HN Books @HNBooksMonth

A Random Walk Down Wall Street[0] is a good book to explain the current state of Wall Street, and it outlines a pretty specific approach for investing.

[0] https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/03933...

This is super unfortunate, really sorry to hear about it

Robinhood, is like any tool, and can be used in a positive or negative way.

I've been telling my friends using Robinhood to check out https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/03933...

Commission free ETFs and blue chip stocks are great ways to start building wealth (especially for novice traders who are not interested in specific tax advantages). Everyone should really read the book before trading

> Is this a book review?

Yes, for this book:

https://www.amazon.com/Model-Thinker-What-Need-Know/dp/04650...

> What does the title have to do with the article?

Nothing. It's a click-baity allusion to this famous book:

https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/03933...

per A Random Walk Down Wall Street (https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/03933...) 99+% of people are best off not picking individual stocks and just investing in index funds.

I liked "A Random Walk Down Wall Street". That was the one that convinced me: https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/03933...

This book taught me the fundamentals of passive investing (https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/03933...) and this website is THE online community for Bogle-style, passive investors (https://www.bogleheads.org/), once you understand the basics.

⬐ sn9

Ramit Sethi's I Will Teach You to be Rich is the personal finance book that introduced me to all the basics (e.g., paying off debts, how credit scores work, why not investing in index funds across diverse asset classes is moronic, etc.).

Dead practical advice despite the somewhat sleazy writing style (see title of book).

⬐ hackerboos

I read that book this year. The entire book can be summarised as.

Don't attempt to beat the market. The market cannot be beat (many examples in the book). Invest in index funds long term which is the right mix of risk/reward for most people.

It does have a chart in the back which tracks your age and situation. For example as you approach retirement you should start to liquidate your funds and buy government bonds so you aren't hit by a bad year when you have to start drawing on your investments.

It did convince me. I opened accounts with Wealthsimple and Questrade the next day.

A great site for fellow Canadians is http://canadiancouchpotato.com/ - you can skip the book.

⬐ Rainymood

>The market cannot be beat.

I really would like to believe this, but please explain to me how then how firms like Renaissance can exist ... Not sure whether it's relevant but I'll add that I'm an economics PhD student.

⬐ jamez1

He's wrong because he's assuming the average result of the zero-sum game is the only result you can have.

It's a simple fallacy most people with a statistics background understand, but the average journalist doesn't.

Saying you can't beat the market, is like saying you can't win at boxing, because on average nobody wins (there's always a winner for every loser).. but I would put my money on Mike Tyson in his prime.

Your expected value for investing across the market, will roughly converge to the market because of diversification. ~20 funds will start to approximate the underlying universe of stocks, because the range of views of the fund will be across all of them. All of the alpha will be evened out into beta.

So after fees - you would be better just investing in an index than a basket of funds. But there is dependence, a good fund is consistently a good fund. So if you get a chance, it's much better to invest in a good fund.

But the best funds aren't accessible to the public, so the public doesn't get to understand the market for what it really is. And there's a lot of shit ones that market heavily to the public.

There is also a populist idea to the notion that indexes beat hedge funds etc, it makes the average person feel good to think the top investors are no better than they are. So why would journalists peddle the true narrative?

⬐ ceejayoz

Renaissance is part of the market, and it's the sort of thing that we individual investors can't beat. "The market can't be beat" doesn't mean no one can see better returns - it means a random yahoo like me simply can't compete with the information, processing power, and access funds like Renaissance have.

Thus, an average investor is a lot better off with an index fund instead of trying to pick individual stocks. (Funds like Renaissance's Medallion simply aren't available to people without tens of millions of dollars to throw around, too.)

⬐ kobeya

So buy into the Renaissance mutual fund. There, you beat the market.

⬐ ceejayoz

Funds like Renaissance's have minimum investments in the millions, are often invite-only, etc. We average investors simply can't play in those leagues.

⬐ alex_anglin

Past performance is not a guarantee of future returns?

