Buying random [investments] as an investment strategy

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latetodinner
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Buying random [investments] as an investment strategy

Post by latetodinner »

I was thinking about my random investments (things like buying an SCV fund or BRK) and how some portfolios look that way. When you see those ports that have ~20 lines that start with "1.3% ....". It sounds like a nightmare to try and calculate what the actual exposure is. But maybe that's not such a bad thing?

I recently came across a chat where the other side was buying VTI/VT and was considering "buying more sectors". I convinced them they don't want to tilt and they reluctantly agreed to "buy more of the same".

I think we have a natural tendency to tilt. And as long-term investors, with horizons of 50 years or more, it may make sense to tilt in some way.

Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random [investments] with a small portion of your portfolio and never sell. But only good random [investments], not TSLA.

[Moderator’s note - “investments” was substituted for language inconsistent with the forum’s family-friendly focus. In addition, the nonfamily-friendly word was replaced with more suitable terms in subsequent posts quoting or using the same term. Please be mindful of the forum’s rules when posting. Moderator ClaycordJCA]
My tax situation is pretty weird
BitTooAggressive
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Re: Buying random [investments] as an investment strategy

Post by BitTooAggressive »

latetodinner wrote: Sat Nov 19, 2022 1:07 pm I was thinking about my random investments (things like buying an SCV fund or BRK) and how some portfolios look that way. When you see those ports that have ~20 lines that start with "1.3% ....". It sounds like a nightmare to try and calculate what the actual exposure is. But maybe that's not such a bad thing?

I recently came across a chat where the other side was buying VTI/VT and was considering "buying more sectors". I convinced them they don't want to tilt and they reluctantly agreed to "buy more of the same".

I think we have a natural tendency to tilt. And as long-term investors, with horizons of 50 years or more, it may make sense to tilt in some way.

Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random [investments] with a small portion of your portfolio and never sell. But only good random [investments], not TSLA.
Tilting value or small is totally different than sector tilting.

Sector tilting is uncompensated risk.
London
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Re: Buying random crap as an investment strategy

Post by London »

Isn’t buying an index fund just buying “random [investments]”?
KlangFool
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Re: Buying random [investments] as an investment strategy

Post by KlangFool »

latetodinner wrote: Sat Nov 19, 2022 1:07 pm
Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random [investments] with a small portion of your portfolio and never sell. But only good random [investments], not TSLA.
latetodinner,

1) Please define exactly what is a small portion mean to you? 20%? 5%? 1%?

2) What is the potential return? 2,000%? 20X? 40X?

This is simple math. Let's assume 20% return of your whole portfolio as significant.

A) If you put 20% of your portfolio into this random stuff, it needs to grow 100% in order to achieve 20% return.

B) If you put 5% of your portfolio into this random stuff, it needs to grow 400% in order to achieve 20% return.

C) If you put 1% of your portfolio into this random stuff, it needs to grow 2,000% in order to achieve 20% return.

In summary, folks that makes this kind of random bet are very bad in math. They gamble 20%/5%/1% of their money that cannot return 100%/400%/2,000%. It is a sure losing bet.

If they actually put the numbers on a piece of paper, they would know that they made a lousy bet.

KlangFool
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chinchin
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Re: Buying random [investments] as an investment strategy

Post by chinchin »

latetodinner wrote: Sat Nov 19, 2022 1:07 pm But only good random crap, not TSLA.
But TSLA has vastly outperformed the S&P500, which defeats your point. It was "good random [investment]."
not financial advice
jebmke
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Re: Buying random [investments] as an investment strategy

Post by jebmke »

London wrote: Sat Nov 19, 2022 4:38 pm Isn’t buying an index fund just buying “random [investments]”?
Malkiel would probably say yes.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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Re: Buying random [investments] as an investment strategy

Post by jebmke »

chinchin wrote: Sat Nov 19, 2022 4:50 pm
latetodinner wrote: Sat Nov 19, 2022 1:07 pm But only good random crap, not TSLA.
But TSLA has vastly outperformed the S&P500, which defeats your point. It was "good random [investment]."
So far
When you discover that you are riding a dead horse, the best strategy is to dismount.
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Re: Buying random [investment] as an investment strategy

Post by KlangFool »

latetodinner wrote: Sat Nov 19, 2022 1:07 pm I was thinking about my random investments (things like buying an SCV fund or BRK) and how some portfolios look that way. When you see those ports that have ~20 lines that start with "1.3% ....". It sounds like a nightmare to try and calculate what the actual exposure is. But maybe that's not such a bad thing?

I recently came across a chat where the other side was buying VTI/VT and was considering "buying more sectors". I convinced them they don't want to tilt and they reluctantly agreed to "buy more of the same".

I think we have a natural tendency to tilt. And as long-term investors, with horizons of 50 years or more, it may make sense to tilt in some way.

Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random [investments] with a small portion of your portfolio and never sell. But only good random [investments], not TSLA.
latetodinner,

The correct answer is most people think that they are lucky and smart. Hence, a dummy "know nothing" way of investing is too simple for them. They have to find some smarter way to lose money.

KlangFool
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the_wiki
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Re: Buying random [investments] as an investment strategy

Post by the_wiki »

chinchin wrote: Sat Nov 19, 2022 4:50 pm
latetodinner wrote: Sat Nov 19, 2022 1:07 pm But only good random crap, not TSLA.
But TSLA has vastly outperformed the S&P500, which defeats your point. It was "good random [investment]."
depends when you bought it!
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Re: Buying random [investments] as an investment strategy

Post by smitcat »

KlangFool wrote: Sat Nov 19, 2022 4:45 pm
latetodinner wrote: Sat Nov 19, 2022 1:07 pm
Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random crap with a small portion of your portfolio and never sell. But only good random [investment], not TSLA.
latetodinner,

1) Please define exactly what is a small portion mean to you? 20%? 5%? 1%?

2) What is the potential return? 2,000%? 20X? 40X?

