For long term investing VOO has a slightly lower expense ratio but for trading the SPY has an order of magnitude greater volume which equates to better liquidity and tighter bid ask spreads. For short term trading liquidity is more important than expense ratio but for long term investing the expense ratio is more of a concern. Usually when someone mentions "low ticking" the market, i.e. buying at the low price of the day like amper42 did, it is usually a trade. I was just curious if he considers this a trade or a long term investment and if a trade why the VOO.
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The wealth-building thread
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Tom C
Major Contributor
I think when you buy or sell a traditional mutual fund, you trade at the closing price for the day of your transaction. With ETFs, you can do intra-day trades. For long-term investing, it may not be a whole lot of difference.
OP
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That makes sense, thanks. My style has been to buy-and-forget for years, so it doesn't seem that I have anything to gain from ETFs.
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The thing ETFs give for buy and forget is lower expense ratios. Not a huge advantage, but an advantage. They also handle some tax issues slightly better for some types of funds. You can trade mutual funds once per day, but don't. You can trade ETFs every second, but nothing says you have to do so. I don't know of any disadvantage to ETFs.
Pareto Pragmatic
Senior Member
The "I don't remember" is from the run up in earnings after the covid crash, at least I think that was the main factor.
I strongly prefer to look at inflation adjusted returns over any longer period of time. Note that accounting for inflation, the S&P was flat from 1965 until the early 90s.
OP
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Maybe I'm still at too low a level, but in recent years, I've only gotten a couple of IRS 1099 forms, neither of them related to actions of fund managers. All else is unrealized gains.
The one relating to my eBay sales initially caused me some consternation, because it had never occurred to me that I should record purchase dates and prices for every random item of bric a brac originally purchased for personal use, much less calculate capital gains/losses associated with an old iPad! But I ultimately figured that the IRS neither needed nor wanted that level of detail for what amounted to a garage sale.
What does "MaxPain" mean?
OK thank you. I should have Googled it instead of bothering you. MaxPain is related to "Pin Risk" in that rather than just "dealers like to win" there is a real technical reason that prices tend to "pin" to the nearest strike at expiration because no one want to be short options when prices settle at or near the strike price. The natural trading that takes place as expiration approaches will tend to push prices right to the closest strike. MaxPain takes it a step further looking not just at the "closest" strike but toward the strike with the most open interest. It is a good theory that makes sense but as you note it is only part of the story.Max pain is the strike price where the total value of all outstanding call and put options for a given expiration date is lowest. For SPY, this represents the price level that would cause the greatest number of options to expire out-of-the-money. In a nutshell, dealers like to win.
Significance:
Max pain theory suggests SPY's price may gravitate towards the max pain level as expiration approaches. This is based on the idea that option writers (often large institutions) may try to push the price to a level where the most options expire worthless.
While not infallible, traders sometimes use max pain to:
It's important to note that Max pain levels change constantly as market conditions evolve, so it's dangerous to use as a sole indicator for trading decisions. However, with that said odds of an upcoming rally are high when price is -10 to -12 below MaxPain. On the other hand, selling into a rally once price has reached MaxPain plus 3 is rarely a good gamble that the top is in. It can easily blow right past that level.
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Curious. What does a retrospective look at your calls look like?Long VOO at 524.02
MaxPain for next week shows possible 10 point move higher. I'll take those odds.
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But, without good-great audio, there likely would have been less enjoyment/quality of life.I can tell you if I had put the money I spent on audio gear in the S&P500 instead, it would be a sizable asset compared to the resale value of my equipment.
I think that most of us need a bad habit or two to enjoy life.
For me, audio (and sometimes resto-modding the gear is one of those.
Another one are is the things that I do to modify my vehicles to my taste.
I do not expect to get financial gain (or even break) even from those to activities.
The only thing that I expect from them is enjoyment.
However, because of that enjoyment, I will keep both the audio gear and the vehicles for much longer than I would if I had not done these modifications
(both audio & vehicles) as I would be on the "buy the latest thing" treadmill:
Resulting in REALLY LOSING from a FINANCIAL perspective! AND having less enjoyment of life!
Even just the thought of that...
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Requesting a long-term log is the right kind of skepticism.
No, that's untrue.
I'm in the investment management business. There is a GIPS-compliant, third-party audited, record of how managed accounts following *every bit* of my teams' advice performed over the last 17 years. Every claim we make has to be accompanied by a summary of those records. Nothing short of that is a track record you can count on, and therefore should be treated as bluster. Nothing personal-I don't know you, that's my generic advice.
You could be a finance genius, idiot or midwit. We don't know from your posts, other than a presumption that someone who can really generate exceptional returns rarely brags about it on the internet because increased market impact would dilute the effectiveness of their strategy.
This is a measurements-oriented forum. There are standards for measuring complete investment performance and history (see Global Investment Performance Standards). After that there are useful quantitative techniques for separating skill from luck (a critical element in investment analysis), such as Information Ratio calculations.
My advice to anyone reading this thread is to apply the same rigor to examining investment claims as ASR fans do to claims about audio. You want to make sure the measurements are complete and accurate, and that you can interpret them without too much error.
Much like audio, everyone wants to shortcut these laborious steps. But your financial wellbeing is at stake.
My advice to anyone reading this thread is to apply the same rigor to examining investment claims as ASR fans do to claims about audio. You want to make sure the measurements are complete and accurate, and that you can interpret them without too much error.
Much like audio, everyone wants to shortcut these laborious steps. But your financial wellbeing is at stake.
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Out of curiosity, what do you consider really exceptional returns?
Wouldn't increased market impact from publicizing your strategy magnify the effectiveness of your strategy, and not dilute it?
