MindBogler wrote: ↑Tue Jan 12, 2021 9:14 pm
dboeger1 wrote: ↑Tue Jan 12, 2021 9:04 pm
I mean, that's a fairly arbitrary definition of winning or losing in the context of a Bogleheads discussion about long-term investment strategies. Obviously, you can compare apples and oranges, or in this case, someone selling a share to pay for their retirement expenses to someone who's just starting out buying. But this isn't really a topic about time horizons or withdrawal strategies. The topic is really about active stock picking vs. passive index investing. If someone sells a share and it continues to go up, they may not necessarily have a loss on their brokerage statement, but they effectively lost that potential extra return relative to a buy-and-hold strategy. In that case, that extra return went to the new buyer.
By that definition, given enough time, every seller ends up a loser. That doesn't make sense either. Buyers and sellers can have different motives, time horizons and objectives. Any transaction that results in two winners cannot be a zero sum game, by definition.
Therefore, I flatly reject the characterization of the stock market as a zero sum game.
I flatly reject your flat rejection, good sir!
It absolutely does make sense, although I still think your example is largely irrelevant to the topic being discussed in this thread. Yes, I 100% agree that a longer time horizon generally wins. That's pretty much the basis of compounding investment returns that we rely on. If you don't sell, you get more returns.
Now, I get why you reject that, but I think you're making a totally separate point. Yes, I guess you can consider someone who reaches retirement and is now spending from their portfolio a winner when they sell. But that's not what this topic is about. This topic isn't about whether or not you should sell to fund your retirement needs (I'm guessing close to 100% of Bogleheads would agree you should).
This topic is about whether or not stock picking was on average an advantageous investing strategy in 2020. It absolutely wasn't because it mathematically could not be, and that is true of every year (again, ignoring the extreme edge case of widespread free trades that I presented in an earlier reply, but let's ignore that for the time being).
By definition, stock pickers cannot on average outperform the market. Market participants are the market. The average return is the average of their returns. It's as simple as that. If one person buys a stock from another, they're trading future returns, positive or negative, amongst themselves.
You're right that the market isn't zero-sum in the sense that everybody's wealth can grow over time. However, it is zero-sum in the sense that trading activity cannot generate additional returns beyond the market average, because even if rampant trading activity did spur dramatic price increases, such as in a buying frenzy, then guess what? That also raises the market index. In other words, you can capture 100% of the market's average return by owning the market. Or, you can attempt active trading strategies. But the fact remains that by definition, on average, active traders will get the same average return as the market. Some will outperform, others will underperform. But it absolutely cannot be that on average, they outperform the market. That just doesn't make sense.
So in the most surface-level way, yes, I guess you could say stock pickers had a good 2020. It was a good year for the markets, despite extreme volatility. However, you absolutely cannot say that stock pickers had a better 2020 on average than the total market index. It just can't happen. Stock pickers will, on average, get the average market return. Some will do better. Some will do worse. Index investing is just the cheapest, simplest, most diversified way to guarantee that you get those average market returns too. On average, stock pickers and index investors will actually get the same returns before costs, because they ultimately ARE the market.
Another way to think of this is to imagine a car race. Let's keep it simple and just consider 2 cars, although the exact same is true for thousands of cars. You and a buddy go to a track and start making bets on who's going to win. You put your money on the blue car, and he puts his on the red car. The red car wins. After the race, you ask your buddy, "How was it that you picked the red car?" To which he replies, "It was a good year for car pickers." You see how that doesn't make sense? It literally can't be a good year for car pickers, because only the winning car picker can win, and the losers will lose. Your friend would be crazy to say something like, "Boy, car picking was such a good strategy this year, I think I'm going to bet my future retirement funds on individual car picks every year!"
I'm glad OP owned some winning stocks in 2020, I really am. But he's going to have a hard time convincing people on this board that stock picking is on average a superior strategy for all market participants, because it literally cannot be. It can only be great for the ones who happen to win.