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DanielLC comments on Rationality Quotes June 2014 - Less Wrong
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You wouldn't expect to be able to do job X better than a professional if you don't have any training, would you?
Also, economists say the same about the job market. If you don't have any particular advantage for any given job, you can't easily beat the market and make more money by picking a high-paying job. If a job made more money without some kind of cost attached, people would keep going into it until it stops working.
I guess there is more to the market. It's something that scales well, so doing it on a small scale is especially bad. It takes exactly as much work to by $100 in stocks as $10,000. If you're dealing with tiny companies where someone trying to make trades on that scale would mess around with the price of the stock, that won't apply, but in general trying to make money on small investments would be like playing poker against someone who normally plays high stakes. They're the ones good enough to make huge amounts of money. The market won't support many of them, so they must be good.
I have a weird feeling that a bunch of people on LW have decided that there's nothing to be done in financial markets (except invest in index funds), fully committed to this belief, and actively resist any attempts to think about it... :-/
Isn't this optimal? The case for index funds by ordinary investors is extremely strong, and if there exists good evidence to the contrary it will be of the form that is almost certainly beyond the ability of most LW people to properly evaluate.
Is it? Which specific index funds are you talking about and how do you define optimality here?
So, it's completely fine for most LW people to evaluate the chances of a Singularity, details of AI design, or the MWI of quantum mechanics, but real-life financial markets, noooo, they are way too complicated? X-D
Low cost, broad based index funds.
Good reply, but there are different types of complexity and looking at financial market data isn't a type of complexity LW tends to deal with.
That's still very VERY non-specific.
Let's take our friends Alice and Bob. They come to you and ask you where should they invest their pennies. You tell them "low cost broad based index funds". They blink at you and say "Could you please give us the names of the funds?"
And I still have no idea what do you mean by "optimal".
That is true as a matter of empirical observation. But the real question is about capability: can LW types deal with the financial-markets type of complexity? Why or why not?
Most Americans invest in mutual funds via their firm's pension plan and have limited choices. I have index funds with Vanguard and Fidelity on the S&P 500.
Even for those who could, it wouldn't be worth the time cost for those of us who don't work in finance since you would likely conclude after lengthy study that yes, one should just buy index funds.
So, in which sense having a long-only portfolio of large-cap US equities is optimal?
How do you know? Isn't that rather blatantly begging the question..?
I have a PhD in economics from the University of Chicago.
The S&P 500 is effectively international since big U.S. companies do lots of business in foreign countries. For diversification reasons you might also want to own bonds and invest some in smaller cap stocks.
I tend to think that the current markets are efficient enough that putting my money in index funds is about the best I can do from a time/opportunity cost perspective.
The professionals I know working for hedge funds do routinely find small inefficiencies, but in order to make them profitable enough to be worth the time investment, they generally have to exploit quantities of leverage I don't have access to as an individual.
If you enjoy pouring over the market looking for details to exploit, then it can be a use of leisure time I guess. I pour over enough data at work that spending free time pouring over more in order to achieve fairly small gain just doesn't seem worth it.