Great questions. [and I've edited a bit to complete what I initially wrote]
Exceptional Returns
Let's presume you could put your money in a stock index fund and earn 8-10%. Exceptional returns would be well in excess of that, but there are two nuances: leverage and volatility.
So if you could earn 2X the index fund return, but your portfolio would be down 60% in 3 out of 10 yrs, would you do that? (kind of extreme, but for the point). Are you going to use the money anytime soon?
One way to generate exceptional returns is to invest in lower returning assets/strategies that can be leveraged. If you can borrow for less than the return you can magnify the return as much as your creditors will allow you to borrow. Of course, leverage increases total return volatility.
This is why investors use the Sharpe Ratio (https://www.investopedia.com/terms/s/sharperatio.asp) and/or information ratio (https://www.investopedia.com/terms/i/informationratio.asp) If either of these are high, you may generate exceptional returns. But one of the causes of the financial crisis was that banks could borrow huge amounts of money (20* their equity, roughly) and then invest in strategies/assets they though were low-vol but decent Sharpe. Then some of those strategies behaved unexpectedly...
Generally the Sharpe ratio indicates the attractiveness of an asset class (Sharpe is return per unit of risk), and an information ratio tells you the amount of performance the manager adds on top of the benchmark, so think of them as quality of returns of a benchmark and quality of returns of a strategy/manager. These lines get blurred when you have very specialized assets/strategies that can't be replicated passively (such as private equity, etc.). But any *manager's* Sharpe would include the asset class returns plus/minus their skill contribution.
But however you get it, a high Sharpe can be levered to increase returns. And the lower the volatility, likely the more leverage you'll be able to apply. So if I could trade one year Treasuries and earn an extra 0.4% per year, it wouldn't be terribly interesting without leverage. But with leverage at the cost of the one year+ say 0.05...You could multiply that 0.35% "positive float" to make it a lot more interesting. Until you were trading so much that the strategy's effectiveness was diminished. All strategies have this "capacity" limitation...
Market Impact
I imagine you are thinking that someone could tout a stock here and cause it to go up (sometimes known as pump-and-dump, depending on your post recommendation behavior). That isn't an investing strategy, it's a trade. At best it is having fun with fellow investors, at worst it is market manipulation. But the very fact of people crowding in and driving up prices is what creates capacity limitations in investing. Once the price is up, the potential returns go down. Definitionally.
Strategies are *systems*, however, designed to take advantage of inefficiency (in theory, a high Sharpe and/or information Ratio means investors are leaving return on the table by not driving the price of the asset or trade up) So if you have a *method* of trading, sort of like the fellow above, and it is high Sharpe, then telling people about it invites others in alongside you and arbitrages away your excess return. All good strategies have capacity limitations. Even asset classes do. At some point, the price of equities is too high...and then they adjust.
The most successful investors of the modern era are at Jim Simons' firm Renaissance. Their methods are a deep secret. 66%/year compounding consistently is extraordinary (it translates to 4.3% per month) and is considered the best track record known to man. And yet you see people claiming on the internet that they can make 5-10% per month**. Be *extremely* skeptical. There are such strategies around, but they usually arbitrage small effects (like promotional offers), and have capacity under $1000. Renaissance was doing it with billions. And they gave back ALL their client money in their main fund because they were already hitting capacity limits that would reduce returns. The inevitable destination for a killer strategy, if it exists, is all house money and top secret.
*since I'm a PM, the equivalent is dealers touting a strategy with a Sharpe over 5. Laughable.
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Tom C
Major Contributor
If you let others know when you are about to buy, anyone who buys before you bids the price up, raising your acquisition cost. And vice versa when you sell.
I measure my own investment performance against various indices. NASDAQ100, S&P500, Dow30, Russell2000, etc., over a 5 and 10 year horizon. From a long time ago I've been invested in an actively managed growth fund, and I also compare my own choices against their's too. Like the index funds I've had down years here and there. Let's just say I have a stronger stomach for that reality than my spouse does. One tool I use to soothe our stomach aches is keeping a larger amount of cash equivalents around than advisors would normally recommend for someone like me. But peace of mind is worth something, and a lot more when you're retired. It's amazing how my investment thinking has changed once that inflation-adjusted annuity called a paycheck goes away.
No thanks.
Good pointer. I'll look into this.
This is the Warren Buffett scenario. When people find out he's buying prices go up. And you can definitely see this effect on the Reddit trash cans too, I mean forums. But I never invest in meme stocks.
I've read about Renaissance. If I gave them say, 20%, of my holdings it might be exciting, but anymore than that and I'd still be nervous. Past performance is not a perfect indicator of future returns, and all that rot.
Buffett is more complicated. He's capable of changing perceptions about an investment simply by being involved. You have to be huge (in$) or have a huge reputation to make that happen.
In the past I might say that the Saudis, Mubadallah, ADIA also had that power, but they've almost become reverse indicators of quality at this point (after WeWork and a number of big frauds like Greensill and Wirecard).
When a financial institution is failing, the value of equity can flicker between book value and nothing, and a tiny change in solvency or asset value can switch that binary outcome back and forth (this is also a feature of leverage). When an investor puts in enough to be clear of that marginal solvency change, the investment itself makes the rest worth it.
But for more normal situations, the marginal buyer just drives up prices marginally for the next person.
Leverage is at the heart of every financial disaster, but I'd still answer: depends on what you are leveraging. I'm not uncomfortable with my mortgage. You could make a decent quantitative argument from history that leveraged high yield beats equities and CLO investors are quite convinced they beat equities.No thanks.
The unknowns get you. Nobody thought mortgages were a problem until home values actually decreased.
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