This is simple math. Let's assume 20% return of your whole portfolio as significant.

A) If you put 20% of your portfolio into this random stuff, it needs to grow 100% in order to achieve 20% return.

B) If you put 5% of your portfolio into this random stuff, it needs to grow 400% in order to achieve 20% return.

C) If you put 1% of your portfolio into this random stuff, it needs to grow 2,000% in order to achieve 20% return.

In summary, folks that makes this kind of random bet are very bad in math. They gamble 20%/5%/1% of their money that cannot return 100%/400%/2,000%. It is a sure losing bet.

If they actually put the numbers on a piece of paper, they would know that they made a lousy bet.

KlangFool

Another post of yours this week, what is the difference between the two?
"OP,
I have 10K worth of "play money". I only gamble on stock that has the potential of returning 20X to 40X. Anything less is not high reward to me.
KlangFool"
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Lawrence of Suburbia
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Re: Buying random [investments] as an investment strategy

Post by Lawrence of Suburbia »

Around the time I became aware of Tesla, and was dithering about buying, it then began its precipitous drop.

Lesson? Procrastination is your friend! :mrgreen:
I know that you believe you understand what you think I said; but I am not sure you realise that what you heard is not what I meant.
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Re: Buying random crap as an investment strategy

Post by Nicolas »

latetodinner wrote: Sat Nov 19, 2022 1:07 pm Buy random crap with a small portion of your portfolio and never sell. But only good random crap, not TSLA.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it.

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Re: Buying random [investments] as an investment strategy

Post by nisiprius »

the_wiki wrote: Sat Nov 19, 2022 4:57 pm
chinchin wrote: Sat Nov 19, 2022 4:50 pm
latetodinner wrote: Sat Nov 19, 2022 1:07 pm But only good random [investments], not TSLA.
But TSLA has vastly outperformed the S&P500, which defeats your point. It was "good random [investment]."
depends when you bought it!
I held the Vanguard Total Stock Market Index Fund in 2010, so I bought TSLA in 2010.
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the_wiki
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Re: Buying random [investments] as an investment strategy

Post by the_wiki »

nisiprius wrote: Sat Nov 19, 2022 5:51 pm
the_wiki wrote: Sat Nov 19, 2022 4:57 pm
chinchin wrote: Sat Nov 19, 2022 4:50 pm
latetodinner wrote: Sat Nov 19, 2022 1:07 pm But only good random [investments], not TSLA.
But TSLA has vastly outperformed the S&P500, which defeats your point. It was "good random [investment]."
depends when you bought it!
I held the Vanguard Total Stock Market Index Fund in 2010, so I bought TSLA in 2010.
Which means by the time it made up enough of your portfolio to be more than a rounding error, it had already had its huge run up. Total stock did not beat S&P 500, even though TSLA definitely did.

It is difficult to benefit from single small stocks going big in total stock funds. (The reverse is also true, which helps with downside protection from a failing company as well).
GAAP
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Re: Buying random [investments] as an investment strategy

Post by GAAP »

FWIW, I remember seeing a paper that said 401(k) investors that spread their money evenly across all available funds did better than those that chose base upon the highest prior year returns. This effectively was semi-decent, if inefficient diversification. From that perspective, truly buying in a random fashion may be effective diversification once you buy enough different things -- but I wouldn't count on it.

My guess is that many of the portfolios that you see with those tiny allocations actually bought whatever looked good/hot/certain at the time.
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latetodinner
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Re: Buying random [investments] as an investment strategy

Post by latetodinner »

KlangFool wrote: Sat Nov 19, 2022 4:45 pm latetodinner,

1) Please define exactly what is a small portion mean to you? 20%? 5%? 1%?

2) What is the potential return? 2,000%? 20X? 40X?

This is simple math. Let's assume 20% return of your whole portfolio as significant.

A) If you put 20% of your portfolio into this random stuff, it needs to grow 100% in order to achieve 20% return.

B) If you put 5% of your portfolio into this random stuff, it needs to grow 400% in order to achieve 20% return.

C) If you put 1% of your portfolio into this random stuff, it needs to grow 2,000% in order to achieve 20% return.

In summary, folks that makes this kind of random bet are very bad in math. They gamble 20%/5%/1% of their money that cannot return 100%/400%/2,000%. It is a sure losing bet.

If they actually put the numbers on a piece of paper, they would know that they made a lousy bet.

KlangFool
It sounds like you mean 20% in a year? So the tilt section needs to double in value in one year? That's not what I mean. Nor did I mean buying TSLA or sector tilting. Sorry I mentioned that as an example, I don't think it's a good one. I meant tilting like AVGE does. Or geographic tilting like one's local:international:us stocks mix. Buying a fund of local stocks is pretty common and can have tax advantages.

To get 20% extra portfolio value over the long (50y) horizon, you need an extra 0.04% cagr, or 2% extra returns from the tilt section. It sounds like a lot, but I do see estimates that suggest it might happen.
Is it reasonable to think factor tilting can get that return?

I guess it does mean you expect the tilt section to double, compared to how well the rest of the portfolio did, in 50 years. That does sound bold. Maybe it's not reasonable. (To almost triple in value! So it becomes 60% from that 20%. That sounds crazy?)

And, of course, is the trouble and risk worth having 20% more at the horizon?

My practical issue is that I don't want to hold AVGE on my entire portfolio to tilt. So I might tilt by emulating some of it - i.e buy avdv and friends, but not avus (its main holding).