⬐ kobeya

People have been saying that about rentech for the last 20 years. People have also been saying that about berkshire hathaway for the past half century. At some point, past performance IS indicative of future returns.

⬐ Inconel

I'm not sure about any Rentec mutual fund, I don't think such a thing exists, but aren't the funds they have open to institutional investors not doing particularly well?

When most people say Rentec they think Medallion, which while being spectacularly profitable over 20+ years, is now a closed fund only open to current employees last I heard.

⬐ auntienomen

Renaissance doesn't run mutual funds. They aren't taking outside money in the market-beating fund.

⬐ geofft

Renaissance has hundreds of smart people trying to beat the market. Same with the HFT shops.

You can start one of those firms; in all likelihood, not all the potential profit has been extracted yet. You can hire a bunch of smart mathematicians and/or smart technologists, and spend time working on the problem. And then you'll be in good shape to beat the market. If you're an econ Ph.D. student hanging out on Hacker News, you're already well on your way to doing this with your life, if that's what you want to focus your life on!

But "you", the person with an unrelated day job fiddling with some investing app on your phone in your spare time, starting with a relatively small amount of capital compared to Renaissance's first year, and relatively small risk tolerance compared to Renaissance's first year, and definitely not enough money to hire a bunch of scientists full-time - "you" who's asking on a thread about passive income instead of lifelong career options - you are statistically unlikely to beat the market. That's what people mean by "You can't beat the market."

⬐ chei0iaV

Two decades ago you might have asked how firms like Long-Term Capital Management can exist

https://upload.wikimedia.org/wikipedia/commons/e/ec/LTCM.png

⬐ gragas

That's a ridiculous argument. From that graph, LTCM lasted 4 years. Renaissance has lasted decades.

⬐ huac

Rentech, in particular, data mines weak signals out of gigabytes of historical data, and has a team of PhD mathematicians working to find these signals. Each strategy has some small positive expected value, so in aggregate they can be profitable.

Two reasons you can't replicate this - 'you' aren't a team of super top notch mathematicians with decades of data, and even if you had an exact copy of their trading strategies, you don't have the capital to make the transaction costs, etc, worth it.

⬐ None

None

⬐ qwrusz

The market cannot be beat by 100% of amateurs piddling away on their brokerage account during a few spare hours a week.

The market cannot be beat by 99.9% of professional investors spending all their time day and night trying and with a team of people helping them.

I'm calling your bluff on you being an econ PhD student or maybe you have been one for a month or two at most...? If you are an econ grad student you know what RenTec is doing more or less. At least in theory if not specifics, people talk and there's plenty of econ papers explaining what's underneath major quant strategies.

People need to chill bringing up RenTec when finance comes up (Buffett too). Just like they need to chill bringing up Facebook when talking about startup valuations. Outliers are outliers.

⬐ jamez1

Academia doesn't pay that much attention to the real world. Most of the papers out there are rubbish and would be considered junior level work, except with way too much detail.

There are pretty much no econ papers that would describe what happens inside the high end systematic firms. (Source: I work in the industry)

Bringing up the outliers is a perfect counterexample when wild sweeping statements are made. These are not even real outliers, they are valid samples.

>The market cannot be beat by 99.9% of professional investors spending all their time day and night trying and with a team of people helping them.

Professional investors pretty consistently beat the market. But not the ones that you see. The louder someone markets their fund, the more likely it is to be a scam. Your sample is of guys who heavily promote their fund and make money from management fees not performance.

The best managers aren't even made visible to you. Why would you attract attention to what you're doing if you have a good thing going?

⬐ None

None

⬐ Inconel

>high end systematic firms

I'm not familiar with this term, would you mind giving me a general description of what kind of investing these firms take part in?

⬐ jamez1

"Algotrading" generally refers to execution algorithms only, despite popular culture's interpretation.

When the funds portfolio is decided based on a system your fund is systematic. It's an important distinction.

⬐ qwrusz

Illuminati confirmed then right. My bad.

Professional investors are not pretty consistently beating the market...secular! Anyone can have a good year or two.

