I think there are senses where the game is rigged in my favour too.
The fact remains; the fund more than likely owns securities that are performing perfectly fine. But due to changes in the index, securities no longer meeting the proper criteria, or even nearing its maturity, are simply eradicated. Usually this type of planned selling results in the worst possible trade execution and pricing on that day as a larger than normal sell volume hammers down bid prices. Many agile market participants have even learned to posture their portfolios to take advantage of this nonsensical behavior on the part of index funds. This is a primary reason, alongside the expense ratio, why most bond funds will underperform their indexes by a nominal amount each year.
I could just buy former index stocks that fall off the indexes, and take advantage of other such institutional edge cases that may not be efficient for pro's to capitalise on, no?
I could just buy former index stocks that fall off the indexes, and take advantage of other such institutional edge cases that may not be efficient for pro's to capitalise on, no?
Why shouldn't it be efficient for pro's to capitalize on the effect? There are likely hedge funds out there that trade on the effect. Those hedge funds have complex computer models to predict which stocks are going to fall in the future of the index. As a result they are going to make the trade days, hours or minutes earlier than you.
The high frequency traders are going to make most of the profit that's going to be made on the effect.
Raison d'être
My original reason for risking my money for more, and the reason I tell myself, is that the marginal value of losing just about any amount of my money at the moment is negligible. I am fairly austere in my consumption habits and have no big ticket debt. Though, having lots and lots of money would certainly improve my options in life.
History
I am a bad gambler, better and investor. I lost thousands using the Martingale betting strategy which seemed to work on short-time line simulations that I tried, but failed to work in real life. I now understand why it doesn't work fortunately. I lost thousands on poker, which I’m awful at. Now, I’ve lost thousands on speculating in stocks.
Insight
I understand why I lost money when I gambled. It’s less clear to me now as a speculator. My consistent failure has resigned me to avoid any active management of my money making by investing for the foreseeable future because maybe I'm just a gambler and rationalizing all my irrationality in finance away. I was hoping someone here could help me understand what’s going on?
Strategy
My current stock portfolio is down 6000 dollars. My prior is that I have just been the liquidity in the market. My basic strategy has been buying mainstream stocks whose price has tanked for one reason or another (in the hope of a turnaround, or capitalising on people’s fear causing them to dump the stock below its actual value. And, to buy a few biotech stocks that seem high potential. This is all on the ASX cause it’s a hassle to open accounts to trade internationally:
Performance: underpriced
* BHP Billiton crashed due to low oil and an environmental disaster in brazil
* Slater and Gordan crashed due to getting class action law-suited by its own investors (ironic, since slater and gordan specialises in just that) through its main competitor
* Woolworths crashed due to price war with competitor and weaker profits
Growth: High potential, tractable and neglected
* Bionics limited is putting through some psychiatric medications in trials and I thought it would almost be good philanthropy to sponsor it since it’s quite novel compared to existing treatments
* Integral diagnostics is mainly owned by doctors who own clinics that order the machines so I feel like it’s undervalued by people not connected to it
* Regis healthcare gives me cheap exposure to the aging population market
* Tissue Therapies sounded like it was about a wound healing thing from a superhero comic but turned out to just be some niche diabetic product
* Donfang modern agriculture grows mandarins or oranges in China, and I wanted exposure to China and thought it was interesting that they’re listed on the Australian stock exchange
Portfolio optimization
Outcomes
I’ve either made a significant loss on each of these, over the course of a month, or basically no change in the price. The exception is tissue therapies that I bought ages ago and lost lots on too. I was going for long term appreciation anyway, so maybe things are okay? Help me become stronger! The first stock I picked I did extensive quantitative research on the fundamentals. However, I couldn't integrate all the information I collated into a single indicator for what decision I should make and I still don't know what that would look like so I just had to go with my gut. I made a loss anyway despite having found evidence that the team involved were actually quite pathetic because I already did all the research and thought it sad if I didn’t participate (plus shorting seemed to complicating!). I know technical analysis is bullshit, and I don’t see how any inefficiencies in machine learning of stock data that I could replicate in a timely manner with my average brain haven’t already been taken advantage of by existing quants.