This makes my tilt different than AVGE's. So it's more random because I'm not a fund manager and not going to rebalance everything very well (or perhaps at all - I'm suggesting letting the random small %s "ride" is better than trying to manage them, and the result will still be comparable to AVGE)
Last edited by latetodinner on Sat Nov 19, 2022 7:01 pm, edited 2 times in total.
My tax situation is pretty weird
smooth_rough
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Re: Buying random [investments] as an investment strategy

Post by smooth_rough »

Tilting to utilities with vanguard utilities index fund wouldn't be crazy talk in 2022.
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latetodinner
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Re: Buying random crap as an investment strategy

Post by latetodinner »

GAAP wrote: Sat Nov 19, 2022 6:22 pm FWIW, I remember seeing a paper that said 401(k) investors that spread their money evenly across all available funds did better than those that chose base upon the highest prior year returns. This effectively was semi-decent, if inefficient diversification. From that perspective, truly buying in a random fashion may be effective diversification once you buy enough different things -- but I wouldn't count on it.

My guess is that many of the portfolios that you see with those tiny allocations actually bought whatever looked good/hot/certain at the time.
I'm fairly sure I'm immune from buying the latest trend that's been going up recently. But I can see I'm not immune from looking at factors and things like that - that "promise" better returns in the very long term (nothing that promises better than market returns in the short term make any sense) and look fairly like the market, unlike picking specific stocks or specific actively-managed funds (are factor tilting funds active? They can't be entirely passive) surely requires buying >20 for diversification and I don't have that kind of money.
When you buy a specific stock, it may well go to zero. In tilting your "risk" is very long periods of underperformance. One assumes you'll get at least similar to market returns over the long term.

I'm proposing "inefficient diversification" between tilts (small cap, SCV, international)
My tax situation is pretty weird
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Re: Buying random [investments] as an investment strategy

Post by Kookaburra »

What is the next Tesla?
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Re: Buying random crap as an investment strategy

Post by momvesting »

From the thread title, I thought this was going to be about having a basement full of Beanie Babies, Pokemon cards, and whatever else you want to speculate will be valuable in the future!! :oops:
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Re: Buying random [investments] as an investment strategy

Post by JoeRetire »

latetodinner wrote: Sat Nov 19, 2022 1:07 pm I think we have a natural tendency to tilt.
We do? What leads you to that conclusion? Or do you just mean that you and your chat friends do?
And as long-term investors, with horizons of 50 years or more, it may make sense to tilt in some way.
How does that follow?
Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random crap with a small portion of your portfolio and never sell. But only good random [investments], not TSLA.
The law of financial entropy indicates that making random [investment] decisions results in [poor] results.
Last edited by JoeRetire on Sat Nov 19, 2022 7:38 pm, edited 1 time in total.
Oh, noooooo! I'm so sorry, it's the moops! The correct answer is 'the moops'.
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latetodinner
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Re: Buying random [investments] as an investment strategy

Post by latetodinner »

JoeRetire wrote: Sat Nov 19, 2022 7:27 pm
latetodinner wrote: Sat Nov 19, 2022 1:07 pm I think we have a natural tendency to tilt.
We do? What leads you to that conclusion?
People often think they can outsmart the market by being contrarian - doing something other than the norm. And the norm is VT.
People tend to have pet investments that they made and won't sell. I suggest they're mostly tilts - like buying an EM fund. I'm not referring to buying individual stocks.
JoeRetire wrote: Sat Nov 19, 2022 7:27 pm Or do you just mean that you and your char friends do?
Yeah, it's just the two of us. Sorry to bother you.
I don't understand what you mean by "char".
JoeRetire wrote: Sat Nov 19, 2022 7:27 pm
And as long-term investors, with horizons of 50 years or more, it may make sense to tilt in some way.
How does that follow?
I'm referring to a theory where factor tilting leads to better returns over very long time horizons. Many large investment institutions don't look that far or they compare themselves to the index so they can't tilt. Thus tilting is contrarian.
JoeRetire wrote: Sat Nov 19, 2022 7:27 pm
Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random [investments] with a small portion of your portfolio and never sell. But only good random [investments], not TSLA.
The law of financial entropy indicates that making random [investment]decisions results in [poor]results.
Thanks
My tax situation is pretty weird
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Re: Buying random [investments] as an investment strategy

Post by EdNorton »

KlangFool wrote: Sat Nov 19, 2022 4:45 pm
latetodinner wrote: Sat Nov 19, 2022 1:07 pm
Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random [investments] with a small portion of your portfolio and never sell. But only good random [investments], not TSLA.
latetodinner,

1) Please define exactly what is a small portion mean to you? 20%? 5%? 1%?

2) What is the potential return? 2,000%? 20X? 40X?

This is simple math. Let's assume 20% return of your whole portfolio as significant.

A) If you put 20% of your portfolio into this random stuff, it needs to grow 100% in order to achieve 20% return.

B) If you put 5% of your portfolio into this random stuff, it needs to grow 400% in order to achieve 20% return.

C) If you put 1% of your portfolio into this random stuff, it needs to grow 2,000% in order to achieve 20% return.

In summary, folks that makes this kind of random bet are very bad in math. They gamble 20%/5%/1% of their money that cannot return 100%/400%/2,000%. It is a sure losing bet.

If they actually put the numbers on a piece of paper, they would know that they made a lousy bet.

KlangFool
What, 20% of your portfolio needs to grow 100% to achieve a 20% return? Are you assuming the other 80% returns 0%? I'm not following your logic.
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JoeRetire
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Re: Buying random [investments] as an investment strategy

Post by JoeRetire »

latetodinner wrote: Sat Nov 19, 2022 7:36 pm People often think they can outsmart the market by being contrarian - doing something other than the norm.
Right. Some people think they can outsmart the market in lots of ways. Maybe they can. Mostly they can't.
I don't understand what you mean by "char".
It was a typo. I meant "chat".
I'm referring to a theory where factor tilting leads to better returns over very long time horizons. Many large investment institutions don't look that far or they compare themselves to the index so they can't tilt. Thus tilting is contrarian.
Interesting theory. Does the theory have anything to do with "random"?

