post. given that you've resorted in noob behavior, you're not in that club...

outstanding has nothing to do about how much you can buy when there is a big edge, and how much you can sell at what price when the market moves for you/ or against you