Hey guys,
I am a long-term oriented investor and I have always been focusing my investments on value. I purchase stock in companies with a strong brand and wide moat that are selling below their intrinsic value by a significant amount and I hold them in portfolio for as long as they remain undervalued great companies (or to be fair, sometimes also reasonably overvalued). I honestly find this investing strategy to be very simple to manage and rather reliable, and yet the majority of investors just seem to not like it.
I'd therefore like to hear the opinion of those who would define themselves as traders or short-term oriented investors and why they believe they are able to achieve high annualized returns over significantly long time frames (i.e over at least 10 years) by taking advantage of short-term price movements when the evidence available on the topic points, with rather solid arguments, to their randomness.
Below I have copied/pasted an old comment of mine which describes well enough my viewpoint.
There are only two ways in which an investor can make money in stock markets: speculating on price movements of securities or purchasing stocks which trade at a significant discount to their intrinsic value (i.e. value investing).
As the plentiful data available suggest, speculating on price movements is a loser's game over the long term for the average Joe. The only proven way of succeeding is by collecting enormous amount of data and analyzing it to find statistical patterns and non-random events in a wide range of markets. And for that, not only do you need the hardware capabilities to store and elaborate such enormous amount of data, you'd also need a team of mathematicians, physicists, signal processing experts and statisticians in order to create complex mathematical models. See James Simons for more.
And phenomenal quant traders aside, if we look at those who are considered the most successful traders of all time, they have all made money by betting big on events that had an extremely high likelihood of materializing (e.g. the 1992 Sterling crisis, the subprime mortgage crisis), not by betting on stocks going up/down because “the candles says so”.
In my opinion, retail investors who claim to be successful at it are the equivalent of those who, at a coin-flipping contest, flip a coin and successfully call their flips 50 times in a row. It's luck, no one should think it is skills.
Leave a Reply