I'm not talking about dudes talking their book on CNBC. Yes there are shops that beat the market, but if you have beaten the market 5 years in a row, you can't keep it a secret even if you want to.

⬐ jamez1

How exactly do you think the performance is made public, if the fund doesn't want it to be? This isn't about illuminati, this is just logic. You can't hide what you're doing from the institutions you have to deal with, but they won't exactly disclose it to general public.

Why would you promote your fund, if you have all the FUM you need? If you are doing well, why would you tell people about it? It is funny that your position is because you haven't seen it, it doesn't exist.

⬐ qwrusz

You say you work in the industry. How long have you been doing this and what do you do?

You don't have to answer but your questions are odd for someone with experience in the industry. But let's get into it:

How is performance made public? The same way people know what "stealth" startups are doing. Sometimes a document leaks and sometimes people talk. Usually both. Let's just say a manager is super secretive. Do you know how many people in the chain know performance anyway... Current and former employees. Current and former recruiters of these employees. Current and former clients. Current and former consultants to those clients. etc... And you're saying all these people also don't have that human urge to brag about these rock stars of the investment world? OK.

Even if that were the case, everyone has a cousin at State Street or HSBC, these people take coffee breaks and love to gossip performance and secrets breakdown there.

This is like Fermi's paradox. If all these funds out there are beating the market, then where the hell are they??

All of the funds beating the market are secretive and successfully secretive? For decades?

If it was as common as you imply there should be more of them known to the public by choice or by accident. That is logic.

Don't be the guy who mortgages his house to buy Herbalife products and tells his wife this is your year.

The comment above said 99.9% are not beating the market. There are thousands of funds out there. All funds are filing Form ADV's now...We know who exists. So yes there's a few people who do beat the market. Those 3 Russian guys in Texas and that story about the MIT PhD's working out of a house outside Miami and so yes, there's a few examples out there. Dinky family offices don't count. But no, there's a not a bunch of professional investors with serious weight under management and outside clients beating the market over a secular horizon.

There's a handful, and if you are at one of them congrats to you. But to come on a forum saying there's a bunch of professional investors beating the market, they just all happen to super secretive billionaires and they don't tell anyone about it. That's misleading. That's tech back office got your info from a e-book kinda talk. And it would be at odds with your original thesis that folks that beat the market are secretive and don't talk. So it makes me think you don't work at one, you just want to believe they exist. But again if you do work at one, congrats. Are you hiring? DM me.

So where are they?

https://en.wikipedia.org/wiki/Fermi_paradox

⬐ rphlx

I agree & the "pro-index" crowd would improve the accuracy, if not the effectiveness, of its message by saying "non-passive strategies can work superbly, but not for outsiders with <$1M in capital" instead of saying "no one beats the market in the long run" / "you can't predict which parties will beat the market in the long run".

⬐ module0000

This is good advice, attempting to beat the market is something that everyone tries at least once, and repeats until they learn that it is futile. There are bigger interests than the "richest investor you know", and those interests will always win. Every single damn time. Instead, just follow them, and ride the wave.

⬐ late2part

Why did you choose Wealthsimple and Questrade instead of Vanguard like a lot of people on bogleheads recommend?

⬐ paviva

You can't buy directly from Vanguard in Canada. Questrade is essentially a very low cost broker (low as in free for ETFs).

⬐ None

None

⬐ hobonumber1

You can buy certain Vanguard Funds from Canada. For example: VAB, VSB, VCN.

⬐ Huppie

I think you misunderstood the parent. All three examples are ETFs with Canadian assets, available on the Canadian stock exchange.

OP's point is (most likely) that you can't buy them directly from Vanguard (i.e. using an account on www.vanguardcanada.ca) but will have to buy them using a broker (e.g. Questrade.)

⬐ paviva

Thanks Huppie, that's exactly what I was saying.

⬐ jamez1

> The market cannot be beat

On average, and when bench-marked against itself taking into account fees. There are funds that consistently beat the market, that you should put money into over the index if given the chance.