Lots of things are contrarian. That doesn't mean they make any sense.
Last edited by JoeRetire on Sat Nov 19, 2022 7:46 pm, edited 2 times in total.
Oh, noooooo! I'm so sorry, it's the moops! The correct answer is 'the moops'.
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Re: Buying random [investments] as an investment strategy

Post by Northern Flicker »

latetodinner wrote: Sat Nov 19, 2022 1:07 pm I was thinking about my random investments (things like buying an SCV fund or BRK) and how some portfolios look that way. When you see those ports that have ~20 lines that start with "1.3% ....". It sounds like a nightmare to try and calculate what the actual exposure is. But maybe that's not such a bad thing?

I recently came across a chat where the other side was buying VTI/VT and was considering "buying more sectors". I convinced them they don't want to tilt and they reluctantly agreed to "buy more of the same".

I think we have a natural tendency to tilt. And as long-term investors, with horizons of 50 years or more, it may make sense to tilt in some way.

Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random crap with a small portion of your portfolio and never sell. But only good random crap, not TSLA.
Why do you want to invent your own investment strategy? What problem are you trying to solve? What features of your investment requirements are being met by this?
Last edited by Northern Flicker on Sun Nov 20, 2022 1:34 pm, edited 1 time in total.
My postings represent my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Re: Buying random [investments] as an investment strategy

Post by KlangFool »

latetodinner wrote: Sat Nov 19, 2022 6:49 pm
KlangFool wrote: Sat Nov 19, 2022 4:45 pm latetodinner,

1) Please define exactly what is a small portion mean to you? 20%? 5%? 1%?

2) What is the potential return? 2,000%? 20X? 40X?

This is simple math. Let's assume 20% return of your whole portfolio as significant.

A) If you put 20% of your portfolio into this random stuff, it needs to grow 100% in order to achieve 20% return.

B) If you put 5% of your portfolio into this random stuff, it needs to grow 400% in order to achieve 20% return.

C) If you put 1% of your portfolio into this random stuff, it needs to grow 2,000% in order to achieve 20% return.

In summary, folks that makes this kind of random bet are very bad in math. They gamble 20%/5%/1% of their money that cannot return 100%/400%/2,000%. It is a sure losing bet.

If they actually put the numbers on a piece of paper, they would know that they made a lousy bet.

KlangFool
It sounds like you mean 20% in a year? So the tilt section needs to double in value in one year? That's not what I mean. Nor did I mean buying TSLA or sector tilting. Sorry I mentioned that as an example, I don't think it's a good one. I meant tilting like AVGE does. Or geographic tilting like one's local:international:us stocks mix. Buying a fund of local stocks is pretty common and can have tax advantages.

To get 20% extra portfolio value over the long (50y) horizon, you need an extra 0.04% cagr, or 2% extra returns from the tilt section. It sounds like a lot, but I do see estimates that suggest it might happen.
Is it reasonable to think factor tilting can get that return?

I guess it does mean you expect the tilt section to double, compared to how well the rest of the portfolio did, in 50 years. That does sound bold. Maybe it's not reasonable. (To almost triple in value! So it becomes 60% from that 20%. That sounds crazy?)

And, of course, is the trouble and risk worth having 20% more at the horizon?

My practical issue is that I don't want to hold AVGE on my entire portfolio to tilt. So I might tilt by emulating some of it - i.e buy avdv and friends, but not avus (its main holding).

This makes my tilt different than AVGE's. So it's more random because I'm not a fund manager and not going to rebalance everything very well (or perhaps at all - I'm suggesting letting the random small %s "ride" is better than trying to manage them, and the result will still be comparable to AVGE)
OP,

I am asking you three straightforward questions:

A) What is the portion of the portfolio that you plan to gamble on? 1% 5%? 20%?

B) What is your expected return over what time period if you are right?

C) Why do you think that it is worthwhile?

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Re: Buying random [investments] as an investment strategy

Post by KlangFool »

EdNorton wrote: Sat Nov 19, 2022 7:42 pm
KlangFool wrote: Sat Nov 19, 2022 4:45 pm
latetodinner wrote: Sat Nov 19, 2022 1:07 pm
Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random crap with a small portion of your portfolio and never sell. But only good random crap, not TSLA.
latetodinner,

1) Please define exactly what is a small portion mean to you? 20%? 5%? 1%?

2) What is the potential return? 2,000%? 20X? 40X?

This is simple math. Let's assume 20% return of your whole portfolio as significant.

A) If you put 20% of your portfolio into this random stuff, it needs to grow 100% in order to achieve 20% return.

B) If you put 5% of your portfolio into this random stuff, it needs to grow 400% in order to achieve 20% return.

C) If you put 1% of your portfolio into this random stuff, it needs to grow 2,000% in order to achieve 20% return.

In summary, folks that makes this kind of random bet are very bad in math. They gamble 20%/5%/1% of their money that cannot return 100%/400%/2,000%. It is a sure losing bet.

If they actually put the numbers on a piece of paper, they would know that they made a lousy bet.

KlangFool
What, 20% of your portfolio needs to grow 100% to achieve a 20% return? Are you assuming the other 80% returns 0%? I'm not following your logic.
:sharebeer
If this 20% cannot beat the other 80% significantly, why would you want invest this 20% differently from the 80%? Why work hard to achieve nothing?

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Re: Buying random [investments] as an investment strategy

Post by latetodinner »

I insulted the forum with my choice of wording in the original post, and I think I insulted the forum by suggesting a "random" investment strategy. I don't think that's what I meant.

Maybe the latter is just a misunderstanding of the English vocabulary on my part? I'm not very familiar with all the English words. Perhaps "arbitrary" makes better sense than "random"? I don't know the difference between them

I apologize.
My tax situation is pretty weird
smitcat
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Re: Buying random [investments] as an investment strategy

Post by smitcat »

KlangFool wrote: Sat Nov 19, 2022 8:39 pm
EdNorton wrote: Sat Nov 19, 2022 7:42 pm
KlangFool wrote: Sat Nov 19, 2022 4:45 pm
latetodinner wrote: Sat Nov 19, 2022 1:07 pm
Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random crap with a small portion of your portfolio and never sell. But only good random crap, not TSLA.
latetodinner,

1) Please define exactly what is a small portion mean to you? 20%? 5%? 1%?

