Is the stock market +EV?

[RiverRider]

Is the stock market +EV? I mean, if we take every single action and add them together, would that amount be greater each year? And if it is, how can that be? Isnt that supposed to be that when someone makes money another one loses money?

[r3vbr]

Of course not. The market grows average 7% year since 1900.

It's not zero sum.

[KaneKungFu123]

[ QUOTE ]
Of course not. The market grows average 7% year since 1900.

It's not zero sum.

[/ QUOTE ]

is it going to continue at this pace? seems kinda unrealistic? wont that number get smaller?

[r3vbr]

[ QUOTE ]
[ QUOTE ]
Of course not. The market grows average 7% year since 1900.

It's not zero sum.

[/ QUOTE ]



is it going to continue at this pace? seems kinda unrealistic? wont that number get smaller?

[/ QUOTE ]


there's no telling. but as technology advances are exponential, so is the wealth generated. the tendency may well be to grow even faster due to the exponential nature of information-flow with the internet + technology advances.

Here are my thoughts on this.

While it is true that the stock market is not a zero sum game, the question of whether it is or not really shouldn't be a concern. The reason why it is more of a non zero sum game (although arguably it isn't really an issue of non zero vs zero) is that the market creates wealth from nothing as a result of price appreciation.

Now, derivative markets such as futures are more a pure "zero sum game."

This, however, does not mean that trading stocks is easier than trading futures(although many would argue so due to other reasons such as easier risk control on a small bankroll and less perceived efficiency).

Your main objective should be developing a profitable strategy and not buy into a buy and hold forever strategy as a guaranteed winner in the long run.

[buffett]

[ QUOTE ]
Your main objective should be developing a profitable strategy and not buy into a buy and hold forever strategy

[/ QUOTE ]

Yeah, those 'buy and hold' strategies are for suckers. Suckers like Walter Schloss, Wally Weitz, Chris (et al.) Davis, Jim Gipson, Bob Rodriguez, Seth Klarman, Marty Whitman, Arnold Van Den Berg, Charlie Munger, Rick Guerin, Bill Ruane, Tweedy Browne, Rich Pzena, David Polen, Bill Miller, Bill Nygren, Jim Barrow, John Neff, Mason Hawkins, the Kahn brothers, Will Danoff, Dodge & Cox, Charles Brandes, Michael Price, Glenn Greenberg, Bruce Berkowitz, Mark Boyar, Lou Simpson, Phil Carret, John Constable, Tom Russo, Jean-Marie Eveillard and Charles de Vaulx, Dave Dreman, David Knott, Phil Fisher, Max Heine, Eddie Lampert, Louis Lowenstein, Larry Tisch, Ralph Wanger, ......

...those guys are barely even multi-millionaires.

[Sniper]

[ QUOTE ]
Suckers like Walter Schloss, Wally Weitz, Chris (et al.) Davis, Jim Gipson, Bob Rodriguez, Seth Klarman, Marty Whitman, Arnold Van Den Berg, Charlie Munger, Rick Guerin, Bill Ruane, Tweedy Browne, Rich Pzena, David Polen, Bill Miller, Bill Nygren, Jim Barrow, John Neff, Mason Hawkins, the Kahn brothers, Will Danoff, Dodge & Cox, Charles Brandes, Michael Price, Glenn Greenberg, Bruce Berkowitz, Mark Boyar, Lou Simpson, Phil Carret, John Constable, Tom Russo, Jean-Marie Eveillard and Charles de Vaulx, Dave Dreman, David Knott, Phil Fisher, Max Heine, Eddie Lampert, Louis Lowenstein, Larry Tisch, Ralph Wanger, ......

[/ QUOTE ]

Where'd you come up with this list?

Buy and hold forever, is a fine strategy... its just not the most optimal strategy today for a knowledgable individual investor.

[buffett]

[ QUOTE ]
Where'd you come up with this list?

[/ QUOTE ]
My brain. These are my financial heroes.

[ QUOTE ]
Buy and hold forever, is a fine strategy... its just not the most optimal strategy today for a knowledgable individual investor.

[/ QUOTE ]
Let's compare our after-tax CAGR's ten years from now. If you win, I'll buy you a beer.
-web

Please continue to buy and hold forever. Thank you.

[adios]

[ QUOTE ]
Buy and hold forever, is a fine strategy... its just not the most optimal strategy today for a knowledgable individual investor.

[/ QUOTE ]

I want to comment on this. First we have to define optimal strategy. For me that strategy is maximizing return for the amount of risk taken. In any trading strategy one needs to quantify risk vs. expected returns. To make a long story short, Portfolio Theory deals with choosing portfolios where the least amount of risk is taken to acheive a desired rate of return. Any more risk that is taken to acheive those same rates of return is unnecessary risk and therefore the portfolio chosen is "ineffecient." So in your particular trading strategy you need to identify the risk taken vs. the expected rate of return. Let's assume for arguments sake that your strategy is one that minimizes the risk taken for the amount of expected return. Also let's assume for arguments sake that your strategy yields returns that are greater than the overall markets return. I can replicate your returns in theory and acheive the minimum amount of risk that is needed to acheive those returns by simply using leverage in purchasing SPY. Think about that for a moment. For all the trading one does over an extended period of time, who can achieve the same returns and guarantee that they're taking the minimum risk by buying SPY and using leverage if one desire's a greater than market return(I'm using SPY because it's a proxy for the valuation of the stock market as a whole). I have my doubts whether or not very many trading strategies achieve their returns by taking the minimum amount of risk necessary to acheive those returns. Now the above more or less is based on an "effecient" market and we've debated the effeciency of the markets many times before on this forum. Taking advantage of ineffeciencies in my mind is another matter altogether. My believe is that the stock market is quite effecient but not instantaneously so. Ineffeciencies do present themselves but they are corrected in most cases remarkably (to me anyway) fast IMO. So I guess my point is that if you're trading strategy is based on finding ineffeciencies and you're good at determining them, then ok I can understand why an active trading strategy might be better. But if your strategy isn't based on finding ineffeciencies, I doubt that your strategy is better than a buy and hold strategy with all due respect.