But your general notion that the average person shouldn't try is a good one. At the end of the day you have to earn money because you took it from someone else. To think that there is a dollar for everyone is to ignore this simple truth.

⬐ stouset

Of course some funds beat the market. The problem is, there is no reliable way to know what those funds are until after they have done so.

⬐ jamez1

It depends on your definition of reliability. Is driving a car reliable? There's no way of knowing it will crash but that doesn't stop you from getting in one.

You see it as a problem, if you are used to the idea of earning money instead of taking money I get that angle. But to investors it's not a problem but a fact of life.

⬐ None

None

⬐ kieranr

How are you finding Wealthsimple?

Can't speak to the tool itself, but the site design and overall aesthetic looks gorgeous..

⬐ qwrusz

That's a great summary and advice!

It's crazy there is this giant industry of overpaid people that exists only because people don't listen to that advice.

Disclaimer: I work in said industry.

Related to a lot of discussion comments, I highly recommend "A Random Walk Down Wallstreet" by Burton Malkiel. https://www.amazon.com/Random-Walk-Down-Wall-Street/dp/03933...

Agreed - came to this thread specifically to mention this book. This book is enormously valuable to me, and I wholeheartedly recommend it to everyone (friends, family, colleagues). In fact, the related forum (http://www.bogleheads.org/) is one of the most helpful, welcoming, professional, and well-moderated forums I have come across, and is a great "next step" after reading the book, and developing/executing a plan. I know there are several HN frequenters there as well.

I also recommend accompanying Bogleheads Guide it with A Random Walk Down Wall Street (http://www.amazon.com/Random-Walk-Down-Wall-Street/dp/039333...). It ranks with me as another "life changing" book. Enjoy.

Sounds like a good time to pull out A Random Walk Down Wall Street again, for the uninitiated: http://www.amazon.com/Random-Walk-Down-Wall-Street/dp/039333...

I wonder how well tulip bulbs are doing these days.

⬐ cremnob

The investing success of value investors of all kind would not be possible if the premise of his book, the efficient-market hypothesis, was correct. Warren Buffett's track record is a repudiation of it.

⬐ czr80

I don't think the (strong) version of the efficient-market hypothesis is defensible but Warren Buffet's track record is not proof that it is wrong - in a random market, given a large number of investors, some will do well purely by chance.

⬐ aprescott

Not necessarily refuting what you're saying, but here's an interesting take on "purely by chance" from Buffett, by analogy of coin flipping and getting a run of heads: http://www.tilsonfunds.com/superinvestors.html

⬐ czr80

That's a great article, thanks. I actually had the coin example in mind when I wrote the comment, but was too busy to write out the full argument!

⬐ btilly

Not necessarily. Warren Buffett's track record is helped by two major factors.

The first is that, being Warren Buffett, he gets opportunities that regular investors don't. For instance look at the 2008 sweetheart deal he got on Goldman Sachs. Any smart investor would have leaped at it, but the value to them of saying, "Warren Buffett believes in us" was why he was offered the deal instead of someone else.

The second is that Warren Buffett is a big fan of buying and holding companies. Which leaves him in charge. By all accounts from the CEOs who continue to work for him, he is a phenomenal manager. Therefore the fact of his investing creates long-term improved returns.

When you move away from Warren Buffett, who else has been able to demonstrate long-term returns above what mere chance says is likely for someone to achieve by luck? In one study that I saw, there was only one other, Peter Lynch. The odds that someone anywhere in the mutual fund industry would match him by chance were under 5%. So there you have evidence that it is possible to beat the market for the right person.

But what advice does Peter Lynch himself give investors these days? If you want to invest in the stock market, buy and hold an indexed mutual fund!

Nobody seriously believes that the efficient market hypothesis is literally true. However your odds of being able to identify and exploit such inefficiencies in the broader market are sufficiently low that you are best off acting as if it is.

⬐ cremnob

There are many investors who have outperformed over long periods of time, they just aren't household names (Seth Klarman is one).