2) What is the potential return? 2,000%? 20X? 40X?

This is simple math. Let's assume 20% return of your whole portfolio as significant.

A) If you put 20% of your portfolio into this random stuff, it needs to grow 100% in order to achieve 20% return.

B) If you put 5% of your portfolio into this random stuff, it needs to grow 400% in order to achieve 20% return.

C) If you put 1% of your portfolio into this random stuff, it needs to grow 2,000% in order to achieve 20% return.

In summary, folks that makes this kind of random bet are very bad in math. They gamble 20%/5%/1% of their money that cannot return 100%/400%/2,000%. It is a sure losing bet.

If they actually put the numbers on a piece of paper, they would know that they made a lousy bet.

KlangFool
What, 20% of your portfolio needs to grow 100% to achieve a 20% return? Are you assuming the other 80% returns 0%? I'm not following your logic.
:sharebeer
If this 20% cannot beat the other 80% significantly, why would you want invest this 20% differently from the 80%? Why work hard to achieve nothing?

KlangFool

KlangFool - you posted this in another thread just this week, what is the difference?

"OP,
I have 10K worth of "play money". I only gamble on stock that has the potential of returning 20X to 40X. Anything less is not high reward to me.
KlangFool"
balbrec2
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Re: Buying random [investments] as an investment strategy

Post by balbrec2 »

latetodinner wrote: Sat Nov 19, 2022 1:07 pm I was thinking about my random investments (things like buying an SCV fund or BRK) and how some portfolios look that way. When you see those ports that have ~20 lines that start with "1.3% ....". It sounds like a nightmare to try and calculate what the actual exposure is. But maybe that's not such a bad thing?

I recently came across a chat where the other side was buying VTI/VT and was considering "buying more sectors". I convinced them they don't want to tilt and they reluctantly agreed to "buy more of the same".

I think we have a natural tendency to tilt. And as long-term investors, with horizons of 50 years or more, it may make sense to tilt in some way.

Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random [investments] with a small portion of your portfolio and never sell. But only good random [investments], not TSLA.

[Moderator’s note - “investments” was substituted for language inconsistent with the forum’s family-friendly focus. In addition, the nonfamily-friendly word was replaced with more suitable terms in subsequent posts quoting or using the same term. Please be mindful of the forum’s rules when posting. Moderator ClaycordJCA]
Randomness may work out or it may not, but I don't think
we can call it a strategy, which by definition is a plan.
VanGar+Goyle
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Re: Buying random [investments] as an investment strategy

Post by VanGar+Goyle »

latetodinner wrote: Sat Nov 19, 2022 1:07 pm I think we have a natural tendency to tilt. And as long-term investors, with horizons of 50 years or more, it may make sense to tilt in some way.

Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random [investments] with a small portion of your portfolio and never sell. But only good random [investments], not TSLA.
I think that there is some value in this random strategy.
If you buy littles each month, then eventually your assets would approach an average market, like Direct Indexing.
Buying random stuff could be better than buying whatever did best last year, as they return to mean.
Could save lots of time and worthless analysis. You get to brag if you are lucky.
Throwing darts at the stock listings is rarely the worst thing to do.
That said, especially in this forum, there are better average ways to invest. :sharebeer
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latetodinner
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Re: Buying random [investments] as an investment strategy

Post by latetodinner »

VanGar+Goyle wrote: Sun Nov 20, 2022 9:18 am
latetodinner wrote: Sat Nov 19, 2022 1:07 pm I think we have a natural tendency to tilt. And as long-term investors, with horizons of 50 years or more, it may make sense to tilt in some way.

Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random [investments] with a small portion of your portfolio and never sell. But only good random [investments], not TSLA.
I think that there is some value in this random strategy.
If you buy littles each month, then eventually your assets would approach an average market, like Direct Indexing.
Buying random stuff could be better than buying whatever did best last year, as they return to mean.
Could save lots of time and worthless analysis. You get to brag if you are lucky.
Throwing darts at the stock listings is rarely the worst thing to do.
That said, especially in this forum, there are better average ways to invest. :sharebeer
I apologized for my poor use of vocabulary, and I think my lack of knowledge in what English words mean has failed me with the term "random", too. Everyone seems to interpret that as picking by pure chance. I meant Shreruti - I guess that would translate as arbitrary?
If someone chooses to tilt 10% to SCV as a result of intense back testing work, their decision is not likely to be much better than one who decides 15% because it sounds like a nice round number. That's not a "random" decision - our feeling-based decisions (and ones we make on feelings but rationalize to ourselves) are not random. But they are also not very well planned
My tax situation is pretty weird
Northern Flicker
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Re: Buying random [investments] as an investment strategy

Post by Northern Flicker »

latetodinner wrote: Sun Nov 20, 2022 12:29 am I insulted the forum with my choice of wording in the original post, and I think I insulted the forum by suggesting a "random" investment strategy. I don't think that's what I meant.

Maybe the latter is just a misunderstanding of the English vocabulary on my part? I'm not very familiar with all the English words. Perhaps "arbitrary" makes better sense than "random"? I don't know the difference between them

I apologize.
No insults taken. Responders are offering advice questioning the investment value of what you propose for your benefit. Whether you agree and/or what you choose to do with that advice is up to you.
My postings represent my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
PoorHomieQuan
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Re: Buying random [investments] as an investment strategy

Post by PoorHomieQuan »

BitTooAggressive wrote: Sat Nov 19, 2022 1:10 pm
latetodinner wrote: Sat Nov 19, 2022 1:07 pm I was thinking about my random investments (things like buying an SCV fund or BRK) and how some portfolios look that way. When you see those ports that have ~20 lines that start with "1.3% ....". It sounds like a nightmare to try and calculate what the actual exposure is. But maybe that's not such a bad thing?

I recently came across a chat where the other side was buying VTI/VT and was considering "buying more sectors". I convinced them they don't want to tilt and they reluctantly agreed to "buy more of the same".

I think we have a natural tendency to tilt. And as long-term investors, with horizons of 50 years or more, it may make sense to tilt in some way.

Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random [investments] with a small portion of your portfolio and never sell. But only good random [investments], not TSLA.
Tilting value or small is totally different than sector tilting.

Sector tilting is uncompensated risk.
Tilting value and small does sector tilting though. AVUV is overweight energy.
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latetodinner
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Re: Buying random [investments] as an investment strategy

Post by latetodinner »

Northern Flicker wrote: Sun Nov 20, 2022 1:39 pm
latetodinner wrote: Sun Nov 20, 2022 12:29 am I insulted the forum with my choice of wording in the original post, and I think I insulted the forum by suggesting a "random" investment strategy. I don't think that's what I meant.

Maybe the latter is just a misunderstanding of the English vocabulary on my part? I'm not very familiar with all the English words. Perhaps "arbitrary" makes better sense than "random"? I don't know the difference between them

I apologize.
No insults taken. Responders are offering advice questioning the investment value of what you propose for your benefit. Whether you agree and/or what you choose to do with that advice is up to you.
By insult, I was referring mostly to the edit of the original post and title. I've used non-family-friendly words. I'll be more aware of that in the future.

Advice is welcome and is my main reason for posting in these kinds of forums. I have received good advice here on multiple topics. I think the responses in this thread are for a different proposal than the one I meant to convey. Partly due to poor translation on my part. Not that I can express myself correctly in my mother tongue either :)
My tax situation is pretty weird
Nohbdy
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Re: Buying random [investments] as an investment strategy

Post by Nohbdy »

VanGar+Goyle wrote: Sun Nov 20, 2022 9:18 am
latetodinner wrote: Sat Nov 19, 2022 1:07 pm I think we have a natural tendency to tilt. And as long-term investors, with horizons of 50 years or more, it may make sense to tilt in some way.

Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random [investments] with a small portion of your portfolio and never sell. But only good random [investments], not TSLA.
I think that there is some value in this random strategy.
If you buy littles each month, then eventually your assets would approach an average market, like Direct Indexing.
Buying random stuff could be better than buying whatever did best last year, as they return to mean.
Could save lots of time and worthless analysis. You get to brag if you are lucky.
Throwing darts at the stock listings is rarely the worst thing to do.
That said, especially in this forum, there are better average ways to invest. :sharebeer
I agree that a truly random bet could yield some interesting results, but at some point you should just wind up with an equal weighted index. Why not just start and end with an index?

The problem with the dartboard is that it is not random unless you do something like fill a circular room with (picks) targets along a similar plane and spin the dart throwing participant a random amount. Otherwise the dartboard layout would probably exhibit not random results. The middle of the board, or some target heights might be more likely for example.

My point is that random is not as easy to achieve as it might appear.
Nohbdy
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Re: Buying random [investments] as an investment strategy

Post by Nohbdy »

latetodinner wrote: Sun Nov 20, 2022 11:48 am
VanGar+Goyle wrote: Sun Nov 20, 2022 9:18 am
latetodinner wrote: Sat Nov 19, 2022 1:07 pm I think we have a natural tendency to tilt. And as long-term investors, with horizons of 50 years or more, it may make sense to tilt in some way.

Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random [investments] with a small portion of your portfolio and never sell. But only good random [investments], not TSLA.
I think that there is some value in this random strategy.
If you buy littles each month, then eventually your assets would approach an average market, like Direct Indexing.
Buying random stuff could be better than buying whatever did best last year, as they return to mean.
Could save lots of time and worthless analysis. You get to brag if you are lucky.
Throwing darts at the stock listings is rarely the worst thing to do.
That said, especially in this forum, there are better average ways to invest. :sharebeer
I apologized for my poor use of vocabulary, and I think my lack of knowledge in what English words mean has failed me with the term "random", too. Everyone seems to interpret that as picking by pure chance. I meant Shreruti - I guess that would translate as arbitrary?
If someone chooses to tilt 10% to SCV as a result of intense back testing work, their decision is not likely to be much better than one who decides 15% because it sounds like a nice round number. That's not a "random" decision - our feeling-based decisions (and ones we make on feelings but rationalize to ourselves) are not random. But they are also not very well planned
So now I apologize for responding without reading your whole thread & clarification. I hope we are all okay.

Some disagree, but I think that it is far far more important to be consistent, especially with asset allocation than to be consistent within the asset classes (by which I basically mean stocks & bonds, in this context).

In other words, tilting itself is less harmful than sliding your tilts around ad-hoc style. And changing your stock/bond ratio is probably worse in the long run than picking random stocks or tilts as you go along. You should want to be aware of concentrating your portfolio too much, or paying higher expenses though.

It all begs the question of why bother when the whole market is available at fairly consistent market weight?

Personally, I’m not throwing any more darts nor enduring the ‘random’ spin that would be required. The thought makes me a little sick.
secondopinion
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Re: Buying random [investments] as an investment strategy

Post by secondopinion »

latetodinner wrote: Sat Nov 19, 2022 1:07 pm I was thinking about my random investments (things like buying an SCV fund or BRK) and how some portfolios look that way. When you see those ports that have ~20 lines that start with "1.3% ....". It sounds like a nightmare to try and calculate what the actual exposure is. But maybe that's not such a bad thing?

I recently came across a chat where the other side was buying VTI/VT and was considering "buying more sectors". I convinced them they don't want to tilt and they reluctantly agreed to "buy more of the same".

I think we have a natural tendency to tilt. And as long-term investors, with horizons of 50 years or more, it may make sense to tilt in some way.