What you ascribe to Buffett's success only came late in his career, those opportunities weren't possible when he was running a hedge fund and the early days of Berkshire.

⬐ btilly

Early in Buffett's career he had the advantage of believing in value investing before that idea was widely accepted in the broader market. It is easier to make a profit in an inefficient market than an efficient one.

The inefficiencies that he was exploiting are generally harder to find these days. But today he has other ways to make money.

This is not to say that he is not an extraordinary investor - he is. However he's benefited from many advantages beyond just raw investment talent. And as a practical matter, any investor who thinks that they can easily replicate his success is likely to fail.

⬐ clarky07

Anyone ascribing to efficient market hypothesis doesn't watch the market very much. Was Apple really worth several hundred billion more last year than it is now? Either it was extremely overvalued then, or it was extremely undervalued at < 400. Or both. There is nothing efficient about the market. It is volatile and driven very much by emotion on a day to day basis.

Regarding Buffett, he doesn't take over everything. He buys and sells a lot of stock where he doesn't take control, and he does very well doing that as well. Also, he's being doing it for a long long time. This isn't simply flipping 20 heads in a row when you've been doing it for 60+ years

⬐ btilly

Anyone ascribing to efficient market hypothesis doesn't watch the market very much.

Considering that the efficient market hypothesis came out of academics studying the market, and has been tested in many ways, your hypothesis is somewhat suspect.

Was Apple really worth several hundred billion more last year than it is now? Either it was extremely overvalued then, or it was extremely undervalued at < 400. Or both. There is nothing efficient about the market. It is volatile and driven very much by emotion on a day to day basis.

It appears that you do not actually understand the hypothesis that you reject out of hand. The hypothesis is not that the market knows the true value of the company, it does not. It is that the best available information on what the price of the company should be is already integrated into the current company price.

As information shifts just slightly about likely long-term prospects, the best estimate of its price can move a lot. This is not news. Nor is the fact that unavailable future information will change the price. Nor is volatility.

Now if you disbelieve the efficient market hypothesis, then fine. However any inefficiency that you discover, once it becomes known, will naturally stop working. I've seen this happen with several that I knew about. Over time the efficient market hypothesis tends to work better and better.

⬐ clarky07

>It is that the best available information on what the price of the company should be is already integrated into the current company price.

My point is that there hasn't been any news in the last year big enough to warrant a several hundred billion dollar swing. There simply hasn't been. Just changing emotions.

⬐ btilly

There hasn't?

The theory under which Apple justifies an insane valuation is the one where they continue a constant stream of innovation, defining new products, keeping everyone else guessing.

The simple fact that in the last year Apple has not delivered evidence that they can continue to do that should justifiably weaken belief in that theory. Which means that our best estimate of its future returns is far worse than this optimistic scenario. Which means that we should give less weight to that possibility, and therefore our best estimate of Apple's correct price is less than it was.

Because of this where you see evidence that the market is not pricing efficiently, I see evidence that you are not as smart as the market about finding what price signals to pay attention to.

⬐ clarky07

>The theory under which Apple justifies an insane valuation...

Let's stop there. They have a PE of 7 ex cash. At the top, they had a PE of about 15. Amazon has an insane valuation. Apple does not, and they didn't at the peak. It was merely higher than it is now.

⬐ btilly

Let's not stop there.

Apple now has declining marketshare in existing business lines, and there is some evidence that they don't know how to generate new profitable product lines. A year ago neither was true, but there were worries about what the lack of Steve Jobs would mean. So their valuation a year ago was high. Their valuation now fits with a company that the market expects to decline.

Amazon by contrast has strong marketshare, increasing numbers of lines of profitable business, and the market understands that they are not generating profit because they keep starting up new potential lines of business that lose money in the short run. They could become very profitable tomorrow if they wanted.

I am not saying that the market's theory about either company is correct. Just that these are theories that are widely held, which justify the stock prices that you claim are simply wrong.

revised edition: http://www.amazon.com/Random-Walk-Down-Wall-Street/dp/039333...