Whatever tilt decision you make is wrong, so what's wrong with making a random one?
Buy random [investments] with a small portion of your portfolio and never sell. But only good random [investments], not TSLA.
Tilts are supposed to expose one to certain risks over other risks. If one has no idea which risks are tolerable and those that are not, then tilting is the wrong idea; it is not wrong to tilt when the risks are well understood and can be favorably taken. Of course, how does random selection fall into any reasonable framework of curating one's portfolio to potentially profit from risk taken? It does not.

Take the risks that one can afford, give those risks away that one cannot afford, and hope for the best with the results.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Beensabu
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Re: Buying random [investments] as an investment strategy

Post by Beensabu »

latetodinner wrote: Sat Nov 19, 2022 1:07 pm Whatever tilt decision you make is wrong
It's only wrong if you insist on comparing your portfolio to an inappropriate benchmark. If you do that, then your tilt decision will look wrong some of the time (or even a lot of the time).
so what's wrong with making a random one?
You don't tilt just to tilt. You do it for a reason. If you have a reason, then it is not random/arbitrary.

Sometimes, the reason can be the result of in depth research and analysis conducted by yourself or others (like it is for most factor heads) or as simplistically naive as "so cheap!" (like it was for me). And sometimes the reason can evolve over time (which could also be you rationalizing your decision to yourself in order to stick with it).

But a tilt should probably not be random/arbitrary. That would make it very hard to stick with long-term, which is what needs to be done for it to have a chance of working out okay.

And you didn't insult anyone, by the way (or probably maybe just one person - the one who felt like reporting it). I thought you must have used a far less family friendly word than you actually did, to get redacted. But you did not. You are fine.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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Re: Buying random [investments] as an investment strategy

Post by Northern Flicker »

A general principle is that risks that can be diversified away are uncompensated. Tilts should be implemented for the purpose of being exposed to undiversifiable risk factors. Tilts to some arbitrary subset of the market are likely to expose the investor to diversifiable, uncompensated risk.
My postings represent my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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latetodinner
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Re: Buying random [investments] as an investment strategy

Post by latetodinner »

Thank you everyone for your thoughtful responses. I apologize (again! :)) if my tone was too emotional.

I think I believe there was offence because I suggest all human decision making is random, or abitrary.

I will try to look into what tilts are to risks that are uncompensated (can be diversified away) and which are undiversifiable. My family's huge exposure to physical real estate, for example (far beyond what is reasonable to live in), is keeping me up at night, so to speak.

I still believe all human behavior is random or arbitrary, but I think that's not an investment-related point :)
My tax situation is pretty weird
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David Jay
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Re: Buying random [investments] as an investment strategy

Post by David Jay »

latetodinner wrote: Tue Nov 22, 2022 9:47 pmI still believe all human behavior is random or arbitrary, but I think that's not an investment-related point :)
Actually it's worse than that. Behavioral Finance has identified several human instincts that make our decision making worse than random.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: Buying random [investments] as an investment strategy

Post by latetodinner »

David Jay wrote: Tue Nov 22, 2022 10:05 pm
latetodinner wrote: Tue Nov 22, 2022 9:47 pmI still believe all human behavior is random or arbitrary, but I think that's not an investment-related point :)
Actually it's worse than that. Behavioral Finance has identified several human instincts that make our decision making worse than random.
I've seen such research.

You're correct.

That is a good point - "informed" decisions are often informed by emotions and intuition and aren't random, and even fare worse than random.

If I have a rational theory for my tilting, like the factor model, how do I know it's well informed? If I rely on my own research and cognitive ability, is it not the same "informed" decisions that are on average worse than random?

A real example I gave earlier: I wish to reduce risk in the real estate, by selling or taking a mortgage. How do I make informed decisions rather than "informed"? Perhaps I should hire a professional for consulting? (I don't wish to pay a retainer or annual fee, but I can consult with a professional at such important turning points in my life)
My tax situation is pretty weird
Northern Flicker
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Re: Buying random [investments] as an investment strategy

Post by Northern Flicker »

latetodinner wrote: If I have a rational theory for my tilting, like the factor model, how do I know it's well informed? If I rely on my own research and cognitive ability, is it not the same "informed" decisions that are on average worse than random?
In principle, you could develop your own equity factors that have desirable properties. As a practical matter, I have to assume that it is unlikely that you would be able to develop and validate such a model to the extent that it would be robust enough to be desirable to invest using it.

Equity factors are not random tilts. The Capital Asset Pricing Model holds that a stock's return is some constant beta times the market return plus an idiosyncratic return, alpha. Factors try to explain what is going on in alpha in a systematic way, reducing how much of the return is explained as idiosyncratic, and explaining more of the return through systematic factors. These are not random factors.

Even with all of the research behind equity factors, certainly they are imperfect. You don't have to tilt. Holding the market portfolio is a perfectly fine choice. It is likely that there are many more BH's who hold the market portfolio than who tilt.

I don't understand what problem you are trying to solve by proposing arbitrary or random tilts. It may assuage some need to feel like you came up with your own DIY strategy, but it is highly likely to lead to an inferior portfolio with some uncompensated, idiosyncratic risk being taken.
Last edited by Northern Flicker on Wed Nov 23, 2022 1:58 pm, edited 1 time in total.
My postings represent my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Re: Buying random [investments] as an investment strategy

Post by BitTooAggressive »

PoorHomieQuan wrote: Sun Nov 20, 2022 1:55 pm
BitTooAggressive wrote: Sat Nov 19, 2022 1:10 pm
latetodinner wrote: Sat Nov 19, 2022 1:07 pm I was thinking about my random investments (things like buying an SCV fund or BRK) and how some portfolios look that way. When you see those ports that have ~20 lines that start with "1.3% ....". It sounds like a nightmare to try and calculate what the actual exposure is. But maybe that's not such a bad thing?

I recently came across a chat where the other side was buying VTI/VT and was considering "buying more sectors". I convinced them they don't want to tilt and they reluctantly agreed to "buy more of the same".

I think we have a natural tendency to tilt. And as long-term investors, with horizons of 50 years or more, it may make sense to tilt in some way.

Whatever tilt decision you make is wrong, so what's wrong with making a random one? Buy random [investments] with a small portion of your portfolio and never sell. But only good random [investments], not TSLA.
Tilting value or small is totally different than sector tilting.

Sector tilting is uncompensated risk.
Tilting value and small does sector tilting though. AVUV is overweight energy.
Agreed that is often a result of a value tilt as some sectors are not evenly weighted regarding value/growth.
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TomatoTomahto
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Re: Buying random [investments] as an investment strategy

Post by TomatoTomahto »

latetodinner wrote: Sun Nov 20, 2022 2:09 pm Not that I can express myself correctly in my mother tongue either :)
You're doing fine, better than some native English speakers. 😁

I had a family friend of whom it was said, "he speaks 4 languages, none of them fluently."
I get the FI part but not the RE part of FIRE.
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Re: Buying random [investments] as an investment strategy

Post by VanGar+Goyle »

Nohbdy wrote: Sun Nov 20, 2022 2:36 pm The problem with the dartboard is that it is not random unless you do something like fill a circular room with (picks) targets along a similar plane and spin the dart throwing participant a random amount. Otherwise the dartboard layout would probably exhibit not random results. The middle of the board, or some target heights might be more likely for example.

My point is that random is not as easy to achieve as it might appear.
That is why I always carry A Million Random Digits with 100,000 Normal Deviates 0th Edition by RAND Corporation in my back pocket :sharebeer
and a few two sided coins in my front pocket
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latetodinner
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Re: Buying random [investments] as an investment strategy

Post by latetodinner »

I am not a random person. I have aspects that make me deviate from human behavior and that makes my investment decisions different.


I have a good friend with good professional summer acumen and I believe he it ethical. I can invest 50k in the new company he's helping to find as I'm an accredited investor. Should I use the Kelly criteria to attempt to price this investment?

I have little understanding of human emotion, and an analytical IQ of nearly 160. Should I try to ignore any ideas it has about the market?



I truly worry that I might accidentally find a way to take money from fools. Mom said that's immoral.

I cannot manage physical real estate - people have to live there and I cannot harm people by raising rent. Do I sell immediately? Do I sell to my wife's family to reduce my taxes? How will I manage my wife's apartments when her mother dies?

I am seeking psychiatrist advice on Tuesday. I will bump again when I'm chemically stable.


A big thank you to all understanding people
My tax situation is pretty weird
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Re: Buying random [investments] as an investment strategy

Post by Beensabu »

latetodinner wrote: Wed Nov 23, 2022 11:27 pm I have little understanding of human emotion, and an analytical IQ of nearly 160. Should I try to ignore any ideas it has about the market?
The market moves in the short term based on behavior that is tied to human emotion. And in the long-term, we have cycles that include corrections from extremes brought on by that behavior.

An example of someone who is quite analytical, makes complete rational sense, with very plausible explanations for why they think the market will do a certain thing, and has been very terribly just awfully mindboggling wrong for over a decade now would be Hussman. There's a recent thread here. You can go read his commentaries over the years on his site as well. Totally makes sense. Every single thing he says. Lost sooooo much money. A lot of money. Good thing almost all of it wasn't his.
I truly worry that I might accidentally find a way to take money from fools. Mom said that's immoral.
You can't make money from money and have it be moral. Sorry. Maybe that's a sensitive subject. But it's just that way, and anybody who thinks otherwise is kidding themselves. We do it because we want more money, because life is so much easier when you have it. And the more you have, the easier it is.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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latetodinner
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Re: Buying random [investments] as an investment strategy

Post by latetodinner »

Beensabu wrote: Wed Nov 23, 2022 11:49 pm
I truly worry that I might accidentally find a way to take money from fools. Mom said that's immoral.
You can't make money from money and have it be moral. Sorry. Maybe that's a sensitive subject. But it's just that way, and anybody who thinks otherwise is kidding themselves. We do it because we want more money, because life is so much easier when you have it. And the more you have, the easier it is.
It's moral for me to do what everyone does. Buying bonds and equity by index is okay because everyone does it.

Buying junk bonds individually, giving people loans directly, owning ownership stakes in companies, being a landlord, are all moral hazards (danger of making predatory loans, or failed performance because of compassion to people in trouble).

I've spoken to friends and family about this notion (do you need to be an asshole to be a.successful landlord) and they all describe big losses from non-paying tenants and not adjusting rents for years. They realized these losses are uncompensated - a good manager would squeeze some blood from the tenant stone and not just convince them to leave. And would update rents to index inflation every year. They choose underperformance but still hold those assets

A moral person can do these things ethically. It can require directly hurting someone's living. In the past I was told by my government to kill people. I must reject being violent, even if it is legal. Except to protect myself and my assets. So it is less moral hazard for me to hold liquid assets and not deal with people in financial stress.

It is moral for me to take investment risk and be compensated for it. And I think even private enterprise - to take undiversifiable risk if I have specific advantage. I'm not sure yet
(Using Kelly criteria calculation, I expect about 1% of the portfolio allocated to a good investment opportunity if one arises)
And the more you have, the easier it is.
The entire family actually has a lot of assets. If I could manage them as liquid assets, I would be conservative and normal and have no reason to worry.
At it stands, it's all in undiversifiable risk. I cannot convince them to liquidate. So I will manage only my assets


My wife says ridding myself of the disease will be hard work. I'm trying to use the Kelly criteria then to try and price this investment :)

I'm currently estimating the upside to be roughly 500k$. This might go up depending on finding more upsides and other plans. Or down if I need to lose employment for that. I still have no input on rate of success and little input on the cost (mostly the time factor, which also affects the upside estimate). So my calculations will have to wait for now
My tax situation is pretty weird
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